And he states firmly, twice, that “No losses will be born by taxpayers”.
Instead, the money will come from the fees that banks pay into America’s deposit insurance fund.
The fees are calculated on up to $250k per account. So, by definition, the fees won’t cover greater recovery than that.
Now it’s possible that there is no loss here at all – it’s illiquid, not insolvent. But even then what Biden’s said above is wrong.
Not necessarily – he may have found a way to increase the fees that the good banks have to pay into the FDIC. As long as the good banks have enough “excess capital” the Federal Government can confiscate some of it to bail out depositors.
That’s sort-of what I was thinking. Fermi sums would suggest eg 1000 banks each paying insurance for $250K, means there’s a float available for one bail-out up to $250,000,000 per account.
The statement I read from the Fed was that the bailout would be financed by increased fees on member banks. No taxpayer money would be involved.
Of course, this completely sidesteps the lowered profitablity of said member banks. This lowering the returns for depositors and shareholders.
Don’t worry, your pension fund will only take a minor haircut.
P.S. SVB was supposedly following the COVID era rule allowing no cash reserves.
This is going to be much like “tax incidence” isn’t it? Can anyone guess at the distribution of the costs over shareholders, depositors, and employees?
They have done one thing right. The shareholders lose everything. They’re bust, that’s over.
If they’re sensible it’ll be bondholders picking up any losses. Making depositors whole will – likely, we still don;t know how badly they bank fucked up as yet – be easy enough, over time, if bonds can be trashed as well as the equity.
I think it’s too soon to believe that only shareholders and the banks will incur cost. Americans have heard this “malarkey” before. There may not be a direct bailout as in 2009, but there will likely be some kind of “government“ funding—or at least a burden on the entire banking system that punishes taxpayers at the margins. It won’t just be the people involved paying for this.
Maybe they’ll try that financial transaction tax again. Remember, this is the same administration that blames greedy oil companies for high gas prices. After they shut down oil production.
I also think someone with a bunch of clout is going to bullshit Biden and Yellen into thinking it’s the end of the world if taxpayers don’t cough up some cash or change monetary policy over this. Mark Cuban has already been in panic mode, begging the Fed to do something. Gee, I wonder if he has any stake in some Silicon Valley companies.
The big question is will this stop at depositors. Making depositors whole *should* quell panic, but it’s called panic not logic.
The $250k FDIC coverage is fine for individuals (FWIW, a married couple could get $1M FDIC coverage at a single bank – single/single/joint accounts), but for businesses it’s inadequate, and simply not viable to expect a business with $10M cash to have forty separate banks. I assume there’s insurance products available, but perhaps not.
The punter always pays.
When something blows up it’s people closest who catch the most shrapnel.
But in due course we all suffer; the industry becomes more cautious, investment declines…
That’s just capitalism. Tough.
Men, it has been said, go mad in herds, but recover their wits one by one.
I do hope Biden isn’t channelling Corporal Jones. But his response to covid is not an encouraging sign.
“The shareholders lose everything.” No, I was referring to the shareholders of the ‘good’ banks that’ll have to cough up for the deposit protection. That the shareholders of the bust bank lose everything is fair enough. That’s the risk they elected to take.
“The $250k FDIC coverage is fine for individuals (FWIW, a married couple could get $1M FDIC coverage at a single bank – single/single/joint accounts), but for businesses it’s inadequate, and simply not viable to expect a business with $10M cash to have forty separate banks. I assume there’s insurance products available, but perhaps not.”
The businesses should take it in the shorts. FDIC was never intended to insure business bank deposits, it was intended to prevent widows and orphans from losing all their money and starving in the snow. Or at least it was sold that way.
If you’re a business and you’re worried about that risk, you buy your own d*mn insurance, on the whole amount.
I was reading that they Biden and the other scum in government are looking at increasing the limits so everyone gets their money out of this bank.
In which case risk becomes irrelevant. Go into a high risk area like these people did to get increased returns and be guaranteed that you won’t lose your money. Everyone will be in high risk areas.
If the bank didn’t have so many Green/Lefty companies in there then they would have been left to simply crash and burn but we can’t have all these politically correct, politically connected, companies doing that can we.