FDIC just said everyone will get their deposits back, no cost to taxpayers.
FDIC just said everyone will get their deposits back, no cost to taxpayers.
Steve_Jones said:FDIC just said everyone will get their deposits back, no cost to taxpayers.
They also took over Signature Bank. I am not surprised, it was one of the ones I was looking into, but backing off of because they weren't reporting any profits. Debating taking a chance on some PacWest shares tomorrow. If the contagion is contained, it could be a quick profit. If not, well...
In reply to eastsideTim :
Debating on PacWest as well, I'm sure many are.
Edit: I just saw Signature was shut down too. Ouch.
They look a little shaky, but if the FDIC actions prevent a bank run, then I think they'll be fine. Hell, maybe they'll even pull in some depositors from Signature and SVB. If I buy, it'll be a small chunk.
And it's done: https://home.treasury.gov/news/press-releases/jy1337
"After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."
Mr_Asa said:Apparently there will be no bailout for the bank.
For some reason I have doubts.
"Emergency Lending Program" sounds like the first step to a bail out.
Also I enjoyed the part when they said these loans will largely use Treasuries as collateral, and so they probably wont need the 25B they set aside because the collateral is so safe. Seems like they have a similar strategy as SVB to prevent exposure.
PS: I understand the differences, but it rhymes enough to make me chuckle.
Opti said:"Emergency Lending Program" sounds like the first step to a bail out.
You need to define what you mean by "bail out".
To me, a "bank bail out" is where the govt says "we need this bank to keep functioning, so we're going to give them money". The shareholders keep their shares, all of the employees (execs included) stick around, the govt just hands them a check to make up for the losses. That is emphatically NOT what is being discussed for SVB, the shareholders get zero and they're only keeping employees around to the extent that they need people to do the paperwork to close out the bank.
Instead, what we've got is the govt making sure that the depositors get their money back, first by expediting the reconciliation/bankruptcy process that would normally take months. From what I have read they think the bank has enough assets to cover all of that, and if it doesn't then they may be making a loan to that process from the FDIC insurance fund, which would then be paid back by increased fees on all of the other banks in the industry. Note again that none of that money goes to shareholders, they are SOL.
So if this is a bailout, the people being bailed out are the bank's customers, the depositors. These are not people or companies who were taking speculative risks, they're just doing normal banking things with the local bank who specialized in the banking requirements that they needed. They get funding checks from VCs, they deposit it in the bank, and they use that money to do things like buy equipment, rent office space, and pay their employees. Freezing their funds for 6 months until the feds can do a full accounting and determine how many pennies on the dollar they get will push thousands of small companies into bankruptcy and put tens to hundreds of thousands of people out of work, people who did nothing except pick the wrong bank. Does that sound just?
One could argue that the special fee to cover any shortfall (if there is one, which isn't clear yet) between what the assets bring in and the uninsured depositor totals is, in effect, a "bail out" because it will ultimately be paid by the customers at all of the other banks that didn't fail. It's effectively a retroactive compulsory insurance limit increase, paid for by future fees. OTOH, if they don't do something about this, then you can pretty much guarantee that next week every company out there will be moving their operating funds out of small/medium banks and into the big four (BofA, Chase, Citibank, and WF). That will drive many of those smaller banks out of business (with even more fallout and job losses) and make the existing "too big to fail" problems with the big banks even worse. Do you want a world where you only have four banks to chose from?
Western Alliance down >50% Pre-market
First Republic down >65% Pre-market
Credit Suisse down >8%
This week will be suuuper interesting (Doesn't feel like quite the right word given it's not in a positive light, but I do think it's true.)
The FDIC met about these situation in November 2022, and talked about how the general public had much more faith in the banking system than the FDIC did. This is not a surprise for them..
classicJackets (FS)The FDIC met about these situation in November 2022, and talked about how the general public had much more faith in the banking system than the FDIC did. This is not a surprise for them..
That is frightening. People have faith in the banking system? Still? After the last 100 year's of horse crap we've gone through since allowing the federal reserve to control our money?
People deserve everything they get.
Watched a decent video examining the situation.
Summary: No one can make accurate predictions about the future, least of all economists. The cause of this was really a run on these banks. It's really unclear what the ultimate fallout of this will be. The two banks that collapsed were both operating in fairly specialized and inherently volatile sectors.
This will be definitely be very bad for some people. There is a strong probability it will impact other institutions. It is unlikely to have a significant impact on the larger, more diverse institutions that the general populace banks with or for people with diverse investment portfolios with strong holdings in bonds and established and stable companies.
My best prediction is: Uncertainty and panic will actually have a greater impact than the direct effects of these collapses. We'll see a general dip in the trading prices of financial institutions and a drop in the value of investment portfolios that will recover when people get a clearer understanding of the situation.
In reply to Beer Baron :
Most of the broader markets are flat with the exception of the debt heavy Nasdaq which is rallying due to bond yields falling dramatically.
I just checked a big regional bank ETF and it's off 5.88% in pre-market trading so the market is anticipating trouble in the sector but not anything catastrophic.
I love that I(we taxpayers) bear all the risk of these private companies and yet recieve none of the benefits.
yes I'm cranky. My kids didn't sleep because of the time change. Come at me 
Steve_Jones said:FDIC just said everyone will get their deposits back, no cost to taxpayers.
Makes sense. Everything I read said that the bank was heavily invested in treasury bonds from about two years ago and thats where the majority of their liquidity was. Feds paying the depositors just balances their books a lot faster.
Don't have much time to check most of the market but my watch list and crypto is looking pretty grim today, lots of stuff on sale.
I'm not saying that's an indicator of anything beyond what I said earlier. Public perception is more important than actual financials, and currently public perception is pretty bad.
Good this time that the Fed is going to bail out the depositers and not the bank owners and those that invested in the banks.
Opti said:In reply to Mr_Asa :
Same dude that dumped 3.5M in stock a couple weeks ago.
This is the part that kills me.
I'm a free market guy, but if you expect the FDIC to bail you out, and in this case going far above and beyond their responsibility to do so, then you ought to be in jail for obvious insider trading, and ought to never be able to hold this type of office again when your sentence is over.
I found this, pretty reasonable it seems, explanation of what happened:
SVB’s clientele is heavily concentrated in the tech industry, which boomed during the pandemic. That led to a dramatic increase in SVB’s books: The bank went from having $60 billion in deposits in 2020 to more than $200 billion in 2022. Normally, banks take such deposits and lend them out, charging borrowers different interest rates depending on their creditworthiness…
“But relatively few firms and individuals were seeking such bank loans in the Bay Area at the time, because the whole ecosystem was so flush with cash. [So] SVB parked the money in perfectly safe government-issued or government-backed long-term securities… so safe, it seems, that the firm failed to hedge against the risk that those bonds might lose value as interest rates went up. Which is exactly what happened… This was mismanagement on SVB’s part. ‘What happens if interest rates go up?’ is not an arcane question for a bank to have to answer, nor is ‘Are we adequately diversified?’”
“SVB intentionally decided not to hedge its interest-rate risk. This is shocking given that its $120 billion securities portfolio had a duration of 5.6 years, meaning a 200-basis-point increase in the five-year rate would equate to a $14 billion loss, roughly equal to SVB’s entire capital base… CEO Greg Becker should have known better too. Until Friday he was a board member of the San Francisco Fed.
Steve_Jones said:In reply to eastsideTim :
Debating on PacWest as well, I'm sure many are.
I jumped in at opening. Too early. Thankfully, only 100 shares. I figure if the calming measures prevent a general bank run, it'll recover. If they don't, then my portfolio has much bigger problems.
Fueled by Caffeine said:I love that I(we taxpayers) bear all the risk of these private companies and yet recieve none of the benefits.
yes I'm cranky. My kids didn't sleep because of the time change. Come at me
I'm actually with you. How are so many of these deposits uninsured? Do they know what uninsured means? It should not mean "just kidding we're insuring you after all", because otherwise we're paying for a benefit that everyone else is getting for "free".
is this the wrong place/time to ask "yeah, but where does the FDIC get the money to cover the deposits?" asking because i honestly have no idea, but i assume it's gotta be from taxpayers one way or another.
In reply to AngryCorvair (Forum Supporter) :
long term that's likely going to become true. They are saying it's not right now; they will use the bank's own assets to cover most of the cost, and then a fund that FDIC member banks pay into to cover the difference. If/when more banks continue to fail this may not work at each one and will likely expand, but that has been the explanation so far.
I understand the current plan is that healthy banks are willing to "buy" the deposits, thus not taking cash out of FDIC. There are healthy banks out there.
AngryCorvair (Forum Supporter) said:is this the wrong place/time to ask "yeah, but where does the FDIC get the money to cover the deposits?" asking because i honestly have no idea, but i assume it's gotta be from taxpayers one way or another.
FDIC-insured banks pay into a fund for these kinds of events. The difference is, it, in combination with the banks assets, will be used to cover all the deposits, instead of the just the 250K limit. If there are not enough bank assets to cover, there will likely be an increase in fees payed by other banks to help cover it, so if you are looking for where the hit goes to people in general, it is that other banks will pass on the cost in increased loan rates or reduce deposit rates, but with it being spread so wide, it'll be small and unnoticeable to most people.
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