> Any losses to the [FDIC’s] Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
But banks will just pass this onto account holders either through lower interest rates or higher banking fees. So taxpayers with bank accounts are going to pay for this indirectly.
Yeah but look at the FDIC historical data on "dividends" (FDIC's term for uninsured depositor paybacks). Lots of cases have >90% payback rates... they just take years to do so.
This whole operation is just a short term backstop to prevent a bank panic. By promising 100% with no delay everyone can calm down.
And the cost of 100% immediately vs 96% within 5 years isn't that high.
Correct me if I am wrong, but that's actually a smart move, because the securities cover these liabilities, no?
AFAIK, SVB has securities that are currently rated below their nominal value by the market. But these securities will reach their nominal value just before they expire, right? Essentially the fed is just offering a loan on these securities and values them at their nominal value because the fed doesn't care about market prices?
Sort of. This emergency liquidity program is only for one year but SVB has some 10-year stuff on the books. There could be losses, especially if rates continue to increase.
Infinite money hack strikes again. The lie here is that this takes care of "households" and "small businesses"—no, this is a bailout ("backstop") that saves the richest of the rich (namely, VCs whose startups parked cash in SVB). Why do you think Gary Tan, Marc Andreesen, etc. went on a press tour yesterday?
This is why gambling on Robinhood and on crypto is so pervasive. Regular folks realize that they have zero chances here, it's absolutely a rigged game. Just like in 2008, this isn't capitalism, it's just socialism for the ultra rich.
The equityholders in SVB will get wiped out. The folks getting made whole are those with (supposedly safe) bank accounts. They were not taking wild risks. They were putting their money in a bank. Just because some asshole VCs have money in that bank as well you think all of the other small businesses and their employees should be thrown to the wolves?
Really? I have friends - normal tech employees - who were telling me they were clearly at risk for not getting a paycheck. I think the story is quite a bit more complex than you say.
For the most part, that was almost certainly pure panic. Getting stoked by more and more people that should have known better than to push such a narrative.
I checked unemployment briefly during all the layoffs and the checks were just a fraction of my regular paycheck. Further, the process is arduous and takes a while before the first check is received. Even further, it’s not clear to me that one gets unemployment eligibility while still being employed just because there’s difficulty paying one’s normal check.
Your comment is very handwavey and lacks enough empathy to border on just cruel.
I mean I was laid off (and this ain't my first rodeo) so know exactly how unemployment works. In California, you get a check that represents a totally normal American wage and your kids will qualify for Medicare and probably you and your spouse will qualify for a reasonable market plan.
In my new state of Oregon, you again get a totally reasonable wage, my kids have better medical insurance I did when I was employed, and my wife and I qualify for extremely subsidized health insurance. Basically my mortgage is paid for and my kids and I are insured. It's time limited but six months is enough time to find another job and the healthcare is not time limited.
Realistically the us has a solid safety net. At least in all the states I've lived in, which are the ones most tech employees are in
Max unemployment insurance in California is $450/week. You can't even pay your rent on a bad apartment with that money unless you're sharing it with someone else.
Sounds like you should vote for better politicians then. Oregon has a lower tax burden overall but provides almost $800 / week in insurance. Seriously, your state has a democrat supermajority and a huge budgetary surplus. Where are your politician's priorities. Seemingly with large corporations instead of normal people.
I can’t imagine the richest of the rich were parking any significant chunk of their money as a depositor in SVB. These people have access to far greater diversity of investments than whatever SVB was offering.
I can understand the anger and frustration that many people feel — we don’t live in a true meritocracy. But I don’t understand the opinion that choosing a particular bank to open a checking account is equivalent to gambling.
It seems perfectly rational for depositors to access their funds and wipe out SVB’s equity and debt holders.
Not doing so would reward those that withdrew early, caused a panic, started a bank run, and potentially tanking the equity offering in the works. It would be very interesting to see the SEC go after some of them for market manipulation and insider trading.
Sure, you can view this as a bailout of rich people. However, the bail out is also effectively being funded by rich people, so I don't really get what your complaint is.
Put another way, the depositors are being made whole by the FDIC's deposit insurance fund, which is in turn funded by the banking sector's insurance premiums. So, the money here is basically being taken out of the banking sector's shareholder pockets (read: rich people).
It’s interesting to look at the politicians SVB employees donated to. Apparently that investment paid off. If this were a Texas bank with the majority of depositors being oil and gas companies, I am sure that the fed wouldn’t be as interested in paying beyond the insured $250k.
Who ever heard of an insurance company paying off more than the policy limits?
I’m happy for the depositors to be made whole — as long as SVB executives go to jail in exchange. But a failure without consequence isn’t fair to the rest of the country that get to pay higher bank fees as a result.
I've seen this same argument made by lots of people on Twitter. But as far as I can tell, in at least the last several decades of bank failures in the US, every depositor has been made whole or close to whole, regardless of geography or industry or political favor. Usually the mechanism has been to arrange the failing bank be bought out, rather than to extend the FDIC limit.
The way I interpreted "households" in the statement was that it was referring to the regular folks who are employed by many VC-backed start ups that banked with SVB. Employees at tech companies in the US get paid twice a month(generally the 1st and the 15th.) This backstopping while certainly bailing out VCs yes, also ensures that regular people working for those VC-backed startups will get their paycheck this week.
The late 80's, early 90's, early Oughts, late Oughts, Pandemic, now...
Hell, If there's been one constant in my life it seems to be financial crises every 5-10 years. All the Fed seems to do is magic in new money to inflate asset bubbles some more.
...Arguably, agriculture, the printing press, electricity, germ theory, widespread access to education, and eventually lots of meth has helped significantly more in that regard.
Finance is one of those things like sex and murder. It'll always be there, no matter what state you're in, or what trajectory you're going, and it's always extolling how it alone is responsible for how great your life is. It's humanity's background noise.
And while the Finance people are yammering in the corner, bored farmers are building rockets, discovering vaccines, inventing television, harnessing the internal combustion engine...
Nah. Finance is bs and pageantry, and the inevitable excuse we settle on for why the hell we got up and did something that needed to get done. End of story.
Dollars don't mend broken bones. People do. Then some finance guy shows up and says "you should put a price tag on that" and it all goes downhill from there.
They went on a press tour because a generation of start ups was about to be eradicated wiping out trillions of value over the next 10 years, possibly destroying the most valuable ecosystem ever and putting American society on a path to competitive disadvantage long term. If you think this is hyperbole considering US growth without startups just as AI is about to transform 75% of economic activity globally.
I may get downvoted, I may not. But, I am really surprised so many of you all are all about putting likely hundreds of thousands of people out of work. It goes so much further than the "billionaires".
Startups are risky. The money invested should be considered a risk. For all the people who would lose their job from this collapse, it's just as sad as the mass layoffs in the tech sector over the last few months. None of the employees of these companies have lost their personal wealth unless they also banked >250k there. The only big losers are the investors putting money into this already risky sector. It's not a sector that needs government backed bailouts. If you want to support the uber rich in these scenarios, just raise the backed insurance to 100% and let the government backed risk to be absolute. This shell game of "were not covering rich people but will will if anything bad happens" is simply disingenuous.
Startups are risky enough as is without having to create and manage 50 different banks with 250k in each. Those mass layoffs were the result of poor decisions and execution by the companies, and they should face the consequences.
We want startups to focus on innovation, and where they store (not invest) their cash should ideally be trivial
Hundreds of thousands of people out of work are threats to curry favor. VC's and businesses who deposited $175B into SVB have likely taken 5 - 20% losses on that. There are offers for 80% of deposits immediately and bridge loans to pay payroll for the foreseeable future until a couple months down the line when whatever left of the deposits is distributed back.
Do you advocate for immediately cutting Federal Funds interest rate? Because if not, every quarter point increase will cause thousands of people out of work. Every interest rate increase slashes the value of current assets, leading to try to "cut fat" to recoup value, just like what happened here, and because it's a bank, the wealthy see the opportunity to earn back their $10b - $20b loss by threatening the Federal Government.
So all of the people who banked with SVB and benefited from the excessive risk the bank was taking (perks, higher interest rates on savings) get a freebie , must be nice.
This does nothing for SVB, it's depositors, or shareholders. it's to extend credit with backing of certain assets as collateral to avoid forced sale of said assets and more bank failures.
From the announcement:
> The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.
If treasury bonds are so risky for banks to hold that they need to create a funding program to repo them "at par" - what is the point of the govt allowing banks to hold these bonds in the first place?
Surely it does help SVB depositors, since without this action they would (a) take a haircut, since we expect SVB has less assets than deposits, and (b) have to wait some months or years for those remaining assets to be liquidated and distributed to the creditors including them?
Are you reading a different news than I am? I am not aware of SVB providing excessive interest rate for anyone. The bank burned because they took a duration risk, but I do not think any depositor got any freebie. Unless you are counting on the unnecessary anxiety of losing almost everything for the last few days.
Well… SVB took on a lot of interest rate risk (rather than credit risk, which is what we’re more used to banks blowing themselves up with). Then rates rose and SVB were stuck holding long term fixed rate assets that weren’t yielding anywhere what they needed to. They probably didn’t see this as risk, since rates had been very stable for the last decade… but the mortgage market also sounded really safe in 2007.
If they actually weren’t taking on risk they’d have bought short term bonds to avoid rate risk, but that wouldn’t have made them any money.
They sold the bonds at a loss because they suddenly needed to make a whole bunch of depositors whole. It was a bank run. The loss of confidence came before the loss of liquidity.
There was some tail wagging the dog. Depositors wanted to be made whole because the bank had to disclose bond sale, bond purchase, and stock sale activities as a package deal. Each activity individually might have snuck under the radar, but together that spooked the depositors.
Then the CEO says there's not a problem which you only need to say if there is a problem. That didn't help either.
You could argue for a 3% haircut "stupid tax" for such a CFO's account. But what would be the downstream implications? Money would move to big banks, making them even bigger.
SVB didn’t take excessive risk in any reasonable framework. If you think buying treasury bonds and vanilla MBS is excessive I would love to understand what would be acceptable risk.
excessive risk? I mean one could argue that the MBS they bought were slightly risky, but its not like they bought a crap ton of crypto - or bought a bunch of high risk mortgage securities.
They got bit by interest rates, which they should have managed better, and the bank needs to go down, but dont bring down a huge amount of workers with it.
The bank failed and is being liquidated. You want to punish depositors too? Those are discrete issues. Honoring deposits and winding down the company can be done at the same time.
There is no down side to backing deposits. Frankly it’s time for the FDIC to raise the ceiling on the guarantee and offer voluntary coverage for 100% of deposits.
I disagree; if anything, they should lower the limits of coverage back to $100k. Anyone too stupid to diversify their savings across multiple banking institutions deserves to lose their money (over the limit) when the bank fails. Regular people with less than $100k in cash savings shouldn't have anything to worry about; that's why the FDIC exists. For people with a lot more money, it's not the taxpayer's job to protect them from their own stupidity. Any competent financial advisor (who high net-worth people should be using anyway) will tell them to diversify. And by keeping that much cash spread out over different institutions, risk overall is lowered, not just for the individual, but for the whole system.
How is a venture backed company with $40m in capital supposed to diversify? How are you supposed to manage a business with all your funds scattered across 100 bank accounts? How are you going to accept payments, manage user log ins, api credentials. There are significant practical operational and technical blockers that you are ignoring.
$25b is a rounding error on a rounding error against the US economy. Further the $25b it going to be used to buy assets at par that are currently impaired but expected to go back to full value when interest rates fall. So for an investment of fractions of a penny on the dollar the Fed can preserve a large number of high growth start ups that will accrete trillions of dollars of value in the future. Seems like a good call.
Ok, we've reverted the title now, in keeping with the site guidelines (https://news.ycombinator.com/newsguidelines.html). (Submitted title was "Federal Reserve announces backstop of deposits, all money 100% available Monday".)
It will be a special assessment on all banks as required by law. So all the other banks who didnt take these risks get to cover the difference that SVB cant cover. Unbelievable.
It's not great, but I don't see who else is supposed to cover this. The depositors? Not only does that seem unfair, that would destroy faith in banks -- and then where would banks be? Even worse off than paying an assessment. Simply having the privilege to participate legally in the fractional-reserve system seems plenty profitable for them, and I think they'll grumble and pay rather than be left out of the game.
The only alternative would be if bank shares could go negative, i.e., if bank shareholders could become liable. Maybe Switzerland did/does work like this? Then you might not want to hold those shares without also buying a cheap $0-strike PUT from an insurer. But arguably that's what's happening here in the end anyway, just with the FDIC in that insurer role.
That's how all FDIC insurance works. The banks pay, not the taxpayers. Don't be confused by the word "Federal" in the name, it's federally-administered and required by law, not paid for by the feds.
That is not how I'm reading this. FDIC insurance covers the first 250k from an insurance pool all banks pay into. What I'm reading is that there will be an additional fee will be paid by other banks to make SVB depositors whole. If I'm mistaken, please tell me.
"Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."
It's really in the banks' collective interest to do this. They can pay for more insurance, or people can lose faith in the banks. The latter situation is much worse for them.
The masks came off and never forget it. There were many people dancing on the grave and full of joy that our industry was wounded. That our businesses would fail and we’d be hurt and “taken down a notch”.
Remember these people and what they stand for. They aren’t our friends. Put them on your lists. Do not forget.
More printing? How can they honestly simply announce all money will be there tomorrow. Where is the money coming from? Are they going to charge every other bank some cash portion of the 208 billion? Or are they going to create more money and cause inflation
All of the money is there. There's no money printing. The issue is the money has been invested in longer-term securities and no bank is prepared for 25% of deposits to be wired out in a single day...generally they hold around 1-2% in cash.
The money is not there. Just because a bond is valued at $100 dollars does not mean that 100 exists in cash somewhere. Bonds and debt create money but they don't create cash. Bank withdrawals are cash (essentially).
Svb failed not because they didn't have money but because they have no cash.
Now the federal reserve, the main issuer of cash, announces that tomorrow, you can take out 209 billion in cash. That is literally money printing.
Edit, to illustrate: suppose I deposited $100 into svb. They bought a bond. That means the government can now spend my $100. Now the government has an asset worth $100 AND SVB has an asset worth more than $100 in a few years. Thus the total assets of the government and myself is MORE than the $100 I put in. Except one of those assets (the bond) cannot be exchanged for cash at face value. To say the money is there is true. The dollars are there. But the cash is not. My 100 in cash is now with some government agency somewhere. If the fed turns around now and says they will give me 100 cash for the deposit that is stuck in a ten year bond, then both the government AND myself will have 200 cash total from my original deposit of 100 (and there is also some bond out there with some monetary value). Thus cash was created which means money was printed. Which is inflationary which is going to further pressure the fed.
There's the time component too. A 10 year bond is supposed to be cashed out in 10 years, not tomorrow. If you cash out before those 10 years, that cash is indeed money printing.
Once again billionaires and banks can mismanage their funds, behave recklessly and the government saves them from any consequences. This is completely unacceptable.
If i get myself in financial trouble, the Fed will not print money to give me a free loan until I can dig myself out. I am on my own to figure it out or declare bankruptcy.
But because our government is completely controlled by big money interests, when the billionaires say jump, our government says "Yes sir! How's this?!"
Not really... the system should protect depositors. Frankly I think there shouldnt be a deposit insurance limit or it should be much higher. Depositing cash in a bank should be safe for everyone.
SVB's executives and shareholders were wiped out. They are the ones with a duty to manage the bank so it is only right they take the hit.
The only reason they stepped in to protect these depositors was because their investors were politically connected and powerful and they stood to lost billions.
As a regular joe declaring chapter 7 bankruptcy is nearly impossible these days anyway. You’ll be on the hook for a substantial percentage of your discharged debts under chapter 13. 10 years later they even reopened my parents bankruptcy because they came into a relatively small sum of money from a medical law suit.
> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
(from the other article, currently top of HN, about Signature Bank)