I’m confused by this-just as things were maybe starting to cool down a bit are they trying to start a bank run again? “All deposits assumed by First–Citizens Bank & Trust Company will continue to be insured by the FDIC up to the insurance limit.” So in other words they just pulled protection for assets over $250K in SVB accounts, transferring them to a small bank with less than half of the deposits of SVB when the run started? Who’s at the steering wheel at the FDIC and are they not coordinating with the Treasury or Fed? Am I missing something or does this seem recklessly premature given the train wreck that is still in the process of being avoided? Are they confident First-Citizens can withstand 25% of deposits getting pulled in a few days because they’re flush with cash and short term treasuries?
“All transferred deposits will be separately insured from any accounts you may already have at First–Citizens Bank & Trust Company for at least six months after the failure of Silicon Valley Bank.” [1]
Sounds like maybe this isn’t an issue but unclear if that’s just an extra $250K insurance in the event you had an existing account there. Maybe unrelated to insurance they're fine because First Citizens bought from SVB at discount/current FMV so they can liquidate assets if needed to meet withdrawals without risk of loss.
> Are they confident First-Citizens can withstand 25% of deposits getting pulled in a few days because they’re flush with cash and short term treasuries?
I'd guess the tansferred assets are eligible for the new Bank Term Funding Program, so First-Citizens should be able to borrow cash to pay withdrawals in a way that SVB couldn't. I'd expect everyone involved to be aware of the danger of a bank run from this group of customers, and plan accordingly. Of course, expecting others to act sensibly is not always justified.
Eligible collateral under the Bank Term Funding program must be "direct obligations of, and obligations fully guaranteed as to principal and interest by, the United States", this covers assets such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities, but importantly doesn't cover any of SVB's $72bn loan book. (It does cover much of their $90bn of remaining securities that weren't transferred.)
First Citizens does however have existing assets that would count as eligible collateral.
Yeah, the big question is honestly if SVB would still be here if they had been able to borrow in this new way. On paper, the reason people panicked and did the run was because they felt their money was locked to the maturity date and that SVB would not be able to take out loans against their very real assets.
> All transferred deposits will be separately insured from any accounts you may already have at First–Citizens Bank & Trust Company for at least six months after the failure of Silicon Valley Bank.
That suggests that there is not going to be a reduction in coverage of FDIC insurance.
Separately the Federal Reserve’s lending facility makes it unlikely that the same sort of long-duration treasury notes will bring down a bank.
But yeah, it’s a good point that they did not explicitly spell out what sort of insurance is available for the transferred deposits.
Thanks! Still not clear to me if that extends beyond $250K or just not counting against an existing account held there, though. But as mentioned above they probably can just liquidate what they just bought if they need to meet large portion of deposits withdrawn. And the par value repo thing for stuff they already have makes sense would mitigate a run causing insolvency.
> Still not clear to me if that extends beyond $250K
It does not. The deposit insurance limit was $250k before the svb collapse, it was unlimited while the (government) fdic held your account, and now it has been transfered back to a private institution it is 250k again.
Only after bank failure can you truly determine what your FDIC insurance limit was. Per Yellen's own admission it is decided by several committees after the bank fails how to retroactively apply the variable insurance, depending on whether they deemed it "systematic." Of course if the depositors are mostly politically connected VCs or investments of politically connected VCs you probably have a better shot of being deemed systematically important.
Is it ironic though? The whole system is inverted in that way that citizens are second class, and failure is rewarded and the injured punished, aka fraud.
It’s a system that simply cannot go well for the majority of people even if the top continues their plunder and walks away with everyone else’s chips.
It’s not an ironic bug if the intentions of the features are nefarious.
> Is it ironic though? The whole system is inverted in that way that citizens are second class, and failure is rewarded and the injured punished, aka fraud.
Who exactly got rewarded here? Not the bank shareholders, not their management - only depositors got protected, aka the system actually worked for once.
> It’s a system that simply cannot go well for the majority of people even if the top continues their plunder and walks away with everyone else’s chips.
This simply did not happen here. It happens a lot. It didn't happen here.
the FDIC itself called this a "systemic risk exception", but SVB and Signature were not considered systemic before this, and thus had not behaved the same as the systemically important banks.
I am not sure we can say anything worked as intended.
The banks got to play and invest that money off those depositors. The investment was in government bonds. So essentially, the government got to use those depositors money, and then turned around and gave them back their money. Oh and it also inflated away the value of that money. If you think this is capitalism or the system working properly, you're deeply wrong. Finally, if this thing didn't blow up, those depositors would've seen none of the profits from lending to the government which is clearly a risky business.
This is the same old story, governments printing money. This time they held hostages as they were printing their money. Almost like Money heist. Funnily enough, the narrative is so strong they are somehow the heroes. Maybe because people can't understand that inflating money is stealing.
> The banks got to play and invest that money off those depositors.
And they got wiped out because they did it badly, while depositors kept their deposits. The system works.
> So essentially, the government got to use those depositors money, and then turned around and gave them back their money.
The government didn't give them back their money, the loss came from the DIF, which is a fund made of private contributions assessed to member banks. No government money was spent making depositors whole. I wouldn't care if it was personally, I think that's kind of the point of the government, but in this case that's simply not true.
> Finally, if this thing didn't blow up, those depositors would've seen none of the profits from lending to the government which is clearly a risky business.
Er, no, the bonds would have matured and they would have received face value plus interest. Lending to the US government is the least risky thing one can do, three-month treasury yields determine the 'risk-free' rate.
> This is the same old story, governments printing money.
The Fed actively manages the money supply. I'd look at where the demand for dollars is coming from to better understand the system and what's actually happening in the economy. These simplifications border on conspiracy.
They aren't though, that's the point of the deposit insurance. The government has a non-taxpayer funded bucket of money for exactly this purpose, and no money was created from thin air.
The government is a financial bully. It starts by printing money for itself, and using the value of the money in the present. Then it causes inflation which robs financial value out of everyone who lended to it. The actions of the Fed are extremely unpredictable.
If you're not a part of some inner clique you can't tell when will the Fed pivot. It took the Fed a goddamn one year too long to raise rates. Everyone who has no knowledge of the Fed actions beforehand is losing huge financial value. hundreds of billions of dollars rest on these decisions, and any common person who trades and does any financial decision in the wrong side of the Fed is being robbed of financial value by the Fed. Instead of playing capitalism we've been playing Simon says.
Yes in the same way the EPA is an 'environmental bully' - so actually no.
> It starts by printing money for itself, and using the value of the money in the present.
I'm really not sure what this means - I suspect you're conflating fiscal and monetary policy.
> Then it causes inflation which robs financial value out of everyone who lended to it.
Inflation has many causes, changes in supply aren't necessarily inflationary - what matters is what that new supply is used for and where demand is coming from. For instance there's a ton of demand for dollars from abroad. If new money is created and it goes into say dollarized nations then no, it doesn't. This is but one example. That's why supply increase isn't inflation - it's supply increase.
> The actions of the Fed are extremely unpredictable.
Actually they telegraph them far in advance.
> If you're not a part of some inner clique you can't tell when will the Fed pivot.
They will absolutely tell you in advance, like they told us they'd start tightening well in advance. That doesn't mean people won't try and front-run it.
> Instead of playing capitalism we've been playing Simon says.
I think the right way to think about this is a quote from the venerable Sir Desmond: "If you're incompetent you have to be honest, and if you're crooked you have to be clever".
Because First Citizens Bank acquired all of the deposits and loans but none of the securities, presumably the only way for the FDIC to complete the deal is to pay First Citizens Bank the difference in cash, which is roughly $63.5 billion (napkin maths: the $119B in deposits are assumed one-to-one, and $72B loans are acquired at $16.5B discount, resulting in a cash outlay of -$63.5B for the acquirer for a bundle of net assets worth -$47B on paper).
If depositors start withdrawing money from the new bank, they at least have access to this amount of extra liquidity from the acquisition.
The BTFP and other schemes from the Fed will provide any necessary liquidity to cover flight at par.
Remember that flight just means one bank is down and another is up at the Fed. All it needs is for the target bank(s), or the Fed to lend back and the circuit is closed.
Everybody wins - particularly the bank buying assets at a huge haircut.
> Are they confident First-Citizens can withstand 25% of deposits getting pulled in a few days because they’re flush with cash and short term treasuries?
Yes. The number gamed will likely be > 50% given the type of customers they are dealing with.
After the SVB thing, the fed set up a new facility "Bank Term Funding Program (BTFP)" which will provide liquidity to banks so they won't go the way of SVB.
“All transferred deposits will be separately insured from any accounts you may already have at First–Citizens Bank & Trust Company for at least six months after the failure of Silicon Valley Bank.” [1]
Sounds like maybe this isn’t an issue but unclear if that’s just an extra $250K insurance in the event you had an existing account there. Maybe unrelated to insurance they're fine because First Citizens bought from SVB at discount/current FMV so they can liquidate assets if needed to meet withdrawals without risk of loss.
[1] https://www.fdic.gov/resources/resolutions/bank-failures/fai...