US Regulators Bail Out SVB Customers, Who Can Access All Their Money Monday - Sl...
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Treasury Secretary Janet Yellen on Sunday instructed the Federal Deposit Insurance Corporation to guarantee Silicon Valley Bank customers will have access to all of their money starting Monday.
By guaranteeing all deposits — even the uninsured money customers kept with the failed SVB bank — the government can ensure public confidence in America's banking system, said Yellen, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin J. Gruenberg in a joint statement....
The FDIC opened an auction Sunday for bids to acquire the bank, the Treasury Department said in a briefing with lawmakers in the California delegation, two sources familiar with the briefing told CNN.... Under Secretary for Domestic Finance Nellie Liang and Assistant Secretary for Legislative Affairs Jonathan Davidson led the briefing, during which they told members that the FDIC is prepared "to operate the institution" to ensure depositors can maintain payroll for their employees and that more operations will emerge in coming days, one of the sources said.
The treasury secretary's statement clarified that "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."
We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer. Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
Meanwhile, congresswoman Nancy Pelosi said there are multiple potential buyers for SVB, and "What we would hope to see by tomorrow morning is for some other bank to buy the bank." The UK arm of the bank has already received a bid from the Bank of London.
From the treasury secretary's statement:
The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry.
Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe.
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Wouldn't it be nice to bet your* money and get it back if you lose?
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How is a savings account at a bank a "bet"
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Simple: When you over-lend you're gambling on future inflation.
In this case inflation went up and the bank lost their bet.
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Let no billionaire suffer losses...
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Wouldn't it be nice to bet your* money and get it back if you lose?
It's ironic that in a sense SVB failed because they didn't "bet their money" and were too conservative.
Of course, the blame is on Congress and the lobbyists that relaxed the 2008-era laws that regulated banks (regulations are bad!). Those regulations that were eventually relaxed likely would have uncovered the SVB weaknesses.
The really big blame is on the SVB CEO who seems to have been very lucky or traded on inside information when he sold $3.6 million of SVB stock at $287.42. He also actively lobbied Congress to exempt SVB from the regulations that could have prevented this mess. And SVB donated/paid money to legislators to secure their votes.
Furthermore, this mess was predictable [theguardian.com]:
In 2019, when the Federal Reserve proposed regulations implementing the deregulatory law, financial watchdogs warned that its regulations on Category IV institutions – as SVB was later classified due to its size and other risk factors – were far too weak.
“The proposal to significantly weaken enhanced prudential standards for Category IV firms could be disastrous,” Better Markets, a non-profit advocating for stricter financial regulations, wrote in a comment on the Federal Reserve’s proposal. “Moreover, these are not small or insignificant firms. Recall that the smallest among this class of banks is over twice the size of the $50bn banks that automatically required enhanced prudential regulation under the Dodd-Frank Act as originally enacted.”
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Yeah, I never want to hear again how students "knew what they were getting into when they took out their loans", when businesses can't even be bothered to read the FDIC placard that is literally right in your face at every bank, yet they get bailed out. Must be nice to be a big wealthy business and have the ear of politicians.
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The bank isn't being bailed out, it's the customers. Most of which are small startups, there's only a handfull of large clients (like Roku) but the amount they had on deposit with this bank isn't all that much.
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They're businesses which should've understood how a $250k insurance limit works. This is Business and Finance 101 stuff, not rocket surgery. It's still corporate welfare because the businesses (the customers of the bank, to clarify) made an oops and here comes Uncle Sam going "Don't worry, I got you bro."
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People could just keep cash themselves if it wasn't for civil forfeiture laws that allow police to basically rob citizens.
The US creates the need for banks to handle any amount of cash and allows police to rob you, and you want the government to screw people just for depositing money.-
If you have more than $250k, you can either spread it around to multiple banks or insure it privately. The cost of insurance is hardly an unreasonable burden if you're sitting on that much cash.
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$250k is nothing for even a medium company. It's just a few days of normal expenses. This makes it impractical to use multiple accounts.
Also, there's no easily available private insurance for cash in bank accounts for any non-trivial amount. SIPC can insure up to $500k, but that's about it.
In practice, most companies just buy Treasuries (typically T-Bills). But it makes sense to offload these kinds of securities juggling to a third party, that would do this for you. This third party will provide you wit
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I'm sure there must be a few rich friends of politicians in there too.
Maybe even one or two congressmen who saw their money going away. Action had to be taken!
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Per Janet Yellen [apnews.com], there's no corporate bailout. This instead looks more like helping customers with deposited funds, lines of credit, etc.
I wouldn't have covered above and beyond the $250K insurance limit for individual customers (people need to appreciate the FDIC coverage), but otherwise this looks like it's on the up and up - an extreme rarity in the banking industry and government intervention.
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Depends on what you count as "individual customers" - does that include an entire startup, or are you talking about "individuals" as actual people?
Because the latter doesn't exist with SVB, it was a pure "corporate" bank, no individual accounts. At which point the $250k becomes something of a joke.
Let's say that you have a bunch of $60k employees. That's $5k/month, which means that if you have more than 50 employees, you need $250k in the bank just for payroll.
Do anything else, such as pay your lease with
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Which really does seem like an issue that the FDIC should address with higher levels of insurance specifically for business accounts, and funding such insurance accordingly. Bending the rules arbitrarily because you're too lazy to address an obvious issue is just bad governing.
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It could also include a few rules about what to do with bankers who gamble and cause this situation
eg. Some time in prison.
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are mostly corporations like Roku, so yeah, it's a corporate bail out. These are the same corporations that lobbied to kill Dodd-Frank regulations which caused the bank run.
It's another case of Wall Street gambling and you and me paying for it. Every. Single. Time. The only solution is to not let them gamble. But that means we pay attention to who we vote for, and stop voting for whoever makes us feel the warm fuzzies.-
And if there ever was an example of what corporate stagnation can lead to, it's Roku. Their cheapest streaming stick still doesn't even support 5GHz WiFi [reddit.com], and there was an article recently about how Roku doesn't support IPv6 [slashdot.org].
Some companies need to be slapped down by the free hand of the market so newer, more innovative competitors can take their place. Roku has just been Scrooge McDucking their cash rather than dumping it into much needed R&D, and losing that money would've been well-deserved karma.
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Janet Yellen does political damage control. This is bailout of much greater proportions that they let on. They are backstopping the entire banking system built on top of deteriorating debt markets. The end result will be bunch of zombie banks with loads of worthless paper in reserves.
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The bank shareholders lose everything good. Some lenders to the bank lose everything. good.
But the high end depositors should not have been made whole, not 100% not this soon.
Give them enough liquidity to run payroll and pay the bills. Give 75% back immediately. 20% more after checking the books, the last 5% subject some cap.
The depositors who chased returns should have to take a haircut. Else there is moral hazard.
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nailed it. the reason the FDIC is going to insure all accounts even ones that exceed $250k is because they're _terrified_ the entire system would collapse and we enter a depression. this is just more evidence of how fragile the financial system is thanks to endless QE and ZIRP.
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You say they are terrified of a depression, but it's quite clear that the Federal Reserve is trying to engineer a recession. Incidentally, one of the reasons this bank failed is rate hikes by the Fed.
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Sort of but no. They put most of their deposits in USG bonds instead of spreading their risk around. Failed Investing 101.
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No it isn't. The bailout is of depositors not investors or corporate debt holders, and the money is paid in by the banks themselves to FDIC. All this does is shuffle the chairs a bit.
Protecting the depositors was actually pretty important, as businesses have to keep a lot of cash in the banking system to cover operating expenses. SVB specifically had a lot of business accounts which added to their risk.
The corrupt portion of it (which will likely be pursued by the government) was the CEO selling shares b
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You keep using that word. I do not think it means what you think it means.
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Yeah, that's a bit of a sticking point. Now, if the FDIC had refused to insure that money, but upon review decided that denial had been in error, that would make some sense.
Wish I could bet on a "sure thing" and get all my money back after it all went to hell.
But the second strangest part is that statement about confidence in America's banking system; last I checked, companies with "Bank" in the name are not literally required to be FDIC insured, they'll just have trouble competing...unless they can gener-
The bank is FDIC insured. The problem is the bank's customers are tech businesses, not individuals. $250K insurance is a lot for a personal account, but it's nothing for the account that handhelds payroll for a team of engineers.
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How do real businesses with actual professional accounting staff deal with this problem? It does not seem insurmountable.
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They normally have their accounts with very large banks who specialize in corporate banking, and depend on the banking regulations to prevent their banks from taking risks that could cause the entire bank to go under without any warning. Then they take out additional private insurance to cover known liabilities like payroll, at reasonable rates because the risk of the insurer having to pay out is (supposedly) very low. FDIC insurance isn't relevant to this situation. This all is also why banking regulations
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You trust the banking system. You can break accounts up for a few logical pools of money like business units, payroll, receivables, payables, reserves, but most of your pools are going to be over $250k. My company (~40 employees) has four accounts-- one with a small bank and three with one of the big banks; all are over the FDIC limit. Back in 2008 when we were smaller we had accounts at four different banks, but that is really a pain in the butt.
(Oh, and if you are really smart you also have some T-Bill
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Remember, this isn't the investors getting their money back, this is the depositors getting their money back.
As for the FDIC bank thing, that gets complicated. Yes, you can get told off for calling yourself a "bank" and not being FDIC. But there are some exceptions for stuff like "Seed bank", where they store seeds for the future, not money.
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It's a horrible judgement! It makes the FDIC and non-FDIC banks idiots. It erodes the FDIC system. This was a bad move. They should have left the damage to as small of a market segment as possible. The rest of the market can put up shields to stop the contagion.
Imagine if you paid the same amount of insurance for your civic as the lamb owner. But when both of you crashed, you both got the full amount of your car's value... even thou the insurance over-covered yours and only 50% of the lamb's. That's
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The next time a bank, any bank goes under, everyone gets their money, even if it's above the $250,000 FDIC limit.
To do otherwise would be the ultimate act of hypocrisy.
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- Cult of Dusty YouTube Channel.
They couldn't possibly care less about hypocrisy. They're better than you. That's why their mistakes are protected. So there is no hypocrisy.
Stop voting for right wing, pro-corporate politicians, and if you already have get your friends and family to stop.-
On April 22, 1994, President Bill Clinton announced his intention to nominate Yellen as a member of the Federal Reserve Board of Governors, alongside Alan Blinder, who has been designated as vice chairman, the first Democratic appointee to the Board since 1980. source [wikipedia.org]
Granted, a lot has changed in both parties since the mid-90s, but being disingenuous with the facts isn't a good look. We're primarily in this situation because corporate money corrupting politicians has been a thing for a lot longer [wikipedia.org] than Cit
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Last I checked it was a lib in the Oval Office.
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Since when has the US government ever shied away from hypocrisy?
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I hope so.
The more the banking system protects depositors, the better it is.Now if the FDIC has to take measures to make this possible (for example charge banks a small percentage higher) its well worth it to live in a country where the FDIC insures all or even most of your funds, no matter how large they are.
It helps banks, people, companies and the economy as a whole. And there's no reason it should cost the taxpayers a cent.
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There is already an option for that. DIF! Has been around for a LONG time. Insures your entire account.
These banks and their customers chose FDIC limits.
FDIC shouldn't have raised the rate to $250 back then and this is just dumb. You don't change limits before the insurance rate change. They should happen at the same time.
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Actually, this is far from the first time this has happened. Generally speaking, if there are enough assets remaining to make everybody good, then they do so.
Indeed, in various interests, the FDIC will often cover all deposits under the limit, THEN the remaining assets go towards making those with uncovered over $250k investments whole. At which point most of the time enough money/assets can be found to make them fully whole.
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Because 1, that never does & can't happen and 2, lol wut?
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I think FDIC should insure all deposits. It would only make the banking system stronger.
There is no benefit for depositors to lose their money. It's not them that did any risky investments.
Instead maybe the FDIC could provide (maybe optional) extended insurance where 0.1% (or some other small number) is paid on deposits to fund a safety net fund for deposits say, over 1M dollars. Then when a bank fails, the FDIC can pay back maybe up to some percentage like 80% of the amount in the bank.
But companies with 10 million dollars in the account don't have to close because they cannot make payroll and have to lay off thousands upon thousands of their employees.
The depositors shouldn't be punished, but rather the shareholders. They should lose it all.
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I think instead we should keep track of which ones lobbied to remove the Dodd-Frank regulations or donated to politicians that voted to remove them and those depositors shouldn't get their money back.
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Depositors Insurance Fund. Just as old. Private.
The federal government should NOT cover Jeff Bezos personal bank account with tax payers' funds.
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This is a bailout. This will use taxpayer money one way or another. Just another screwjob.
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It's literally not a bailout, the government isn't giving the bank money to keep operating.
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The FDIC will assess a higher fee on the banking industry as a whole, so if you have funds in a bank somewhere you will be indirectly effected (through a.000000something lower interest rate). But if you are poor and have no savings this really won't effect you even if you pay income tax.
Once again we savers are penalized for trying to secure our own future. -
Someone who gets it. Don't worry, the Fed can just create some more fiat and make whole the speculator's hypothecated assets. Just ignore the fact that interest reflects, in part, the risk you take when loaning your money to someone, like, a bank. The Fed can do this ad infinitum. It makes the country stronger, right?
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Including all the companies who have payroll coming up? Are their employees bastards as well? So the delivery driver, the custodian, the receptionist are all bastards that should burn? Get a grip.
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They are like contractors for the Death Star.
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Ever been laid off from a company that went out of business? I have.
Businesses sometimes make stupid decisions and the employees suffer, but it's all part of the great corporate circle of life. Savvy businesses that keep their funds properly insured prosper and the weaker businesses are culled from the herd. The void created allows for new opportunities for startups to bring fresh competition to the marketplace.
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Don't think for a second that this is about the little guys getting paid.
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Or can I expect the government to make it right when *I* put my money in the wrong places?
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If it's an FDIC bank then yes, although you shouldn't expect more than $250k.
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Kinda. Because it's all a lie, like the rest of it. The system is rigged. You lose, you lose. They lose, there's a puff of smoke, the ground shifts, they win.
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They also just shuttered crypto-friendly Signature Bank. About time.
https://www.coindesk.com/polic... [coindesk.com]
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The implication I took from Yellen's remarks is there's enough there to make the depositors whole. There's some mention of "unsecured creditors" losing money (not sure who they are) and of course stockholders are SOL.
Failing to do this would have added substantial economic risk to the US economy, I think. Thus if Yellen is correct and no taxpayer dollars get spent, this is absolutely the right call. (FDIC will burn a lot of its capital reserves executing the liquidation, both of secured deposits and of the rest of the deposits, but that's what FDIC gets paid to do!) At some point, I'm presuming we'll get to see a final balance sheet to understand how the bank was liquidated and who didn't get their money back.
Actions (criminal or 'just' regulatory/administrative) taken against the SVB officials and employees will also be interesting to watch.
Thus I come down on the side of "We probably shouldn't have gotten here, but we seem to be doing the best to dig back out of the hole."
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Voting Republican. There, I said it. Bring on the down mods, but I'm not gonna stop saying it.
It was Trump & the GOP that repealed the regulations that would have stopped this. They did it in a sneaky way. Instead of repealing Dodd-Frank (which would've made headlines) they passed laws removing all of it's provisions and left the law *technically* in place. And we let them, because reasons.-
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It's pretty amusing because we literally know the direct cause of this: the Fed continuing to raise rates, because Biden tanked the economy and inflation is skyrocketing thanks to Biden's policies. The Fed is desperately trying to get inflation under control while the economy continues to get worse thanks to the White House, and that directly lead to SVB collapsing. I sure hope people remember that in a year when it's time to vote.
No amount of TDS is going to change who's in the White House while the econom
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Trump dumped far more money into the economy than Biden did yet you don't seem to be blaming him. We had 10-years of low rates followed by repeated shocks to global supply chains, manufacturing, and shipping thanks to COVID and Russia invading Ukraine.
Yes inflation is higher, rates are higher but look around you this isn't the financial crisis which resulted in mass unemployment in the USA. The economy isn't crashing which is exactly why central banks are raising rates not lowering them.
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/me looks at the recent GDP report: 2.7% growth in Q4 2022 and 3.2% growth in Q3 2022. Very tanky indeed.
The last time it happened during the Bush administration. You Trumpbots always try to forget who unscrews up the economy.
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This is true. Trump and his ilk weakened smaller bank regulations. Also, SVB lobbied against regulations.
AND THEY FAILED!
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SVB was the 16th largest bank in the country.
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The fix is class warfare and socialism, right?
Or maybe you're just wrong and they went under because they violated very basic investment safety concepts by putting most of their eggs in one basket and got it wrong.
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Uninsured are the people who have money in there above $250,000. The $250,000 is insured above that is not.
they will have to wait out the court cases and see how much in assets is available after everything else is paid. They are generally low on the list of people to get repaid.-
That is explicitly NOT how I read the Yellen announcement. "all depositors" is a VERY DIFFERENT proposition than "all guaranteed depositors". The latter group is protected no matter what Dr Yellen said, because of the FDIC.
I don't know the order of repayment by law in a bank default. But I would generally expect that depositors are 'secured creditors' with the security provided by the bank, distinct from "unsecured creditors" who for example loaned the bank money without getting collateral.
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There was another statement which seemed to imply to me that the government was putting out loans to cover the difference, like what happened in 2008. https://www.federalreserve.gov... [federalreserve.gov]
I'm not very well-educated when it comes to financial topics like this, so please inform me if I'm mistaken.
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That is the way it should be. Save the account holders. Let the people who ran the bank fail and learn their lessons.
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They should claw back the bonuses. Also, one wonders whether they ought to claw back recent withdrawals why should connected parties who knew the bank was failing get proportionally more money than other affected parties?
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Matt Levine at Bloomberg summed it up pretty well
And so if you were the Bank of Startups, just like if you were the Bank of Crypto, it turned out that you had made a huge concentrated bet on interest rates. Your customers were flush with cash, so they gave you all that cash, but they didn't need loans so you invested all that cash in longer-dated fixed-income securities, which lost value when rates went up. But also, when rates went up, your customers all got smoked, because it turned out that they were cre
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NOT FINANCIAL ADVICE. Do your own DD.
This explains why Dow futures are up 0.9%, although NASDAQ is more relevant and those futures are up 1.3% as of this writing.
I was thinking "curbs in" on Monday, and I bet they were too. Nobody wants this to blow up if they can avoid it, but historically they're usually just sand-bagging against a tsunami. We had, IIRC several months of relative calm between Bear Stearns and Lehman. SVB could be the Bear Stearns of this Bear cycle (seriously, did they let that one
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Right now long-term bond rates don't indicate high inflation expectations. Neither do the numbers, from the high of 9.6% it's down to 6.4% and projected to fall further.
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Multiple public pension funds increased their investment in the bank. Anytime you've got a high risk investment odds are good you'll find a corrupt public pension fund investing in it. All you have to do is take over a political office and Grease the right palms. You don't even have to hand over money you just make sure that later when that person no longer works managing the public pension that they get a nice job
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FED could have easily made sure the pay roll could be run and day to day bills could be paid. Something like 75% guaranteed on Monday. Additional 20% by Friday after checking the records. The last 5% subject to some cap to allow smaller companies to get full benefit while the larger ones eat their losses.
Government is telling the depositors they can continue to seek highest return and dont have to pay attention to how well the bank is run.
All the hedge fundies, people pontificated about moral hazard on
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We are making progress. In 2008 the very trading desk that created the meltdown did not even lose their "performance bonus".
At least this time they bank share holders and the unsecured lenders to the bank are losing everything.
They should claw back insider sale proceeds, and they should also claw back shareholder dividends.
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As I understand it SVB wasn't run (too) poorly or engaging in shady or exceptionally risky practices. It's only mistake was to concentrate on a single sector for it's customers and depositors. It has enough assets to cover it's liabilities to depositors, it's making reasonable money on it's loans, it's not at any huge risk over the medium-to-long term. What is has is a liquidity crunch where a large percentage of it's depositors demanded their cash right now and it doesn't have enough cash or assets it can
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The root cause was they did not hedge their long TBill purchase in 2021. It is the job of the Chief Risk Officer to make sure the position is hedged against interest rate hikes. The CEO was on the Frisco FED board. They should have hedged it. The lack of hedge made Moody asking for 1.8 billion more in AFS (available for sale funds). The HTM (hold to maturity) funds was there, it was enough. That Moody demand triggered serious of events that snowballed into this avalanche.
About how well the bank was run: T
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In the student loan forgiveness case, the SCOTUS not only took up the case, but also mused a lot about fairness. The conservative justices were all about "what about those who paid it back diligently? Is it fair to them?" "What about those who scrimped and saved, is it fair to them?"
Would anyone sue the Fed under this doctrine? Companies that check the credit rating of the banks and avoid chasing that extra 0.25% lower interest rate in their LOC.. Is it fair to them? Banks that hedged their long Tbill pur
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