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>The federal government’s action is, in my estimation, the right thing to do for this moment in time. There will, though, be long-term consequences for fundamen
by nsmog767 4y ago
>The federal government’s action is, in my estimation, the right thing to do for this moment in time. There will, though, be long-term consequences for fundamentally changing the nature of a bank: remember, depositors are a bank’s creditors, who are compensated for lending money to the bank; if there is no risk in lending that money, why should depositors make anything? Banks, meanwhile, are now motivated to pursue even riskier strategies, knowing that depositors will be safe.
I don't believe this is a binary issue, but a lot of the "pro-bailout" rhetoric is essentially "well of course we need to know we'll get our money back if we deposit it in a bank." This is clearly the best ideal. But that's not how it works! And FDIC limits were real but ignored in this case!
- deleted 4y ago[deleted]
- jonathan-adly 4y agoCould get the best of both worlds with a small, but symbolic haircut. Like 95% back. Now everyone knows that money in bank is not risk-free, and you limit any systemic fall out.
- hackernewds 4y ago> depositors are a bank's creditors, who are compensated for lending money to the bank; this is simply not true. if anything the bank charges me money to hold my funds.
- zamnos 4y agoYou should currently be getting at least 3.3% APY from your savings account. If you're not, it would be in your financial interest to move it to an account (possibly even at the same bank) where you do.
- jen20 4y ago> This is clearly the best ideal. But that's not how it works! The “systemic risk” exceptions that are in the legislation and announcements over the weekend mean this is exactly how it works. My guess is that this will be continued - perhaps even publicly formalized - or small banks will cease to exist very quickly in favour of those that are too big to fail.
- sebzim4500 4y ago>But that's not how it works! I would imagine the people advocating for a 'bailout' (using the most generous possible definition here) want this to become how it works. Like how in Germany the government guarantees every German bank balance. I have enough problems, I don't want to have to worry that my bank balance will disappear unless I spread it around in order to abuse a technicality.
- colinjoy 4y ago> Like how in Germany the government guarantees every German bank balance … up to the amount of 100k per customer, so less than the FDIC guarantee. There are additional, voluntary, insurances given by groups of banks. These are also limited and customers are not legally guaranteed a payout.
- ericpauley 4y agoSpreading deposits around is not abusing a technicality. The limit incentivizes diversifying deposits because it reduces the risk of a single bank. Retail banks benefit immensely from the fact that much of their deposit base is smaller accounts that are less correlated. A bank handling only large deposits from a small number of highly correlated depositors is exactly what FDIC caps ought to prevent.
- reaperducer 4y agoI don't want to have to worry that my bank balance will disappear unless I spread it around If you have enough money to worry about having to spread it around, you have enough money to buy additional insurance for it, and/or enough money to hire someone to take care of those things for you. "Oh, no! I have $250,000 in savings and now I might have to open another bank account to hold even more money! Woe is me!" Can you even hear yourself?
- ghaff 4y agoI can also pretty much guarantee that very few individuals with >$250K of savings are keeping it in a bank. It's in a brokerage account in some combination of bonds, money market, and equities.
- bilekas 4y ago> This is clearly the best ideal. But that's not how it works! And FDIC limits were real but ignored in this case! The FDIC limit is basically useless at this level. 250k for SVB given their clientele really seems futile. So I'm not sure even discussing it would serve much value. What I fund more interesting was the UK branch of SVB was actually higher in assets than liabilities and was making profit. It's just so strange to me still how this seems to have happened so quickly and seemingly, made worse by some people just getting worried.
- julienfr112 4y agoThere is something called the risk-free rate. It used to be 0, but not any more.
- trompetenaccoun 4y agoLimits were not "ignored", the companies simply have no other choice. The problem is systematic and by design. A medium sized startup/business handling only 25 million would need to bank with 100 different banks, obviously that's inconceivable in practice. And now look at some of the more prominent customers. Pinterest, Shopify, CrowdStrike Holdings, Beyond Meat, Andreessen Horowitz, Founder's Fund, Circle. The latter is of particular interest because they are confirmed to have had around 3.3 billion dollars with SVB (of the $40 billion they manage in total). So some quick math, they should have used 160000 different banks to be safe, no problem. Apart from the fact that there are less than 5000 FDIC insured banks in all of the US.
- soumyadeb 4y agoThere are better monetary instruments (like short term Treasury Bonds) to keep money at scale. Most startups don't have a team (CFOs etc) but I am sure the larger ones don't keep cash like that.
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- 9034725985 4y agoWhat would it take to formally increase this limit to USD 250 million for everyone?
- orangepurple 4y agoProbably negative interest rates for customers
- chernevik 4y agoThere are many ways a business can practically manage cash to avoid bank risk. This has been pointed out so in the past 48 hours that I am beginning to think people are just willfully ignoring it.
- youngtaff 4y ago
- bioemerl 4y agoIt's essential a thousand times over that money goes to banks instead of mattresses. Letting bank runs erase savings is a really terrible idea that would be a repeat of the 1920s era mistakes.