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You have no way of knowing that economic collapse was imminent… There may well still be considerable fallout. I’m not in favor of bailing out mismanaged banks or wealthy individuals who should have known that FDIC protections were only up to $250k. Kevin O’Leary makes some excellent points.
The second and third largest bank failures in US history happening back to back = a crisis. First Republic would have been gone in a couple of days.
If it was no big deal Jamie Dimon would not have hit the phones cobbling together $30BBN in private money for First Republic......nor would the CEO/Boards/financial wonks at the contributing banks allowed their respective banks to participate. Nor would the Fed. have set up a $400BBN facility for banks to leverage against potential realized bond loses.
Bank runs/panics and failures have been key drivers per recessions and depressions in The US, England and regularly since the late 1600s, elsewhere too.
The second and third largest bank failures in US history happening back to back = a crisis. First Republic would have been gone in a couple of days.
If it was no big deal Jamie Dimon would not have hit the phones cobbling together $30BBN in private money for First Republic......nor would the CEO/Boards/financial wonks at the contributing banks allowed their respective banks to participate. Nor would the Fed. have set up a $400BBN facility for banks to leverage against potential realized bond loses.
Bank runs/panics and failures have been key drivers per recessions and depressions in The US, England and regularly since the late 1600s, elsewhere too.
Do you not think that banking executives had a vested interest in jumping to the rescue?
Perhaps the $250k should be raised to $500k. But businesses can and should spread deposits among several banks. In todays world, this would not be that difficult. I have read that this bank had some sort of agreement with businesses that prohibited or encouraged them to not do so (don’t know the specifics or how accurate this is).
My employer pays out over $300 million per day to vendors. Some of the invoices are several million dollars. That bank splitting ide isn't going to work in that situation.
The crisis may not have been any or much worse had they let the bank fail. I suspect the crisis is going to spread anyway. According to news reports, this bank was mismanaged, executives sold stock prior to the bank crisis, many wealthy people had more than $250k there knowing full well their money was only protected by the FDIC up to $250k. The government rewarded poor behavior by finding a way to bail them out. It is not the responsibility of the government to bail out mismanaged businesses and they have no business doing so. This sets terrible precedent. Are they going to bail out other banks or even other businesses that fail?
If the bank had the assets to cover the depositors money and the reason for the failure was maturity mismatch, there's no reason to limit their payback to $250k. It would be ridiculous for the FDIC to take all the assets and scalp the depositors.
If the bank had the assets to cover the depositors money and the reason for the failure was maturity mismatch, there's no reason to limit their payback to $250k. It would be ridiculous for the FDIC to take all the assets and scalp the depositors.
Assets of the bank would be liquidated and depositors would receive some of their funds back. That’s the way business works. If you make poor decisions or mismanage, you may ultimately go out of business.
I'm a pretty conservative guy politically. Free markets and all of that. I'm also a realist. If people were rational actors there would be very few bank runs. Truth is in times of stress with incomplete information a symphonic press, short sellers starting rumors etc. etc. people and many business fail the rationality test too often.
I'm not sure I agree with the bold. Isn't this game-theoretic? When a rational actor sees the beginnings of what he might consider an irrational run on the bank, is it irrational for him to GTFO and ask questions later? Game theory suggests it is very rational of him to pull his money, because every intelligent rational actor knows every single bank in existence is insolvent in the face of a sufficiently large run on the bank.
Quote:
Originally Posted by EDS_
SVB having no risk manager for almost a year.
That's a big one.
Two more big ones:
1) SVB's Chief Administrative Officer was Joe Gentile. That name may sound familiar to those of us who were old enough to remember the 2008 financial crisis. Joe Gentile was the CFO of Lehman Brothers when it went belly-up.
2) Where the hell were SVB's regulators for the past 2 years? Its bank examiners for the past 2 years? Part of the answer be found in the Board of Directors of the Federal Reserve Bank of San Francisco (SVB's regulator). Greg Becker, SVB's CEO, was a member of the San Francisco Fed's Board of Directors.
The second and third largest bank failures in US history happening back to back = a crisis. First Republic would have been gone in a couple of days.
If it was no big deal Jamie Dimon would not have hit the phones cobbling together $30BBN in private money for First Republic......nor would the CEO/Boards/financial wonks at the contributing banks allowed their respective banks to participate. Nor would the Fed. have set up a $400BBN facility for banks to leverage against potential realized bond loses.
Bank runs/panics and failures have been key drivers per recessions and depressions in The US, England and regularly since the late 1600s, elsewhere too.
From another poster in another thread, sums it up very well:
As Mattja and Lizap point out - the costs to FDIC will be passed to the banks, who in then pass it onto consumers through higher fees to consumers. Also, possibly lower interest rates on bank accounts or higher interest rates loans and credit cards, one way or the other, banks who are FDIC will have to make up the costs.
The Biden administration DID NOT HAVE TO DO THIS. They did not have to bail out consumers over the 250k FDIC protection limit. The question is whether it was done for legitimate reasons (to stop a possible bank run panic) or done for political reasons (many of the SVB Bay Area wealthy consumers are liberal democrats). Possibly both.[/quote]
It is ridiculous that the big banks bailed the smaller ones out. This adversely impacts their financial position and makes them less financially viable. Also don’t agree with the FED assisting the smaller banks. Clients know their money is only protected up to $250k. Forgiving student loans, bailing out banks, you’d think the pot had no bottom. Everyone will eventually pay a price for all this…
Janet Yellin & Jay Powell twisted the arms of the Big Banks to do this. You don't say know to the Secretary of the Treasury and the Chairman of the Federal Reserve when they call on you to help.
While SVB's assets were loaning money to the Treasury via long-dated bonds instead of short-maturity T-Bills, First Republic Bank loaned money to Municipal Governments via Muni Bonds.
Treasuries and T-Bills are extremely liquid - you can sell them pretty much any time, although you will have to recognize a profit or loss when you do so.
Municipal Bonds are much less liquid. The bonds may be perfectly safe (and indeed, may carry municipal bond insurance in the unlikely event of a default) - but you can't just pick up the phone and sell them right away. Most muni bonds are "thinly traded" if at all. Mostly they are just held to maturity.
So a run on First Republic would have been even uglier due to their lack of liquidity.
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