[HN Gopher] Federal Reserve announces backstop of deposits, all ...
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Federal Reserve announces backstop of deposits, all money 100%
available Monday
Author : robbiet480
Score : 95 points
Date : 2023-03-12 22:19 UTC (43 minutes ago)
(HTM) web link (www.federalreserve.gov)
(TXT) w3m dump (www.federalreserve.gov)
| anon291 wrote:
| 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
| throwaway-blaze wrote:
| 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.
| abigail95 wrote:
| Trading a 1% bond above market value is money printing -
| where does the money come from? It's obviously inflationary
| compared to not doing it.
|
| If all the money was there the bank would just give the bonds
| themselves to depositors.
| anon291 wrote:
| 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.
| greenthrow wrote:
| 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?!"
|
| I hope this changes in my lifetime.
| blcknight wrote:
| 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.
| xenadu02 wrote:
| 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.
| itsoktocry wrote:
| 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.
| tough wrote:
| Too big too fail
| 323 wrote:
| There is an official name for that - Systemically Important
| Financial Institution
|
| https://www.investopedia.com/terms/s/systemically-
| important-...
| sithlord wrote:
| 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.
| hypothesis wrote:
| Yeah, they just pull $25B of out that hat, nevermind talks
| about debt ceiling and defaulting on US debt.
| philkuz wrote:
| ... and we avoid contagion of all regional banks.
| gWPVhyxPHqvk wrote:
| Yeah, it sucks because it's going to show up as inflation.
| dcre wrote:
| How's that?
| reducesuffering wrote:
| May they never ever mock us with false free market beliefs
| again. Crony capitalism.
| di456 wrote:
| No, this is damage control to stop contagion.
|
| 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.
| abigail95 wrote:
| 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?
| 2OEH8eoCRo0 wrote:
| Privatize gains, socialize losses.
| xwdv wrote:
| People cry out for socialism. Then when they see it in action
| the response is "Oh no, not like that."
| Spooky23 wrote:
| As long as the bank dies, it's going to stop more drama and
| cost not so much as it will prevent further panic.
| vaidhy wrote:
| 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.
| wmf wrote:
| The "freebie" was (supposedly) that SVB would give mortgages
| to people who no other bank would touch.
| 323 wrote:
| You consider getting your money back from a bank deposit a
| freebie?
|
| You expect every person on the street to be an financial
| auditing expert and to read theirs bank's statements?
| rhcom2 wrote:
| If you're a company's CFO putting half a billion in a bank I
| would definitely expect that.
| 323 wrote:
| 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.
| adverbly wrote:
| TBH, looks like they went belly up because of buying too many
| long term low yield bonds... Sort of the opposite of excessive
| risk really...
| 542458 wrote:
| Well... they took on a lot of interest rate risk, rather than
| credit risk. Then rates rose and they 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.
| di456 wrote:
| No, it was because they sold the bonds at a loss, triggering
| a loss of confidence and a bank run.
| ambicapter wrote:
| 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.
| di456 wrote:
| 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.
| [deleted]
| sithlord wrote:
| 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".
| adra wrote:
| 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.
| reducesuffering wrote:
| 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.
| brunooo wrote:
| Curious if anyone knows if SVB would have been eligible on
| Thursday?
|
| https://www.law.cornell.edu/cfr/text/12/201.108 is the list of
| supported collateral.
| gWPVhyxPHqvk wrote:
| So, money machine go brr?
| gsibble wrote:
| I bet if all the startup investors were Republican this wouldn't
| have happened.
| nemo44x wrote:
| 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.
| dvt wrote:
| 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.
| johnfn wrote:
| 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.
| anon291 wrote:
| The united states has almost universal unemployment
| insurance. If your paycheck doesn't come you'll get a check
| soon.
| elbigbad wrote:
| 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.
| anon291 wrote:
| 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
| [deleted]
| blcknight wrote:
| Lol hardly. Even if they qualify for unemployment it's a
| tiny fraction of a tech workers salary. It caps out in
| California at $450 a week.
| telotortium wrote:
| 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.
| taeric wrote:
| 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.
| inferiorhuman wrote:
| https://www.bbc.com/news/business-64934348
| digitaltrees wrote:
| The fed action is the right call unless you want to go back to
| the 1800s when bank failures were routine and caused cyclical
| shocks.
| necubi wrote:
| 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?
| tcbawo wrote:
| 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.
| briandear wrote:
| 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.
| kylecordes wrote:
| 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.
| cm2187 wrote:
| Or rather the dems bailing out their VC donors.
| gsibble wrote:
| Exactly. This is really bailing out the rich and their
| investments. Such bullshit.
| bogomipz wrote:
| 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. 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.
| [deleted]
| gsibble wrote:
| Everyone should google "moral hazard"
| wmf wrote:
| I'll see your moral hazard and raise you a social media
| contagion.
| senko wrote:
| To everyone talking about bailout and money printing:
|
| > 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)
| abigail95 wrote:
| That's like saying TARP returned a profit.
|
| It's a bailout because the govt is stepping in to ensure the
| liabilities of a business that's insolvent.
| argella wrote:
| Whoever said that doesn't view inflation as something borne by
| taxpayers.
| dcre wrote:
| Please, do us the favor of drawing the through-line between
| this action and inflation.
| mmoustafa wrote:
| Furthermore, the banks will pay for it:
|
| > 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.
| kqr2 wrote:
| 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.
| baal80spam wrote:
| Of course!
| xenadu02 wrote:
| 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.
| cm2187 wrote:
| That's called a tax.
| choeger wrote:
| 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?
| wmf wrote:
| 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.
| abigail95 wrote:
| Do you know what the point of raising interest rates and
| backstopping bonds at the same time is?
|
| If there's a price floor for older bonds - how does that
| affect the rates of newer ones? Or is this irrelevant?
| lottin wrote:
| Who's paying the bill? Are they benefiting depositors at the
| expense of other creditors? Not clear from this press release.
| AH4oFVbPT4f8 wrote:
| 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.
| throwaway-blaze wrote:
| 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.
| AH4oFVbPT4f8 wrote:
| 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."
| tekno45 wrote:
| you know thats how ALL insurance works right?
| AH4oFVbPT4f8 wrote:
| "Any losses to the Deposit Insurance Fund to support
| uninsured depositors will be recovered by a special
| assessment on banks, as required by law."
|
| Shouldn't the insurance cover what was insured? Why is it
| covering more than that?
| Rury wrote:
| Yes, someone has to buy those assets for it to happen. Those
| creditors though are buying contracts which pay interest over
| time, so a risky investment. The price they buy them at and
| whether they yield to maturity, determines who is more or less
| footing the bill.
| [deleted]
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