[HN Gopher] U.S. lawmakers to examine merits of higher FDIC bank...
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U.S. lawmakers to examine merits of higher FDIC bank deposit
insurance cap
Author : mfiguiere
Score : 24 points
Date : 2023-03-19 17:25 UTC (5 hours ago)
(HTM) web link (www.cnbc.com)
(TXT) w3m dump (www.cnbc.com)
| beefman wrote:
| Deposit insurance should be unlimited for accounts yielding less
| than the 1-year T-bill. Insurance should be provided via the
| Fed's balance sheet, not a separate fund. Bank employee and
| director compensation above 4x GDP/capita in any year to be paid
| in shares, which they are enjoined from selling while employed by
| the bank and for one year afterward. They can borrow against the
| shares to buy mansions - I want them to live in mansions - but
| they will lose them if they need help paying their depositors.
|
| Accounts yielding more than the 1-year T-bill should require
| labeling as subject to loss.
| JumpCrisscross wrote:
| > _Bank employee and director compensation above 4x GDP /capita
| in any year to be paid in shares, which they are enjoined from
| selling while employed by the bank and for one year afterward_
|
| You've created an incentive for rotating employment, thereby
| diffusing responsibility.
| curiousllama wrote:
| This is a good thing, no?
|
| More turnover among sr folks leads to a greater focus on (1)
| institutional risk management, because you can't trust the
| new guys view things the same as the old, and (2) consistent
| reevaluation of previous assumptions, because the guy who
| made them is gone.
|
| I'd argue the long tenure of sr bank employees is a weakness
| of the current system, not a strength.
| JumpCrisscross wrote:
| I'd want to see research. Hollowing out cultures is rarely
| the solution to a complex problem.
|
| Trivially, such a rule would be worked around by trading
| staff back and forth between adjacent firms. Then you'd
| have minimum-stay and arms-length regulations, at which
| point we might just see the contracting trend hit Wall
| Street.
| beefman wrote:
| No system is perfect. What would you suggest?
| JumpCrisscross wrote:
| > _What would you suggest?_
|
| Fed accepts Treasuries at face value, not market, at the
| discount window.
|
| Stress testing for banks with more than $50bn deposits. (No
| Barney Frank/SVB exception.)
|
| New FDIC assessments for large deposits. Tier so banks can
| reasonably choose to refuse them, or charge an excess-
| deposit fee. ($1mm, $10mm, $100mm seem reasonable.)
| gruez wrote:
| >Fed accepts Treasuries at face value, not market, at the
| discount window.
|
| Why would anyone buy short dated treasuries then, when
| you can load up on 25 year treasuries at a steep discount
| (relative to face value) then turn around and give it to
| the fed at face value?
|
| >Stress testing for banks with more than $50bn deposits.
| (No Barney Frank/SVB exception.)
|
| SVB had just shy of $20B in deposits
|
| >New FDIC assessments for large deposits. Tier so banks
| can reasonably choose to refuse them, or charge an
| excess-deposit fee. ($1mm, $10mm, $100mm seem
| reasonable.)
|
| Is this really an issue that exists? Are banks obligated
| by regulation to accept deposits or something?
| JumpCrisscross wrote:
| > _when you can load up on 25 year treasuries at a steep
| discount (relative to face value) then turn around and
| give it to the fed at face value_
|
| We've already answered this question with the bailouts of
| SVB and Signature's depositors. (Granted, not
| shareholders.)
|
| Maybe a higher penalty rate for face-value borrowing? Or
| a limit to it, such that it serves as a canary?
|
| > _SVB had just shy of $20B in deposits_
|
| After the run. Before it had close to $200bn [1].
|
| > _really an issue that exists_
|
| It doesn't, and that's the problem.
|
| The FDIC assesses a uniform charge on all of a bank's
| liabilities. It's clear some depositors pose a greater
| risk than others. I'm proposing differentiating the
| FDIC's fee to incorporate that information, thereby
| encouraging banks to differentiate. Want to be a loosely-
| regulated community bank that can offer small depositors
| a higher rate because you aren't paying to insure Peter
| Thiel? Great, now you can.
|
| [1] https://www.nytimes.com/2023/03/10/business/silicon-
| valley-b...
| [deleted]
| 34679 wrote:
| Private insurance is available. If you have significantly more
| than $250k in the bank, you can afford it. Our government has
| enough "solutions" as it is, and many (most?) of them are
| targeted toward the people who need them the least.
| mindslight wrote:
| You are looking at it from the perspective of what features
| it makes sense to provide to account holders. Instead, after
| the SVB fiasco we should be looking at it from the
| perspective that all bank accounts create liability for the
| FDIC based on public expectations. As such _all bank
| accounts_ should ultimately be "FDIC insured" - not because
| we want to help out large account holders with decreased
| risk, but rather because when something does happen, those
| nominally "uninsured" account holders are going to be begging
| for a bailout _regardless_ while spreading panic to get their
| way.
|
| The insurance premiums on larger accounts should be larger
| (superlinear) to handle the increased variance of larger
| amounts. If someone wants to store large amounts of money
| without (indirectly) paying the FDIC insurance fees, then
| they choose something else besides a bank account - perhaps a
| brokerage account and/or buying treasuries directly.
|
| Furthermore, the hazard of bank management gambling the money
| away should be discouraged through larger capital
| requirements, and even criminal penalties for blowing through
| that capital buffer and into customer deposits due to not
| employing proper hedging or insurance.
| hartator wrote:
| Yes, I would agree to that.
|
| It seems unfair to punish depositors that have zero or very low
| interest rates on their deposits. At the same time, it seems
| fair to punish depositors which were yeild chasing that 4.50%
| APY from SVB savings.
| roundandround wrote:
| I think depositors who are happy with low interest should be
| able to use accounts directly from the treasury to work with
| US bonds.. I don't want to bail out companies that try to eek
| out small profits in the middle and help them drive the
| average consumers interest to well bellow the bond rates.
| hartator wrote:
| I mean you can buy directly bonds already aren't you?
| roundandround wrote:
| The Treasury is selling bonds for the US' interests and
| should provide adequate accounts to manage your funds
| within the context of US savings bonds and transfers.
| People who put a million in bonds through an opaque
| account at an intermediary are then still at their own
| risk.
|
| Why subsidize and encourage middlemen? It's like building
| the scam opportunity for privatized social security
| insurance management, as if honesty will be the most
| profitable choice in managing that.. It's inappropriate
| for the government to design systems that reward scamming
| in the middle.
| woodruffw wrote:
| Making depositors' insurance effectively unlimited so long as
| it's below the T-bill rate would probably reduce incentives
| around liquidity, right?
|
| It would be interesting to read policy or study papers on ideas
| like this; I don't have especially strong intuitions for how
| they'd play out.
| curiousllama wrote:
| If the bank collapses, you get wiped out. Incentive for the
| banker is the same. Incentive for the depositor shifts
| assuming perfect information. But in practice, information
| asymmetry makes depositor preference insensitive to bank
| risk, regardless of insurance.
|
| This would just be an acknowledgement "we're always gonna
| have to do it for the big guys, might as well make it fair
| for the little guys too"
| mym1990 wrote:
| Amazing how quickly things move when dollars are at stake.
| [deleted]
| 2OEH8eoCRo0 wrote:
| It's amazing that lawmakers act quickly to head off a crisis
| that would not only affect all Americans but send ripples
| through the global economy?
| mym1990 wrote:
| You mean "lawmakers act quickly to preserve the capital of
| the global elite, of which the cost will be born by everyone
| else, in response to extreme moral hazard, and ultimately no
| one will be held accountable."
| curiousllama wrote:
| I mean it is amazing if they do it well. If we don't have a
| financial crisis soon, it would be a wonderful sign of
| responsible governance, effective regulation, and
| international cooperation.
|
| So many doubt the ability of the US government to govern
| responsibly. It IS amazing when they demonstrate
| responsibility!
| checkcircuits wrote:
| The better question of course is who pays for this? They're quiet
| about it because it's not the banks. The banks paying it is only
| a technicality. This additional premium they will inevitably have
| to pay will come from depositors. So, effectively, people who
| trusted their money with banks are being punished for putting
| money in banks that abandoned their fiduciary duty to their
| customers.
|
| Unless the banks themselves pay it and something is in place to
| prevent these costs being past down to their depositors this
| should be a non-starter. It is TARP by any other name.
| x0x0 wrote:
| nm, I was wrong, dragonwriter has the right of it
| dragonwriter wrote:
| > Insuring unlimited amounts based on the whim of the fed
| while only charging insurance on the first 250k
|
| The FDIC doesn't charge insurance on only the amount of
| deposits covered by insurance. Prior to 2010, it did on all
| deposits, post 2010 under Dodd-Frank it expanded to all
| _liabilities_.
| crazygringo wrote:
| It's just insurance for your own account though. You pay to
| insure your car and you pay to insure your bank account.
|
| As long as bank regulations are reasonably strict that this
| happens as infrequently as it does, ultimately having
| depositors foot the bill doesn't seem problematic.
|
| It's more appropriate than taxpayers generally, and it can't be
| the bank owners because the whole point is they've _already_
| been wiped out.
| checkcircuits wrote:
| The problem is they aren't wiped out enough. Bankers who
| instigated the GFC got jobs elsewhere. One of them was even
| the CEO of SVB!
|
| Breach of fiduciary duty in any other context is essentially
| a death sentence for a career in finance. Clearly being
| _wiped out_ isn 't enough. The complexity in the matter is
| that depositors reasonably expect to be able to get all of
| their money out at any time. As they should. It's their
| money. At the command of the fed their reserve rates were
| dropped to zero essentially making the cash value of an
| account a meaningless number in a computer.
|
| Given this risk, the bank should be the sole party
| responsible for paying such insurance for it's depositors.
| It's a cost of doing business, and importantly taking a risk
| and fiduciary responsibility over a client. We demand doctors
| insure themselves because they can destroy a patients life. A
| bank should be the same. To have the depositor (or patient)
| front the cash in any form should be made illegal. Hence my
| demand to insure the funds are secured only through the bank
| owners themselves. Ideally, the executive board carries
| enough insurance to make all depositors whole in the event of
| a bank collapse. This should be uncontroversial.
| JumpCrisscross wrote:
| > _banks paying it is only a technicality_
|
| FDIC fees are levied on banks. There are a lot of banks, some
| which compete on deposit rates. (The majors generally do not,
| but you don't put your money in a Citibank account to grow.)
| hd95489 wrote:
| Why can't it be opt in. If you want the insurance you have to
| sacrifice yield. Under 250 it's free but over that you have to
| pay
| [deleted]
| lowkey wrote:
| I think Caitlin Long said it best on Twitter:
|
| "WORLD WAKING UP to the fact that a bank deposit is an unsecured
| loan to a leveraged counterparty, that the FDIC insurance fund
| only has $128bn, that total deposits in US commercial banks=$17.6
| trn, &...here's the big one: that money itself is a confidence
| game (always has been)"[0]
|
| [0]
| https://mobile.twitter.com/CaitlinLong_/status/1637466829219...
| 2OEH8eoCRo0 wrote:
| Not a banking expert by any means but what would happen if all
| banks were forced to pay out failed bank depositors in a cap
| weighted manner? Banks might then push for sensible regulation
| themselves to keep risky banks from costing them money.
| jmclnx wrote:
| It should be increased, but seems it is ignored for the rich
| anyway, so what is the point :)
| drdec wrote:
| At least we could have our effective policy match the stated
| policy? That would reduce volatility and uncertainty. If the
| SVB depositors knew what was going to happen ahead of time
| would there even have been a run at all?
| jmclnx wrote:
| If all deposits were be covered then I doubt there would have
| been a run at all.
|
| But, Banks pay for FDIC Insurance, the money has to come from
| somewhere. Either the Tax Payers will pay via higher fees or
| interest rates to the Banks or via higher Taxes to the Fed.
|
| All this means is people with large deposits will be covered
| directly by the Tax Payer, it is just a matter of who we pay.
| boulos wrote:
| I'd be curious to know how much of the "overage" is from
| businesses that would be fine with narrow banking at the Fed.
|
| The obvious downside is that you still need _regular_ banks and
| financial institutions for loans, but for large operating
| accounts for many companies you just want something you can spend
| and won 't disappear. And presumably this is why the Fed doesn't
| permit narrow banking: major deposits would dry up, loan rates
| would have to be much higher, and so on.
| JumpCrisscross wrote:
| > _for large operating accounts for many companies you just
| want something you can spend and won 't disappear_
|
| Every corporate treasurer worth their salt manages a portfolio
| of short-dated bills, commercial paper and repos for this
| purpose. Maybe now this knowledge is obsolete. But it's always
| been there, at small sizes, via Treasury Direct.
| dopylitty wrote:
| Fundamentally the money is protected by the stability and
| reliability of the US government. Why have these private
| intermediaries in the middle at all?
|
| If you want to sock away some cash in a place where it won't
| disappear due to financial system shenanigans you should be able
| to give it directly to a US government entity like, say the USPS.
| Ultimately money is only worth anything in the context of a
| stable and reliable government anyway.
| JumpCrisscross wrote:
| > _you should be able to give it directly to a US government
| entity_
|
| https://www.treasurydirect.gov/
| _spoonman wrote:
| What you're getting at is known as the "risk free rate," or the
| risk premium of leaving your money with another entity for a
| period of time. US gov't treasuries carry a risk free rate;
| you'd just buy treasuries.
| kccqzy wrote:
| I recently became aware of the Diamond-Dybvig model (which was so
| influential that Diamond and Dybvig were awarded the 2022 Nobel
| prize), that argued that deposit insurance is really the best way
| to avoid bank runs. After reading that, a higher FDIC cap became
| a no-brainer to me. I encourage everyone to check that out.
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