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bank failures

Started by kaysixteen, March 13, 2023, 08:37:47 PM

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apl68

If any will come after me, let him deny himself, take up his cross daily, and follow me.
Whoever would save his life will lose it, but whoever will lose his life for my sake will find it.
For how does a man profit if he gains the whole world, but loses his soul?

ciao_yall

Quote from: kaysixteen on March 14, 2023, 10:00:24 PM
If a run begins on one particular bank. couldn't the govt, instead of chloroforming the whole institution (another quote from George Bailey), merely shut it down temporarily and impose temporary restrictions on the amount of money any given depositor could withdraw, along perhaps with requiring the bank to liquidate some of its assets to bolster its cash on hand?

That makes a lot of sense. Maybe a little too much? Theoretically, the fact that the wheels have already fallen off means that it might be too late for that bank.

Banking laws are designed to keep banks from getting to that point in the first place. They don't like it because it costs them profit - they have to keep reserves at a certain level so they can't invest in more profitable, riskier investments. So they kvetch about "strangling regulations" until they want the government to bail them out.

The 2009 financial crisis and bailouts were handled, IMO, very poorly by the government, and the banks ended up laughing all the way to.. the bank? So I think they are more cautious this time about who needs to be protected.

That said, no bank could survive all its depositors suddenly demanding their cash back.

Ruralguy

Oh, sorry, yes, one of them was the taxi driver. But there is the scene in which, I think its Bailey, calls out "Bert! Ernie!" and I laughed at that the first time I heard it. 

Anselm

K16, I believe part of the idea behind the FDIC was to assure the public that their money is safe and they can still withdraw funds even from a distressed bank.  I believe that normally people can get their money within one business day of a bank failure.   With SVB it does look like they came up with a system to keep it running.  What I want to know is if this option is already written in their rules or if they are making things up on the fly.  In past years did owners of large deposits lose most of their money when their bank failed?  One old schoolmate of mine was president of a a bank that failed during the GFC of 2007.  Eight million dollars of his personal net worth evaporated.  I want to know if there are new rules in place for all banks or is SVB being treated with special kid gloves.
I am Dr. Thunderdome and I run Bartertown.

ciao_yall

Quote from: Anselm on March 15, 2023, 10:01:44 AM
K16, I believe part of the idea behind the FDIC was to assure the public that their money is safe and they can still withdraw funds even from a distressed bank.  I believe that normally people can get their money within one business day of a bank failure.   With SVB it does look like they came up with a system to keep it running.  What I want to know is if this option is already written in their rules or if they are making things up on the fly.  In past years did owners of large deposits lose most of their money when their bank failed?  One old schoolmate of mine was president of a a bank that failed during the GFC of 2007.  Eight million dollars of his personal net worth evaporated.  I want to know if there are new rules in place for all banks or is SVB being treated with special kid gloves.

That was always a risk for large depositors. During 2008-9 there were people who risked losing their escrow accounts, for example, because they were over the limit during the period that the bank was siezed. Not sure how those situations finally worked out.


dismalist

QuoteI want to know if there are new rules in place for all banks or is SVB being treated with special kid gloves.


"The Treasury Department designated both SVB and Signature as systemic risks, giving it authority to unwind both institutions in a way that it said "fully protects all depositors." The FDIC's deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 cap on guaranteed deposits." From NBC.

SVB owners are losing all. SVB depositors lose nothing. The reason is fear, panic really, of contagion.

The cash is coming form the FDIC, which is financed by banks. This reduces banks' profits indirectly, and reduces their owners' tax payments, so the bailout is financed by taxes! Just doesn't look that way. :-)

The difficulty with such bailouts is that it encourages banks to take greater risks. I win, I win big. I lose, I lose a little and you lose a lot.

There are better ways of handling the risks to the monetary system posed by fractional reserve banking, but not today.
That's not even wrong!
--Wolfgang Pauli

ciao_yall

Quote from: dismalist on March 15, 2023, 10:49:07 AM
QuoteI want to know if there are new rules in place for all banks or is SVB being treated with special kid gloves.


"The Treasury Department designated both SVB and Signature as systemic risks, giving it authority to unwind both institutions in a way that it said "fully protects all depositors." The FDIC's deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 cap on guaranteed deposits." From NBC.

SVB owners are losing all. SVB depositors lose nothing. The reason is fear, panic really, of contagion.

The cash is coming form the FDIC, which is financed by banks. This reduces banks' profits indirectly, and reduces their owners' tax payments, so the bailout is financed by taxes! Just doesn't look that way. :-)

The difficulty with such bailouts is that it encourages banks to take greater risks. I win, I win big. I lose, I lose a little and you lose a lot.

There are better ways of handling the risks to the monetary system posed by fractional reserve banking, but not today.

Actually the investors and owners lose big, because the value of their investments is reduced or wiped out.

Depositors should be protected because it isn't their fault the banks mismanaged themselves. Should they have been monitoring the bank? Maybe. But that's also the expectation that we pay fees for banks to manage themselves, and taxes for regulatory oversight.

For example... Charles Schwab...

dismalist

Quote from: ciao_yall on March 15, 2023, 11:25:55 AM
Quote from: dismalist on March 15, 2023, 10:49:07 AM
QuoteI want to know if there are new rules in place for all banks or is SVB being treated with special kid gloves.


"The Treasury Department designated both SVB and Signature as systemic risks, giving it authority to unwind both institutions in a way that it said "fully protects all depositors." The FDIC's deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 cap on guaranteed deposits." From NBC.

SVB owners are losing all. SVB depositors lose nothing. The reason is fear, panic really, of contagion.

The cash is coming form the FDIC, which is financed by banks. This reduces banks' profits indirectly, and reduces their owners' tax payments, so the bailout is financed by taxes! Just doesn't look that way. :-)

The difficulty with such bailouts is that it encourages banks to take greater risks. I win, I win big. I lose, I lose a little and you lose a lot.

There are better ways of handling the risks to the monetary system posed by fractional reserve banking, but not today.

Actually the investors and owners lose big, because the value of their investments is reduced or wiped out.

Depositors should be protected because it isn't their fault the banks mismanaged themselves. Should they have been monitoring the bank? Maybe. But that's also the expectation that we pay fees for banks to manage themselves, and taxes for regulatory oversight.

For example... Charles Schwab...

And both failed miserably. Incentives.

Narrow banking is a better way: https://www.forbes.com/2009/04/22/loan-mortgage-mutual-fund-wall-street-opinions-contributors-bank.html?sh=52f1305853d0
That's not even wrong!
--Wolfgang Pauli

Hegemony

Quote from: Ruralguy on March 14, 2023, 06:49:04 PM
The funnest fact about that movie is that the cops are named Bert and Ernie. Seriously.

Perhaps you already know this, but the Sesame Street Bert and Ernie were specifically named after the It's A Wonderful Life characters. So it's not a coincidence.

Ruralguy

I didn't know it, but I suspected so, which is why I thought it was funny.

dismalist

Quote from: kaysixteen on March 14, 2023, 10:00:24 PM
If a run begins on one particular bank. couldn't the govt, instead of chloroforming the whole institution (another quote from George Bailey), merely shut it down temporarily and impose temporary restrictions on the amount of money any given depositor could withdraw, along perhaps with requiring the bank to liquidate some of its assets to bolster its cash on hand?

'Ya know, it was once that way, before the founding of the Federal Reserve in 1913. Banks in trouble would just suspend converting money in checking accounts to cash. You could still write checks on your account, and the check would trade at a discount, the size of which depended upon in how much trouble people thought were in. But you checking account didn't go to zero! Anyway, after some while things would get back to normal for the depositors, not necessarily for the owners.
That's not even wrong!
--Wolfgang Pauli

pgher

Quote from: Hegemony on March 15, 2023, 12:02:06 PM
Quote from: Ruralguy on March 14, 2023, 06:49:04 PM
The funnest fact about that movie is that the cops are named Bert and Ernie. Seriously.

Perhaps you already know this, but the Sesame Street Bert and Ernie were specifically named after the It's A Wonderful Life characters. So it's not a coincidence.

I always thought so, but apparently it's an urban legend:
https://www.sfgate.com/entertainment/carroll/article/A-Few-Tiny-Errors-Part-I-3326829.php

nebo113

What happened to risk taking capitalism?  Now they expect government bailouts.

dismalist

Quote from: nebo113 on March 16, 2023, 05:44:19 AM
What happened to risk taking capitalism?  Now they expect government bailouts.

Risk taking capitalism works when he who chooses the risk level gains when it works and loses when it fails. Fractional reserve banking [not all your cash is not in the bank's cellar, its been lent out] means if the bank takes risks and wins, it keeps the gains, but if it loses, the whole banking system can go down the tubes. That's why there has to be regulation of risk. Bailouts are necessary to save the system, not the owners of the failing bank.

There are better ways.
That's not even wrong!
--Wolfgang Pauli

kaysixteen

Those better ways should probably not be capitalizing all the profits whilst socializing the risks.   What do you suggest?  As an aside here, the govt had better figure out a way to take back those hideous bonuses SVB paid its execs last week.