Viewing a single comment thread. View all comments

bradland t1_jcb0v7t wrote

Do you think the decision to protect depositors, but not investors, is indicative of a new policy direction, or is this just a one-off due to the nature of SVB's customer composition (an overwhelming number of large-ish employers)?

1

politico OP t1_jcb6caq wrote

So, legally the answer to this is, not a new policy. What actually happened is that the Fed, FDIC and Treasury invoked a "systemic risk exception" to the requirement that the FDIC try to minimize losses to its deposit insurance fund. That requires there to be some sort of threat to the financial system or the broader economy. (As an aside, the agencies haven't really laid out their full justification for that, but the central reason seems to have been staving off financial panic).

It might be hard to keep suggesting that every bank poses that kind of risk! And of course, that's not what Congress has said -- the deposit insurance limit is set at $250,000. That said, this could spur a change in deposit insurance law sometime in the future.

But the answer is actually more complicated than that. The Fed also unveiled an emergency lending program that, for the time being, will allow banks to put up the type of collateral that SVB dumped for cash loans that will help them meet withdrawal requests. So for now, the government has basically facilitated banks being able to handle more panicky behavior by depositors (although it depends on whether they have enough of the right type of assets). And that's sort of an indirect backing of depositors for now!

- Victoria

3

biospeculator t1_jcb96ay wrote

> The Fed also unveiled an emergency lending program that, for the time being, will allow banks to put up the type of collateral that SVB dumped for cash loans that will help them meet withdrawal requests.

I am a bank & I have an asset with a nominal value of $100. Now underwater at $50. Go to the Fed & trade it for $100. Keep buying the underwater asset class but now I can buy assets worth $200 (nominally). Go to the Fed & trade it for $200 cash / equivalents. Go back to markets & buy $400 worth of underwater assets....

1