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U.S. says ‘all’ deposits at failed bank will be available Monday

  

Category:  News & Politics

Via:  s  •  last year  •  31 comments

U.S. says ‘all’ deposits at failed bank will be available Monday
The decision by Treasury to backstop all of SVB’s deposits — not just those up to $250,000 that are automatically insured under federal law — will likely ignite a political firestorm over the decision to protect the assets of tech firms, venture capitalists, and other rich people in California.

S E E D E D   C O N T E N T





The Biden administration announced Sunday night that all depositors at the failed Silicon Valley Bank would have access to all their money on Monday morning, approving an extraordinary intervention aimed at averting a crisis in the financial markets.


Authorities said they were also extending protection to depositors of a second bank, Signature Bank of New York, which state regulators closed on Sunday as unease in the financial sector appeared to spread. Separately, the Federal Reserve announced that it was creating a new lending facility for the nation’s banks, designed to buttress them against financial risks caused by Friday’s collapse of SVB.



The series of crisis maneuvers by federal authorities — announced just hours before the start of trading in Asia — reflected the fear that has rippled through the banking sector just a few days after the collapse of Silicon Valley Bank, which many financial experts thought initially was confined to one part of the economy.



The decision by Treasury to backstop all of SVB’s deposits — not just those up to $250,000 that are automatically insured under federal law — will likely ignite a political firestorm over the decision to protect the assets of tech firms, venture capitalists, and other rich people in California.



“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” a joint statement from the Treasury Department, the Fed and the Federal Deposit Insurance Corporation said. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”



On a call with reporters on Sunday evening, a senior Treasury official defended the administration’s decision as necessary to protect the stability of the banking system and emphasized that the move was aimed at protecting companies and workers who could be harmed by the bank’s collapse — not the bank’s shareholders or executives. The official spoke on the condition of anonymity to speak about internal deliberations, under the conditions of the call.





The Treasury official also said the decision to protect all deposits was made following a recommendation by the Federal Deposit Insurance Corporation and the Federal Reserve, the nation’s top banking regulators. President Biden was also consulted on the announcement.



Treasury Secretary Janet L. Yellen stressed in a statement that taxpayers would bear none of the burden of protecting the depositors. Their funds will be backstopped by a pool of money that is regularly paid into by U.S. banks, which currently has more than $100 billion in it.



The new Fed program will enable banks to pledge U.S. Treasuries and other safe government securities as collateral in return for loans of up to one year from the central bank.




The initiative is aimed at resolving one of the problems that led to SVB’s failure: unrealized losses on government securities that the bank owned. As the Fed raised interest rates last year, the value of those securities fell.




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Sean Treacy
Professor Principal
1  seeder  Sean Treacy    last year

Another bailout for billionaires. 

Jus this morning Yellen said there would be no bailout, but her bosses disproved.  Never doubt who the Biden Admisntration works for. 

The lesson as always, banks can be as reckless as they want with no risk. 

Moral Hazard: 

  1. lack of incentive to guard against risk where one is protected from its consequences.
 
 
 
bbl-1
Professor Quiet
1.1  bbl-1  replied to  Sean Treacy @1    last year

You are correct.  Kudos.

 
 
 
JBB
Professor Principal
1.2  JBB  replied to  Sean Treacy @1    last year

FDIC insuring deposits is not baling out bank!

 
 
 
Sean Treacy
Professor Principal
1.2.1  seeder  Sean Treacy  replied to  JBB @1.2    last year

Its a bailout of the companies and  millionaires who took advantage of a lax bank  with shitty underwriting and won't suffer any consequences. 

The FDIC regulations are being ignored because of the clout and political connections of the depositors. 

 
 
 
sandy-2021492
Professor Expert
1.2.2  sandy-2021492  replied to  JBB @1.2    last year

But more than just FDIC-covered assets are going to be covered.  This will cover ALL deposits, including those that were much larger than the FDIC-covered $250,000.

 
 
 
JBB
Professor Principal
1.2.3  JBB  replied to  sandy-2021492 @1.2.2    last year

EXCEPT, The bank is shut down and the owners and shareholders lost everything meaning, THIS IS NOT A BANK BAILOUT! 

 
 
 
Ronin2
Professor Quiet
1.2.4  Ronin2  replied to  JBB @1.2.3    last year

Wrong again. 

But keep digging. 

 
 
 
JBB
Professor Principal
1.2.5  JBB  replied to  Ronin2 @1.2.4    last year

But I am not lying. SVB wasn't bailed out.

That bank was shut down by regulators...

 
 
 
Vic Eldred
Professor Principal
1.2.6  Vic Eldred  replied to  JBB @1.2.5    last year

Biden is out there right now saying that he will protect depositors and screw the investors.

Marx would be so proud of this POS

 
 
 
JBB
Professor Principal
1.2.7  JBB  replied to  Vic Eldred @1.2.6    last year

You are proving my point. The bank is not receiving a bailout. The owners lost their investment in the bank, not depositors ..

 
 
 
Vic Eldred
Professor Principal
1.2.8  Vic Eldred  replied to  JBB @1.2.7    last year

It is a bailout of the elite. These banks made billions. 

How much of the deposits in those banks were above $250,000 per individual?

 
 
 
Vic Eldred
Professor Principal
1.2.9  Vic Eldred  replied to  sandy-2021492 @1.2.2    last year
including those that were much larger than the FDIC-covered $250,000.

The vast majority of deposits per individual in those banks were above that.

 
 
 
JBB
Professor Principal
1.2.10  JBB  replied to  Vic Eldred @1.2.8    last year

SVB was closed. SVB was not bailed out!

Owners and stockholders are wiped out...

 
 
 
JohnRussell
Professor Principal
1.3  JohnRussell  replied to  Sean Treacy @1    last year

You seem to think that if we had a Republican administration billionaires wouldnt be bailed out. I find that hilarious. 

 
 
 
Ronin2
Professor Quiet
1.3.1  Ronin2  replied to  JohnRussell @1.3    last year

[deleted]

 
 
 
Sean Treacy
Professor Principal
2  seeder  Sean Treacy    last year

At least their Risk Management Director will have more time to focus on her DEI obsession instead of the bank's balance books, which is apparently what's she been doing the whole time anyway. 

 
 
 
bbl-1
Professor Quiet
3  bbl-1    last year

So the Hedge Funders and Venture Capitalist, whose ill-discipline engineered this thing, are going to be covered?  Why?  Most of these folk have accounts running into the millions.

Where is it written that it is the responsibility of the taxpayer to underwrite and maintain the status quo of the wealthy upper economic eschelon?

 
 
 
Sean Treacy
Professor Principal
3.1  seeder  Sean Treacy  replied to  bbl-1 @3    last year

Rules only apply to the powerless. 

The $250,000 cap that is supposed to apply is just a joke for some. 

 
 
 
Kavika
Professor Principal
4  Kavika     last year

A couple of things some direct from the article 

The decision by Treasury to backstop all of SVB’s deposits — not just those up to $250,000 that are automatically insured under federal law — will likely ignite a political firestorm over the decision to protect the assets of tech firms, venture capitalists, and other rich people in California.

That sure sounds like BS since the coffee company in D.C. and the medical records company in NY are not in California. Of course, the London Branch of the SVB has the UK scrambling to protect them as well and there are suitors lined up to take over the SVB business in the UK.

On a call with reporters on Sunday evening, a senior Treasury official defended the administration’s decision as necessary to protect the stability of the banking system and emphasized that the move was aimed at protecting companies and workers who could be harmed by the bank’s collapse — not the bank’s shareholders or executives. The official spoke on the condition of anonymity to speak about internal deliberations, under the conditions of the call.

Seems not everyone is protected.

Treasury Secretary Janet L. Yellen stressed in a statement that taxpayers would bear none of the burden of protecting the depositors. Their funds will be backstopped by a pool of money that is regularly paid into by U.S. banks, which currently has more than $100 billion in it.The new Fed program will enable banks to pledge U.S. Treasuries and other safe government securities as collateral in return for loans of up to one year from the central bank.

It looks like the taxpayers aren't going to be on the hook for this decision. 

The lesson as always, banks can be as reckless as they want with no risk. 

What reckless behavior did SVB engage in? Buying US treasury bills?

 
 
 
Sean Treacy
Professor Principal
4.1  seeder  Sean Treacy  replied to  Kavika @4    last year
hat sure sounds like BS .

Most tech money is in California.  If you can show  otherwise, please correct the Washington Post. 

o ndon Branch of the SVB has the UK scrambling to protect them as well and there are suitors lined up to take over the SVB business in the UK.

Having done a few hours of due diligence, no American banks were willing to touch it. 

Seems not everyone is protected.

But those who benefited from a bank taking risks that others wouldn't and kept  more than $250,000 there are. The cleaning companies that literally  cleaned the banks, aren't. Not enough clout. 

What reckless behavior did SVB engage in? Buying US treasury bills?

As pretty much every article written on the subject the last few days has noted, they bet way too much  on interest rates remaining low and   “there was a lot of risk they were taking on that other banks wouldn’t,” said Sarah Kunst, a managing director at venture capital fund Cleo Capital. “That ultimately was part of their demise.”

These depositors — the vast vast majority of which were the rich and sophisticated commercial entities — didn’t use SVB because it had lollipops in the lobby. They flocked to it precisely because its reputation was being so friendly to the start-up sector by being lax with underwriting standards. Because it was known for giving out loans and banking terms that other, better-established institutions knew weren’t a good idea. Were too high risk. That’s why they went there instead of Wells Fargo or Chase.
That’s why risk analysts at major financial services companies and Fed officials don’t see a high contagion risk. Because, as they’ve said, SVB was unique for its, shall we say, priorities. The same priorities that brought those depositors there in the first place.
 
 
 
sandy-2021492
Professor Expert
4.2  sandy-2021492  replied to  Kavika @4    last year
What reckless behavior did SVB engage in? Buying US treasury bills?

This is a transcript of a good podcast about SVB and its mistakes - some were risky things like depending on venture capitalists to keep them liquid, some were bad luck (the failure of Silvergate, which is a crypto bank), and some was clumsy PR - announcing that they needed to raise money by selling shares.

So now let’s get to Silicon Valley Bank and what happened there. So a lot of people went and put their money in the bank. It happens to be a place, as its name suggests, that a lot of technology and venture capital funds put their money. So there’s a huge amount of business accounts at Silicon Valley Bank. So they’ve got all of these accounts, they’re paying these businesses very low, if anything, checking and savings rates. And then what do they do? They go lend the money out at higher rates. The issue is they lent a bunch of money to the federal government. They bought U.S. treasuries paying around 1.6%, which is where the yield was a few years ago. How much? About $80 billion. So they took about $80 billion and lent it to the federal government at 1.6%....

So Silicon Valley Bank loaned $80 billion to the federal government at 1.6%. Well, as we all know, the Federal Reserve keeps raising interest rates. And today, if someone wants to loan money to the federal government, they’ll get 5%. So if Silicon Valley Bank felt like selling their $80 billion of treasuries that don’t mature for several years, no one’s going to want to buy them because they pay 1.6%. They can go get new treasuries that pay 5%.

So Silicon Valley Bank, if they wanted to sell them all at once or sell any of them early, would’ve to sell them at a discount. Now, Silicon Valley Bank didn’t want to sell them at a discount. That’s not the issue. The issue is a bank has a balance sheet that shows how strong they are and they have to put the fair market value of all of their investments on that balance sheet. And so they can’t say this 80 billion is worth a full 80 billion today. Because the reality is if they went to sell those bonds today, people would not pay that much for them because they could get higher yielding bonds. So they will look weaker on their balance sheet....

At the same time, remember, they’ve got a lot of venture capital firms, a lot of tech firms that had their deposits there. That’s kind of what they were known for. A very big percentage of their accounts or businesses in the tech industry that are backed by venture capital investors, private equity investors. Now we all know that tech is not doing great. So technology companies, they can’t go out and raise money the way they could a year or two ago. The market’s much tighter, it’s almost impossible to borrow money. So what are they doing? They’re spending the money they have at the bank, which also makes the bank look weaker.

So Silicon Valley Bank, they all get together and go, “Hey, look, our bonds don’t look as good on paper and we’ve got people spending their money. We need to shore up our balance sheet. We need to get more money in here so we look stronger.” So they said, “Okay, let’s get $500 million from a private equity fund. Let’s go to the public markets. Let’s issue some stock, get over a billion dollars in stock, share some stock to the public.” That was the plan....

Silicon Valley then sent out a letter, “Hey, we’re raising money.” It wasn’t the most eloquent letter in the world and it raised some eyebrows. Next thing you know, Peter Thiel, who’s one of the most famous venture capitalist investors who runs a fund called Founders Fund, he told all of the companies in that fund that they should move their money away from Silicon Valley Bank. So that word spreads like wildfire. This is a community where everybody’s talking to each other and following each other, and the next thing you have is what we call sequential risk...

But the reality is most people who knew kind of looked at it and said, “Hey, Silicon Valley Bank has plenty of money to get through this. They’re pretty strong, but some of these things aren’t going perfectly. Their balance sheet doesn’t look great. Peter told his people to move people away. Maybe I should take my money out.” And then the next thing you know, you have people saying, “Hey, my friend, my friend’s taking money out of the bank and if I wait, I’ll be the last one standing.” And you get the bank rush. This is the classic textbook bank run.
 
 
 
sandy-2021492
Professor Expert
4.2.1  sandy-2021492  replied to  sandy-2021492 @4.2    last year

Sean, let me know if the above post is too long, and I'll delete all but the link.

 
 
 
Kavika
Professor Principal
4.2.2  Kavika   replied to  sandy-2021492 @4.2    last year

The classic run on the bank is what destroyed it. $42 billion in one day did them in. 

I understand that they were stuck with low paying treasuries that they sold at a huge loss to try to cover the withdrawals.

 
 
 
sandy-2021492
Professor Expert
4.2.3  sandy-2021492  replied to  Kavika @4.2.2    last year

The bank run destroyed them.  But they made some unwise decisions leading to that run.  Their cash balances were maintained by companies that weren't doing very well, who were drawing down their savings.  They pretty much advertised they were in trouble by sending out a fundraising letter.

And some was just bad luck - the increase in rates paid on treasury bonds.

 
 
 
Kavika
Professor Principal
5  Kavika     last year
Most tech money is in California.  If you can show  otherwise, please correct the Washington Post. 

I already did.

Having done a few hours of due diligence, no American banks were willing to touch it. 

Do you have a link for that? If so why are UK companies lined up for the chance to take it over?

But those who benefited from a bank taking risks that others wouldn't and kept  more than $250,000 there are. The cleaning companies that literally  cleaned the banks, of course aren't. Not enough clout.

 I simply pointed out what the article said, you can spin that any way you want.

These depositors — the vast vast majority of which were the rich and sophisticated commercial entities — didn’t use SVB because it had lollipops in the lobby. They flocked to it precisely because its reputation was being so friendly to the start-up sector by being lax with underwriting standards. Because it was known for giving out loans and banking terms that other, better-established institutions knew weren’t a good idea. Were too high risk. That’s why they went there instead of Wells Fargo or Chase.

Yeah, they didn't protect the treasuries by doing futures, which was a mistake on their part. 

Once the loans were granted it was part of SVB deal that they had to keep their deposits in SVB. They specialized in the start up industry so it would seem natural that that would be the majority of their loans. I haven't seen their underwriting standards, have you? It would be interesting to see them, wouldn't it?

The fact remains that the taxpayers isn't going to be on the hook for the money.

 

 
 
 
sandy-2021492
Professor Expert
6  sandy-2021492    last year

I've read elsewhere that the execs were paid bonuses hours before SVB was taken over.

 
 
 
Kavika
Professor Principal
6.1  Kavika   replied to  sandy-2021492 @6    last year

I understand that it was more than just the execs plus the fact that the CEO sold over $3 million in stock a few weeks before their downfall.

 
 
 
evilone
Professor Guide
6.1.1  evilone  replied to  Kavika @6.1    last year
I understand that it was more than just the execs plus the fact that the CEO sold over $3 million in stock a few weeks before their downfall.

I'm wondering if any laws here were broken here? The CEO and other execs shouldn't be allowed to run another bank at the very least.

 
 
 
Kavika
Professor Principal
6.1.2  Kavika   replied to  evilone @6.1.1    last year
I'm wondering if any laws here were broken here? The CEO and other execs shouldn't be allowed to run another bank at the very least.

I don't know if any laws were broken, but if they were then punish them to the full extent of the law.

 
 
 
Vic Eldred
Professor Principal
7  Vic Eldred    last year

Will it be 2008 all over again?

As we all remember it was the financial crisis that put Obama in the White House.

 
 
 
JBB
Professor Principal
7.1  JBB  replied to  Vic Eldred @7    last year

original

 
 

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