By “people with cash” you mean rich people and big companies with finance departments? We’re talking about people with so much liquid money it’s too much work to create several accounts with less than 250k each.
Maybe FDIC should raise the insured amount to 500k or 1 million but at some point there’s no reason for a public government mandated insurance of larger amounts of free capital. I don’t think it’s too much to ask for them to understand who is managing their money otherwise banks are just competing on yield. There could be private insurance for that sort of thing.
If all accounts are 100% insured and there’s no difference in the safety of a bank, what do banks compete on? Just yield, and maybe “innovative financial services,” but banks pushing the envelope in both of these things would actually make them more risky, not less.
There’s counterparty risk in every business relationship and transaction, not just banking. It’s part of running a business to understand the risks related to suppliers, customers, etc. This is like business strategy 101 in MBA programs. In the end I don’t think these rich people and companies even want that mandated insurance if it comes with increased regulation or increased premiums for the banks that might drag on their yields.
If banks are tightening lending standards to secure capital ratios and strengthen their balance sheets as asset values decline this would be deflationary. Isn’t loans getting more and less expensive the whole point of raising or lowering rates?
I’m pretty sure banks could buy supplemental insurance if they wanted. It would of course eat into their profits, so they don’t want to do that and just want the government to guarantee deposits.
Only way increasing FDIC insured amount would make sense is if the FDIC increased bank fees to compensate for that risk (and also made it some sort of opt-in where you had to submit to, and pay for, more extensive examinations). Otherwise we’re just giving banks even more of a free-roll.
OK so here’s a question. Should the feds look at systemic risk when approving bank mergers? I think clearly yes, and they should deny big bank mergers on that ground. If you agree with that, is there a big difference between breaking up too-big banks based on risk and denying mergers based on risk?
He doesn’t. What he agrees with is letting the biggest banks write the regulatory language to ostensibly create the same amount of safeguarding as breaking them up
Yeah, exactly. And I can’t help think that the feds are bailing out the depositors here because the huge Silicon Valley depositors are hugely politically influential. Real people are being hurt here! Hedge fund managers, venture capitalists. The backbone of America! At least in the administration’s eyes.
And I’m too lazy to write it but a good joke would be a George Bailey style monologue about how your money’s not in the bank, it’s out there making bespoke to do lists for sort of rich people. It’s floating the payroll at a crypto hedge fund. It’s…
It’s easy to bitch about this but the reality is if you don’t do something to assure depositors their money is safe in regional banks we’re going to end up with like 3-4 massive and definitely too big to fail banks.
Nah it should be the opposite. If we’re going to protect deposits then just nationalize the entire industry. Banking is an essential public good just like education and healthcare (lol sigh).
Otherwise we’re just doing the thing - privatized profits, socialized losses.
I’m saying that if SVB is so big that depositors have to be made whole to prevent systemic risk, then it’s too big. And then all the banks bigger than SVB are way too big.
You could do either. Forbid too-big banks or nationalize the industry. Either socialize the profits and losses or make the banks small enough where it’s not a big deal if some fail.