How is that a reversal? Yellen has been saying from the start that the gummint and FDIC are trying to save the depositors. I didn't see her making a distinction between insured and uninsured amounts.
Yelled said there will be no bailout on Face the Nation. This is/will be just another bailout,
I think we need to define what 'bailout' means.
In business terms that means using government money to save a business.
It doesn't mean 'return uninsured funds to depositors using the assets of a deceased bank.'
Yellen has said consistently that the bank would not be saved but the gummint is trying to make depositors whole. Not really a 'bailout.'
I think that's been her consistent position from the start.
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Well, since the bank does not have the assets to cover depositors the Government will cover the difference. It will be a bailout, inflationary, and money the Government does not have. Treasury will be forced to issue more debt, the problem gets bigger. Heck why should I care what it is called? Although it is pretty clear pattern of deranged policies that on the surface have no end point. I wouldn’t bet on that.
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Well, since the bank does not have the assets to cover depositors the Government will cover the difference. It will be a bailout, inflationary, and money the Government does not have. Treasury will be forced to issue more debt, the problem gets bigger. Heck why should I care what it is called? Although it is pretty clear pattern of deranged policies that on the surface have no end point. I wouldn’t bet on that.
nah that's the thing, it's not really true that the bank doesn't have the money.
the bank has enough assets to cover all, or very nearly all, of the deposits. But the money is tied up in long term bonds. If the long term bonds were sold today, there would be a giant real loss. So no one wants that to happen.
What will likely happen is that the government or another bank will offer essentially a bridge loan...give all the uninsured depositors their money back NOW, and then the new owner of the bank will just hold on to the long-term bonds until maturity and get their money back that way. As time goes by their value will rise to face value rather than the big discount right now.
Sure, time cost of money and inflation will make this a loss of some sort so maybe uninsured depositors only get 90% of their money back.
But that's the deal. A bridge loan. 'Bail out' isn't the right term.
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Non-interest bearing. This money is 100% insured no matter the amount.
Interest bearing: Only amounts under say $100k are insured, or no insurance at all.
The point is to take away the incentive banks have to invest depositors' money. If they dont' invest it, they can't lose it. And if they don't have to pay interest, they don't have to invest it. Reduces risk at the banks.
I'm no bank expert but that makes sense to me on paper.
Also, it would not be a bailout funded by tax payers.
From WaPo…”Although the FDIC insures bank deposits up to $250,000, a provision in federal banking law may give them the authority to protect the uninsured deposits as well if they conclude that failing to do so would pose a systemic risk to the broader financial system, the people said. In that event, uninsured deposits could be backstopped by an insurance fund, paid into regularly by U.S. banks.
Shareholders and bondholders deserve to be and will be wiped out. Depositors, whether insured or not, do not deserve to be and should not. The cost of this “bailout” (you can call it that if you like but it’s not) would not be borne by taxpayers.
Yeah, I distinctly heard Yellen quoted as saying they would not bail out the uninsured deposits (those over the $250 FCIC insured limit) but they were working to control the wider contagion of the broader market fallout.
Treasury Secretary Janet Yellen said Sunday that the federal government would not bail out Silicon Valley Bank, but is working to help depositors who are concerned about their money.
Another reason SVB was particularly vulnerable to a run on the bank was becuase a large percentage of their depositors were institutions as opposed to retail. So, a large proportion (think I heard about 70%) of their deposits were from the larger players, who of course would have deposits well in excess of the $250 FDIC insure limit, and were therefore vulnerable if the bank went illiquid. If more had been retail, there would have been less of a stampede, because a higher percentage of thier funds would have been covered by the Fed. But they weren't, and it hurt them bad.
"The FDIC kicked off an auction process late on Saturday, Bloomberg reported, citing people familiar with the matter, with final bids due by Sunday afternoon. The report added that the FDIC was rushing to sell SVB assets and make a portion of its uninsured deposits available as soon as Monday."
U.S. authorities were preparing "material action" on Sunday to shore up deposits in Silicon Valley Bank (SVB) and try to stem any broader financial fallout from the sudden collapse of the tech startup-focused lender, sources...
futures open up a smidge....probably the thinking is that no matter what CPI shows on Tuesday we get a 25 bp hike, not 50. Which would be perceived as good for stonks.
Am going to increase my bet against the market on Monday
I would proceed carefully. There will be a lot of crying for the Government to step in, or the Fed to back off. Also, CPI Tuesday. Although this event does expose the foolish policies the Fed and Government promote the last decade. Not surprisingly they’re in a pickle of their own creation.
I tend to believe there will be a rescue of SVB, and a huge short covering rally. The later reaction, hours, days, or weeks later is new market lows.
Earlier today. None of this is a surprise to me, and glad I booked substantial gains on my shorts. I plan to add back in a portion of the gains on any rallies beginning 7:00 am EST.
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