If they had poor risk management, is that the purview of the auditors?
That page has a chart of banks showing % of deposits uninsured (i.e. where depositors may run on bad news) and % of loans and hold-to-maturity securities (i.e. stuff that may be worth less than book value with higher interest rates).
Right, but in my example, ten different âtenthsâ are insured, instead of one whole account. Hypothetical of course, but overall, does it real world make a difference? Itâs basically a bankâs worth of deposits that are insured either way (ieâthe same amount of payout from insurance).
A lot of tech companies did hire those kinds of experts, and those experts put the money into SVB. One âexpertâ I saw commenting on the SVB situation, Kevin OâLeary of âShark Tankâ fame, reminded me of a saying I heard when I worked on Wall Street - âTo be successful on Wall Street, all you need is a little knowledge and a big mouth.â Itâs so true. A lot of these supposed financial experts know enough to be dangerous.
Over the past five days we watched the collapse of the Silicon Valley Bank and Signature Bank in New York, a big bank in San Francisco, a much smaller bank in New York. Both of them weâve now had the FDIC step in, and theyâre going to save every person in the bank and to be able to make sure theyâre whole. Now thatâs very different than whatâs typical. Most Americans know youâre insured up to $250,000, but the Biden Administration stepped in and said, âOh, no, everyoneâs going to be kept 100 percent whole.â
The comment thatâs come out has been, âWell weâre going to make sure no taxpayers have to be able to cover this though.â And then if you listen closely, the next statement is, âItâs going to come from an assessment on the banks instead.â
Now let me tell you what that means. One of the wealthiest banks in America, that is mostly millionaires that actually bank thereâin fact to show that, 90 percent of the depositors in Silicon Valley Bank, their deposits exceed $250,000. Okay, 90 percentâthatâs not normal for a bank. In that bank in San Francisco, all of their depositors are going to be bailed out and the way that theyâre going to be bailed out is, thereâs going to be a specialâwhat theyâre calling an âassessmentââon banks across the country.
So let me tell you whatâs happening in the next few months. Banks in Oklahoma in rural towns are about to pay a special fee to be able to bail out millionaires in San Francisco. Now, what Oklahoma banks and bankers had to do with that bank failure in San Francisco, I have no idea.
But the comments made over and over again: no taxpayer is going to be affected by this. Iâm sure my bankers would be glad to know they donât pay taxes anymore apparently, and Iâm sure every person that banks there will be interested to know that when their bank fees go up and when their interest rates go down, to be able to cover what happened in San Francisco.
Now, listen. I donât want to see a contagion of banks either, but letâs be honest, whatâs really happening is a backdoor tax increase on Americans, just not using the IRS to do it. Itâs using community banks to do it all over the country, to charge a quick higher fee, which they know will mean a higher fee to the people that are members of their bank, and thatâs how itâs going to get coveredârather than the typical way this would get covered by actually taking that bank, actually doing an auction, auctioning it off to other banks to be able to take it in. I look at it and say you canât make this stuff up in some ways, to be able to say no taxpayerâs going to be affected, but quietly taxpayers across the country are going to be affected by this.
Itâs just missing one element of the cycle, between bank failures and the government tightening regulations: taxpayersâ money to bail out the failed (and about-to-fail) banks.
If youâre an uninsured depositor at First Republic Bank, would you be assured enough to leave your uninsured deposits at the bank because a group of large banks also put uninsured deposits into the bank? Or would you take your uninsured deposits out of the bank anyway to a perceived safer place? If itâs the latter, $30B may not be sufficient, considering $42B left SVB in a single day last week.
The other group missing from the picture is small businesses that get screwed one way or another. Not fun to be a startup (tech or no tech) in the middle of fundraisingâŠ
But all the bad actors are represented correctly.
Senator Lankford didnât explain all of his thoughts - not good enough for me anywayâŠ
How many of these were businesses, esp start ups, vs individual depositors (people) as heâs making it sound like?
And how many of those businesses employ regular people - vs the super wealthy as heâs making it sound like?
And how many regular people (or businesses) would fear losing their money from banks if suddenly oodles of regular people - like them - suddenly no longer get their paychecks?
Thereâs a lot to be said for teamwork - one falls down and others help them up - vs trampling everyone.
The whole banking system is at risk IMO. Itâs not the wealthy who are being bailed out - unless you find numbers to my questions that show otherwise.
No, Iâd make sure my funds were insured by rearranging my accounts. Of course, Iâm so far below the max that Iâd have no problem.
How many people keep more than $250,000 in personal bank accounts (as opposed to bank accounts for businesses, who may regularly need more than that much money in the bank for payroll or other purposes) on a regular or ongoing basis (as opposed to transient events like proceeds from the sale of a house for more than that amount)?
Yes, banks offer private banking services to very wealthy people, but the very wealthy people using private banking services could have some or much of their assets in investments through a bank-associated brokerage, rather than deposits in the bank itself.
About 2/3 of all deposits at First Republic Bank were uninsured prior to the crisis. The bank primarily serves the affluent.
Itâs not uncommon for life insurance checks to be more than $250,000. A typical policy is $500,000.
37% of real estate doesnât have a mortgage on it.
The median home price is over $400,000.
The last time the coverage was raised to $250,000 was in 2008, when median home price was well under $200,000.
Many people will need to manage their risk not just because of inflation, but because of inheritances, insurance payouts, etc.
They may not carry the amounts in a bank long term, but the amounts are likely to represent a huge percentage of their net worth.
Those are still all short term things that are unlikely to see a loss if the person handling the finances knows even a hint about what they are doing. Money will be in and out quickly.
Business accounts are a lot larger when several employees are involved. Payroll alone needs it, but so do many purchases of materials and things.
The guy who claimed SVB is bailing out the wealthy was very misleading at best unless I see anywhere that has actual numbers substantiating that it was wealthy individuals stashing money there vs business money invested.
I actually donât know of anyone personally who keeps a lot in a bank (savings or checking account - even cds, etc) compared to other investments or spreading around where the cds are. They have emergency funds accessible, but even then, I donât know of anyone who regularly has 250K stashed for an emergency.
I live in more rural, typical USA, so perhaps itâs normal among wealthier folks, but if so, itâs not the âMillionaire Next Doorâ types I know who are often discussing âbest investments to consider,â or âwhere to park their cd when it matures.â
Sadly, thatâs how a lot of people lost money in IndyMac. They SHOULD have been advised not to place all those funds into one account but at that time banks werenât failing and everyone thought it would be fine to put the sales proceeds from a home sale into a checking or savings account while they finished building a new house or figured out how to invest an insurance check.
Sad, but could have been avoided by putting a caution on deposit amounts over $250k (at the time $100k), training tellers and front line employees, etc. I have a friend who was an attorney at a Savings and Loan (back in the days) and she used to personally call customers who had more than $100k in their accounts to advise them against that. Theyâd say âOh, I trust you to take care of meâ and sheâd tell them NO, you arenât insured, move some of your funds! When the S&Ls failed, they got a check for $100k and then had to wait for the extra (which they did get if it was within about $20k) but they had to wait a long time, sometime years.
Having been a customer of SVB, I do believe that any losses â now zero â were from wealthier, including businesses. For example, Roku, a public company, had $400m invested. They could have easily put money elsewhere, or opened numerous insured accounts at SVB. Their CFO chose not to.
As I mentioned earlier, when we received VC investment, we were expected to start a banking relationship with SVB. I looked at teh VC across the table, and said âno problem, but I came from Mega Corp where I learned that proper cash controls â including those recommended by UCC â meant that one should keep depository and checking/payroll accounts in separate banksâ. The VC thought about it, and said ok. (What else could he say since it was Cash Management 101). So we kept our payroll separately.
Regardless, SVB was nearly all commercial + private wealthy of the owners of the funded businesses, serving educated folks who should know better. They did not do retail, so the little guy was not impacted and no need for a bail out.
Republic OTOH, had a lot of retail accounts including mortgages.
But the issue is the amount of fdic insurance doesnât grow over time. Imagine if FDIC insurance was still set at the original $2,500 then most people would need to bank at multiple institutions to have worthwhile coverage. That would also drive up transaction costs.