& Bust…
FDIC needed to move or dominoes would cascade. Futures up but should be an interesting day as counterparty risk is unwound and 2nd and 3rd order impacts are felt.
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The FDIC was founded in 1933 after the 1929 crash. It wasn’t to save businesses (start ups or otherwise) but for individual depositors. The government wanted people to feel secure in depositing their money into banks after the crash.
“The original limit was set at $2,500 in the 1933 Act, but was increased to $5,000, effective June 30, 1934. This limit remained in effect until 1950, when it was increased to $10,000 as part of the Federal Deposit Insurance Act. The limit was next increased to $15,000 in 1966, to $20,000 in 1969 and to $40,000 in 1974.”
$5,000 in 1933 is equivalent in purchasing power to about $115,065.38 today. So depositors today are more insured than they were in 1933.
IMO, that is still the role, to insure individuals and have them put their money in the bank and not under their mattresses. There are regulatory agencies that watch the banks for stability (and those all changed with the Dodd-Frank Act and who watches who).
Businesses shouldn’t be looking to the FDIC and policy limits to insure their businesses or for banks to give business advice. Most businesses have a line of credit, not $5M sitting in an account earning 4% interest while paying 5%.
Yep, a start up is risky.
SVB wasn’t worried until last Tuesday. It thought it could raise the money within a few days. I really don’t think it was worried about being closed by the end of the week.
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Found my answer 
Per @BunsenBurner’s article
“The Fed also said Signature Bank was closed Sunday and that a similar system will be put in place for customers of that bank – all depositors will be made whole. And the Fed will make additional funding available for eligible financial institutions to prevent runs on similar banks Monday.”
Again, where is all free this cash?
ETA: answer is a new financing program.
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The FDIC is an insurance company. It collects premiums from member banks (almost all banks are members, as required by their charters), and insures deposit accounts up to $250k per named depositor (so a H&W could have $500k in coverage on an account, etc).
The FDIC uses these premiums just like any insurance company would, to run the business and pay losses.
It is not free money, it is insurance money. A ‘policy holder’ (depositor) has a claim just like any insured would have against a loss from fire, theft, a health claim, a car accident, etc. It’s insurance.
Editted: A release did say a “U.S. regulator” said depositors would receive all their money, even above the $250k policy limit. It didn’t say which regulator said that or where the overage would come from. Both banks have deposits and assets available, and of course those would always be used first.
I couldn’t read the whole article because behind a WSJ paywall.
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Will be interesting to see what if anything happens tomorrow morning. I’m surprised that the feds are announcing this bailout. They must be pretty concerned about confidence to do so.
My best guess is they are soothing Americans so there aren’t runs on multiple banks tomorrow. It’s pretty thin ice the country is on right now. Powell could easily get his recession - or worse. I hope it can be prevented. Pure Capitalism doesn’t tend to work well all the time.
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Sorry I should have been clearer, I didn’t mean cash for the insured deposits but for all the uninsured amounts that will now be fully available to depositors as of Monday.
I guess Janet Yellen is providing the money
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Pocket change. 
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From NY Post.
Some Dem tech investors who have spent millions of dollars currying favor with the Biden administration are furious about what they call the White House’s utter lack of help over the collapse of Silicon Valley Bank.
One of the deep-pocketed venture capitalists told The Post that Treasury Secretary Janet Yellen’s statement Sunday throwing cold water on the possibility of a bailout was “pathetic.”
Others said that unlike the financial crisis of 2008, when bankers and government officials were in constant dialogue, there doesn’t appear to even have been much communication to date between the administration and Silicon Valley as to how the government should respond.
“I don’t think the channels are nearly as open as they used to be,” a plugged-in venture capitalist told The Post. “I’m not part of the dialogue, and I don’t know who is.”
The critics said there is growing concern the White House cares more about politics than actually implementing policy to help depositors.
Ninety-eight percent of all political contributions from people who worked at Internet companies went to Democrats in 2020, according to data from the Center for Responsive Politics.
Another estimate from a GovPredict analysis of Federal Election Commission data showed that people living in counties considered to be Silicon Valley gave nearly $200 million to Democrats.
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Of course the NY Post would try to spin this as something only Democratic tech investors are angry about. I’m pretty sure it also applies to Republican tech investors, too. I’m registered as an independent, BTW, and have no love for either party.
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There’s no free money. It’s most likely just an accounting game. Fed takes the underwater assets from these two failed banks as collateral and lend them the money at very low nominal interest rate as if the assets were worth par and the banks were highly creditworthy. It should be noted that no large bank stepped up to take over these two failed banks and absorb the losses.
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I am an independent as well. Look no further than NYT for the other side.
I live in Silicon Valley and I don’t know many Republicans.
I live in San Mateo County and am a retired software developer. I’ve found that while most tech employees are Democrats, there are plenty of Republican CEOs and tech investors in Silicon Valley.
for the bank website to not crash tomorrow.
Although it’s annoying to bail out a bunch of billionaires who have little regard for government and regulation of any kind.
It had to be done. There was too much bellyaching. This was hard to understand for many and the administration didn’t want to induce panic.
Local Bay Area media is mostly focused on the issue of paying employees, rather than bailing out shareholders. Lots of tech companies that used SVB didn’t have the money or ability to issue paychecks.
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Yes, but CA always vote Democratic.
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Irrelevant. Why do some people need to turn everything into a partisan political discussion?
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Buyer banks don’t have to absorb the losses. They get to buy the bank’s good assets and leave the rest with the FDIC. This includes even the bank buildings (or rent on a building) if they don’t need that branch.
The FDIC has powers to cancel contracts that aren’t needed, much like a bankruptcy judge can make a contract unenforceable/collectable. Who gets ‘stuck’ with the loss? It could be a totally innocent party, like a landlord or a janitorial service. It could be loss of future income for a service contract, like snow removal from a parking lot. Bank isn’t open, snow doesn’t need to be removed, but the plowing service loses a customer.
There may be buyers for these two banks but the failures came so quickly a deal wasn’t able to be put together.
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