[Fasces]

Not in the United States - part of a bank getting FDIC insured is ensuring depositors are made whole first. Every asset in that bank belongs to the depositors first, with shareholders coming second, as part of their agreement. The FDIC will pay cash to the first $250,000 in each account, then sell assets to cover the rest of the depositors.

By law, after insured depositors are paid, uninsured depositors are paid next, followed by general creditors and then stockholders.

https://www.fdic.gov/consumers/banking/ ... ority.html

The shareholders will likely get nothing. Investments have risk. Federal bailouts to protect investors are socialized losses and privatized profits.

[ness31]

Depositors , shareholders …aren’t they usually one and the same thing?

[noemon]

Not in the United States - part of a bank getting FDIC insured is ensuring depositors are made whole first. Every asset in that bank belongs to the depositors first, with shareholders coming second, as part of their agreement. The FDIC will pay cash to the first $250,000 in each account, then sell assets to cover the rest of the depositors.
The shareholders will likely get nothing. Investments have risk. Federal bailouts to protect investors are socialized losses and privatized profits.

As I said, depositors should not have this kind of insecurity while conducting day to day transactions. A bank's assets should be totally irrelevant to depositors because they are factually irrelevant. The state should not be passing the buck to depositors by magically turning them into shareholders of a failed institution after a bank's collapse. It's an institutional error.

Depositors should be made whole regardless and with no thresholds and without waiting for the liquidation. Depositors are not investors, nor engaged in any risk activity.

Shareholders can burn for all I care.

Depositors , shareholders …aren’t they usually one and the same thing?

Are you a shareholder in the bank you bank with?

[Fasces]

Depositors are not investors, nor engaged in any risk activity.

I disagree on that - often the choice to which private bank you choose comes to "where can I get a higher return on my interest" etc, and this is, ostensibly, an informed decision by an informed consumer that knows that the decision carries some risk. In principle.

I do think every government should offer a public non-profit banking alternative for the purpose you stated, however.

[ness31]

Are you a shareholder in the bank you bank with?

I’d have to check. We have this thing called Superannuation ..maybe the Americans call it 401K.

[noemon]

I disagree on that - often the choice to which private bank you choose comes to "where can I get a higher return on my interest" etc, and this is, ostensibly, an informed decision by an informed consumer that knows that the decision carries some risk. In principle.

Business accounts are not savings accounts and there is no interest to be made anywhere. Have you ever opened a business account?

I saw something you did so recently. You pay for the business account, you do not get paid for it.

I do think every government should offer a public non-profit banking alternative for the purpose you stated, however.

So you fundamentally agree with me.

[wat0n]

A CEO keeping millions in a single uninsured bank account and not invested or across several banks - like it appears that many tech CEO's at SVB were doing - is incompetent. You have to hedge risk. I could keep all my savings in one account and still be below FDIC limits and even I still have them in four different accounts. @noemon @wat0n

That being said, SVB has a positive balance sheet in terms of assets. It will not need a bailout. This is a liquidity crisis, its assets and debts will be absorbed by a larger bank at auction, and the companies with stupid CEOs will be made whole eventually or take only minor haircuts and learn a lesson about basic risk management.

It is OK to laugh at them for being stupid CEOs.

If workers need to be made whole, it should be on the board of directors and executives to do so, not the taxpayer. Unlimited profit but zero liability for the management class is a disgrace.

It's not just hedging risk. As you said, the accounts are corporate for the most part and as such:

1) One would expect them to be aware of how deposit insurance works, since they can get legal assistance.

2) One would expect them to do due diligence about how the bank's doing, since they often hire people specifically for that kind of thing.

Even when hedging, one would think they'd not put any money on a bank that is visibly in trouble. Instead, they'd hedge against the risk that some banks that don't seem to be in trouble are, in fact, a time bomb.

[noemon]

I’d have to check. We have this thing called Superannuation ..maybe the Americans call it 401K.

Superannuation is a pension scheme as is the 401k. How the heck is that related to being a shareholder in a bank if you open a [business] current account. You do not receive shares for it and if you find a bank that does that, you can sell them and liquidate the money to prevent your exposure.

Are you seriously failing to understand the difference between a depositor and a shareholder?

A shareholder is one of the owners of the organization usually with voting rights, a depositor is merely a customer of the bank, not an owner.

[ness31]

The difference is how the money is deposited I suppose.

I’m not claiming expertise here lol I’m numerically challenged. I’m just trying to understand how everything is linked together.

[noemon]

A shareholder is an owner, owning part of the organization.

A depositor is not an owner but a customer.

A depositor is forcibly turned into a shareholder by state dictat only after a collapse which is the ultimate state cop-out to wash its hands of its own regulatory liabilities. The liquidation of a failed entity should be between its shareholders and the regulatory authority and not between the shareholders and its customers with the regulatory authority simply acting as referee.

It's a mega error that people tolerate either out of ignorance or simply because they have been led to believe that they have no other choice.

The regulatory authority is responsible and it should be liable to cover depositors and then claim whatever money it can back from shareholders. Not pass the buck to customers by baptizing them shareholders after a collapse to cop out of its own liability.

[Fasces]

Business accounts are not savings accounts and there is no interest to be made anywhere. Have you ever opened a business account?

I saw something you did so recently. You pay for the business account, you do not get paid for it.

You're right that I misspoke - nonetheless, we shopped around and got offered lower fees at some banks but ultimately went with Bank of China because we felt it was more secure (given the recent spat of Chinese municipal banks going bankrupt due to bad real estate investment), and because its standing makes foreign deposits and withdrawals easier, despite the higher fees and less flexibility it offered. Making these decisions and managing risk/exposure is part of the privatized banking system, and part of what the management class is ostensibly supposed to be doing.

So you fundamentally agree with me.

That in a healthy banking environment, a not-for-profit public option should exist alongside any privatized banks, sure, to provide a relatively risk-free platform for individuals and companies to keep liquidity in.

The FDIC scheme, where depositors are made whole before creditors and investors, is also decent - credit and investment are operations of risk, so depositors should take precedence.

I am against a bailout, though, especially in this case where the bank owns enough assets to cover its deposits. Seize it and sell it.

[noemon]

That in a healthy banking environment, a not-for-profit public option should exist alongside any privatized banks, sure, to provide a relatively risk-free platform for individuals and companies to keep liquidity in.

That depositors must be able to conduct transactions risk-free, whether that is via private or public banks is irrelevant, the state has a primary responsibility to ensure security for its citizens.

The FDIC scheme, where depositors are made whole before creditors and investors, is also decent - credit and investment are operations of risk, so depositors should take precedence.

I am against a bailout, though, especially in this case where the bank owns enough assets to cover its deposits and then debts. Seize it and sell it.

Cover the depositors first which you are responsible for by regulating the banks and then do as you please with the bank's assets. If its enough to cover stuff great, if not that is your problem for regulating incorrectly and not the depositors fault for trusting the security of the state in which they live and who have no other actual choice but to use a bank to conduct transactions.

Do not baptize them into premium shareholders against their own will and only after the bank has failed just so you can bypass your regulatory responsibility towards them.

[Fasces]

whether that is via private or public banks is irrelevant.

The US government does not have enough money to cover every dollar deposited in a US bank. Hell, the deposits at one major bank, Chase, alone are $1.3 trillion.

With fractional reserve banking, you're asking the government to keep hold of an exponentially escalating quantity of cash to cover deposits (I deposit $10 at Bank A, loan $100 from Bank A and deposit that at Bank B - the government now has to insure $110 of my initial $10?).

A single public option that maintains a healthy reserve ratio alongside a smaller insured deposit limit at privatized banks is the only realistic way to achieve something close to what you're advocating, which is that government should cover all deposits all the time.

[noemon]

The US government does not have enough money to cover every dollar deposited in a US bank. Hell, the deposits at one major bank, Chase, alone are $1.3 trillion.

With fractional reserve banking, you're asking the government to keep hold of an exponentially escalating quantity of cash to cover deposits (I deposit $10 at Bank A, loan $100 and deposit that at Bank B).

A single public option that maintains a healthy reserve ratio alongside a smaller insured deposit privatized banks is the only realistic middle ground to achieve something close to what you're advocating, which is that government should cover all deposits all the time.

Neither do the banks, and neither do the customers of the banks. So why should that be on the customer to cover?

It is the state regulating, it is up to the state to cover the losses of its own regulatory dictats.

[Fasces]

Neither do the banks, so why should that be on the customer to cover?

That's the risk you assume by participating in the banking system.

If you're asking for a risk-free banking environment... it doesn't exist. Hell, even by depositing my money with the Bank of China I'm still gambling on the government being there tomorrow to insure deposits.

[noemon]

That's the risk you assume by participating in the banking system.

You are not given a choice by the state and the environment it has established through its own regulation.

If you're asking for a risk-free banking environment... it doesn't exist. Hell, even by depositing my money with the Bank of China I'm still gambling on the government being there tomorrow to insure deposits.

It does not exist because of the regulations established by the state, when things go bust, it is between the institution that went bust and the authority that regulates it. Not the customer who has no other option but to abide.

It's not really rocket science.

Why do you believe that the group with the least(or rather no whatsoever) say bears the ultimate risk and liability? It is neither willfully partaking, nor making the rules either but somehow is the one that according to you oughts to cover the losses.

[Fasces]

I'm confused by what your goal is here, @noemon. It sounds positively utopian. The US Banking system currently has $19.6 trillion in deposits... the government is supposed to have cash on hand to cover that? How? Are you advocating banning fractional reserve banking? That we switch to a gold or crypto-standard or something?

I may have no choice but to get in a car to go to work... but I still assume risk by getting in the car and driving. Same with the banking system.

[noemon]

Yellen's decision to cover all depositors before the bank's assets have been liquidated is not utopian but is current reality and is turning into standard practice.

We do not need to change much, just regulate slightly better and keep reality in check.

Liability is between a failed institution and its regulatory authority, not third parties magically baptised "shareholders" against their will.

You do have an option to not drive a car, but use public transport, your feet, your location and many other means.

Business does not have the option to do business without a bank account.

[Rancid]

Depositors , shareholders …aren’t they usually one and the same thing?

Really?

Yellen's decision to cover all depositors before the bank's assets have been liquidated is not utopian but is current reality and is turning into standard practice.

I think this is how it should be done.

[Fasces]

Biggest Bank Busts Since 2000



Assets vs Liabilities