Student loans are not deposits. The FED/Treasury oversee the banking system.
Student loan forgiveness will cost taxpayers.
Making the depositors whole does not cost taxpayers. The money is printed assumably out of thin air and in many cases the accounts are partially whole anyway when the FDIC walks into the bank. The bank is the failure not the deposits…mostly. Hedging some of these thoughts.
Actually Powell and Yellen said that the bail out would be funded by fee’s from Banks. Banks make their fees off of Customers(Taxpayers) so yes this is going to be funded by all of us.
Banks are not students
Students are not banks
Handouts are pork
Banks are not students
Students cannot be true banks
Handouts here are pork
Not as concise as Captain’s, but now a haiku.
That is not funding it as a taxpayer.
So how about a fund from fees to universities and colleges to pay off student loans.
Is that similar enough?
The sad issue with student debt as it stands right now, our economy is not yet big enough to pay it off for the students. The other sad issue is we can not afford childcare.
The scale of those two serious problems can be met after our GDP begins to grow much faster. Supply side economics has been a 40 year failure for our economy.
Industrial growth will make the larger ticket items very affordable. We still have a lot of people who have no clue how supply side economics has robbed our nation.
Whether it’s advisable or not, it isn’t similar.
The proximate cause of SVB’s problems was a decline in the present market value of their long-term bonds, itself caused by rising interest rates. In a nutshell, SVB had bonds with a face value that (combined with other assets) was more than sufficient to cover depositors’ accounts. But once depositors started pulling money out of the bank, they couldn’t hold to maturity - so they had to sell immediately at a loss. IOW, the bank had a liquidity problem, not a solvency problem.
This typically gets solved by having another bank purchase the liquidity-starved bank. Because the assets are worth more to someone with more liquidity (and doesn’t have to mark them to market), there’s net value in the bank. The assets are actually larger than the liabilities. If an institution with more liquidity purchases the bank, they can cover withdrawals and don’t need to sell the long-term assets, and they don’t need to be marked-to-market. And the problem usually solves itself - once the bank is sold to a more liquid institution, the panic-induced withdrawals typically stop.
The Fed here has basically done an analogous thing. They have agreed to lend against the assets at face value, not a mark-to-market value. That allows them to replicate what a purchasing bank would do - avoid a fire sale of the underlying assets (which are still good! this is not an FTX situation!) and provide liquidity to discourage customer outflows.
The Fed is not paying off SVB’s liabilities for them. They are loaning cash against the assets so that there is liquidity for depositors, but the Fed then gets the assets as security against those loans. None of the liabilities are being “cancelled” the way that student debt cancellation has been proposed to work. In a nutshell, the liability simply gets transferred from being owed to the depositor to being owed to the Fed - with no change in the terms of the loan (or even a worse change in the terms of the loan to SVB, since I believe the Fed loans require interest payments that will likely exceed the average rate to depositors).
It would simply be added to the amount borrowed to pay tuition, books, rent, food, fees (<—key word there!!), health insurance, etc.
Thank you, this is basically the way I understand it. So, if no one loses their money in a liquidity event that is resolved, why do investors lose their positions altogether, as opposed to suffering a decline in value? Small loss on my books at NYSB, but with any loss, I try to get the ‘why’. Thanks!
Because you have to give the acquiring bank enough economic value to make it worth their while to assume all of the liabilities of the target bank. Usually that means that most of (not always all) of the shareholder equity gets transferred over.
Imagine Liquidity Starved Bank (LSB) has $10 billion in depositor liabilities, backed by assets that are “really” worth $9.5 billion at face value plus $1.5 billion in shareholder capital. So the bank has a net value of a billion dollars. If LSB has to “fire sale” the assets, that (plus the shareholder capital) would only yield $9 billion in immediate cash. A bank run starts, because depositors don’t want to risk being in the 10% that lose everything.
A big healthy bank might look at LSB and say, “Hmmm, if we buy this bank and manage to stop the bank run, we can gain a billion dollars in net assets (plus whatever the business of the bank is worth)” But they’re not going to offer a billion dollars. As Matt Levine described it (talking about FTX when people thought it was a liquidity crisis and not a solvency crisis, but the same principle holds):
If you are a crypto exchange and you have a liquidity crunch and you cannot process withdrawals, and you don’t get a bailout, then your future equity value is basically zero. If you tweet to all your customers “sorry we’re out of money for a bit so no more trading and we’re going to hang on to your money, but things will get better,” they will not get better.
You know that, and the buyer knows that, so if they say “we will buy your exchange, make sure that all your customers are made whole, and give you a Snickers bar in exchange for 100% of the equity,” that is better than you’ll do without them.
You don’t have a ton of time to negotiate, and they don’t have a ton of time to do due diligence. How does the buyer know that there are no huge disasters lurking on your balance sheet? They don’t, and they don’t have much time to find out, and your liquidity crunch is not an encouraging sign. You are having a disaster now!
So the LSB shareholders lose nearly everything because their management screwed up and they ended up in a liquidity crisis. Any acquiring bank will need a premium to their purchase price to cover the risks that they’re taking by buying a flailing liquidity-crisis bank without much due diligence.
Power! Follow the money.
Big (too big to fail big - TBTFB) banks have the system by the gonads, investors don’t. It’s the same banks that got together on Jekyll & Hide Island to concoct the Fed to get taxpayers to cover their malfeasances. They are so smart that even some Fools think the Fed is a good idea.
Sure it’s not, you just keep believing that.
It is worth remembering that this is the exact hazzard many banks faced in the depth of the Great Recessions when they were asked to buy up Countrywide (BOA), National City (PNC), WaMu (Chase), to name a few.
I am quite sure BOA regretting buying Countrywide (or at least paying as much) more than once in the following years.
How could accounting be so wrong?
They were just discussing this on CNBC Leap and they said that the Fees the FDIC charges to banks are going to have to go up substantially do to this. So it looks like Taxpayers will not have to pay for it because banks just grow money on trees.
The cost of FDIC insurance changes often - and I am pretty sure no one ever knows or bats an eye about it (other than bankers).
'sides, I find the derogatory suggestion that taxpayers are somehow disadvantaged by having a functional FDIC that might cost us individually a few pennies in interest annually like a complaint over taxpayers having to pay more for cars because we mandate airbags and require a recall if they are found to have failed.
BY FINANCIAL REGULATION NEWS REPORTS | OCTOBER 19, 2022 | FEATURED
The Federal Deposit Insurance Corporation (FDIC) on Tuesday adopted a final rule to increase deposit insurance assessment rates by 2 basis points for all banks beginning in the first quarter next year.
# Banks Face Bigger Deposit Insurance Payments From FDIC
It’s interesting how people project their own thoughts onto other people and then create a strawman argument to validate their own thesis. I think if I was a psychologist I could have a hay day on these boards.
My discussion had nothing to do with the FDIC or the government or any other entity. What it did have was a discussion on how it was being paid and how they were framing it. I find it interesting how people automatically accept it because no Taxpayers funds will be used yet they fund it by charging fees to those same taxpayers.
Now if you want to argue about the FDIC you will have to take that up with someone else.
But thanks for the FDIC rules that is very helpful. Although that is from 2020 so doesn’t explain what they are doing right now but I will give you a rec for trying.
A boss is interviewing for a new position and has 3 very qualified candidates; an engineer, a scientist, and an accountant. He devises a clever test to decide who gets the job by asking each one how wide his desk is.
The engineer gets out his ruler and says the desk is 5 feet 1.3 inches wide.
The scientist measures the desk with a ruler, adjusting it for temperature and humidity, and says the desk is 5 feet 1.3112 inches wide.
The accountant is asked how wide the desk is and replies, “How wide do you want it?”
Of course, there is a sexist version of this joke, but it will probably get me banned.