It's quite an ingenious situation.<p>- FDIC guarantees that every deposit at these banks up to an unlimited amount will be paid out by the US government.<p>- Because of that guarantee, the bank run stops and people leave their money there (and in fact deposit more).<p>- Because of the influx of cash the bank solves its liquidity issues and the government doesn't actually have to spend a single penny.<p>In theory all of this works. But the next question is – how far will this go? Will FDIC do the same for <i>every</i> bank in the country? Can they all just start taking more and more risk? Do customers not need to care about how well their bank is run, because ultimately the US government is everyone's bank?<p>Did we just accidentally invent a fully socialized national banking system?
Run your bank off a cliff, require <i>every</i> rule be broken to save your bacon, and now ask people to reline your coffers with more deposits. <i>Absolutely stunning...</i><p>On second thought - SVB is apparently the safest place on the planet to park enormous amounts of cash. Why would you not deposit everything here? The Government will just save you if SVB screws it up again... right? Absolutely <i>zero</i> risk in parking everything with SVB... what a great signal to be sending the public.
"The number one thing you can do to support the future of this institution is to help us rebuild our deposit base, both by leaving deposits with Silicon Valley Bridge Bank and transferring back deposits that left over the last several days."
Effectively there are two banks (Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A.) with de facto unlimited FDIC insurance, as there's explicit guarantee for all existing and new deposits.
In widely underreported news, before anyone blames looser regulations, Barney Frank of the Dodd-Frank Act fame was literally on the board of Signature Bank, which also collapsed. He also has stated the regulation reduction under the last administration has nothing to do with this situation, whatever you make of that.
IMHO, it feels like at minimum the regulators should have required that in exchange for reduced oversight for banks in the $50-$250B range - they should have reduced FDIC coverage for depositors and have been required a form to be filled out by existing and new customers to notify them of this reduction in coverage.<p>[1] <a href="https://www.wsj.com/articles/barney-frank-pushed-to-ease-financial-regulations-after-joining-signature-bank-board-e5c8819c" rel="nofollow">https://www.wsj.com/articles/barney-frank-pushed-to-ease-fin...</a>