"Gruenberg also revealed that $13.3 billion of the $18 billion allocated to protect Silicon Valley Bank, or nearly 74% of the funds used to assist the customers, were used to back deposits for a mere 10 accounts. "
74% !?!? to 10 accounts?
holy cow!
such a large proportion of the funds used to protect such a small number of accounts?
All Men are Created Equal, But Some are More Equal Than Others
From this article [0]:
... by the end of Orwell’s book, the Seven Commandments had disappeared from the wall, replaced by one lone Commandment:
All Animals are Equal
But Some Animals are More Equal Than Others
In Animal Farm, the animals who, in the end, defined themselves as “more equal than others” were the pigs — the same animals who had instigated and led the revolution.
So its the former, its funny because it’s a reference at all?
I’m quite aware it is a reference from Animal Farm, I didn't see how it was related and was wondering if there was more, or if the joke was funny aside from “unexpected orwell”
Is there a special privilege conveyed to the 10 large accounts over every other depositor that had more than $250k on account?
I think the implication is that anyone with an account so large it takes up the lions share of $13B probably has enough influence to make this sort of bailout happen:
"Gee [senator|congressperson|etc], my donation to your re-election campaign was in that SVB account, would be a shame if I lost it".
Or maybe american politicians have a long history of being buddy buddy with big money Capitalists, which most of SVB's clientele was, and had no qualms with throwing a few billions towards fixing a very local problem with the side benefit of helping their friends and another background benefit of reassuring whales to not pull out of other smaller banks.
Letting the whales die would have meant every other whale in every other bank would suddenly feel the need to inspect balance sheets or be whiny or just run. The entire reason SVB failed was poor management on their part, and poor risk hedging, but that's not a systemic problem. However, making every big cash holder suddenly worried they aren't as safe as they expected could be a mild systemic problem.
Equitable and equal are different. That’s not a value statement. They’re different.
equal treatment would be every account getting 1/n of the money used to save SVB. Equitable treatment is everyone being restored by the same % of their losses (in this case 100%). It’s different.
Nobody was arguing that they weren't different, we were just waiting for you to explain the distinction you introduced, after not explaining the thing others introduced and were asking about
Since the goal was to save deposits 100% and there was enough money for that goal, and every account got 1/1 treatment, and nobody got 1/10th treatment, nobody got 1.5/1 treatment, and this applied to everyone over and under $250k not just those 10 accounts in the article, I’m still not seeing how those 10 accounts accounts “were more equal than others” which was the supposition introduced in the “joke” earlier
I don’t think semantics really helps point out that OP just had a poor joke that wasnt funny or accurate, I’m open to counterpoints though.
I think it was not a poor joke, cause I think the reference perfectly fit the contest, anyhow my 'take is as a joke' was an invitation to take it less seriously, although it is a LOT of money (not coming from tax, I know, but anyhow collected to protect the general public and not a few), so it should also be taken more then seriously, as you did.
yeah, you're good, I can see a perspective where the high value and societal integration involved caused the extended full coverage at all, compared to what would happen to a smaller bank that could not find a buyer.
I mostly think people misunderstand what happened and that joke can easily perpetuate that.
The math here seems disingenuous. There were 10 accounts with 13B in uninsured deposits. The FDIC used 18B to back the entire deposits of the bank. That doesn't mean 13B / 18B went to those 10 accounts.
A better way of thinking about it would be something like: SVB had 170B (random estimate) in uninsured deposits. 13B of the uninsured deposits were from 10 accounts. So (13B / 170B) * 18B = 1.3B went to those 10 accounts.
> SVB had 170B (random estimate) in uninsured deposits
$56bn [1]. So about 23% of the emergency insured deposits were held by 10 accounts.
If we stuck to the law, that would have been $2.5mm (0.005%). So 10 accounts got a 5,200x courtesy boost in their backing by the full faith and credit by the United States.
Good point, although this is also included in your link:
> This leaves about $90 billion in securities and other SVB assets in the hands of the FDIC, and an estimated cost of the failure to the Deposit Insurance Fund of about $20 billion.
This doesn’t make sense. You’re adding deposits (liabilities) to assets. $56bn deposits doesn’t mean $56bn of cash in a vault, it means $56bn owed to depositors.
> doesn't make sense that SVB would need a bailout if they had 50B in liabilities and 90B in assets
Deposits aren’t all SVB’s liabilities, though they were most of them. Their balance sheet changed between failure and disposition. And the FDIC is giving the acquirer some guarantees on the assets, which are being acquired for substantially less than $90bn.
It's more likely that the 50B number doesn't represent the full FDIC coverage for deposits. For instance, this article claims that the bank was about to have 100B withdrawn the day the FDIC took over: https://www.cnbc.com/2023/03/28/svb-customers-tried-to-pull-...
I think most likely is that the FDIC has had the bank for a number of weeks and allowed a large number of withdrawals. Those withdrawals are counted as part of the 18B cost to the FDIC, but aren't part of the 50B that was sold.
> the 50B number doesn't represent the full FDIC coverage for deposits
At some point in the past, sure, there were more deposits being emergency insured by the FDIC, which might reduce that 5,200x figure by up to an order of magnitude. I would also clarify, however, that the emergency insurance kicked in two days after the FDIC put SVB into receivership.
> those withdrawals are counted as part of the 18B cost to the FDIC
No, they’re not. The discount offered on the assets is where the loss comes from.
And that's not the sole source of the FDIC's possible losses. (Again, deposits being withdrawn doesn't cause losses per se. The liability and assets sold are struck simultaneously.)
> As of March 10, 2023, Silicon Valley Bridge Bank, National Association, had approximately $167 billion in total assets and about $119 billion in total deposits. Today's transaction included the purchase of about $72 billion of Silicon Valley Bridge Bank, National Association's assets at a discount of $16.5 billion. Approximately $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC. In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million.
> The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership.
I'm not sure how this furthers your point. You added $90bn and $50bn; the former assets held by the FDIC, the latter about the amount of deposits the acquirer assumed from the FDIC. That doesn't make sense.
It does make sense. The FDIC is holding 90B in assets from SVB. Those assets were purchased with deposits. First Citizens actually bought 72B in assets for 50B. So 72B + 90B is pretty close to the original 167B. Using 90B as an estimate, given that we know SVB bought those assets with depositor funds, does make sense if you’re just trying to make a rough estimate.
$56bn of deposits at point of sale to First Citizens. It had $119bn of deposits at the point the FDIC took over as receiver and then subsequently guaranteed all deposits [1].
That the bureaucracy can't avoid bailing out large connected depositors is precisely why the scope of FDIC coverage should be increased to all bank accounts, with a graduated rate of assessment due to the increased variance caused by large sums. "Just say no" is as impractical here as it is elsewhere.
FDIC thresholds are de facto meaningless and expose litigation risks for selective non-coverage.
Is there any downside to FDIC expanding policy to state "All deposits are covered, regardless of amount"? This is effectively already happening AND would contribute value-add safety and security to US banks. It would also create a level playing field for them, regardless of size, to have an opportunity to service customers they may not be backstopped to handle without outside investment or additional customers. Perhaps the only downsides would be stress tests and audits would need to ensure proper investments and diversification of products to avoid the risks of becoming a dangerously-narrow boutique bank.
> FDIC thresholds are de facto meaningless and expose litigation risks for selective non-coverage.
The first of these claims is false, the second is true only in the trivial sense that anyone can sue for any reason however baseless and even a completely baseless claim has some cost, and the existence of the limit may make people upset enough to file a baseless suit.
> Is there any downside to changing the policy to state “All deposits are covered, regardless of amount”.
Presumably Congress felt there was both when introducing the FDIC Act and again when revising it in 1991 to restrict the conditions in which the FDIC could cover deposits beyond the insured amount.
> This is effectively already happening
No, its not. The invocation of the systemic risk exception in limited cases is not the same thing, "effectively", as a general extension of FDIC insurance to all balances without limits.
> AND would contribute value-add safety and security to US bank. It would also create a level playing field for US banks, regardless of size, to have the opportunity to service customers of any size.
This contradicts what precedes it; if it was effectively already happening, doing it officially would change nothing of substance.
> if it [unlimited FDIC protection] was effectively already happening, doing it officially would change nothing of substance
Except that it's widely believed that depositor bailouts still only apply to "too big to fail institutions", and if this had been a smaller bank with less politically important depositors, the FDIC might have said too bad.
Furthermore the main point of my original comment is that making it explicit gives the FDIC a reason to assess insurance premiums on all accounts in proportion to their explicitly acknowledged risks (which are non-linear!), rather than continuing to collect smaller premiums under the belief that they only have to cover small accounts, while often ending up covering larger ones.
If those insurance premiums get too onerous for large accounts, then that creates a preemptive incentive to split up accounts and/or look at other non-bank financial custodians (decreasing FDIC's exposure either way).
47 comments
[ 2.3 ms ] story [ 107 ms ] thread74% !?!? to 10 accounts?
holy cow!
such a large proportion of the funds used to protect such a small number of accounts?
some are really more equal then others :(
Yes, the amount of money in the hands of a few is that extreme
but some are more equal :) take is as a joke
... by the end of Orwell’s book, the Seven Commandments had disappeared from the wall, replaced by one lone Commandment:
In Animal Farm, the animals who, in the end, defined themselves as “more equal than others” were the pigs — the same animals who had instigated and led the revolution.[0] https://pagosadailypost.com/2021/08/18/ready-fire-aim-all-me...
I’m quite aware it is a reference from Animal Farm, I didn't see how it was related and was wondering if there was more, or if the joke was funny aside from “unexpected orwell”
Is there a special privilege conveyed to the 10 large accounts over every other depositor that had more than $250k on account?
Letting the whales die would have meant every other whale in every other bank would suddenly feel the need to inspect balance sheets or be whiny or just run. The entire reason SVB failed was poor management on their part, and poor risk hedging, but that's not a systemic problem. However, making every big cash holder suddenly worried they aren't as safe as they expected could be a mild systemic problem.
Yes the special privilege was a lot of money.
Everyone was not treated equally by being bade whole, even though they were treated equitably.
so they were treated equitably
in what way were they treated unequally?
equal treatment would be every account getting 1/n of the money used to save SVB. Equitable treatment is everyone being restored by the same % of their losses (in this case 100%). It’s different.
Since the goal was to save deposits 100% and there was enough money for that goal, and every account got 1/1 treatment, and nobody got 1/10th treatment, nobody got 1.5/1 treatment, and this applied to everyone over and under $250k not just those 10 accounts in the article, I’m still not seeing how those 10 accounts accounts “were more equal than others” which was the supposition introduced in the “joke” earlier
I don’t think semantics really helps point out that OP just had a poor joke that wasnt funny or accurate, I’m open to counterpoints though.
I mostly think people misunderstand what happened and that joke can easily perpetuate that.
A better way of thinking about it would be something like: SVB had 170B (random estimate) in uninsured deposits. 13B of the uninsured deposits were from 10 accounts. So (13B / 170B) * 18B = 1.3B went to those 10 accounts.
$56bn [1]. So about 23% of the emergency insured deposits were held by 10 accounts.
If we stuck to the law, that would have been $2.5mm (0.005%). So 10 accounts got a 5,200x courtesy boost in their backing by the full faith and credit by the United States.
[1] https://www.bloomberg.com/news/articles/2023-03-27/first-cit...
> This leaves about $90 billion in securities and other SVB assets in the hands of the FDIC, and an estimated cost of the failure to the Deposit Insurance Fund of about $20 billion.
So the real number is 50 + 90 = 140.
This doesn’t make sense. You’re adding deposits (liabilities) to assets. $56bn deposits doesn’t mean $56bn of cash in a vault, it means $56bn owed to depositors.
Deposits aren’t all SVB’s liabilities, though they were most of them. Their balance sheet changed between failure and disposition. And the FDIC is giving the acquirer some guarantees on the assets, which are being acquired for substantially less than $90bn.
I think most likely is that the FDIC has had the bank for a number of weeks and allowed a large number of withdrawals. Those withdrawals are counted as part of the 18B cost to the FDIC, but aren't part of the 50B that was sold.
At some point in the past, sure, there were more deposits being emergency insured by the FDIC, which might reduce that 5,200x figure by up to an order of magnitude. I would also clarify, however, that the emergency insurance kicked in two days after the FDIC put SVB into receivership.
> those withdrawals are counted as part of the 18B cost to the FDIC
No, they’re not. The discount offered on the assets is where the loss comes from.
And that's not the sole source of the FDIC's possible losses. (Again, deposits being withdrawn doesn't cause losses per se. The liability and assets sold are struck simultaneously.)
> As of March 10, 2023, Silicon Valley Bridge Bank, National Association, had approximately $167 billion in total assets and about $119 billion in total deposits. Today's transaction included the purchase of about $72 billion of Silicon Valley Bridge Bank, National Association's assets at a discount of $16.5 billion. Approximately $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC. In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million.
> The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership.
100% agree. This is the first time, however, we’ve been able to quantify where the direct benefit went.
[1] https://www.fdic.gov/news/press-releases/2023/pr23023.html
Is there any downside to FDIC expanding policy to state "All deposits are covered, regardless of amount"? This is effectively already happening AND would contribute value-add safety and security to US banks. It would also create a level playing field for them, regardless of size, to have an opportunity to service customers they may not be backstopped to handle without outside investment or additional customers. Perhaps the only downsides would be stress tests and audits would need to ensure proper investments and diversification of products to avoid the risks of becoming a dangerously-narrow boutique bank.
The first of these claims is false, the second is true only in the trivial sense that anyone can sue for any reason however baseless and even a completely baseless claim has some cost, and the existence of the limit may make people upset enough to file a baseless suit.
> Is there any downside to changing the policy to state “All deposits are covered, regardless of amount”.
Presumably Congress felt there was both when introducing the FDIC Act and again when revising it in 1991 to restrict the conditions in which the FDIC could cover deposits beyond the insured amount.
> This is effectively already happening
No, its not. The invocation of the systemic risk exception in limited cases is not the same thing, "effectively", as a general extension of FDIC insurance to all balances without limits.
> AND would contribute value-add safety and security to US bank. It would also create a level playing field for US banks, regardless of size, to have the opportunity to service customers of any size.
This contradicts what precedes it; if it was effectively already happening, doing it officially would change nothing of substance.
Except that it's widely believed that depositor bailouts still only apply to "too big to fail institutions", and if this had been a smaller bank with less politically important depositors, the FDIC might have said too bad.
Furthermore the main point of my original comment is that making it explicit gives the FDIC a reason to assess insurance premiums on all accounts in proportion to their explicitly acknowledged risks (which are non-linear!), rather than continuing to collect smaller premiums under the belief that they only have to cover small accounts, while often ending up covering larger ones.
If those insurance premiums get too onerous for large accounts, then that creates a preemptive incentive to split up accounts and/or look at other non-bank financial custodians (decreasing FDIC's exposure either way).