1. It is precisely the mismatch of maturities between notes and demand deposits that caused the problem.coachd50 wrote: ↑Mon Mar 20, 2023 10:25 pmA few things:technovelist wrote: ↑Mon Mar 20, 2023 8:45 pmI'm not saying that anyone should be taught a hard lesson.km91 wrote: ↑Mon Mar 20, 2023 8:16 pmI mean the entire banking system is premised on the belief that for all intents and purposes deposits are money. If the government is faced with the choice between maintaining faith in the financial system or teaching me and granny a hard lesson about the limits of FDIC insurance, I think they should probably aim for supporting the banking systemtechnovelist wrote: ↑Mon Mar 20, 2023 8:03 pm
Do you or granny have more than the $250k limit in one account?
Because that's what T-bills are for.
How about if they pass a regulation that banks have to tell depositors with over $250k that they should buy T-bills with the excess, and maybe even provide education and help as to how they can do that?
Having an unlimited "limit" for FDIC insurance destabilizes the banking system by giving bank executives more reasons to swing for the fences because no depositor will care how dangerously the executives invest, even to the extent that they do now.
My proposal would be a lot less disruptive to the banking system than that.
1) it is kind of ironic that you want to force the depositors to buy Treasuries- and yet Treasuries (albeit notes, not bills) are a main culprit in the SVB downfall.
2) How many of these uninsured depositors were grannies and how many were commercial accounts?
3) Do you really think that depositors as a group will be able to monitor how management uses those deposits? Having worked in retail banking as a teller at ages ago, the amount of customers who didn't understand how they could be overdrawn when they still had checks, or who didn't understand why I wouldn't cash a "not on us check" for $2,000 when they had an ACB (average collected balance) of $17.50 was shocking. You think these people will provide the checks and balances for bank management to avoid "dangerous" investments?
4) Off shoot of 3-- again SVB's DANGEROUS investments seemed to be Treasury Notes...and unfortunately because of the economic conditions and prevailing rates, the only way to make a spread was to push the duration on Treasuries or make more commercial loans.
How much is the price of a 1-year t-bill affected by a rise in interest rates? Approximately equal to the rise, e.g. 4% or so in this case.
How much is the price of a 6-year t-note affected by a rise in interest rates? Approximately equal to 6x the rise, e.g. 24% or so in this case.
Had they had t-bills they would have survived the run.