*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[Yoho]

https://twitter.com/user/status/1634936611719741454

https://twitter.com/user/status/1634965541432750080

[Slava]

Well guys like him are hilarious. They were against student loan forgiveness and things like that, but now they’re wanting a bailout for their own protection. Some of their comments are basically encouraging a run on other banks as well. It’s pretty gross to hope for contagion so that they’re made whole.

[burn_this_city]

Paraphrasing what I saw elsewhere: VC tech bros are libertarian when it comes to paying taxes and their obligations to society at large. Socialist when something threatens their wealth and start ups.

[Yoho]

Originally Posted by Slava

Well guys like him are hilarious. They were against student loan forgiveness and things like that, but now they’re wanting a bailout for their own protection. Some of their comments are basically encouraging a run on other banks as well. It’s pretty gross to hope for contagion so that they’re made whole.

I don’t see the analogy of not supporting student loan forgiveness by government and having individuals and companies bank accounts protected from a bank run.

Students decided to get into that debt with clear minds. The only crime these people had was store their money in an institution designed to protect it.

[Wormius]

Yeah, 17 year olds are totally savvy and have crystal clarity when taking out a student loan, while business people who knew of the $250k limit, well, that’s different.

[Yoho]

Originally Posted by Wormius

Yeah, 17 year olds are totally savvy and have crystal clarity when taking out a student loan, while business people who knew of the $250k limit, well, that’s different.

Weren’t you the proponent of 16 years olds being able to vote?

Anyway charity is not the same thing as having your funds stolen out of your account.

https://twitter.com/user/status/1634972668536717313

[opendoor]

Originally Posted by Yoho

I don’t see the analogy of not supporting student loan forgiveness by government and having individuals and companies bank accounts protected from a bank run.

Students decided to get into that debt with clear minds. The only crime these people had was store their money in an institution designed to protect it.

People and businesses depositing more than $250K into a single account also do so with clear minds that the funds in excess of that limit are not FDIC insured. Why should the government be on the hook because Roku sucks at mitigating their risks?

[Yoho]

Originally Posted by opendoor

People and businesses depositing more than $250K into a single account also do so with clear minds that the funds in excess of that limit are not FDIC insured. Why should the government be on the hook because Roku sucks at mitigating their risks?

So where should business put money so it’s not their own fault it gets stolen?

[Slava]

Originally Posted by Yoho

So where should business put money so it’s not their own fault it gets stolen?

Well first of all, there are services in place to do this. If they decided it wasn’t necessary, that’s fine. It doesn’t mean that everyone else should bail them out though.

Second, there’s no money being stolen. That really should’ve been the first point.

Anyway, apparently they’re discussing a full backstop to stem the contagion, so maybe the campaigning worked.

[Yoho]

Originally Posted by Slava

Well first of all, there are services in place to do this. If they decided it wasn’t necessary, that’s fine. It doesn’t mean that everyone else should bail them out though.

Second, there’s no money being stolen. That really should’ve been the first point.

Anyway, apparently they’re discussing a full backstop to stem the contagion, so maybe the campaigning worked.

What services are better than banks?

[opendoor]

Originally Posted by Yoho

So where should business put money so it’s not their own fault it gets stolen?

Lots of options:

-Use a brokered deposit program. Businesses can deposit say $50M with a broker and that broker will set up custodial accounts at 200 different institutions, so all $50M is FDIC insured.

-Have supplementary deposit insurance if you do want to keep significant cash reserves at a small number of institutions.

-Hold longer-term reserves in T-Bills which are immune from bank failures while remaining relatively liquid.

-If you have significant cash holdings, then do more diligence about who you're giving your money to. Placing hundreds of millions of dollars in the care of a bank where 97% of its funds aren't insured and which caters to a volatile industry (which means outflows are less predictable) might not be the best idea.

I mean, this isn't rocket science. I consider CDIC limits and the security of the brokers I use when I arrange where my money is at any given time, so why can't multi-billion dollar businesses manage their risk in the same way?

[Yoho]

Originally Posted by opendoor

Lots of options:

-Use a brokered deposit program. Businesses can deposit say $50M with a broker and that broker will set up custodial accounts at 200 different institutions, so all $50M is FDIC insured.

-Have supplementary deposit insurance if you do want to keep significant cash reserves at a small number of institutions.

-Hold longer-term reserves in T-Bills which are immune from bank failures while remaining relatively liquid.

-If you have significant cash holdings, then do more diligence about who you're giving your money to. Placing hundreds of millions of dollars in the care of a bank where 97% of its funds aren't insured and which caters to a volatile industry (which means outflows are less predictable) might not be the best idea.

I mean, this isn't rocket science. I consider CDIC limits and the security of the brokers I use when I arrange where my money is at any given time, so why can't multi-billion dollar businesses manage their risk in the same way?

Why wouldnt they do this is it more expensive to hold accounts this way.

Wouldn’t the T bill idea lock companies funds up?

If there are mechanisms in place to protect I agree it’s on companies to do.
Thanks for info.

[calgarywinning]

200 bank accounts is how Pirates used to store their treasure. Realtime. Put that under this rock here, put some under that pebble. Make a map. Ahar Matey!

Also, the idea that these companies don't have deposits on hand at other institutions is not verifiable. They probably do.

The way North American federal governments do quantitative easing, money printing and throw money around as though it doesn't exist makes this look like a shallow drop in a bucket. Except the mainstream media story is about a bank, instead of the government and the institutions monitoring the banks. You would think this regulation and monitoring would have been sorted out in 2008.

This is the tip of the iceberg. Because the corruption and interest rate clawback for reset of wealth is negligent and the government is highly involved. You can have net zero interest rates or prime of 3.75; build an economy around that and pump within 12 months to 7.75%.

Unless your government is unchained handing out "printed" money, not even treasure, and spending well beyond the means of the GDP. The business of the government is the very thing that has caused this bank to default. Now the government will get into banking, it will be really safe.

[Firebot]

Originally Posted by bizaro86

Where the fed should step in is if it becomes a contagion/crisis of confidence system wide. If it starts to spread THEN have the Fed guarantee all deposits for awhile to stabilize the system.

But the moral hazard of bailing out SVB now shouldn't happen. Anyone putting more than $250k into a bank should know the risks. Maybe bump it to $1MM per bank or something.

The contagion is already happening and we are not Monday yet. First Republic Bank, and Pac West seems to be getting hit as well

https://www.dailymail.co.uk/news/art...collapsed.html

First Republic Bank has 200 billion in assets, PacWest around 40 billion

First Republic Bank is most notable for funding Californian wineries, meaning the winery industry may be next in the domino chain.

If First Republic Bank fails as a result of a bank run, the feds absolutely have to stop the bleeding and assure depositors, there is no stopping a hysteria train once it starts.

[opendoor]

Originally Posted by Yoho

Why wouldnt they do this is it more expensive to hold accounts this way.

Wouldn’t the T bill idea lock companies funds up?

If there are mechanisms in place to protect I agree it’s on companies to do.
Thanks for info.

Yeah, there is a cost to those things. Both in terms of actual costs (e.g. supplemental insurance premiums) or opportunity cost, because sometimes these smaller banks offer more favorable terms (e.g. higher interest rates on deposits, will loan to lower quality borrowers, etc.). But the latter can make them less stable. It's similar to how smaller banks in Canada tend to offer higher GIC rates to attract customers; for instance Oaken, Saven, and Meridian have the highest 1-year rates right now. But it would be far more risky to have holdings in excess of the insured funds maximum with those institutions compared to the big 5 banks. So if you are over that limit, you're effectively giving up some security for better returns.

For T-bills, they don't really lock anything up because they can be sold for cash at any time. The only risk is as yields go up, they drop in value, so you don't necessarily want be tied into long-term T-bills (that's basically what caused this mess for SVB). But shorter term ones are totally fine and a legitimate way to guarantee your money.

[Slava]

Originally Posted by Yoho

Why wouldnt they do this is it more expensive to hold accounts this way.

Wouldn’t the T bill idea lock companies funds up?

If there are mechanisms in place to protect I agree it’s on companies to do.
Thanks for info.

The other reason they didn’t do it in this case, was VCs were giving money to the start up’s and part of the terms were that they had to use SVB. Now those same VCs want the backstop.

[Slava]

Well there it is. Janet Yellen said they've arranged a new funding entity the "Bank Term Funding Program" and it will make sure that depositors will be made whole. They also closed another bank (Signature Bank in NY) and those depositors will also be made whole.

Basically, crisis averted...or at least crisis kicked down the road.

[Bill Bumface]

This is why free enterprise can’t go unchecked. It doesn’t work. People having faith in a system is a massive component in keeping lots of said systems functioning.

While it’s undoubtedly brutal that a bunch of public money will go to saving the day, I think the government and regulators need to instil short term faith in the banking system, and then follow that with regulatory changes to instil long term faith and actual greater fundamental security in banking across the board.

[opendoor]

Originally Posted by Slava

Well there it is. Janet Yellen said they've arranged a new funding entity the "Bank Term Funding Program" and it will make sure that depositors will be made whole. They also closed another bank (Signature Bank in NY) and those depositors will also be made whole.

Basically, crisis averted...or at least crisis kicked down the road.

I think those are sort of two separate things. For Silicon Valley Bank (and Signature Bank), it sounds like the FDIC basically figures that there are enough assets to pay out to depositors, and it's just shareholders and unsecured debthholders left holding the bag.

And then the Federal Reserve has now set up a lending program where financial institutions can get loans against their T-bills and MBSs to pay out withdrawals to ensure liquidity.

Originally Posted by Bill Bumface

This is why free enterprise can’t go unchecked. It doesn’t work. People having faith in a system is a massive component in keeping lots of said systems functioning.

While it’s undoubtedly brutal that a bunch of public money will go to saving the day, I think the government and regulators need to instil short term faith in the banking system, and then follow that with regulatory changes to instil long term faith and actual greater fundamental security in banking across the board.

It doesn't sound like taxpayer money is funding it. The statement specifically says that no losses as a result of this will be borne by taxpayers, so presumably there are enough assets to cover depositors. Or perhaps the FDIC (which isn't funded by taxpayers) will be covering more than it normally would to make everyone whole.

[Bill Bumface]

Originally Posted by opendoor

It doesn't sound like taxpayer money is funding it. The statement specifically says that no losses as a result of this will be borne by taxpayers, so presumably there are enough assets to cover depositors. Or perhaps the FDIC (which isn't funded by taxpayers) will be covering more than it normally would to make everyone whole.

Well that's great news if they can pull it off without taxpayers footing the bill. Any idea how the FDIC would cover this? Is it just that much in their self interests to keep things from falling apart to pony up and prevent a bunch of potential future claims if more banks fail?