Can someone discuss if we are paying for this? My understanding is FDIC is separate from the government and works like insurance for banks. I assume this will raise the rates and I assume banks will, out of the kindness of their hearts, pass that on to the customers?
Why run a bank responsibly and hedge for interest rate rise, if your customers are protected over 250k anyway? Hedging lowers the yield you can give. So ignoring that, you can offer maximum yield and attract companies to do bizarre things like Roku keeping 500 million there or Circle maybe 3.3 billion. This doesn’t punish the bad behavior, it actually encourages it. Although the bank is dead so I guess there is that. But the CEO sold $3.6 million worth of stock two weeks ago so I think he will be fine.
(1) It won't raise the rates unless it amounts to an increase in net risk to banks. This is actually the first bank failure in several years (we've had a very oddly quiet period), so despite its size, it may not change much.
(2) Because there are an enormous amount of regulations governing how a bank has to manage its reserves. SVB erred within those regulations and helped push for loosening of them for banks its size, but there are still a lot of constraints designed to minimize the chances of failure.
And (3) because your bank _disappears_ if you go into receivership, you're out of a job.
If you deposit in an FDIC-insured bank, the bank pays premiums to the FDIC so you are "paying" in the sense that that money might otherwise be used as interest on your deposit (but let's be honest it probably wouldn't).
Moreover, the advantages that come with FDIC insurance are more than worth it to the banks (otherwise they wouldn't participate) so on the whole they probably have more money under FDIC than they would without it.
Part of the problem is that people think "It's a Wonderful Life" describes how banks work (banks take deposits and lend them out) but that hasn't been true for almost a century (because of exactly what happens in "It's a Wonderful Life"). Weirdly the deposits a bank has aren't really important to the bank's health one way or the other; they're just the regulatory price the bank pays for being allowed to originate loans.
Consumers always end up paying for it one way or another.
In theory, the reputational damage done to the CEO, CFO etc means that they will be unemployable in the future. But seems like everyone in the finance world has short memories so I doubt this will be the case.
Why run a bank responsibly and hedge for interest rate rise, if your customers are protected over 250k anyway? Hedging lowers the yield you can give. So ignoring that, you can offer maximum yield and attract companies to do bizarre things like Roku keeping 500 million there or Circle maybe 3.3 billion. This doesn’t punish the bad behavior, it actually encourages it. Although the bank is dead so I guess there is that. But the CEO sold $3.6 million worth of stock two weeks ago so I think he will be fine.