It's not a bailout, the investors in this bank are getting fucked. What's happening is they're liquidating the bank and using all its assets to fully cover deposits, then returning the rest to investors. No money is being given by the government to anybody. Same deal as SVB.
No money is being given by the government to anybody.
please correct me if i'm wrong but that is exactly what is NOT happening. The shareholders aren't covered as you say, but there are no current buyers for these assets. Therefore, the fed announced the depositors will be receiving all their money from the deposit insurance fund i.e. the treasury, i.e. the taxpayer ultimately if the DIF dips to 0. And the Fed basically indicated in their statement that this applies to every bank, meaning every bank's FDIC insurance is now up from $250k to unlimited. But they don't pay for that insurance, meaning we are now creating a huge moral hazard situation where all these banks can just do anything they want, because even if they use their deposits to buy the riskiest securities ever, it doesn't matter! The depositors will not have to worry. The VC backed companies will never have to worry, they will never lose because they will always play with house money.
If I am understanding this correctly, this is just one degree of indirection from bailout.
Not everything is crypto assets, so as far as I can tell they're going to sell off the good assets, hold onto ones for which there is not currently a market (and sell when and as there is a market) and, yes, use the DIF to make whole the depositors.
Because the FDIC has lifted the $250K ceiling, that means that Deposit Insurance Fund will be covering everything. It is an insurance fund that all FDIC member banks pay into to cover these situations. This means that all of the banking industry will pay for this failure, and that premiums will be going up. If there isn't enough in the DIF to cover the deposits, the FDIC has the ability to borrow directly from the Fed or to issue debt.
It's not a bailout, the investors in this bank are getting fucked. What's happening is they're liquidating the bank and using all its assets to fully cover deposits, then returning the rest to investors. No money is being given by the government to anybody. Same deal as SVB.
t thanks for explaining that
please correct me if i'm wrong but that is exactly what is NOT happening. The shareholders aren't covered as you say, but there are no current buyers for these assets. Therefore, the fed announced the depositors will be receiving all their money from the deposit insurance fund i.e. the treasury, i.e. the taxpayer ultimately if the DIF dips to 0. And the Fed basically indicated in their statement that this applies to every bank, meaning every bank's FDIC insurance is now up from $250k to unlimited. But they don't pay for that insurance, meaning we are now creating a huge moral hazard situation where all these banks can just do anything they want, because even if they use their deposits to buy the riskiest securities ever, it doesn't matter! The depositors will not have to worry. The VC backed companies will never have to worry, they will never lose because they will always play with house money.
If I am understanding this correctly, this is just one degree of indirection from bailout.
Not everything is crypto assets, so as far as I can tell they're going to sell off the good assets, hold onto ones for which there is not currently a market (and sell when and as there is a market) and, yes, use the DIF to make whole the depositors.
What happens if there's not enough money to cover depositors? Or would that be illegal and therefore unlikely?
Because the FDIC has lifted the $250K ceiling, that means that Deposit Insurance Fund will be covering everything. It is an insurance fund that all FDIC member banks pay into to cover these situations. This means that all of the banking industry will pay for this failure, and that premiums will be going up. If there isn't enough in the DIF to cover the deposits, the FDIC has the ability to borrow directly from the Fed or to issue debt.
Wonder how deep this fund is