Partly true. The FDIC guarantees account holders to $250k, but they are also responsible for unwinding the failed bank and returning that money to account holders. Because SVBs problems were primarily liquidity-induced, the FDIC was certain they could make account holders whole from the funds available after unwinding.
The FDIC didn't have time to go through the books thoroughly enough to be 100% sure all deposits would be covered by liquidating the bank's assets.
All accounts are whole on Monday as usual, the Fed simply backed everything and decided it was safer to figure it out later given concerns over contagion.
It's my understanding it's a little more complicated than that and still went through the FDIC.
Apparently the FDIC funds are not entirely liquid either so the fed extended them a short-term loan to provide the liquidity. At the end of the day the shortfall on the sale got covered by the FDIC funds and the loan from the FED came through on the basis of the FDICs fund and the fact that they then owned all of SVBs assets(they were named the receiver).
The FDIC managed the entire thing, backed all the maneuvers with their 128bn fund, is independent and reports to the POTUS, and is entirely funded by deposit insurance fees on the financial industry. The FED had its own opinions on the whole situation I'm sure, and provided a short-term liquidity loan to the FDIC, but it's a bit misleading IMHO they way their involvement is discussed.
> The FDIC managed the entire thing, backed all the maneuvers with their 128bn fund, is independent and reports to the POTUS, and is entirely funded by deposit insurance fees on the financial industry. The FED had its own opinions on the whole situation I’m sure, and provided a short-term liquidity loan to the FDIC, but it’s a bit misleading IMHO they way their involvement is discussed.
So you are saying that the decision to invoke the systemic risk exception and cover all depositor funds despite the least cost rule was an independent decision of the FDIC and not, as the law requires, a decision made by the Secretary of the Treasury, in consultation with the President, backed by supermajorities of both the Fed board and the FDIC board?
Strange that that’s not what the joint Treasury/FDIC/Fed press release said.
That makes a lot of sense, thanks! I had been wondering where the FDIC got the money to cover since the fund was already berks it's minimum required balance and didn't have the liquidity.
I hadn't seen any reports confirming a Fed loan but that seems like about the only way it could have worked.
Yeah, just like a bank won't leave 128bn sitting around doing nothing the FDIC also prob at least puts in to bonds and etc(I don't know the breakdown).
I wasn't aware of any of this until a few weeks ago had to research. As a disclaimer and promotion of independent research haha.
