The FDIC isn't letting the bank fail. Quite the opposite. The FDIC stepped in and stopped the bank from failing. Otherwise, the bank's deposits would have been completely wiped out the other day.
Why? When the FDIC steps in, the bank doesn't get to go on operating like nothing happened. They're shut down, the owners of the bank lose their money, and management is fired. It's the depositors who are bailed out.
I don't understand, the bank is having a massive run on it and collapsing. Thus the FDIC steps in per the norms of the last 50 years and fixes it. The system works like a charm?
How is this bank fine? They have lost confidence and everyone is pulling their money out. They would collapse if not for FDIC insurance and the system stepping in.
FDIC isn't stupid; they're issuing IOUs and these companies can borrow against the IOUs. It's not like this is a minor bank failure; everyone knows about it.
They aren’t insolvent and have assets to more than cover depositors. The FDIC take over is about stabilizing the bank, not destroying it. Why would you let a bank fail if it’s unnecessary ? They have enormous amounts of business relationships along a huge number of dimensions that are fully functional and fine and meaningfully contribute to the lives of millions. Why tear that up? Spite?
I wasn't trying to be critical of the FDIC, they're obviously really excellent at their job and it's a testament to just how down pat they have their play book given they did managed to get so much sorted out by Sunday. My only point was they managed to prevent bank runs of failing banks in the past, they have deep insight into the banking system. I'm curious what happened this time. Maybe as you said, it's related to the size of the bank, I don't know.
Landlord walks away, bank eats the loss, FDIC steps in if the bank mismanaged the risk and fails. Is FDIC going to fail? Obviously not, the government and central bank will not fail.
Typically the FDIC finds another institution to buy the distressed bank, and backstops losses on bad assets. They were not able to do that in this case
I suspect many depositors will be taking losses in this failure
FDIC insulates customers, but it does not at all insulate the banks; if a bank fails, it fails, FDIC or no. So it doesn't at all remove the incentive for banks to avoid failure by not making poor investments in the same way that, say, a bailout might.
It sounds fine to me to have small banks failing with FDIC around. People don't lose their money, and someone with better business sense starts a new branch.
The FDIC is backed by the full faith and credit of the US government. If a bank fails, your insured deposits will be made while, usually the next business day.
The FDIC killed a bank that was absolutely fine. For the 3rd time in 2 months.
FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it. The FDIC just wanted to flex its muscle because it didn't like the situation — but there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine.
Fuck the FDIC and fuck Jerome Powell for causing all this unnecessary destruction.
Is it not? Most of the time the FDIC will find a buyer and guarantee some percentage (usually ~80%) of all losses to the purchasing bank (plus the very low upfront purchase price, of course) in exchange for them honoring all deposits. So ensuring most deposited funds are safe, at least in the long term, seems to be in line with their usual playbook, even if the unusual circumstances around this particular failure might make that less likely.
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