Financial crisis nerds have had quite a weekend. In short order the one-of-a-kind Silicon Valley Bank began to reportedly be experiencing losses, and large uninsured depositors began loudly and aggressively “pulling” their deposits.
ANNOUNCEMENT: I have a well timed and previously planned trip to the San Francisco Area coming in mid-to-late May. So if you would like me to speak to your organization about uninsured deposits, the Federal Reserve or any other topic, please email me at crisesnotes[at]gmail[dot]com
Financial crisis nerds have had quite a weekend. In short order the one-of-a-kind Silicon Valley Bank began to reportedly be experiencing losses, and large uninsured depositors began loudly and aggressively “pulling” their deposits. Following that, the bank predictably experienced liquidity issues, and then was taken over by the Federal Deposit Insurance Corporation Friday morning. A haze of uncertainty about what the governmental response would be emerged with the issue of significant losses for uninsured depositors — reportedly a raft of tech start ups —on the table. Recall that any account with a balance at or below 250,000 dollars in a FDIC member bank is “insured”, and thus the government will promptly make sure that a depositor has access to that money — “dollar for dollar”. Above that amount, the deposit account is “uninsured”, and could experience losses if the bank does not have enough assets of equivalent value.
As debate raged over whether the tech industry’s bank account large balances should be fully saved by government action, unofficial details of a government response emerged. These details were confusing. Initially it was reported that the FDIC and the Federal Reserve would create a “joint facility”. What would a “joint facility” between the Federal Deposit Insurance Corporation and the Federal Reserve look like? What would that entail? Since the details didn’t make sense, it was hard to tell whether this was an incoherent press rumor, or early reporting on a real plan that was in the process of being executed. It turns out it was the latter.