Do bailouts help or hurt?
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wrote on 28 Mar 2023, 12:52 last edited by
Do laxatives help or hurt?
Do chemotherapies help or hurt?They can be both.
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wrote on 28 Mar 2023, 13:01 last edited by
I think there’s some availability bias going on here. We’ve had almost 400 bank failures since 2010 - IOW after the financial crisis. They didn’t make the news.
Also I don’t see the moral hazard argument here. No bank will look and say “we can take this risk, it worked out okay at SVB.” They did in fact let SVB fail, as distinct from Bear Stearns in 2007.
Is there moral hazard created for depositors? I suppose, but as Bill Ackman pointed out, he’s a pretty sophisticated investor and he finds banks a black box, despite the thousands of pages of financial reports they have to publish.
So I don’t think it’s realistic to rely on depositors to keep banks risk in check. I suppose we could be more vigilant about encouraging depositors to split their cash deposits between multiple banks to stay under the limit with each (which is what my foundation does). But that is the functional equivalent of the fdic insuring all deposits.
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wrote on 28 Mar 2023, 13:12 last edited by
I don't think many people want their deposits spread across a lot of banks, although I would do that if I ever kept over 250K in a bank.
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wrote on 28 Mar 2023, 13:41 last edited by
We use Credit Unions. I have always been leery about whether the NCUA actually has as much backing as the FDIC, though.
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I think there’s some availability bias going on here. We’ve had almost 400 bank failures since 2010 - IOW after the financial crisis. They didn’t make the news.
Also I don’t see the moral hazard argument here. No bank will look and say “we can take this risk, it worked out okay at SVB.” They did in fact let SVB fail, as distinct from Bear Stearns in 2007.
Is there moral hazard created for depositors? I suppose, but as Bill Ackman pointed out, he’s a pretty sophisticated investor and he finds banks a black box, despite the thousands of pages of financial reports they have to publish.
So I don’t think it’s realistic to rely on depositors to keep banks risk in check. I suppose we could be more vigilant about encouraging depositors to split their cash deposits between multiple banks to stay under the limit with each (which is what my foundation does). But that is the functional equivalent of the fdic insuring all deposits.
wrote on 28 Mar 2023, 14:38 last edited by Axtremus@jon-nyc said in Do bailouts help or hurt?:
So I don’t think it’s realistic to rely on depositors to keep banks risk in check. I suppose we could be more vigilant about encouraging depositors to split their cash deposits between multiple banks to stay under the limit with each (which is what my foundation does). But that is the functional equivalent of the fdic insuring all deposits.
+1. I wonder if it would be worthwhile to structure things such that the larger depositors shoulder disproportionately more of the cost to insure the deposits. That would also encourage larger depositors to spread their deposits into smaller chunks across more banks.
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wrote on 28 Mar 2023, 14:45 last edited by
@Mik said in Do bailouts help or hurt?:
I don't think many people want their deposits spread across a lot of banks, although I would do that if I ever kept over 250K in a bank.
I was totally unaware of the 250K limit. Obviously, this kind of thing doesn't normally affect me, but for a few short, blissful days during the house move it would have done. Imagine the calamity that could have occurred if there'd been a run on Santander and I couldn't get hold of the money to pay off the new mortgage!
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I don't think many people want their deposits spread across a lot of banks, although I would do that if I ever kept over 250K in a bank.
wrote on 28 Mar 2023, 14:59 last edited by@Mik said in Do bailouts help or hurt?:
I don't think many people want their deposits spread across a lot of banks, although I would do that if I ever kept over 250K in a bank.
I consulted for a startup in the early aughts that made it seamless. You put the money in one participating bank and it opened accounts for you in other participating banks.
Our foundation uses Merrill which either uses that service or a clone.
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wrote on 28 Mar 2023, 15:08 last edited by Mik
Yes, but for a business to run that way adds an extra level of complexity. I already run one of my charities in one bank and one credit union. It presents some challenges from time to time.
A business with many transactions and requiring careful cash flow control could run into problems.
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@Mik said in Do bailouts help or hurt?:
I don't think many people want their deposits spread across a lot of banks, although I would do that if I ever kept over 250K in a bank.
I was totally unaware of the 250K limit. Obviously, this kind of thing doesn't normally affect me, but for a few short, blissful days during the house move it would have done. Imagine the calamity that could have occurred if there'd been a run on Santander and I couldn't get hold of the money to pay off the new mortgage!
wrote on 28 Mar 2023, 15:16 last edited by@Doctor-Phibes said in Do bailouts help or hurt?:
@Mik said in Do bailouts help or hurt?:
I don't think many people want their deposits spread across a lot of banks, although I would do that if I ever kept over 250K in a bank.I was totally unaware of the 250K limit. Obviously, this kind of thing doesn't normally affect me, but for a few short, blissful days during the house move it would have done. Imagine the calamity that could have occurred if there'd been a run on Santander and I couldn't get hold of the money to pay off the new mortgage!
For a couple, it's my understanding you can do multiple accounts, depending on how they're opened...One for him, one for her, a joint account, etc.
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wrote on 28 Mar 2023, 15:22 last edited by
A brokerage will allow you to open multiple individual accounts. Seems like way too much hassle though. If Schwab or ETrade went belly up and everybody's accounts were decapitated after 250k, I suppose it'd be a bigger deal than 2008 or you name it. I think the government would do whatever to make people whole.
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@Doctor-Phibes said in Do bailouts help or hurt?:
@Mik said in Do bailouts help or hurt?:
I don't think many people want their deposits spread across a lot of banks, although I would do that if I ever kept over 250K in a bank.I was totally unaware of the 250K limit. Obviously, this kind of thing doesn't normally affect me, but for a few short, blissful days during the house move it would have done. Imagine the calamity that could have occurred if there'd been a run on Santander and I couldn't get hold of the money to pay off the new mortgage!
For a couple, it's my understanding you can do multiple accounts, depending on how they're opened...One for him, one for her, a joint account, etc.