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Comment by zxspectrum1982 | Hacker News Reader

zxspectrum1982

After the panic, I really doubt they can survive Monday. First thing every customer will do if they reopen the bank "as a normal business day" is transfer out all their funds, which will make the bank fail again. I'm afraid it's too late.

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That won't with FDIC involvement. First, until they figure out the long term plan, nobody will be able to take more than the 250k that's covered by the FDIC. Second, the long term plan will probably be that much larger bank takes over that can guarantee most or all the remaining deposits, in which case there's no point in pulling your money out, unless you want to keep $3 billion under your mattress.

This is what I don't understand about the conversation online. What you described (what I've heard is likely to happen) isn't a bailout. Yet many people are talking about this being a bailout.

In this scenario, SVB shareholders would eat the loss, no?

Shareholders are lowest in the totempole. They get zero. Debt and deposits take priority

It's a bailout for the depositors. Some of those depositors are multi-billion dollar companies. However, even though they are above the FDIC limit, there is a good chance they will get most or all of their money back. If the assets are worth enough to more than repay the depositors, shareholders may get a nominal sum when the dust settles, but probably they will get zero.

Who is bailing them out though? My understanding is that SVB still had cash and 10 year MBS that cover 90%+ of deposits if those MBS were able to mature. And because of that when another bank takes over these accounts, they will (as a condition from the FDIC) honor those deposits.

When people say bailout, they refer to tax dollars going to bailing out an entity.

I could be 100 percent off base but that's my understanding.

> When people say bailout, they refer to tax dollars going to bailing out an entity.

One thing I've learned over the years is that lots of people use words wrong, especially regarding financial topics.

After seeing the ridiculousness that gets posted any time topics like short selling, stock buy-backs, tax writeoffs or fed policy get discussed, I'd be cautious about assigning a narrow meaning to what random internet posters mean when they say "bailout".

Bailout can refer to depositors who could not get back 100% of their assets above the FDIC limit based solely on SVB assets getting made whole (what I was referring to) or to the shareholders getting made whole (which I took great pains to explain as a different situation I was not referring to). But fundamentally the term "bailout" could be used to refer to either and distinguishing those two states is valuable.

The Fed and FDIC are going to bailout depositors by guaranteeing that whichever bank takes them over won't lose money on the deal. That is, the assets might be worth 90% of the liabilities, and the insured accounts cover another 5%. So the FDIC and/or fed will cover the last 5% of the money owed to depositors. In part, by doing so quickly, they can have Monday morning a full guarantee by (huge bank) be the next news story.

The stockholders are not being bailed out. They may get something back if the assets happen to exceed the liabilities. But I would need amazing odds of make that bet. I fully expect depositors to get made 100% whole, with something like 95% coming from existing assets/covered FDIC accounts and the remaining 5% coming from other entities.

It depends. A larger bank may not be allowed to do so if they are a g-sib.

Complete reserve banks can handle 100% withdrawals effortlessly and continue to operate.

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