If payment is done by other banks, doesn't that serve as mitigation?
Sure, when the government pays, it's super risky.
However if other banks pay, for sure they'll either self regulate or push for better legislation.
Sure, when the government pays, it's super risky.
However if other banks pay, for sure they'll either self regulate or push for better legislation.
Seems the exact opposite. Why would any bank ever conduct risk assessment if their potential failure will be paid by the industry as a whole. This effectively tells any other bank that might be fearing for a bank run to stock up on super risky assets and to let the dice roll to see if they end up winning big, or if their competitors end up paying for their losses.
To be fair, I'm not sure if this is necessarily a bad thing for certainly types of very low yield accounts (checking accounts with no interest, etc). But there certainly is an element of moral hazard at play.
Thats not the definition of a customer, thats the definition of an investor.
The fact that it is supposed to be a low risk low return investment does not change that fundamental relation.
> Why would any bank ever conduct risk assessment if their potential failure will be paid by the industry as a whole.
So the bank doesn’t go under, causing them to lose their jobs and equity.
I’d agree that’s what happens with the big rescue loans that save businesses. But, that’s not what’s happening here. There just such extreme hyperbole about how this removes all risk for banks.
I guess where I can meet you in the middle is that in this crash from excessive speed (not over the speed limit, but only because they lobbied to have the speed limit raised) the customers are getting taken care of, the business owner loses his business and his competitors have to pay for the cleanup.
I’m curious how the banks feel about this. I really don’t believe that doubt about the banking industry is in their favor, even if it could be a differentiator in theory. The amount they’ll pay is a tiny fraction compared to the market cap lost this week.
But banks will most likely recover this imposed “fine” from customers, which means that customers (aka: taxpayers) are the ones who are ultimately bankrolling this whole fiasco.