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Comment by 0zemp2c | Hacker News Reader

all of the banks have some Treasuries yielding next to nothing

all of the banks have DOA car loans (bigger than student loans now?)

all of the banks have mortgages they underwrote for thirty years at 3%...these may be a relative loss to Treasuries for a generation

all of the banks financed now-empty commercial real estate

when I last checked, First Republic was #10 in % of holdings not covered by FDIC, and plenty of big banks were ahead of them

First Republic may have sucked, but your bank does too

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> First Republic was #10 in % of holdings not covered by FDIC

That's actually a good thing: it means a small (relative) haircut the uninsured have to pay for everyone to get their first $250k guaranteed.

When a bank fails and there's a small handful with over $250k in their account, they're going to lose everything over $250k to cover everyone else.

No, that's what used to happen, pre-SVB.

It has now been established as precedent that if depositors of "regional" (or "systemic") banks have enough clout/create enough panic, they can get infinite protection. We will see if FR depositors' money over the FDIC limit is made whole.

If that happens with FR, then Congress should legislate to raise or index-link FDIC limits, for everyone. (If not, we have moral hazard for both depositors and well-managed banks; and also smaller banks have to compete at an ever-increasing disadvantage.)

It's actually happened before that. Limit was retroactively raised from $100k to $250k after IndyMac collapsed. But that was for everyone by law (first temporarily by https://archive.fdic.gov/view/fdic/3388 then by Dodd-Frank retroactively & permanently).

Even then I thought it was a bad idea because it discouraged depositors from spreading around their assets.

Whether we'll see them treat future failures like SVB or not, TBD!

FDIC historical limit was set/raised eight times, essentially a bit higher than tracking inflation: https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...

FDIC(+NCUA) are allowed revise the limit every 5 years, next is 2025. Unless Congress acts sooner.

Should the FDIC limit be indexed on inflation?

That would make more sense. But were any of the pre-2008 increases retroactive?

Not sure what you mean, but they were ad-hoc and retroactive to bank failures, not explicitly to inflation numbers on a five-year schedule. Allowing FDIC limit to be revised for inflation is a new regulation.

Strictly, that never happened. Unless there were literally no assets on seizure. You would lose what couldn't be recovered. Not everything over the insurance mark.

Who did lose everything were the investors in the bank. And that still happened.

No, that has not happened in 15 years. Every bankruptcy since IndyMac has ended with depositors being made whole. The precedent is a lot older than the recent bank failures.

And what I said is banks used to be allowed to fail (and FDIC wasn't directed to make depositors in excess of the insurance limit whole). Ok so the last time reserves didn't cover depositors was 2008 not more recent.

My remark is that alloeing banks to fail is no longer happening, and that's setting a really bad moral hazard. Some even suggested during SVB there should be infinite FDIC coverage for 2 years, which would have destructive side-effects towards the end of that period. It's strange to hear people (esp. libertarians) complain about the politicization of the IRS (Taibbi/Twitter Files), but not the FDIC.

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