Same was true for SVB, except their customers got freaked and SVB couldn't raise enough liquidity in time -- I've heard they could have, had the Fed not closed for the day or something.
So likely the Fed wouldn't let something similar happen to BoA.
So likely the Fed wouldn't let something similar happen to BoA.
Just because it’s a GSIB doesn’t guarantee that the US tax payer would pick up the tab on all deposits if push came to shove.
Excluding deposits over 250k and non-personal deposits but I believe these are a minority for a bank like BoA, which is mostly retail.
Anyways this is kind of a nonsequitur because GSIB goes quite a bit beyond just FDIC coverage.
It may not be written down explicitly in the definition of gsib, but it definitely goes beyond just fdic
Besides in Cyprus case the reliable Northern Europeans managed to keep the financial system stable.
To paraphrase Kissinger: "if Europe has a financial crisis who do I call?". The answer is Berlin.
You mean implicitly, because there is no explicit guarantee ANYWHERE saying so.
> it’s not allowed to fail due to its systemic importance
Agency MBS. Fed has no mandate to keep buying and they're not. BoA can definitely fail. It would be disastrous to NOT let it fail.
In practice this might be true, but I'm not sure every bank would have a multibillion dollar hole in its balance sheet if all customers withdrew their deposits.
There's probably a point to be made that banks with large unrealized losses would lead to customers losing deposits, while banks with a positive net asset would not.
Most business deposits are 85% uninsured because they are about the $400K limits.
We have already set the precedent of full deposit insurance.
What is your source for that information?
https://www.npr.org/2023/03/19/1164531413/bank-fail-how-gove...
But the aggravating factor is that the vast amount of their deposits was VC money fueled by QE and "easy money" that was no more. Even without a bank run in the first place, the total deposit amount would drop significantly, and easy to put two and two together and realize SVB is in trouble... and then the bank run becomes inevitable.
SVB had about $7b venture debt, and the total venture debt market ballooned during the pandemic. VCs and banks like SVB were hyper-inflating start-ups with venture debt (which is totally worthless unless it can be flipped) and they continued doing this into 2022 and 2023 despite inflation and rising rates.
10 years ago venture debt was a fraction of what it became because it’s stupid-risky, especially for a bank. But with crypto and especially the rampant fraud within crypto, VCs found a few friendly banks and created a bubble.
That $7b might as well have been a hole in the balance sheet, just like what FTX did. The banks and VCs had 12-16 months to de-risk and all they did was cut deal volume. Blaming the collapse in any way on the Fed is as specious as Musk trying to walk out on Twitter because of “bots.”
Here’s e.g. one article on the SVB loanbook https://www.forbes.com/sites/amyfeldman/2023/03/19/silicon-v...