All Silicon Valley Bank Deposits Are Guaranteed 100%

All Silicon Valley bank deposits are guaranteed 100%. Any losses will be shared and taken from the entire US banking industry.

The government is creating a fund at the discount window. A bank can give the Fed $X billion of bonds or mortgages. The fed gives them cash. This ensures that the bank does not have to sell bonds or mortgages at a loss. The low interest rates won’t matter to the fed.

The Fed will recover losses and could increase FDIC charges to banks.

This process is somewhat like what has been set up in the insurance industry. The insurance industry pays into funds managed at the state level to make sure all claims get paid.

11 thoughts on “All Silicon Valley Bank Deposits Are Guaranteed 100%”

  1. The Fed is printing fiat dollars to bail out the banks. The Fed caused inflation by printing too many dollars. Now the Fed is printing more dollars and making inflation worse. Prepare for $0.75/kWh electricity, $8/gallon gasoline, $1/lb potatoes, and 10% credit.

  2. Not so clear:
    “…Updated: 13-Mar-23 09:09 ET – Bonds Soar as Bank Stocks Prepare for Fresh Beating –
    Markets are weakening toward the bell after hearing the Federal Gov’t’s response to the regional bank angst — depositors will get made whole by a new facility while stock and bond holders will be wiped out…”
    and generally:
    “…The failure and closure of Silicon Valley Bank (SVB) raise immediate issues as to how policymakers should react. The main lesson is that successful bank regulation is an ongoing, dynamic problem, unintended secondary consequences are rife, and neither more regulation or less regulation can be guaranteed to succeed….The core problem is this: regulators can only protect so much of the financial system. Yet in a wealthy, peaceful economy the financial system often grows more rapidly than does gdp, if only because the financial system is based on the intermediation of wealth, not income. Simple accumulation boosts the ratio of wealth to income over time, thereby creating regulatory dilemmas for finance…”

  3. It’s too bad all this COVID money that was meant to keep businesses operating and people on the payroll during the short term was legally embezzled to become long term investments and rainy day funds in a gimmick bank. How about in the next pandemic we don’t do this?

  4. Supposedly SVB was in compliance with banking rules? Maybe those rules need revision?

    And shouldn’t the Fed have foreseen this risk – pushing rates very low for a long time and then pumping rates up hard and fast – surely it should have been obvious to them that they would destroy the cash value of banks’ long term loans – not just treasuries but also fixed mortgages?

    How are other banks really doing – surely they’ve also been giving out 30 year mortgages and buying 10 year treasuries during the long ZIRP?

    • Technically, The Fed’s changes in interest rates REFLECT the medium-term auction trends of the Federal Reserve bank’s Tuesday bond auction. Institutional investors so coveted US treasury bonds (as a parking lot for their excess cash) that they ACCEPTED ever lower effective interest by themselves driving UP the auction price of the paper.

      More expensive paper yields lower interest. The Fed in turn, rather more slowly than the weekly cycle, adapts and announces further lowering of bond coupon payout interest. Then prints new paper to reflect policy. The cart (Fed rates) is lead by the horse (medium term auction yields).

      However, to be completely fair, Fed POLICY is also a co-conspirator in coupon yield trending. Basically, when The Fed needs to issue a greater number of bonds at auction, the investors’ appetite wanes. You know, The Fed seeming to become less prudent, ‘over-issuing’ paper. This push to issue more comes from many competing guidance centers.

      Could be a national disaster: a war, a pandemic, a huge regional disaster, a sudden shift in economic conditions. Could be socio-economic: major economy weakening or strengthening, well outside planned or ‘acceptable’ bounds. Could be willy-nilly (tho’ very, very rarely)… Congress going on a wild goose chase. Might be transnational: Europe or Asia having to weather their own similar factors, the US Fed more or less feeling compelled to reflect world conditions.

      Still … ultimately, it is the room-full of institutional investors that determine actual yield rates every Tuesday. In conjunction with the bond paper printed yields of course, but still with plenty of wiggle room to change the effective rate by depressing (or increasing) the bond purchase price at auction.

      Just saying…

    • PS … yes to the ‘canary in the coal mine’ question: how are the other banks doing? This is my central topical fear. Or, to put it differently, why would we believe that other banks would be less inclined to park their excess money in medium-to-long term US bond notes?

      And yes, I too agree that this situation should have been well-and-brightly lit up on the Fed’s policy-making Radar. I cannot imagine what level of mendacity would attempt to paper over this very real hazardous consequence to suddenly pumped up bond yield curves.

      This may well end up being a very sparky week, banking wise.

      • At least this time they’re actually using the FDIC system. Last time they bypassed it to protect the large investors. “Too big to fail.”

        A side issue here is that when banks have mortgage based assets, and they end up claiming the house, they can list the house at the value of the mortgage. When they actually sell the house, they have to update that valuation to what it sells for.

        In the last housing crisis this resulted in a lot of banks that were actually underwater, and technically should have been shut down, because so much of their equity was in homes that were no longer worth what they’d been mortgaged for. In order to avoid this, the banks dragged their feet on actually selling those houses, to keep the false values on their books.

        Since neither were they interested in spending money to maintain them, (In an unoccupied house a minor issue that might be cheaply resolved can turn into a major issue in almost no time at all.) these houses were rapidly reduced to uninhabitable ruins.

        At the same time a rather large fraction of the population had their credit rating tank due to foreclosures and short sales, and were not permitted as a result to buy any home that actually needed any work on it. This was the primary reason you saw so many flippers: You could take a cheap house that needed work, bring it up to the point where the mortgage companies would actually let somebody buy it, and then sell it for a profit, IF you had a decent credit rating.

        This caused the total housing stock to decline rapidly, and forced a lot of people into renting. I was trapped that way myself; I had the money for a mortgage, and the skills to repair any problems with a house myself, but was stuck in an apartment for years waiting for my credit rating to recover.

        Hopefully we won’t see that happen again, but there are political forces around that actually prefer as much of the population as possible be renters, and housing prices are pretty inflated right now, you could see a repeat.

  5. Never look too deeply into the modern banking system.

    It just gives you vertigo and leaves you feeling helpless…

  6. Good, bank runs are a nightmare modern people have luckily almost never met, except in severely decrepit regimes with economies in shambles.

    What’s appalling, is the number of people that seemed almost… happy and eager to see that some random bay area persons were losing their shirts, just because they’re from Silicon Valley.

  7. Its kind of reassuring that the Fed, after a few days, ‘gets religion’ about their responsibility in this crisis. In essence, (per the long reply I made a couple of days back) the problem in a nutshell is that the carefully regarded security of US government Treasury bonds ended up eroding SVB’s liquidity reserves at the very time that high liquidity was being required of it.

    Or, in English … their bonds had deeply depreciated.


    In my mind, I believe it is concommitant on The Fed to COVER SVB’s bonds at their full original auction value. No speculation one way or the other.

    Remember ‘quantitative easing’ or QE? This was a stunning creation by The Fed to stimulate the US and World money supply by advancing a buy-back-before-maturity policy for its long bonds. You know, you bought 10 year bonds 3 years ago, thus they have 7 years left … but because of the QE policy, you can submit your bonds to the Treasury, today, and get them to buy them back, now.

    Kind of useful: the government is not obligated to buy back those older bonds with circulating money, no. They can (and usually do) use conceptually uncirculated monies (really just digital transfers) to the bond holders. It is treated as hard cash, and all banks honor the sovereignty of such money creation.

    Anyway, in a similar fashion, The Fed can advance-purchase all of SVB’s devalued bonds, at their maturity buy-out value. Their face value. The sheet says a million bucks, so a mill will be coughed up.

    Likewise, because the viabilty of SVB wasn’t really in question because of unauthorized or overly speculative investments as I’ve learned, but rather because the ‘backbone financial system’ failed it in a time of need.

    Thus, The Fed needs to do a double coverage play.

    Buy back the face value of the bonds, no auction. And COVER the depositors’ deposits, at 100%. Do both, and the new Santa Clara Bank can open its doors and resume operations. At first a lot of capital would flee, because belief is hard to win, except through proof. But, in the end, such a coverage would bring even more depositors back in return.


    HOWEVER there is an annoying dark problem with this. MORAL HAZARD: fueling an unsupported speculation bubble by completely covering all speculative risks with limitless insurance.

    By The Fed completely covering SVB, if (and as yet unreported) if it turns out that SVB’s failure really was directly the result of speculative nonsense and imprudent banking leverage, well … The Fed’s bail-out then becomes vulnerable to abuse by basically any-and-every bank that’s living near the edge, financially. Speculation, ho!

    And that’s a problem.

    Anyway … more Goatish thoughts.

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