If this is so prudent, how come nobody was suggesting it before it happened?
I agree though that it sounds like a reasonable solution, at least superficially.
Wiping out the shareholders at least is something I agree with. They need to eat risk.
I also think that deposits have carved out a space of its own in the mind of the public. You can't think of it as a risk investment like any other debt because people just don't treat it that way, they think of it as a safe place to store their money for convenient access for things like payroll. If you haircut them, everyone will have to re-evaluate where to keep their deposits and chaos ensues.
The big question then is how this levy on the rest of the banking system will work. That may turn out to be a clever solution or a carpet to brush future problems under. We'll see when there's more details.
But the question still remains, why didn't someone think of this earlier?
> If this is so prudent, how come nobody was suggesting it before it happened?
I guess this is kind of facile, but isn't it because the bank wasn't insolvent yet?
Interestingly, it sounds like systemically important banks may be required to do "resolution planning" for insolvency. If I'm understanding correctly, that sounds similar to what you're talking about.
SVB seems to have successfully lobbied for raising some of the thresholds for increased oversight from $50bn to $250bn. I don't know the specifics of exactly what was involved at this threshold, but it does seem clear that was a mistake.
Scroll down to screenshot of tiny text to find the "one trick" to explain it all. SVB poorly managed their balance sheet and had weak regulations for which they lobbied (oh, the lulz). Nothing more. FDIC wind-down or maybe sale. Plus, tighten up that rule. End of story. Maybe a few billion of special assessment (_in total_) on all other banks -- this is how deposit insurance works _in one form or another_ in all advanced economies.
Why is this darn story getting so much attention? Dunno. Slow news cycle?
I agree though that it sounds like a reasonable solution, at least superficially.
Wiping out the shareholders at least is something I agree with. They need to eat risk.
I also think that deposits have carved out a space of its own in the mind of the public. You can't think of it as a risk investment like any other debt because people just don't treat it that way, they think of it as a safe place to store their money for convenient access for things like payroll. If you haircut them, everyone will have to re-evaluate where to keep their deposits and chaos ensues.
The big question then is how this levy on the rest of the banking system will work. That may turn out to be a clever solution or a carpet to brush future problems under. We'll see when there's more details.
But the question still remains, why didn't someone think of this earlier?