Power manager mortgagebot4/17/2023 ![]() $8trn at 1.28% = $102.4bn needed to make up the shortfall if we guaranteed all deposits at current levels.įirst year of Fintech Meetup was a success! Here’s my takeaways from a compliance/risk perspective:ġ. ![]() If we have $18trn (total) deposits, that's another 8trn we would need to insure. Toohig comment: Based on $10trn (insured) deposits and a current FDIC fund of $128bn to back those. The Deposit Insurance Fund is funded two ways: through premiums charged to the insured banks, and through interest earned on funds invested in US government securities." As of the end of 2022, the FDIC had just over $128 billion in its Deposit Insurance Fund, backing more than $10 trillion in insured deposits. Sometimes the assets don't generate enough cash in a quick sale, leaving a shortfall, which is where the FDIC's insurance comes in. Banks typically have far more assets than deposits if an institution fails, the assets are sold off to cover payouts to depositors. It doesn't take $18 trillion to insure $18 trillion in deposits. "How much insurance would be needed to guarantee all US deposits? The cap on insured deposits has been raised seven times, most recently in 2008 to its current $250,000." It was "an immediate success in restoring public confidence and stability to the banking system," according to the FDIC. First implemented in 1934 in response to a bank panic the year prior, federal deposit insurance began with a cap of $2,500, equivalent to about $56,00O today. The goal of federal insurance is to boost confidence in the US banking system without guaranteeing every penny deposited in banks - almost $18 trillion currently. "Why is there a limit on insured deposits? What would it cost to insure all deposits? Who pays that? From Bloomberg. That would fit into the "time deposit" category, though brokered CDs are seen as slightly less stable, because there is no direct relationship between the bank and the depositor, to the extent that such a relationship even helps." They are rather more prone to runs, but regulators say their heat depends on whether the cash is going to be used for"ģ) "Time deposits: This is a category that includes things like CDs, where depositors agree to tie up their money for a short period of time in exchange for a higher interest rate."Ĥ) "Brokered deposits: A "brokered deposit" often calls to mind a CD from a treasury-management firm like IntraFi. Retail deposits generally aren't especially run-prone, as most fall below the $250k FDIC insurance limit"Ģ) "Wholesale deposits: These are deposits from companies, money managers and other institutions. "In the wake of the GFC, global banking regulators took the potential flightiness/risk of deposits into account in banks' Liquidity Coverage Ratio or LCR requirements"ġ) "Retail deposits: This is money that a normal person would put in the bank. This isn't really credit-risk forbearance, but it does provide significant relief from the double-digit losses those portfolios would have otherwise suffered because of the Fed's recent rate hikes" "this time around, US regulators are addressing the central issue of bond losses, and simply letting banks of all sizes temporarily liquefy their safe-bond portfolios at par value. "the S&L crisis wasn't resolved until years after regulators first noticed the problems with mismatched assets and liabilities" Roughly one-third of S&Ls failed or merged between 19, in a slow-moving crisis" After the Fed raised rates aggressively to fight inflation in the 1970s, the S&Ls' fixed-rate mortgages experienced mark-to-market losses. "It's no surprise that the last comparable run on US banks was during the 1980s savings and loan crisis. "The amount of deposits at US-chartered institutions dropped about 5% between Feb 2022 and March 8th this year, totaling nearly $825bn, according to Federal Reserve data" With market rates approaching 5% for the first time since before the GFC and opportunity costs at their highest level in decades, we expect flows out of deposits to accelerate this year." "So even though depositors appear to have called off the bank run (for now at least), banks' profitability problems aren't going away. Then walks us through various forms of deposits. This article from the Financial Times speaks a little to the events of the last two weeks. ![]() I'll put out a couple of posts on this today. A lot of talk lately about insuring all deposits (or not). ![]()
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