Thread by @ArmandDoma

people are getting very confused about this whole Silicon Valley Bank / FDIC issue, so here's a thread:

-Majority of accounts over $250k are BUSINESSES, not individuals
-While FDIC is only required to pay out up to $250k, in practice, they tend to arrange a sale...

🧵 (1/?)

1) It would be very bad if we just let every account with over $250k in deposits lose all its money---SVB had almost 40k customers, most of whom are businesses that employ people. You're talking about firing tens of thousands of people because of their bank!

2) While FDIC is legally required to cover up to $250k, in practice the FDIC tries to find another bank to buy the failing bank and try to make all depositors whole. Insured depositors are paid first, uninsured next, and equity holders / lenders last fdic.gov/consumers/bank…

3) FDIC doesn't usually end up putting in a lot of $ at all; whatever the gap is between deposits and liabilities tends to get made up by stockholders and lenders. And anything they do put in is made up for by charging banks higher insurance premiums. FDIC is not taxpayer funded

4) The tl;dr is:

The FDIC is not likely to "bail out" the deposit holders of SVB, it's likely going to make the people who invested in SVB or loaned it money eat the losses, and if does need to put in money, it'll pay for it by charging other banks higher premiums

One final thought: why would another bank be willing to buy a failing bank? Well, for one, they’re gonna be able to “buy” it for free—equity holders in SVB are getting wiped out. For two, banks pay a lot of money to acquire customers—and this hands them a ton of customers!