El Bar de los Pufforeros. Inversión de la A a la Z: Fondos, ETF, planes de pensiones, acciones, metales preciosos, etc

Recent events have made clear in the mind of the average American that there is a risk that they could lose money doing something they used to think of as safe -- Being a depositor. We have had a two-tiered system since the GFC where a few large banks have the explicit backing of the taxpayer and the rest have $250k of deposit insurance.  This two-tiered system worked until it didn't work.

In a world with
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- speed spread of information and smart-phone-enabled bank accounts where withdrawals can be made with the push of a button, no bank is safe from a run unless the depositor has an explicit gov't guarantee that ensures that they always have complete access to the total value of their deposits. Without this guarantee, the non-systemically important banks (non-SIB banks) will likely continue to experience large withdrawals.  

This problem is compounded by the stock market.  Consumers now understand that when a bank stock collapses, it is only a matter of days before the bank fails due to liquidity demands by their depositors.

The rewards for being a depositor are minimal compared with the risk of loss from losing access to funds needed to run your business or household.  Until this problem is solved, our banking system is at risk.  The more time the public is exposed to a period of uncertainty, the more imprinted deposit risk is on the mind of the public.

That is why it is critically important that our gov't promptly puts its full faith and credit behind our deposit system.  

If in fact, your deposit is safe if a bank fails, as in SVB and Signature, then why is it difficult for the gov't to confirm that your deposit is money good when your bank is still operating?

We need a temporary systemwide deposit guarantee that will remain in place until our outmoded $250k deposit guarantee program is modernized.  Since this new system can't be created over a weekend, we need a stop-gap measure to get us through the next few days and weeks.

The alternative is one bank failure after the next.  The weakest three have already fallen.  The market is already telling you who is number four.  This is not the way one maintains confidence in a banking system.

Lastly, the more banks that fail, the higher the cost of capital will be for non-SIB banks.  This will have a profound long-term impact on the cost of capital for small and medium-sized businesses, a cost that has already increased materially due to the overall rise in rates.  It is not helpful to put even more pressure on these critically important drivers of our economy.
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