At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
No, that's been the implicit rule since 2008 at least (arguably earlier). If anything, not supporting all depositors would have been changing the rules mid game and so would have lead to massive disruption.
The thing a lot of people aren't getting is that the rules of the game haven't been the law but what the Fed does for a while.
Certainly, the game as it's played favors the wealthy, yes. That should be changed. Knocking everything over by suddenly changing expectation wouldn't change things, just disrupt everything. But also, it wouldn't happen anyway 'cause the game is too important.
> No, that’s been the implicit rule since 2008 at least (arguably earlier).
No, depositors have lost money in failures since 2008. Its true that, for a long time, the FDIC has tried to resolve failures in a way which protects as much of the uninsured deposits as possible, but it has very much not been a guarantee.
The systemic risk exception invoked here is an exception.
"The systemic risk exception invoked here is an exception."
Yes but it's not a new exception.
The OP claims Yellen implicitly announced something new. She didn't. She's following the playbook from 2008+. The policy isn't new, it's not unexpected, it's kind of like ... a rule.
And whether a new rule is being created matters for moral hazard purposes and all.
Edit: My above quote could have been read as talking about all depositors in all banks but I meant all depositors in the SVB.
No, that's been the implicit rule since 2008 at least (arguably earlier). If anything, not supporting all depositors would have been changing the rules mid game and so would have lead to massive disruption.
The thing a lot of people aren't getting is that the rules of the game haven't been the law but what the Fed does for a while.
Certainly, the game as it's played favors the wealthy, yes. That should be changed. Knocking everything over by suddenly changing expectation wouldn't change things, just disrupt everything. But also, it wouldn't happen anyway 'cause the game is too important.