The industry eats the cost, not the FDIC, which funds it through industry taxes.
If your gamble fails, not only do you lose everything related to your endeavor, but now banking as a whole is more expensive, more people centralize into the big banks, and whatever business you want to start up or run afterwards is going to be more expensive.
This is why most banks don't gamble, because gambling like SVB did is really fucking stupid. You can be a boring bank and most likely mint profit for yourself for eternity, while also being seen as a positive actor in your city! The only people who aren't satisfied with such a set up are the same "Gotta grift everyone" silicon valley style assholes who think an economy is an idle game and they have to have the highest number because they are smartest and bestest.
> The industry eats the cost, not the FDIC, which funds it through industry taxes.
So in other words the FDIC eats the cost but the FDIC is really the taxpayer, or the customers of "banking industry" which is to say basically everybody.
> If your gamble fails, not only do you lose everything related to your endeavor, but now banking as a whole is more expensive, more people centralize into the big banks, and whatever business you want to start up or run afterwards is going to be more expensive.
But if your gamble succeeds you make an enormous amount of money and if it fails someone else pays most of the cost, so it's more profitable to make the gamble because you have privatized gains and socialized losses.
> You can be a boring bank and most likely mint profit for yourself for eternity, while also being seen as a positive actor in your city!
Are banks known for their desire to leave money on the table?
Isn't "banks will be conservative and responsible" the argument for not having mandatory insurance?
> Isn't "banks will be conservative and responsible" the argument for not having mandatory insurance?
The problem is not so much that the insurance is mandatory, but that it's provided by an entity whose pricing is set by the government, and which also enjoys the (implicit or explicit) backing of the government.
Privately and competitively provided insurance, even if mandated by the government, wouldn't be quite as bad.
Though I agree that giving banks the choice whether to get insured is a good one. Otherwise, you'd have to write regulation about what counts as 'good enough' insurance. Instead of letting customers of the bank decide what they are ok with.
> The industry eats the cost, not the FDIC, which funds it through industry taxes.
One problem is that FDIC does an insufficient job at charging banks of different riskiness different premiums.
Privately organised deposit insurance without an (implicit or explicit) government backstop would avoid that problem.
> You can be a boring bank and most likely mint profit for yourself for eternity, while also being seen as a positive actor in your city!
Banks caring about individual cities is a weird Americanism. Mostly stemming from their long standing bans on branch banking.
Minting profits for eternity is nice, but having money right now is also nice. A company can use their 'cost of capital' metric to make a rational decision between the two.
> The only people who aren't satisfied with such a set up are the same "Gotta grift everyone" silicon valley style assholes who think an economy is an idle game and they have to have the highest number because they are smartest and bestest.
Leave the ad-hominem at the door, please.
Managers have a fiduciary duty to the owners of the company. For most companies, and especially most banks, that means they have a duty to make money for the shareholders. (Shareholders can have other goals that they can task management with; making money is just the default.)
If managers shirk their fiduciary, shareholders can sue them. And that includes when they are shirking making the right trade-off between long term profits and short term profits:
Use your cost of capital to calculate the present value of future cash flows. Choose the path that has the largest present value.
If interest rates are high enough, it _is_ economic rational to chop down the entire forest for wood today, instead of harvesting it sustainable.
Btw, most banks do 'gamble'. They just differ in how much they gamble and on what.
If your gamble fails, not only do you lose everything related to your endeavor, but now banking as a whole is more expensive, more people centralize into the big banks, and whatever business you want to start up or run afterwards is going to be more expensive.
This is why most banks don't gamble, because gambling like SVB did is really fucking stupid. You can be a boring bank and most likely mint profit for yourself for eternity, while also being seen as a positive actor in your city! The only people who aren't satisfied with such a set up are the same "Gotta grift everyone" silicon valley style assholes who think an economy is an idle game and they have to have the highest number because they are smartest and bestest.