News & Comments
Last year, I savored a bit of schadenfreude watching my con law scholar colleagues despair about their field after cases like Dobbs v. Women's Health Organization or West Virginia v. EPA. Con law scholars see themselves as the royalty of the legal academy, far above those folks who do blue collar law like bankruptcy and commercial law or grubby stuff like banking and money.
I'm teaching cryptocurrency today in my Payment Systems class, and I'd been puzzling about why no one has applied the Electronic Fund Transfers Act and Reg E thereunder to crypto: after all, if you have a crypto account with an exchange, it would seem to be an "account" at a "financial institution" that is primarily for personal, family, or household purposes and is used for electronic transfers of "funds." In fact, I had just emailed
There's talk about removing the FDIC deposit insurance caps in response to the "Panic of 2023"®. There's a refreshing realism about such a move. But let's also be clear about the distributional impact of such a move: it's a huge cross-subsidy from average Joes to wealthy individuals and businesses.>
Financial regulation has a credibility problem. Actually, it's got two credibility problems.
It's not credible any more to think that financial regulators will shut down troubled institutions until they are forced to do so. And it's no longer credible that financial regulators will allow depositors to incur losses. Both are really problematic.
When President Biden announced the rescue of Silicon Valley Bank depositors, he emphasized that "investors in the banks will not be protected. They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works." Unfortunately, that's not how US law works.
Silicon Valley Bank's holding company, SVB Financial Group, filed for Chapter 11 bankruptcy this morning...in the Southern District of New York. Who knew that Park Avenue South was in the heart of Silicon Valley?
Following the failure of Silicon Valley Bank, a lot of other regionals have experienced depositor runs and serious pressure on their stock prices. But there's actually a lot of variation among regionals, and the solutions to SVB's problems don't necessarily fit the other regionals' problems, as the case of First Republic Bank shows.
If the bank is a Fed member, doesn't it take its USTs to the discount window instead of selling them for big losses? Does this suggest that all large banks (however defined) should be Fed members, regardless of their charter status?
Silicon Valley Bank seems to have had large amounts of uninsured deposits from businesses and high net worth individuals. And those uninsured deposits are likely to be impaired in the receivership, meaning that they will not get paid 100 cents on the dollar whenever they do get paid.