The Designated Reserve Ratio (DRR) target for the FDIC Deposit Insurance Fund (DIF) is 2.0%.
In June 2020, the DIF reserve ratio dropped below the statutory minimum of 1.35%.
As of December 2022, the DIF balance was $125.5 billion.
What happens when that money runs out?
The money printer goes brrrrrrr again
they print more until no one accepts it any more for any goods. happening already in many countries, they do not use the usd any more for trading
Probably nothing?
To my understanding, "FDIC and the FED" promised to bail out SVB but I couldn't find how. I did hear though that 95% of the funds were over the FDIC limit ($250k), so that would be a wild precedence for other banks going under. An insurer that pays more than it has to. I assume the FED printed the bail out money and wonder if they touched FDIC funds at all.
one of key points of Dodd-Frank was for anything over $250K to be fair game for utilizing to bail out the bank (already happened with the Euro banking crisis, depositors took lose on holdings that went to bank “bail-in”).
Why was this not the case here?
Sorry, your first sentence doesn't parse well here. So legally a bankrupt bank wouldn't owe anything beyond $250k to any client? But then there's the systemic issue that FDIC appears to care about, too. If there is contagion, they will have to pay more in total than to over-pay SVB clients so they overpay here and pray? Of course, FED cares about contagion even more than FDIC. FDIC going under has to be prevented at all cost.
Well I'm not sure the bank would need to pay out the 250k. Just that the FDIC would.
I’m sure you know the answer to this question 🙂
they print more money
