FDIC Bails out SVB?

Let me start this with a clear claim. I am not a banker, I am not a financial advisor, I did not major in anything related to economics. I'm just a man reading the news, and feel somewhat confident in my ability to understand what is happening, though I can't predict the future, and things like the economy are complex enough that I'm certainly unable to confidently predict its behavior.

With that out of the way, I'll start this by giving an overview about what causes bank runs and what FDIC does. Then we'll talk about why the Silicon Valley Bank (SVB) run happened. We'll close with a section about how the FDIC responded and some potential effects their reaction might have.

Bank Runs

Banks do not keep all their depositors' money in some big vault ready to withdraw. Instead they use a system of fractional reserve banking [1]. This means that they keep some small portion of deposits available in cash (10% for example) and they invest the rest.

They might lend that portion of deposits to other bank members that want a loan (perhaps to buy a house or a car), they might invest it in low risk assets, like government bonds, or they might do a variety of other things with that money in order to make it generate profits (profits they can use to pay their employees, provide interest on your saving account, and give big bonuses to their excecutives).

But this can cause issues. If depositors suddenly want to withdraw lots of funds, the bank might have a liquidity issue where they can't provide cash, since the money is locked up in a bond, loan, etc.

Obviously, this is a concern for depositors, since if they can't spend the money in their bank account to pay for their bills, then that money is effectively worthless to them. And this concern about not being able to access their money (because the bank doesn't have any cash available) can cause what are known as bank runs, where large amounts of depositors all race to withdraw their deposits from the bank before it runs out of cash.

Of course, bank runs are a somewhat of a self-fulfilling prophecy, since the concern of the bank running out of cash motivates more people to withdraw more cash, making the bank to be more likely to run out cash, thus justifying the concern.

Federal Deposit Insurance Corportation (FDIC)

In order to act as a protection against this self-fulfilling prophecy, the FDIC was created. The FDIC provides a sort of insurance to banks. Basically banks pay into the FDIC and if the bank ever is victim to a bank run, the FDIC can step in and guarantee that all depositors can access their money. This way no individual bank is ever really in danger of being unable to process withdraws - and this in turn providers confidence to depositors, since it means there is no need to rush to withdraw their money (since the bank is guaranteed to be able to service the withdrawal request).

The FDIC enables this by requiring banks to pay a small amount of money to the FDIC to insure the bank's deposits (for example, to insure a $100 deposit, the bank might pay the FDIC 12 cents [2]). From here it works very similar to other types of insurance - where since there are lots of banks paying into the FDIC, and pay outs are rare (since bank runs are uncommon and the very existence of the FDIC makes bank runs less likely), if any individual bank goes bust, then there will be enough money in the collective pool (the Deposit Insurance Fund) to insure their deposits.

And, even if the FDIC runs out of funds in the Deposit Insurance Fund (DIF), they are backed by the full confidence of United States federal government [3], meaning that the United States will literally print cash if they need to allow the FDIC to, to guarantee deposits that are insured by the FDIC.

But there are limits. For starters (and the primary limit we are interested in for this article), the FDIC only insures deposits up to $250,000. Accounts with more the $250,000 in them are only insured for the first $250,000. So if your savings account has $325,000 and their is a bank run, you are at risk of losing the difference, a staggering $75,000.

Silcon Valley Bank (SVB) Collapse

Silicon Valley Bank was a large bank that primarily provided services to US tech companies - companies like Roku and Etsy, amongst others [4].

And when you start considering the companies also use banks, suddenly that $250,000 limit might seem insufficient, since companies can easily have mutliple millions in their accounts.

So when SVB began to show signs that they might collapse, the FDIC was unable to effectively provide confidence to SVB's customers (since many customers would still lose the majority of their funds, since their deposits were far above the $250,000 limit). And so there was a bank run, and the bank collapsed.

The details around exactly what signs began the spiral of collapse are complex. They involve interest rates rising, leading to more customer needing to withdraw more cash (since raising new capital is harder when rates are higher), which then caused SVB to need to sell bonds at a loss in order to fulfill those withdrawal requests, and SVB needing to sell its stock to fill the some funding holes, ultimately leading to customers losing confidence in the bank and the resulting bank run [5].

The Result

So, a bunch of big tech startups are going bankrupt? That seems like the conclusion to the story, SVB collapsed, their money wasn't insured, and so the money is gone.

Well, that's not what happened. Fearing the consequences of the collapse, federal regulators have decided to guarantee all depositors for their full amount deposited at SVB [6]. And magically, this is going to be done without any cost to the taxpayers!

How, you might ask? By taking that money from the FDIC's Deposit Insurance Fund (DIF) - after all, the whole point of the FDIC is to protect against risks like this, to prevent bank runs and provide confidence in the banks.

But it is anyone's guess whether that will work the way federal autorites are hoping.

The DIF contains a total of $128.2 billion [7]. And the fund exists to insure up to $250,000 per bank account, to provide confidence to US consumers that they don't need to run on their bank to withdraw cash, since in any case where their bank runs out of money, this insurance fund can be called on.

But consumers should be worried when that fund is suddenly being used to insure much large deposits, because it threatens the security of the FDIC.

Think of it like insurance for a car. If you insure your car for $100,000, the insurance company sets your rates so that they, statistically, are able to be profitable while still being able to pay out if you make a claim. Now, imagine what would happen if you instead made a claim for $1,000,000, and then the federal government forced the insurance company to accept your claim and pay out $1,000,000. The insurance company almost certainly woud go bankrupt, having set the rates on the assumption they would only need to cover $100,000 and suddenly needing to pay out way more claims then expected.

The FDIC is in the same boat. Sure they are backed by the full confidence of the government, and yes, if the DIF runs out of money they FED will print more in order to guarantee the deposits.

But, now we've set the precedent that the FDIC will guarantee much larger deposits than it was designed for. So in the case of large scale bank runs, the likelihood of printing money has gone up a ton (since they are more likely to not have enough funds in the DIF (since the amount in the DIF was dependent on only needing to insure a certain amount of funds per an account, a limit that is now being ignored)).

And what happens if US consumers realize this in mass? They start withdrawing cash nationwide to try and put it into assets that will hold value when inflation skyrockets due to the money printing machine going brrrr.

Again, this is a self-fulfilling prophecy. The very concern of rampant inflation is what leads to massive withdraws, which leads to the FED printing money, leading to inflation, leading to more withdraws as more people try to invest their money into inflation-proof assets, and some on in a downward spiral.

And of course the FDIC is unable to provide confidence against this because they insure your funds in USD, the very currency that this spiral devaules via inflation.

Are We Fucked?

No one knows. Maybe confidence will hold. Maybe the system is complex enough that most consumers won't realize the risk. Or maybe this scenario is unlikely enough as to not be an issue worth worrying about. Or maybe I've missed some critical component that makes everything hunky-dory.

After all, this is a system built on confidence. So long as consumers don't lose confidence, the banking system should be fine.

And it's not all bad news. As a result of the SVB failure, it is expect that the DIF will lose approximately $22.5 billion [8] [9]. But, assuming the FDIC's estimates for the total assets and deposits in SVB are correct, it seems that they will eventually recoup the losses by taking over those assets. So the DIF might end up with more money in it at the end of all this then when this all started.

Basically, everything is fine so long as people don't lose confidence. Here's to hoping.

Minecraft "Life" Series Catalog

I've been a Minecraft content consumer on and off for a few years, and back in early 2021, when Grian made a series called "3rd Life" I couldn't help but remember JackSucksAtLife's "One Life" series from a few years prior. Both series had some commonalities, with them being large collaborations between many minecraft content creators, being semi-hardcore (in a hardcore Minecraft server you are banned upon dying - in these semi-hardcore world the rules are usually a bit less harsh, but still have this concept of an eventual ban after enough deaths), and the term "Life" in the series title.

So, I took a look at the history of these series, trying to determine if they were related in any meaningful way, or if the similarities were just coincidence. What I found is two separate parallel Life series, with some content creator overlap between each other but with differing premises.

There is the "Modded Life" series, which is a collection of modded Minecraft series which all seem to be descendents of the "One Life" series. And there is the "Un-Modded Life" series, a collection of (mostly) unmodded Minecraft series, the first being "3rd Life".

I've made an effort to generate a list of which content creators star in each series - this has been a bit challenging since I am not willing to watch the 100s of hours of content needed to confidently verify this information (by watching the first video for each content creator in each series). I primarily based this on the playlists in each content creator's channel and watching portions of episodes on occassion to try and glimpse the tab-menu (which woud reveal a list of all Minecraft accounts logged into the server). Some additional challenges: I didn't have a full list of content creators beginning of this task, not all the creator's have Youtube channels (or the channel name differs from the name other players call them/their Minecraft username), and that the first season for one content creator might be the second for another (meaning the numbers didn't always line-up, I tried to use dates in these cases to line up which seasons between creators were one-in-the-same).

The most noteable content creator in this list is Scott (aka Smajor1995) (aka Dangthatsalongname). Scott has been in every single life-series, both modded and unmodded. Whether this is because he is one of the organizers for these series or because he walks the line between multiple content-creator groups is unknown. In a similar, though not exact, situatuon is Joel (aka SmallishBeans) who has been in every series except the first season of One Life.

I've listed, for each content creator, the various names they go by whenever their personal name, username, and youtube channel differed. I've marked which series they appear in.

One Life (2016)One List S2 (2017)One List S3 (2018)X Life (2020)3rd Life (Apr 2021)Last Life (Sept 2021)After Life (2022)Double Life (June 2022)Limited Life (Mar 2023)
BigB / Bigbst4tz2
Dragon / xXAzianxBoiXx
Dyan / 8BitHomo
Gem / GeminiTay
Joey / JoeyGraceffaGames
Joel / SmallishBeans
Kim / YogscastKim
Kyle / koil1990
Lizzie / LDShadowlady
Lauren / LaurenZside
Mariel / MarielitaiWins
Martyn / InTheLittleWood
Meghan / Strawburry17Plays
Meghan / Strawburry17Plays
Netty / NettyPlays
Oli / TheOrionSound
Rainbow / ThePaintingRainbows
Scott / Smajor1995 / Dangthatsalongname
Shelby / Shubble
Stacy / StacyPlays
ThinkNoodles / InsidersNetwork
Vixella / FancySimmer
Yammy (yammyxox)

(If you see any errors, please let me know, I'd be happy to correct them provided you have evidence such as the timestamp of video with tab-screen or a playlist link)

OpenSSL Commands I Don't Want To Forget

I followed this guide https://pki-tutorial.readthedocs.io/en/latest/simple/index.html for setting up my public key infrastructure.

Some openssl commands I use semi-regularly that I don't want to forget.

Create a root certifcate: openssl req -new -config etc/root-ca.conf -out ca/root-ca.csr -keyout ca/root-ca/private/root-ca.key

Sign the root certificate (with itself): openssl ca -selfsign -config etc/root-ca.conf -in ca/root-ca.csr -out ca/root-ca.crt -extensions root_ca_ext

Create an CSR for the intermediate certificate: openssl req -new -config etc/signing-ca.conf -out ca/signing-ca.csr -keyout ca/signing-ca/private/signing-ca.key

Sign it with the root certificate: openssl ca -config etc/root-ca.conf -in ca/signing-ca.csr -out ca/signing-ca.crt -extensions signing_ca_ext

Create an SSL certificate: SAN=DNS:*.utopple.com openssl req -new -config etc/server.conf -out certs/utopple.com.csr -keyout certs/utopple.com.key

Sign it with the intermediate certificate: openssl ca -config etc/signing-ca.conf -in certs/utopple.com.csr -out certs/utopple.com.crt -extensions server_ext

GPG Commands I Don't Want To Forget

Some gpg commands I use semi-regularly that I don't want to forget.

List all keys: gpg --list-keys

Encrypt a file: gpg --sign file.txt

Decrypt a file: gpg --output file.txt --decrypt file.txt.gpg

Export a secret key: gpg --export-secret-key -a <identifier>

Export a public key: gpg --export -a <identifier>

Edit a key and add a subkey:

gpg --expert --edit-key <identifier>
> addkey

Show your subkeys and their identifiers: gpg --list-secret-keys --with-subkey-fingerprint

Export just a subkey (such as the SE subkey used for PGP email encryption):

mkdir /tmp/gpg
gpg --export-secret-subkeys -a <identifier>! > /tmp/subkey.gpg
gpg --homedir /tmp/gpg --import /tmp/subkey.gpg
gpg --homedir /tmp/gpg --edit-key <identifer>
> passwd
> save
gpg --homedir /tmp/gpg -a --export-secret-subkeys <identifer>! > /tmp/subkey.altpasswd.gpg