I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB.
“Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry?
“This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs.
I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank?
Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you own stock in a company that goes bankrupt. Claw back executive pay if that's something you can do. But kill a bunch of startups because of their choice of financial institution? I just don't get where that comes from.
I think the backlash against tech comes from many years of tech celebrating themselves and being celebrated as “disrupters” for a lot of bullshit startups. And the amounts of money made with companies hat have no real business is just astonishing. It would be nice if it went back to focusing on creating sustainable businesses that make useful products that benefit their users and aren’t just another vehicle for mass surveillance.
First of all, even if the company you work for goes bankrupt, you're very likely to still receive your salary, as debts to workers are the highest priority in any bankruptcy case. So the risk to workers' livelihoods is being way overblown. Of course, if a substantial amount of your compensation was company stock, you may lose a lot on that, but that is par for the course with stock.
Second of all, the purpose of having a limit to FDIC insured deposits is to limit the government's liability in case of bank failures to small-ish depositors. A company thag has millions of dollars to deposit also has more responsibility to evaluate the bank they are depositing in. Perhaps they shouldn't keep money in the bank in the first place, but find other uses for them.
Note that the true FDIC insurance limit is much larger than the 250k that usually gets cited - since there are various facilities for business accounts which can take that up to a million $ or more (multiple signers on the same account, multiple types of accounts). Should be plenty for most startups to pay their employees' salary outright, even without going bankrupt.
> Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank?
Cynicism reigns supreme on social media right now, and HN comments are a type of social media.
There is also a deeply engrained “us versus them” mentality baked into a lot of the anger. The SVB scenario has more people identifying the “us” part as taxpayers (who would presumably foot the bill for backstopping losses) and the “them” part as VCs and investors.
Interestingly, if this was rephrased as an “Ask HN” post where someone was concerned about their next paycheck because their startup’s bank failed, I suspect the sentiment would be completely reversed. The more relatable the story, the kinder the comments.
Very little of these discussions have anything to do with serious policy debate. They're a prism through which the whole site† filters their preexisting beliefs about venture capital and the startup industry. When you internalize that, it's much easier to look at an 800-comment third- or fourth- order HN thread about SVB and just nope out. There are no stakes to these threads. They're just here because the community needs to vent its reaction to the news and its valence.
† (50% of which is outside the of the US, and a majority of which is people who don't work for "big tech", which ironically isn't much at all directly impacted by SVB)
As a long-time tech person and someone who has started multiple companies, including one venture-backed one, I'm happy to explain why I think uninsured depositholders should not have their losses subsidized by taxpayers.
One, anybody with a bank account has heard about the FDIC and the FDIC insurance limits. Presumably anybody smart enough to raise millions of dollars know that if part of something is insured, the rest is uninsured. There are in fact good systemic reasons both for the FDIC to exist and for the limit to be high for individuals but low for companies.
Two, the tech industry, especially the VC-funded end, is forever crowing about the power of the marketplace. How regulation stifles valuable innovation. How government intervention is a problem, not a solution.
Three, among startups, market-driven disruption is practically a religion. Startups destroy existing companies all the time. Quite often it's an explicit goal, where startup X lists existing players A and B as companies whose lunches will get eaten because they are making bad choices.
Four, there has been endless puffery and chest-thumping among VCs and tech startups how their genius justifies pocketing billions and billions of dollars when times are good. Best and brightest, incredibly hard workers, blah blah blah. Including a special tax exemption for VCs, because they're just such amazing financial wizards.
Five, startup go under all the time. Which, having experienced it, definitely sucks. But when a startup goes under due to bad choices or bad luck, that's the game.
So when I put this together, I firmly believe that startups with bad treasury management should not be subsidized by taxpayers. If we're so smart and amazing that we get to reshape segments of the economy, we're smart enough to follow basic financial advice like "don't put all your eggs in one basket". If we choose to play the game that might make us rich, we should not suddenly complain about the rules when we lose.
In practice, the likely outcome here is that depositors either take no haircut or a modest one. Anybody going out of business because of that was already on the edge. And that will be partly because their investors will not see them as worthy of a bridge loan or an accelerated next round.
Which, again, sucks for the people involved. But it's not a problem for taxpayers to solve. If we're going to spend billions of dollars on improving the safety net, I think startups are way, way down the list of priorities.
Over 50% of startups fail. If you factor in acquisitions as failures, the number is closer to 90%.
HN has been around awhile and has been a hotbed of the same starry-eyed startup dream for a couple generations of young people getting on the carousel now, so I guess I'm not terribly surprised if the attitude "welcome to the club, we would print you a t-shirt but our printer startup went out of business" shows up around these parts from the folk who have been on the ride awhile.
There are a lot of folks who read HN who had their dream crushed for a lot stupider reasons.
ETA: that is something I'd like to see more of here though. There's a lot of folks who have been through a bust cycle and survived it and even stayed in the industry. What kept you going? How did you come out the other side? Was it as scary as it feels when you haven't done it before?
Spoiler alert (18:30): It was entrepreneurship that turned the economy around. Not fed policy.
SVB put their deposits in US Treasury Bonds. Commonly regarded as the safest investment vehicle there is. Then the fed raised interest rates, completely screwing over this strategy. Then VCs panicked, like sheep.
So now we're in a situation where the most successful startups in the innovation sector are at risk of being wiped out while the US economy is being guided toward recession to cool inflation. Go watch that talk- then tell me you really think its a good idea to let it all burn.
It's likely startups only exist to begin with due to low federal interest rates. It is obvious that if those rates are low investors will look elsewhere. Startups are one of those elsewheres. Now that rates are on the way up, there's no need for investors to risk their money on startups anymore. So startups no longer have one of the pre-conditions for their existence. Namely, free investor money literally pouring in and paying for all their expenses.
Such is life in the free market. Looks like the US government disrupted you. Doesn't mean the US taxpayer has to bail you out.
I'm just a Regular Joe, and I have saving and chequing accounts at two banks in case there's an account discrepancy / disagreement with one, I still have some funds I can pay bills with until things get sorted out. Stuff happens:
The issue is it wasn't pension money. It was VC money, that's money intentionally being gambled in high risk endeavors. It's not right for thr tax payers to bail out rich VCs who gambles their money.
On the flip side, I also have worked in startups much of my career, and think I and people like me should be paid for our work. I think we should help the startups out, bail them out, but without helping the VCs. I think what that means is the startups effected should get their money back, but the VC owned shares of the company then become government assets that can be sold in the future to offset the cost of the buyout.
It's simply not right for government money to bail them out, but fornthe VCs to profit from it years from now.
Edited to add:
In the end the point I'm trying to make is that it's not right for us to take money from average non-rich Americans to pay back VCs (rich americans) who gambled their money. If the bailout comes from people that earn more than 500k a year exclusively then I'm all for it. But taking public money that was taken from a single mom who is barely getting by to do so is wrong.
I second your point and add: what's at stake here is not just SVB's customers, but the reputation of the entire US Banking system.
The shareholders should lose all of their investment, that is a no-brainer, but the depositors should not lose 1 penny, and their funds be available on Monday morning.
Here's an overlooked deadline: 6:00 PM EST, that is when Sydney (Australia)'s stock market opens. If that opens a lot lower, it will be the start of a free-fall cascade of stock markets worldwide.
So, we have less than 5 hours as of this writing for an official FDIC/Federal Reserve statement.
>>People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money
I got no dog in this fight(as I'm an Indian, and stay in India). But I guess what they are saying is they don't want to be paying for it. They just want whoever is responsible to make somebody else pay for these problems.
So bailout is ok, they just don't want to pay for it, and may be find other people(VCs, other billionaires) who can invest/bailout that bank on their terms.
> People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank?
I'm in the same position as you but this is a terrible take.
No one thinks we deserve to lose money or jobs.
They simply do not believe that other American taxpayers who likely make less than you should have to spend their hard earned money (or risk having it devalued by printing) in order to bail you out.
And they are broadly correct.
It is wrong to demand other people's money due to your own misfortune, especially when the misfortune is a lost business or job, versus something more existential. The reality is that most tech workers will be fine.
> People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank?
If you want to be paid by the government, you should be aware that salaries are significantly lower, and perks are non-existent.
The government regulates banks and provides deposit insurance to to 250K.
The whole point of deposit insurance is to prevent retail bank runs by the general public.
Beyond that, it is the job of your CFO to manage risks, including the risk bank failure.
The last large wave of bank failures happened barely over a decade ago. These things happen.
Also, it sounds like your company will lose at most a fraction of its deposits.
> They [shareholders] deserve nothing, because that's what you should end up with if you own stock in a company that goes bankrupt.
During a bankruptcy creditors get paid first, and investors are only allowed access to what is left after creditors are paid off. Hopefully a company declares bankruptcy before their total liabilities becomes larger than their total assets, otherwise creditors cannot be paid in full.
Bank bailouts were largely done so banking services are not disrupted. As valuable as SVB was to startups, it's small potatoes to what 2007/2008 bailouts prevented. "Too big to fail" clearly doesn't apply here.
HN has grown a lot and there are much more people who are not necessarily from SV.
In the real world, if you live in SF, work in startups doing what you like, get paid well, not trapped in 9-5 etc.
That's elite and nobody will ever feel sorry for you. As a general rule every guy should always expect nobody to feel sorry for them, but this particular set of circumstances and the area of the country where they unfolded scream 'millionaires problems' to those roaming in the interwebz.
It’s more subtle, because these startups exist due to VC investment. Those VCs probably recommended and even set up their portfolio startups with SVB accounts. And a high percentage of these companies were heading to failure due to the nature of these ventures. I’m not so sure taxpayers should be responsible here.
Why don’t VCs double down and make their investees whole? They’re the ones who bankroll and believe in these ideas, and stand to make 1000x profits in their successful exits.
I wonder how much of this saltiness -- both on HN, reddit, and mainstream media -- is due solely to the name of the bank.
If the headline was "California Regional Mutual Bank and Trust fails" (I made up the name, I don't know anything about banking, don't nitpick the terms) it surely would have still been newsworthy because of the size of the bank, but I suspect there would be less vitriol around the situation with the Silicon Valley connotation removed from it.
If your startup doesn't survive having only 50% in the bank account for one week and then 80-90% in the following weeks (appears to be the most likely outcome without any government money) it likely isn't viable to begin with (in a normal, non-zero interest environment). I think the believe that startups have to always be on the brink of bankruptcy is misleading because it worked in the last decade of endless money and in winner-take all industries. At this point I believe that "Blitzscaling" is a zero-sum game and that most value is created by non winner-takes all companies that grow steadily. It seems analogous to aerodynamic friction, the faster you try to go the less far you will be able to go with a certain amount of energy/money
No. People don't want you to get special treatment. Your firm should have insurance to cover the deposits over 250K, or split the money across several banks. It didn't as such it should deal with the consequences. Which are it may not get all of its deposits back.
When a building company, building my house goes bust. The government doesn't step in to get someone to finish building it. When I order goods from a company and it goes bust, the government doesn't step in to ensure I get my goods.
> just because of their choice of financial institution
There’s a moral hazard to all choices made in business. Making a choice based on insufficient due diligence is a hazard. Chasing higher rewards at higher risk is a hazard. Are you saying the government should indemnify businesses for their choices?
My understanding is that SVB avoided some restrictions placed on other banks. It’s not clear to me the why’s and wherefor’s of this but there are only two options. Either malfeasance on the part of SVB, or ignorance/risk-taking on the part of the customers.
The scahdenfreude I believe comes because it’s assumed many customers would be from the “this time it’s different” school of business, in which case there’s a lesson akin to caveat emptor begging to be learnt.
> People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank?
I am suggesting that your CEO not adequately insuring the companies bank deposit is negligent. If your CEO does not insure your HQ against fire, and it burns down, should it be bailed out by the government just so that you're not out of a job? Or is it not their fault that the CEO didn't use a "well-reputed landlord with adequate fire suppression?"
The proper call should be to increase FDIC insurance to 10mil or something then. It is incredibly unfair to be saying that depositors here deserve to be made whole because they are startup companies that somehow matter more to the economy.
Everyone agrees that shareholders and bondholders should we wiped out. Everyone agrees that deposits under 250k can and will be made whole due to FDIC. The disagreement if there is one is the 250k+, why should there be an exception just because these are tech startups?
The anger is coming from citizens who are being asked to bail you out when they are already stretched to their financial limits and any such idea will surely make inflation go up.
Sorry to hear about your situation I really am. I'm personally in the camp that we as a collective country have made bad fiscal choices knowingly or unknowingly. It's time to start paying for these choices and stop looking to others else we drown in these bad choices.
I'm beginning to wonder if a lot of the posters to these kind of thins are just young. When I was 25 I thought I had well-reasoned and insightful opinions, and I certainly had forceful opinions. But I had no depth of knowledge in things like finance and politics, and thus, had no way of knowing how much I didn't know. A few years ago I watched Ian Shapiro's lectures on "Politics in the Modern World" (a course from Yale, developed from a request to help explain the rise of Trump). I realized that I thought I had insightful opinions, but really it was just rubbish because I had no understanding of political science, recent history, or even different forms of government and their different failings.
I also felt differently about money when I was 25, because obviously I didn't have any. There was no way I could have any, because I had only been working for a few years (and junior devs were paid a lot less in those days). It seems like it would have been easy to be jealous of rich people at 25. Or just jealous of startup-employees who, judging by HN posts (/s), are all making 400k/year. In fact, I think some HN posts have claimed junior dev salaries more than what I was making after 20 years in the industry, which I could see might lead to some jealousy. Particularly if combined with a lack of perspective.
I think I lean towards you, but what people are actually suggesting is that these startups shouldn't be bailed out when they went with a bank with super-high promised rates, while they of course knew their deposits over $250k were uninsured.
This was a rare event when, for once, elites would learn that it's possible to do everything right and still fail catastrophically due to systemic factors. This has been the case for the majority of people over the past decade. The only reason regular people accepted their own situation over the past decade is that they thought "rules are rules." But no, rules are not rules, it turns out. Only plebs need to take the consequences of silly or unjust rules. The elites are immune to unjust rules. When a pesky inconvenient rule affects the elites, it can simply be waived away.
Why did I have to learn my lesson about the flawed system and the acceptance of tough luck, but politically-connected people didn't?
What we have today is a 2-class society.
It's the word of law above all... Unless you're politically connected; then suddenly the word of law yields to common sense.
It comes from the way lower class Americans are treated. The hardship that might be ahead for some otherwise extremely rich and privileged people is actually far less than befalls tens of millions of lower class Americans every single day, and choosing a “move fast and break things” bank is actually a far less “unfair” reason than, say, the circumstances of your birth. The vicious, lifelong message from mainstream society to those most in need has always been “nobody owes anybody anything, that would be socialism”. That’s why those people are angry to see people far better off receive help just because “not doing it would be unfair and hurt them”.
The problem is that the valley culture wants it both ways. It is a largely libertarian, rules-breaking environment. They want to ignore laws and decry regulations while at the same time having the government step in and bail them out whenever anything goes against them.
I, too, have worked for startups much of my life. Sometimes you show up for work one day and the doors are locked because the place is done. It is part of the deal. There are lots of reasons this can occur - hey, we just couldn't close another round, the economy hit a speed bump, etc. 2008 happened. Worldcom and Cable and Wireless just declared bankruptcy and they were our lead customers. etc. It is part of the startup cycle.
If something like this this had managed to kill AirBnb, Uber and Lyft before they did the damage they did, the world would be better off.
YEARS of disinformation about "Personal Responsibility" and not a lot of critical thinking in the interim. I'm not specifically talking about the parent comment.
Your point is sound and seems obvious to me. I also spent several years studying and fighting coordinated inauthentic content its effects on the brain. Whether coordinated or not, hearing the same message over and over again gets internalized such that it becomes reflexive to parrot.
What happens when you give every single high school senior $1000 scholarship to read Ayn Rand? What happens in a society when hyper-capitalists, their politicians, and their media narratives leave no room to consider things that are beautiful and human? What happens when STEM education starves all of the humanities of oxygen?
If it isn't this, I don't know what it is, but we're all about to find out.
It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.
I agree there are a lot of poorly thought out populist arguments for not making depositors whole. I for one prefer HN to not converge into another social forum like Reddit that has a lack of critical thinking in discussions.
Your company is the equity holder. You loosing last months paycheck is no different than what happens in the rest of the country any time an employer declares insolvency.
Also, I don't think people in SV appreciate how much rancor and resentment their behavior has generated in the last fifteen years.
Another thing to mention is that US Dollar is still world's reserve currency. Bailout (or government aids) could lead to unpredictable things. Last time Bitcoin was invented... This time I can't really imagine what would happen. Since entry barrier to Finance has became very low... Even I myself, became decentralised finance expert... I can't really imagine what would happen if this thing can't really managed well....
That didn’t have an investment grade rating, where $250k comes out of taxpayer coffers Monday morning, and where everyone has unemployment insurance? Yes.
The assets of the bank should go to your company first. But the public purse should not be opened.
I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that.
First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of a traditional bank it usually wouldn’t hit them hard since most funds are FDIC insured.
I can imagine being incensed about stockholders and debt holders being made whole, if that were to happen - since then people would learn the wrong lesson here. But nobody think that’s going to happen.
If depositors aren’t protected, then it’s going to have a lot of downstream impacts (people won’t make payroll, and employees who have no responsibility won’t get paid). And again, it’s not like folks who chose were gambling with a shady bank to get high interest rates, in many ways SVB was considered the least risky and most conservative bank to use as a startup. At least that’s why we chose it.
The C-suite paid themselves millions of dollars via bonuses and stock sales right before insolvency. Executives got paid. What’s to stop future bankers from running the same playbook? (We can debate that this the stock sale was premeditated/signaled months in advance, but the stock had already declined 80% from its 2021 peak and they surely knew about the tough liquidity position months ago — external observers drew attention to this back in January).
Note, one of the SVB executives was the former Lehman Brothers CFO in 2007, just one year prior to that institution’s collapse in 2008. What did he learn, exactly, besides how to get out in time?
Depositors are protected exactly as any other depositors and there are solutions to the protection ceiling. Like insured cash sweep.
That VCs forced the small companies to operate in less safe way and gave them bad advice is 100% fault of these. I do not know why it was so, but this really seems like the case of "we want benefits of minimal regulation and getting better protection then everyone else gets from the goverment".
It does rubs people wrong when you are all about disruption and regulation bad, but first thing you do in case of failure is governmental bail out for large accounts.
> just don’t understand why folks on the internet are so passionate about the depositors being hit by this.
I think most of America can’t even imagine having over $250k in an account. So people with this much wealth asking for a bailout is literally rich people asking for coverage because they did something dumb (banked with a bad bank, didn’t account for risk, didn’t insure, didn’t manage funds).
It’s not hate so much as it’s apathy and surprise as the ask for money. It’s like those millionaires who wept because they lost money with Madoff and they wanted the payout for all their earnings they had “made” over the years.
> If depositors aren’t protected, then it’s going to have a lot of downstream impacts
If depositors with deposits above the FDIC insurance limit _are_ protected then there will be nothing stopping this from happening repeatedly in the future. Depositors that exceed the FDIC insurance limit should be taking a haircut so they learn to do better risk analysis of their bank or purchase auxiliary deposit insurance on their assets at a bank or both. VCs/investors in the companies whose deposits exceed the FDIC insurance limit should take a bath for pushing one specific bank with bad risk management. (How this fact escaped VCs/investors is beyond me. I'm not a risk manager or investment manager by any stretch of the imagination but even I would recognize that investment in long-term near-0% bonds would have nowhere to go but down.)
When Netflix started sacking animators and animation studios to use AI startups instead, there are downstream impacts.
When bookstores shut up shop because of Amazon there were downstream impacts.
When Dell and HP lay people off because it's hard to sell against Azure and AWS, there are downstream impacts.
You're going to have a hard time arguing that the sector responsible for disrupting others' live deserves special consideration beyond what already exists - FDIC plus liquidated assets with a likely haircut - particularly when those companies appear to have been mismanaging their own money.
> > I just don’t understand why folks on the internet are so passionate about the depositors being hit by this
Well if you want to go down to the nitty gritty of it, depositors are competitors for stuff, especially in San Jose and San Francisco where every square inch of stuff (any stuff) is super-expensive.
The ones complaining and taking time to argue against any involvement of govt. in SVB are people and institutions who didn't hold any funds in SVB but think or have reason to think that their competitors do
> people won’t make payroll, and employees who have no responsibility won’t get paid
This gets repeated over and over, but just like depositors have the highest priority to a failed bank's assets, so do employees of any failed company.
So, if a company goes bankrupt because it can't access funds stored with a bank, first stockholders would get wiped out, then debt holders, and only then employees (when talking about salaries already owed - of course, the company can fire staff to try to avoid bankruptcy).
Depositors are senior creditors. Junior creditors should be wiped first, but if there isn’t enough money to pay senior creditors then it makes sense they will get back less than par.
I just don’t understand why folks on the internet are so passionate about the depositors being hit by this.
I'm not at all passionate about the depositors. I dislike them but understand that screwing them would ripple across the entire world. I dislike banks and corporations but having many/most suddenly bankrupt would not serve me.
Simply because "depositing" money at a bank is not supposed to be a safe operation. You're lending money to the bank. There is risk involved. If the government made it look like there's no risk, then someone is paying to offset that risk. I don't want to be the one paying for it.
Why do the rules keep changing after the game has been played? And why does it seem to always favor people who are already wealthy beyond imagination? The rules were 250k insured. If you had excess deposits, additional coverage could easily be purchased.
> “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry?
I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth.
And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of their deposits back, because the remaining assets might not cover all of the deposits, or it might take a while to recover the deposits.
Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds
But why? What purpose does that serve? It's hardly even inflationary, the value was basically destroyed, so the Fed conjuring replacement money doesn't seem like such a bad thing. Shareholders will still be taking a major loss, and they are the ones who ought to be held responsible, so it makes sense. You can't fault depositors for not doing thorough diligence on a 40-year-old bank with a good reputation and it doesn't make sense to punish their employees for it, especially in a cooling job market with uncomfortably high inflation.
> And I think the prominent people asking the government to bailout depositors
Anyone spouting this kind of rhetoric isn't helping matters, but in any case when it comes to this situation there are really well-defined mechanisms for making depositors whole without bailouts.
The reason is because there are countless scenarios in the US economic system, where people/businesses fail cause of no fault of their own, but they are told tough luck that's the free market at work cause these people are simply unconnected or their failure is deemed unimportant. It's why the finanical bailouts left a bitter taste for anyone paying attention, and why gov't action here is immediately scoffed at.
Except this is the opposite of what happened in 2008 with bailing out the banks. Then, the banks got public money to remain solvent. Here, the bank is taking the hit and the government is ensuring the depositors get their funds back. In 08 people were kicked out of their homes and banks were propped up with public funds. Here, the depositors are being made whole and the bank is going out of business. The salt is your typical 0 knowledge hot take.
It’s absolutely in the interest of the greater economy to have a functioning banking system backing high risk/high reward activities like Silicon Valley. And charge the risk appropriately high fees, of course. SV has been a very bright spot in the economy for several decades now - through thick and thin.
If anything, it’s a lesson about how assets should be accounted for in corporate statements. It’s also a statement that the perception of SV is a little sour and could use some reflection. Maybe look for ways to better engage the rest of the community and figure out where resentment stems. (I’d guess calling large swaths of the US “fly over country”, charging high prices, and other consumer feedback involved.)
Because if a normal business goes bust leaving customers out of pocket, it’s usually only a small percent of the customers “wealth” (and often insurance will cover it).
If someone’s bank goes bust they can loose a much larger proportion of their wealth. Often causing them to go bust, causing more bankruptcies and job losses.
Governments act as insurer of last resort for most bank defaults, because the confidence of the banking system and money is integral to the countries existence.
Well put, can pull the "capitalism" at the expense of few to many yet "socialist" when conductive for mostly a few, but not many times.
I still think they will get away with bailing out several banks that will otherwise fall hence the system. Via means that adhere to whatever rules were put in place.
Dont confuse the issue. No one has a problem with creditors getting as much of their money as possible by selling assets. The problem is that SVB's book value of assets is far smaller than the debts. Imagine their value on a firesale.
the creditors then take a haircut. It's basic bankruptcy.
What people oppose is taxpayers absorbing the losses beyond $250 000 as promised, and there's a very good reason for this: its another example of privatizing profits and socializing losses. In other words, it encourages risky behavior because they're gambling with the house's money.
Some argue, and they have an excellent point that if SVB's creditors aren't bailed out it could trigger a contagion. Thats a formidable risk. However, we already did mass banking sector bailout less than 15 years ago and it turns out all it did was incentivize irresponsible behavior.
Hallelujah, parent's comment is a straw man. I've been vehement against taxpayer money being used to make depositors whole, but nobody is saying they shouldn't be paid out of the assets of the bank.
I'd also be in favor of the feds helping to orchestrate a bailout by getting purchased by another bank/banks, or doing whatever it takes to get depositors access to as much of their money as quickly as possible.
But all this does is incentivize "if you're going to blow up, make sure you threaten the whole economy so you can use hostage tactics to get a payout." The feds wouldn't be doing shit if this were some small bank with no contagion risk.
And the political cronyism of this, on both sides, is nauseating. There was a tweet thread by a startup founder from Ohio, basically making the argument "I'm a small business owner from middle America Ohio, not some fat cat Silicon Valley tech bro." To be clear, absolutely nothing against her for posting this (on the contrary, she actually sounded pretty amazing with how she founded her business), but it sucks that she has to play this "Hey, I'm in your tribe too, I'm not a member of that evil other tribe" in order to curry favor with the political class to get a bailout.
>What people oppose is taxpayers absorbing the losses beyond $250 000 as promised, and there's a very good reason for this: its another example of privatizing profits and socializing losses. In other words, it encourages risky behavior because they're gambling with the house's money.
But by not bailing them out, you're punishing the depositors, which I wouldn't exactly characterize as "gambling with the house's money".
> Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry?
Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut.
> “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds.
> Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs.
On the flip side, there's nothing special about many of the customers being small businesses, or startups, or big businesses, or really anything else. There's established rules for FDIC insurance and that's what we should be following.
It is completely insane to allow innocent depositors to lose their money especially when the government clearly would have no problem coming up with the funds to backstop depositors since this is an isolated incident. This bank being located in a tech hotspot is incidental and I am sure some non-techies are swept up in this as well. Imagine a 70 year old woman who just lost her husband and sold her house to downsize to an apartment. She has $1 million in her SVB account and plans to live off the interest in her retirement. Should this 70 year old widow take a $750k haircut because she hasn’t spent the last few years brushing up on SVB 10-k filings and calling up SVB’s board of directors to ask them how they plan to manage interest rate risk?
FDIC limit should be way higher anyway (when was the last time it was raised?) but if we allow depositors to lose money it will quickly cause a stampede to the handful of huge banks and drive smaller regional banks out of business. That’s why other bank stocks are also plummeting right now. Is that what you want?
If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild?
For the record I believe SVB shareholders and debt holders will get wiped out, as they should.
Have we yet deviated from FDIC rules? I don’t think so, even with what Yellen says. My limited understanding of the situation is that the assets to cover everything is there, they’re just tied up in long-term treasuries.
From the FDIC’s site:
> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits.
For simplicities sake, let’s just assume 100% of the assets are actually there, but it’ll just take varying years for everything to mature. So, what’s next? FDIC finds a buyer for the assets, perhaps a private bank or a a pseudo-government body who has the ability to wait till maturity, and in the meantime, everyone gets all their deposits. That’s not a “bailout”, and is following the rules.
This is short sighted. If the government doesn’t make depositors whole then people and companies all over the world lose trust in US banks and eventually US dollars. This is a federal problem.
It makes sense to make depositors whole, they’re innocent here. It doesn’t make sense to make SVB whole for managing their risk poorly.
> Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds.
No. The feds aren't giving anyone fed money, they're selling SVB's assets and giving the people they owe their own money back. There isn't enough money to give everyone 100% back, so they won't be getting 100% back. There's no extra government money making anyone "whole". They're just winding down the assets so they don't all get stolen like FTX.
I don't get this comment at all. The post you're replying to literally says the bank has more assets than 250k per client. I read somewhere the insured amount is around $8B whereas the bank's assets are at least 20x that. Where should that money go if every client gets capped at 250k?
I think the depositors should get a bit of a haircut if selling the assets don’t cover all deposits. For example, 5%. If it’s more than 5%, then the government steps in and pay for the rest.
5% seems like the right balance between the two extremes.
Companies and people should pay a small penalty.
At the same time, we shouldn’t rock the financial system further. We need to have confidence in the system.
After this, the government should make new regulations to prevent this scenario from happening again.
For those wishing to just follow existing rules exactly as is, bear in mind that a contagion will likely reach your personal finances.
One of the strangest misconceptions I've seen on HN and in general is some variation on the incorrect theme of "all the money is gone except the FDIC insurance".
The last I saw from Moody's was they're expecting "eighty-something" percent recovery rate, assuming no bailout or rule flexibility and no last minute forced merger.
This isn't like FTX where all the money is gone and ha ha you're not getting a penny of it back, ever. The SVB situation is a hyper regulated industry and the regulators flipped out when the asset ratio dropped below 95% or something like that, and as such, there will be inevitable expenses of a total shutdown, so figure everyone below $250K gets 100% back via insurance and everyone else gets $250K plus whatever was above $250K paid out at probably around eighty five percent when its all said and done (this is a guess although Moody's usually isn't all that wrong).
Historically when smaller banks collapsed (my hometown bank for example back in '08) the regulators semi-forcibly merge the small bank into a large bank and there's zero loss, you're just magically now a customer of some out of town megabank. The big bank eats the loss in a wink-and-nod agreement where the big bank gets some future favorable regulatory treatment in exchange, semi-informally. The problem with SVB is it is, or was, huge. So finding a huger bank to merge with will be tricky to impossible. Which was kind of the point of regulation intended to keep competition higher by making lots of small banks instead of few large ones.
The worst case outcome according to the last I saw from Moodys was big depositors will take maybe a fifteen percent haircut over $250K. The propaganda claims, of course, that all the money is gone and its 1933 again on Monday morning and the usual workers of the world unite stuff. But its not really THAT bad.
Idle speculation I've seen in chats that the solution to SVB being way too f-ing huge to merge with anyone is a forcible separation followed by a forcible multi-merge. So each 1/4 of you will be new customers with 100% rate of return of JP, BoA, Citi, and WF respectively. (off the top of my head those are the four largest banks by assets, I could be wrong) This is just internet chat nonsense I wouldn't plan on it. Although it is an innovative solution to having a "too big to fail" bank failure.
There's some of this, for sure. But there's an equivalent screeching from the tech finance world[1] demanding a full government guarantee. That ain't happening, and I think it's appropriate for the fed to make that clear.
FWIW: the dirty secret here is likely that there's a bunch of internal dealing going on as regards SVB. They were The Startup Bank for some reason, it's not random. And my guess is that we'll discover that a whole lot of big venture players turn out to be extremely exposed[2] to an SVB failure. A lot of VCs are probably losing their shirts here.
[1] Jason Calacanis's caps lock has been stuck down since Friday.
[2] Or worse. Genuine fraud has turned up in previous FDIC seizures. But no evidence exists right now.
I agree with you. I listened to the usually fantastic All In Podcast yesterday. Usually, I find the content very interesting but yesterday I felt like all four of them were all about protecting their little world.
To me, it sounds like SVB cut a lot of corners and SV customers enjoyed advantages of some of these cut corners.
I am deeply sympathetic to people who may not get paid for a while, or have their startups go under. That said, there are precise laws covering what the FDIC can and can not do. I think the general public is tired of very connected people and companies getting special treatment.
There is certainly a danger of contagion, of regional banks taking a hit, by being compared to SVB, but that does not change my opinion, and I certainly will not stop doing business with two relatively small Credit Unions in my state.
"I get the schaudenfraude, but this will not hurt big tech and VCs and much as tens of thousands of small businesses, and the people employed at them."
It's good for those "businesses" if VC and Big Tech are unharmed because were it not for VC investment and Big Tech acquisitions, these "companies" would have no money to pay the people who "work" at them.
Legitimate businesses that can pay employees from revenues and generate profits are generally not SVB's customers. They can use normal banks.
Arguably a "job" that depends on interest rates being "zero" and investors writing checks cover payroll is not something anyone should be relying on longterm.
"Generic screeching against the tech world" is a red herring. Perhaps it is easy for "tech" companies to dish out hype but difficult for them to accept any negative commentary. The question that must be considered is whether the "tech" company's so-called "business model" really is one. Arguably these "companies" never had a successful business model and never found one, if they remain reliant on VC, SVB and Big Tech. Intermediaries, surveillance, data collection, advertising services, all purely parasitic activity. If this is not something the world really needs and is willing to pay for, entities like SVB and their customers will burn out or fade away.
Big Tech fans commenting on HN have used the phrase, "The market has spoken" in the past to foreclose any debate on the merits of the so-called "tech" industry. Well, here the market is speaking.
can’t people buy private insurance for their deposits above the $250k threshold?
if you buy an expensive house or car you generally pay a lot more to insure that asset. not sure why people don’t think of buying insurance on their bank deposits in the same way if you find yourself in a situation where you need to hold much more than $250k in one account for whatever reason.
But even if you’re an individual holding million in cash (and for whatever reason it is not invested), it isn’t exactly difficult to open 10 checking + savings accounts and putting $250k each. In fact that is the prudent thing to do.
Yes, you can buy it. It's very common at wholesale banking levels (credit default swaps are extremely commonly used to cover counterparty risk). Also credit insurance is available to anyone.
However, the simple option here is to put money into short term govt bonds, there are ETFs like SGOV that make this extremely easy.
Even more ridiculous is that you are getting 4-5% yield on them.
This is what is so crazy about this entire saga - people should not be parking millions upon millions at a bank earning no interest when you could be getting 4-5%+ - regardless of solvency issues.
It is frightening to me people don't seem to understand this. It's absolutely basic money management. It would be more understandable when interest rates were basically 0 and you wouldn't get any yields from bonds. But that isn't the case and hasn't been the case for a long time now.
Now clearly SVB were offering perks for doing this, but say you had $100m parked there, are those perks really worth $5m/year? People should have been asking that. It's a whole team of engineers paid for!
And really offering personal perks to founders contingent on company money doesn't sit completely right with me, unless the founder owns 100% of the equity which most do not. It's one thing offering perks as goodwill but putting convents etc on company money for personal perks is suspect to me.
I am fairly sure that the FDIC does not want people to need private insurance for bank deposits. This is a big sign your banking system sucks and is expected to fail badly at least some of the time, the avoidance of which is why the FDIC exists.
And, yes, opening ten checking accounts is difficult and inconvenient.
The issue here is not about whether the government should seize SVB assets rather than return them to depositors. Hopefully no one is arguing for that.
(The issue is about what the government should do -- if anything -- about (1) shortfalls depositors may face; (2) delays depositors may face in accessing the funds that do remain.)
>The government will use the bank assets to make customers, not owners, whole.
The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. Any scenario where uninsured depositors end up with all their money back is likely to be a bailout.
> The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole.
No, SVB is in receivership because they can make their depositors whole right now. They have most of the assets, it’s just that liquidating them immediately would result in losses far greater than SVB can afford, but that’s what a bank run demands.
The feds can take over, make depositors whole now by funding deposits from federal funds, while taking on SVBs assets and liquidating them on a timeline that maximises the value, ideally a value that covers all depositor funds.
In effect the feds provide a loan to SVB depositors, backed by SVB assets. Which is far better than either forcing the FDIC to actually payout the insured amount, because depositors get their funds, and the fed avoid having to handover cash to SVB to keep them afloat. Meanwhile shareholders take a bath, because their shareholding value drops to zero.
One thing I don’t get. People are making a few claims:
1) anything beyond 250k is a known risk, you should’ve spread the money around.
2) why should tax payers be on the hook for more than the 250k amount? The companies took the risk and lost.
But if everyone spread their money around and kept each account less than 250k. Then in effect isn’t everyone insured for everything anyways?
Imagine there is a service that seamlessly took your total amount and spread it between various accounts for you to keep each account balance less than 250k. Now the totality of bank deposits are in effect all 100% insured. How is this now different from insuring all deposits regardless of size besides adding a middleman?
This whole saga has exposed the shocking financial illiteracy in this industry. There are laws and procedures about how to handle the situation. Banks fail all the time and the FDIC disposes of them all the time.
Depositors will get their insured money on monday. The FDIC will then dispose of all the banks assets and return the proceeds to its creditors, that is depositors.
Calling for the government to guarantee all deposits unconditionally is exactly calling for a bailout. Calling for the government to follow it's own laws and procedures as usual is redundant.
I think there’s a shocking lack of political literacy at work here because any action that could be perceived as a bailout by a layperson will be an albatross around the neck of any politician that supports such measures. Several of the VCs who spent Q4 of last year gloating about layoffs are now saying the sky is falling - so they aren’t exactly a sympathetic group. You can belly-ache about populism or whatever but that’s why you’re seeing tepid responses from Washington.
For the record I hope SVB gets taken over and depositors are made whole quickly but I think as an industry we are overestimating our political capital.
It's coherent to think the FDIC shouldn't put in more than $250,000 per insured account and also that if funds in excess of that are available without FDIC participation that they should all go to depositors.
People implying other things probably don't really understand how banks work.
The flip side is also true: people claiming that unless the government provides a bailout, depositors above 250k will be wiped out.
There’s a procedure to handle this, including dispersing the assets:
“The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
Let's stop pretending this bank was an arbitrary choice. This bank was corrupt, it took overblown risks by design for years including even lobbying for lax regulation.
The VCs whose money those startups are built upon, have connections to this bank. This entire back acted like some VC venture, with explicit design of taking the risk of zero return.
0 dollars should be given to depositors. Absolutely zero. These griefters learned how to use the common people as meat shields. It's the CFO of Lehman brothers. Let the VCs who supported this lose their investments and be forced to raise money now. If those businesses are worth something, investors will buy them. Let the VCs who gave bad advice be wiped clean from the investment. Their choices led to this.
Are people seriously arguing for $250k and not a penny more, regardless?
I thought the argument some were making is that depositors should be guaranteed up to $250k and then get a proportionate share of whatever’s left (which is not zero!)
> "This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
From the broader public's perception, you're splitting hairs. The gov - at taxpayer's expense - *are* ______ing* depositors with deposits over $250k. Depositors who are well aware of the limits of what's covered. Depositors with more advisors than most taxpayers have bank accounts.
Capable and well educated people made poor decisions. Why is The Nanny State the solution? Again??
* call it what you want, but it's special treatment of the very well to do.
> The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding.
> When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides.
We are still currently at "using premiums" and moving into "liquidating bank assets".
There's a middle ground here that few people seem to have.
1. There should be no bailout.
2. The bank had a ton of assets and those assets still belong to the depositors.
3. The depositors shouldn't necessarily be made whole beyond their $250,000 insured amount, but denying them the bank deposits is also wrong. Getting 80 cents on the dollar for their deposits seems completely fine for example, or whatever that number turns out to be based on remaining assets.
4. Nothing is deserved to the bank owners/shareholders. If there happens to be more assets than there was deposits, then this money can go to owners/shareholders.
FDIC will unfreeze a non trivial amount of depositors funds by Wed or Thursday. They sold a lot of assets Friday. I’m personally not predicting huge job losses. There are lots of war chest sized balances in SVB that it doesn’t matter if they take longer to get made whole. So if they effectively unfreeze say two million per account or 45% whichever is larger on Wed/Thur and then balance in a couple of months I think Job losses will be minimal.
The word "bailout" is a distraction and red herring. For example, FT and Yellen use it as a weasel word here.
I notice several articles and threads derailing into conflations of semantic arguments around what a bailout is with specifics of the topic.
This is a trend (and, I suspect, tactic) on other topics and it only serves polarization. Try to not fall into this trap. It can be possible to call it out in a way which does not further derail the conversation.
(Saying it's a trend does not mean it's merely a recent thing BTW)
For anyone interested, the All-In podcast did an excellent job covering this on Friday. Particularly, David Sacks stressed this would not be a bailout, but merely backstopping deposits. SVB did nothing illegal or wrong, so it is not an Enron situation.
It's been awful. Everyone on Reddit is so hopelessly confused about the issue that they can't even complain about it right.
"No bailouts!"
Nobody has been (seriously) talking about them. Shareholders in SVB are toast 100%. Debtors too probably.
"We should nationalize banks that fail!"
That's basically what receivership is. We just don't call it nationalizing because the government just wants to make depositors whole and then get their hands out of the pie.
"We need more (or less) regulation!"
The FDIC stepping in right now - where it appears the bank is solvent but can't satisfy liquidity requirements - is exactly when it should. SVB as a business failed but (it appears) depositors are being made whole by the sale of the banks assets. The system appears to have worked while also not cutting the bank prematurely (nobody seems to be complaining that SVB wasnt in major trouble).
> Appropriate them, and leave small and mid businesses hanged to dry?
Yes this is exactly what I support should happen. The remaining assets can of course be used towards depositors (even beyond $250k FDIC insure). But beyond that, tough luck. In our American systems thousands, millions of people and small businesses fail and the answer is "tough luck". Their failure is too small for anyone to care. But when big banks fail government helps them, which is how this is seen as. If you have more than $250k in a bank account sitting somewhere, you're objective not destitute and you objectively do not need tax money to help you out any further. So, yes "tough luck".
This is not depositors fault, but it's also not tax payers fault. A bailout is a bailout. If depositors are bailed out, it is still a bailout.
>“Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry?
To me such statements feel like - either you are with me or against the humanity. Of course, the government should not gobble the money that belongs to the depositors and the fund should be distributed fairly to the depositors post liquidation. But making whole the deposits through the tax payers money will not be right. This is a business failure and what is insured is only what is guaranteed to be paid back. That is the risk business take when they engage in such transactions.
Individuals who had more than $250k sitting in bank account must be well-off and prudent enough to decipher the FDIC insurance limit.
>Depositors shouldn’t get anything beyond the insured $250,000
My understanding of what I’ve seen people mention is that depositors shouldn’t get more than the insured 250k from the FDIC insurance fund, not that bank assets shouldn’t be used to make depositors whole.
This sentiment doesn’t come out of nowhere. There have been a few panicked and very angry VCs on social media effectively calling for an immediate and retroactive increase in the limit for FDIC-insured funds.
Essentially there are some folks that want the government to step in to make depositors whole will leaving bank assets to be divvied up to make investors whole.
Some folks see this crisis and immediately jump to “how can I take maximum personal advantage?” It is those people that are creating confusion and pushback wrt the FDIC’s involvement here.
The financial illiteracy is the most disturbing thing here.
Commentator can only rail against "the tech world" in this instance if they've failed to grasp that supporting large depositor here this isn't a tech world issue but a financial system issue. And that goes with a generally decline in how knowledgeable the average HN commentator is.
At this point, large bank deposits are implicitly guaranteed and if one pulls that away, the world's financial system would likely fall apart. You can argue this system is terrible and talk about how to change but no one who knows the impact of this stuff want "1929 on steroids" and neither is anyone with power going to implement it.
Uninsured assets are what they sound like: uninsured. That's why companies typically hold a minimum amount of their assets as cash, and the cash they do hold isn't typically concentrated in one place. Credit risk is a huge aspect of financial management. If you don't manage risk you get losses. The "small business" sympathy campaign is typical of situations like these (pretty much touted in every bank failure) to justify public spending for private losses. The public doesn't get profit from company risk (particularly for tax dodging/low employment tech companies), it should not be expected to take the losses.
Clarifying the answers to the two misconceptions: 1) “Depositors shouldn’t get anything beyond the insured $250,000” and 2) “This is a bailout”
FDIC pays out the $250,000 insurance to SVB depositor accounts. FDIC recoups those costs from the SVB assets, and then pays out depositor account holders as much % as possible from liquidating the remaining SVB assets. It sounds like the latter will be disbursed in several increments as the assets are liquidated. All of that assuming no buyer by Monday.
If there is anything left after depositors are made while, then that might go to shareholders.
>“Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry?
Did the depositors (we're talking companies here) not know that the FDIC limit was $250K? If they did, why didn't they hedge accordingly by opening accounts at other banks? Was this not an unreasonable expectation of a company to do?
If I did the same thing, would I expect the government to cover the difference between the asset sale value and the insured amount?
Maybe the solution is to explain in plain terms what's going to happen. In other words, how much money there is, where it's coming from, and where it's going.
What are these assets? I'm assuming they include the loans that will be called in. When a bank calls in its loans, do they have immediate access to the money, or do the customers in turn have to sell their own assets to pay back the loans?
On the other hand, if the bank had sufficient assets to make their depositors whole, how did they fail in the first place?
Isn’t the entire point of having hundreds of banks the idea that competition will give customers choice, and that they can choose to bank with anyone based on their own risk tolerance?
Depositors are consider investors in banks. 250K and below will be insured by Feds. Anything above will be considered like civil forfeiture that will be given to debts with higher seniority. Salary and bonuses of staff will take the highest seniority. Then secured loans. Depositors will likely get a portion of their remaining money just before shareholders. This is very well established principle. You can go checkout how much depositors in Lehman Brothers gotten their money back.
If it was, then actual shareholders would recover at least $250,000 from their investment. As it stands, shareholders are poised to recover pretty much nothing.
“This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
Except shareholders suffered massive or total losses in 2008, such as AIG or Washington Mutual, despite it being a bailout. A bailout means all depositors are made whole, not the shareholders.
Pretty sure shareholders of bailed-out banks[1] weren't destroyed. For example JPM is up 155% since it's 2007 pre-crash high. That won't be the case for SIVB shareholders.
I've coined a new term for this: "All ideology and no idea."
It's a the perfect opportunity to be angry at a group; in this case "tech bros", VCs, and anyone attached to Silicon Valley. Hey, it is right there in the name of the bank!
Perhaps I can address your point about “generic screeching” against the tech world, by noting that the criticism here is often specific and direct. Not generic.
The usual suspects have been trying to frame it in terms of the regular old startup workers that will be affected.
But what about these entrepreneurs, the taxi drivers who were completely fucked by the onslaught of Uber and Lyft using financial engineering to lose money on each ride and undercut their livelihood:
And so on. We would also like to see social media held accountable for the harms done to children and communities and for our existing laws against anti-competitive behavior and collusion to be enforced against search and software platforms.
The chutzpah of the Silicon Valley influencer crowd over this weekend has become seriously fucking unbearable.
My feeds are full of sociopathic libertarians calling for government to make sure they never suffer any consequences for their failure to adequately manage risk?
Many of the people expressing this frustration are in favor of having the government heavily involved in preventing this kind of thing and helping if it ends up happening.
But if we’re going to regulate let’s fucking regulate.
To the tech people unhappy with screeching my reply is that there is nothing special about your humanity here. Your lives aren’t more important than the lives of the children of employees at the Carrier plant in Indianapolis, or the workers at the Amazon faculty on Staten Island.
If your values system only applies to you and your friends it’s not much of a values system.
I find it ironic that you mentioned taxi drivers, since many were initially collateral damage, and then moved onto drive for Uber or Lyft.
I would say that medallion holders, those with enough capital to pay the almost million dollars a license was running for around 2010, were the ones getting screwed. And if you ask me, I would compare them to whomever invested in SVB. Those will not get their money back.
Regarding the VC-fueled "onslaught" on the regular old taxi drivers, perhaps you are too young to remember what life was like before Uber and Lyft? Before those companies gave literally millions of people around the world the ability to just up and have a job, with very little hassle? Which obviously has its own issues.
But then wait. Zoom out. The former system did too. The new companies disrupted the absurd, customer-hostile, worker-hostile, cartel-like monopolies those legacy industries had evolved into. Did you ever try getting a taxi in any US city besides Manhattan — not even the rest of NYC — before Uber? It was expensive, frustrating, and completely lacking in integrity.
I remember calling taxis to go the airport in SF before Uber existed and nearly missing my flight on multiple occasions because the government-granted taxi monopoly I ordered from the day before just never showed up at 5am, and oh by the way the company is closed at 5am, so wouldn't answer the phone, but would still try to charge you and tell you you missed your taxi when it showed up and hour late while you were cussing them out the entire drive to the airport in your own car so you could pay the airport parking monopoly absurd rates so you didn't miss your flight. Yep, I want that system back.
Taxis were absolutely terrible before Uber, and they only benefitted taxi companies, the banks that financed them, and then maybe in some cases taxi drivers. Frankly, fuck those old taxi companies. Good riddens.
This is the nature of disruption. Entrepreneurs have a negative experience with an entrenched industry, have a lightbulb moment, raise some money (or not — that path actually exists, though it isn't often discussed here), disrupt the often terrible old industry and create a new market, dominate the new market, and then often stop innovating and focus on keeping out competitors and protecting their rents. Then the cycle repeats.
The disruption cycle existed before Silicon Valley VCs got involved. It is happening right now to Silicon Valley-fueled (and -fueler) Google and (Silicon Valley-fueled) AI LLM chatbots. Google once seemed unstoppable, and suddenly people, including apparently Google, think it's vulnerable. It happened with the iPhone and Nokia and Blackberry! Yet no one will stand up for the poor candy bar phone designers, or soon the poor AdWords salespeople, because something much newer and ostensibly better has come along.
It's literally a tale as old as time, though like any historic cycle it is on increasingly shorter timelines. Protectionist, rent-seeking, and in some cases full-on colluding legacy industries merely try to keep their grip on the market through their own forms of financial and political engineering rather than seeking to innovate on their own.
So the quaint pastoral notion of the innocent taxi companies being obliterated before terrible Uber came along is just flat out wrong. They knew that they were rent-seeking, they knew they could innovate, and they just didn't fix it. Even after Uber came out, for many years they sought — are still seeking? — to defend themselves rather than create a better customer and worker experience.
As for, "if we’re going to regulate let's fucking regulate," that is actually what gets us the entrenched industries described above. Which "we" might collectively agree we want in some cases. We just need to be aware of what the second-order and beyond consequences of that regulation are likely to be. If we regulate in response to this, it is might result in the mega banks taking over smaller ones, continuing the consolidation and obliterating more local banks like SVB.
Or perhaps what you are saying is let's establish regulations where we place the depositors' rights above the rights of the banks? Where we separate investment banking from "consumer" banking again? I agree. And also, good luck with that! It also has second-order and beyond consequences which also could suck. Careful hat you wish for.
I agree with you, except for the comment about Libertarians. Let me assure you, as a member of the Libertarian Party, that we don’t in general like or support government bailout of special interests.
I 100% agree with you about the chutzpah level being really annoying! I also like your comments about the groups of workers adversely affected in the past.
> My feeds are full of sociopathic libertarians calling for government to make sure they never suffer any consequences for their failure to adequately manage risk?
Not sure to whom you’re referring, but they’re not libertarians.
Please explain why Roku had half a billion dollars sitting in a checking account and how we rectify that, and 119.5 billion other problems, without yet more money printing that affects everyone.
Move fast and break things, banking edition. Can I sign something somewhere to opt out of responsibility for these kind of things?
This is why direct democracy can't work for long. The average voter has a hazy and sometimes downright broken model of reality. I don't know how else to describe someone who wants to get back at Facebook by ganking the paycheck of some engineer at a 10 person startup.
These are start ups and people with connections to VCs who get free money to do all kinds of moonshot businesses. Start ups are basically pet projects of rich billionaires.
The majority of people in the world don't have those connections or opportunities, so there's definitely hate.
This is facile and representative of so much of the internet. Our ears our closed to each other, we cherry pick the weakest arguments, or ones that aren’t made at all.
No one seriously thinks there’s only $250K/client available. People are saying the same thing you are, just gleefully.
It also heads off the big risk, additional bank runs.
If depositors see strong signs of support they won’t run. They may very well be saving other banks without even having to deal with them with this move. No bank can survive a bank run beyond a certain point.
Seriously, it’s like a lot of people think the depositors should only get back $250k, and giving them back what remains of the rest of their money is a bailout. It’s not, it’s what the FDIC always does.
Isn't you company responsible to insure its own assets above the FDIC deposit limit? I guess personal responsibility only applies to poor people not corporations.
Framing bailout with a different word like 'make whole' does not make it not a bailout. The bank played with those people's deposits and screwed it up. Rescuing all the deposits would just exonerate the bank of all its wrongdoing and set a bad precedent. "There are no repercussions for bad business management".
Per capitalist philosophy, the bank should sink, along with whatever deposit was in there - "Buyer beware". If you dont agree with that principle, it means that you are not subscribing to capitalism, but to social democracy in which capitalist principles are overridden by socialist principles to protect the public. And the moment you go that way, you open the door for questioning a lot of the setup that rules the modern economy.
> Per capitalist philosophy, the bank should sink, along with whatever deposit was in there - "Buyer beware".
Why do you think that? There is no axiom of "capitalist philosophy" that says "when one party screws up all parties must maximally feel the pain".
There is a framework for unwinding these sorts of things. Depositor agreements as well as the relevant regulations and laws regarding business agreements and contracts are all part of the "capitalist philosophy".
Think of in terms of the same sneering contempt we've seen from Silicon Valley towards middle America. Except the idea that Silicon Valley taxpayers should contribute to bailing out anyone else would have been seen as laughable, middle America hasn't been earning multiples of Silicon Valley, and middle America hasn't been censoring everybody else, or monetising privacy abuse/destruction of youth mental health on a scale never before seen in human history.
It will hurt silicon valley extremely hard. It already is, paychecks won't be coming, trust is gone. Silicon valley was seen as brilliant but now is a joke.
Ironically most small to mid non tech businesses will be just fine.
” Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry?
“This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
If the bank had sufficient assets to make all depositors whole the FDIC wouldn’t have stepped in. It doesn’t.
I assume, then, you agree uninsured deposits ought to take a haircut proportional to the shortfall?
If so, you have the same position as all the “salty” posters.
This actually makes a ton of sense, lets not forget that a bailout in this term is really pointing towards saving the bank itself, and its shareholders. There is inherent risk in equity investments, and it likely should have to suffer for its poor decisions.
But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enough assets to cover the liabilities (deposits), but its tied up in such long term investments that it could take a long time to get it out.
But moreso, when we invest in companies, we deep down know there is a possibility of the investment going to 0. We often don't think when I put money in a bank it can go belly up, this would obviously hurt the trust in our banking environment if depositors not made whole.
Did they help depositors that lost money in the last 500+ bank collapses? Why do they get special treatment? The government has laws and rules the depositors are insured up to 250k. Either they liquidate and everyone takes a hair cut. Or they wait till the bonds mature and can pay them out. But the government should not relieve anyone past what is legally available.
Yes, in the case of large retail banks, the government did help. In 2008, the federal government purchased stock in several banks in order to recapitalize them. One could argue this was a starker example of moral hazard than letting the bank fail, but making depositors whole.
We do not know what specifically they are going to do. Helping depositors may just mean expediting the recovery process even if there is a 10% haircut. It could mean something else. The government forced the sale of countrywide and other companies so this would be no different.
Also the term "too big to fail" comes to mind. Isolated risk vs systemic risk. Which one is it now? We can have opinions but Yellen may have more informed data about the gravity of the situation. It does make sense for governments to intervene in systemic risks such as this and covid.
It makes sense that they’ll make depositors whole before even thinking about the rest. From the top of that page:
“ All depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
Yes? Most famously when IndyMac failed they retroactively raised the insurance limits.
It’s almost certainly not going to come to that in this case as the normal fdic playbook will work but the federal government has a history of taking action when extraordinary bank failures happen.
You let one bank collapse, OK. If the collapse causes other banks to collapse then it's bad. When WalMart, Costco can't transfer money to fill shelves, people go hungry. When people can't get their wages, they go hungry.
I’m inclined to agree, this kind of special treatment is fairly ridiculous, depositors in other bank failures with funds over FDIC limits have to wait for fire sales to recover, which can take years in some cases.
I’m not sure exactly what Yellen is proposing (I only subscribe to print FT so no access), but it seems like special treatment for the well connected on Sandhill Road.
This seems to be a core argument for those in opposition to shareholders getting liquidated bank assets vs depositors, but I don't really understand it because it seems to be kind of arbitrary. So there's fdic insurance, that's nice, but why does that mean anything regarding whether depositors or investors should be made whole first? The more important and real question is which option has what outcomes in terms of future investor behavior, or future depositor behavior?
If it's a question of rigid legality that also doesn't make sense to me, because from what I remember from 2008 was the government's legal options were incredibly widespread.
My guess ( I havn't looked at is the last ones ) is that the majority of deposits were well under 250k, and that hundreds of thousands of jobs weren't on the line.
Also, you are talking about a major banking collapse if people start thinking that their deposits aren't safe. (a lot of people will start pulling money, even if under 250k). There are so many irrational people out there...
edit: I guess somewhere in what I said was confusing, I was referring to past fails where most deposits were likely well under the 250k. NOT SVB where the vast majority were well above that threshold.
Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time?
Funny how language is being used to frame all this. For depositors it's made whole, not bailed out, when of course it's no less a bail out.
Because businesses need to be able to pay their employees, because the banking system as a whole relies on trust to function.
And because we're not really bailing out depositors. The FDIC is just doing its best to make sure depositors take precedence over bank shareholders, which is as it should be.
Sure, you could let Roku lose a half billion dollars, but it's not their fault SVB couldn't meet its obligations. They didn't invest in the bank. Placing your money in a bank should not be a gamble.
> Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time?
The insured amount is absolutely guaranteed. However, it's still standard for a failed bank to make it's depositors whole.
I don't have sources, but data I've seen indicates of the nearly 600 bank failures since 2000, few, if any, have resulted in a loss of deposits.
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Put another way. Most employees don't have contractual obligations to receive severance. However, it's culturally expected that businesses performing layoffs will offer severance. Those who don't risk people not coming to work for them.\
Same situation in the US. The USD and it's banking system is seen as incredibly stable and robust. When chinks start to form, it raises concern and people might start looking to bank in other currencies.
> “But we are concerned about depositors, and we’re focused on trying to meet their needs.”
I don't think "trying to meet their needs" is the same as ensuring they will "be made whole".
The biggest issues around people with uninsured accounts (the vast majority) is both how much and how long. This will be a mess if either the amount is significantly less than "whole" or if the time to be made whole takes months not days.
This is an implicit argument for de-privatizing banking. There is inherent risk of losing your uninsured money when you lend it to a private company. If all deposits were to be fully insured we’re talking public banking, or much worse, private for-profit banking that is fully de-risked by taxpayers, incentivizing execs to make arbitrarily risky decisions and, basically, freely take however much money they want from tax coffers.
> But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enough assets to cover the liabilities (deposits), but its tied up in such long term investments that it could take a long time to get it out.
If anybody gets an extra penny more than $250K from the Feds than that is by definition a bailout.
> But moreso, when we invest in companies, we deep down know there is a possibility of the investment going to 0. We often don't think when I put money in a bank it can go belly up, this would obviously hurt the trust in our banking environment if depositors not made whole.
FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.
And who knows what perks, direct or indirect, those depositors were getting for having that cash at SVB?
Whether it’s stupidity or greed doesn’t matter. No hand outs.
Don’t you think there is a huge difference between the bank shareholders getting bailed out and depositors getting bailed out?
Let’s think about the risk of “morale hazard” in these case:
Bail out the shareholders: we can throw more money into the stock and never lose money! Risk free returns, I better pump this bubble up!
Bail out depositors: I feel safe having my money in a reputable bank! I can operate my business and pay vendors/employees, I can keep doing my job without interruption.
Bailing out one group makes them greedy, bailing out the other makes them productive.
This is not old testament judgement, this is a financial war and our gov has to use every appropriate tool to fight it.
> FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.
I think we should really not forget that SVB hit duration risk on their assets that is almost definitionally not an issue for the FDIC. This isn’t “bank fell apart due to bad loans” this is “bank fell apart because money is locked away for 10 years but is basically guaranteed”.
> If anybody gets an extra penny more than $250K from the Feds than that is by definition a bailout.
I think this is naive. The FDIC or some government entity is in a pretty reasonable position to take on the longer duration assets that appear to have brought down SVB. If they hold those assets to maturity then everything is fine, and they can return deposits today if necessary because they don't need to sell assets to generate cash.
> FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.
I hope you realize FDIC insurance isn’t even guaranteed to be $250k. The FDIC is funded by member fees and can only cover a very small amount of “insured” losses. If it goes beyond that, depositors would need a bailout.
As others have said, if depositors are bailed out, it's a bailout. Pretending that changing the definition makes a difference is childish.
Whatever the government decides to do, this makes the VC and startup industry look really weak and entitled, and knocks them down from risk takers building the future to the same status as a bunch of bankers looking for a handout.
There was an opportunity here for VCs with lots of clout, YC included, to come up with a private solution to backstop this. It would have shown independence, maturity, and that more government oversight and intervention is not needed. That adults can take care of themselves.
Instead they went whining to the government, made a petition, tweeted sadly, and whatever else. It's unbecoming of an industry that's supposed to be scrappy and have an appetite for risk.
Respectfully, I think you are the one playing with definitions. “Bailout” refers to shareholders. It refers to bailing out the institution, not it’s depositors.
We can talk about a depositor bailout if you want, but let’s not pretend it’s the same thing, not pretend it’s what the term “bailout” commonly refers to.
Multiple sources attest to the contrary - very consistently a "bailout" is taken to refer to any kind of financial assistance provided to a failing institution (not just to the shareholders). For example, Investopedia:
What Is A Bailout?
A bailout is when a business, an individual, or a government provides money and/or resources (also known as a capital injection) to a failing company. These actions help to prevent the consequences of that business's potential downfall which may include bankruptcy and default on its financial obligations.
All the major English dictionaries, and Wikipedia will tell you same thing.
To call this action anything other than "bailout" is to mince words, plain and simple.
We’re changing the (very well) known rules in the middle of a crisis and acting like we didn’t know what happened could happen, when we did. This is a bailout
Dispensing with all the hand-wavy, moral grandstanding about being "unbecoming", "mature", showing "independence", being "weak and entitled" etc etc... None of this is even remotely relevant, you'd be equally reasonable to tell us you wish startups were comprised of more handsome and charming individuals or that they should attend church more frequently.
In terms of discussing risk, startups should minimize all risks possible because their core risk is to find a business model and product that works. Putting cash into a bank account isn't a "strategy" nor is it an investment. Much like choosing to incorporate in Delaware, it's something you do because it's standard and adds no unnecessary risk to the business. It's not smart to try to get fancy with boilerplate company things–you have enough risk already.
Anyway, at the core of your argument seems to be two beliefs:
1. VCs had the capability to stop this from happening with private means (no)
2. People who start companies or work at them just generally deserve bad things to happen to them, regardless of how proximal or not the causes are of their misfortune.
I am biased because I've sacrificed years of my life and probably the vast majority of my potential earnings to try to build a good business. It's been the hardest thing I've ever done, no one's impressed by it, it's not yielded any financial benefits, it's harmed my personal and social life, and by all likelihood I'll never see any significant success. But I keep trying because I like our customers and my coworkers and I care more about the possibility of building something great than I do all the rest.
It's hurtful to chalk up the (potential) death of companies like mine to being "weak and entitled". Of all the risks to account for in building a business, having our bank accounts disappear overnight didn't even crack the top 100 of risk factors. Things like losing customers, failing to grow revenue, keeping employees happy, etc. are at the top; below that are changes to the market, competition, and the death of co-founders or myself. It's not possible to account for every conceivable risk.
Anyway, it looks like we'll get some help here so it's not over for us yet. On behalf of companies everywhere, I'd like to apologize that you've been deprived the opportunity to dance on our graves.
Bailout implies that the individual/business being made whole *should* have made decisions to prevent the situation from occurring in the first place. What responsibility did a SVB depositor have in SVB's decision to purchase billions of MBS in 2021?
If the depositor wasn’t ok with that (presumably public) decision they should have pulled out then. Or pulled out when treasury rates started ticking up and the writing was on the wall. Alternatively, they should have bought private insurance for their money or structured their money in multiple banks.
I know how much money I have at risk and how much is insured. It would be pretty irresponsible for me to not and just assume someone will step in and give me their money if I lose mine.
I'm personally a conservative investor, which means amongst other things I forgo notional returns by making safer investments. So it definitely makes my angry to see people that had a less responsible money management strategy get to participate in all the upside and not have to take the downside.
Its too much to expect from VCs, they are each trying to maximize their gain. Creating consensus and cooperation is very hard, especially in bad times. It's exactly why governments exist, In some cases a web of self interested parties will produce horrible results and central authority can be more effective.
This is fine, but when things are rosy the VCs and startups can’t claim that government regulation is communism and choking off their ability to do whatever they want
If you want the backstop if the government you have to be willing to play within its rules during the good times too
Indeed. The bank was trying to raise money and recapitalize itself several days before this and instead of investing, VCs panicked, told their portcos to withdraw immediately, and started a bank run.
The only comic thing in this entire tragedy is watching the fanatics who have been relentlessly preaching to others such dictums as “move quick and break things” and “only the paranoid survive”, extolling the virtues of “creative destruction” and repeating ad infinitum the Reagan quote "The top 9 most terrifying words in the English Language are: I'm from the government, and I'm here to help" cry out for government intervention, with seemingly zero self awareness in how it basically contradicts their entire world view.
That, the documented comments by short sellers for months about it being a trainwreck, the last minute bonuses and the dumping of stock on retail investors by insiders.
It's like all of the tech misbehavior packaged neatly up into one story.
The government and its institutions (The Fed) had a big part in this though. They flooded the market with cash, sold a bunch of bonds with low interest rates (lowest ever) to tons of banks that had to figure out how to manage that cash and did so by buying “the safest investment”, and then that same institution jacked up interest rates to the highest in 20 years over the course of 10 months.
So no, if the government and the fed would actually let the market set interest rates then this doesn’t happen. If the UST had to sell bonds at the real market rate for them then this doesn’t happen.
I am not a fan of the Fed, but it was created precisely to stabilise the banking system due to a huge number of bank runs (that happened before it was created).
I think the only consistent libertarian position on this would be to concede that bank runs are totally normal (and welcome even) aspect of a capitalist system and they should never be bailed out or depositors compensated as it would be rewarding irresponsible behaviour (both by shareholders AND depositors).
I think it's common to take people you disagree with and put them in a mental bucket labeled "other". Then, you can see people opposed to all government intervention, bucket them as other, and see people who think depositors deserve to be made whole, and conclude that there is some hypocrisy going on with the latter position, because different people you disagreed with thought different things.
I tend to be libertarian, but there are reasonable roles for government, and regulating banks and life insurers by forcing them to contribute to something like the FDIC and the state insurance commission (or whatever that life insurance thing is called) is legitimate even to most conservatives.
Stepping in to smooth out systemic problems is another valid function— like Reagan did with the air traffic controllers, like the FDIC does with bank failures, etc.
Anyway, I don’t think folks are asking for a handout. They’re just asking the FDIC to do their jobs more quickly than usual because so many businesses are tied up here. This is the reason there is an FDIC in the first place. I don’t think it’s unreasonable to ask them to smooth the process out to help meet payroll. None of this requires handouts— just proper management and metering out of the assets under consideration.
>Stepping in to smooth out systemic problems is another valid function
Whether you consider this problem "systemic" is political. Note that the FDIC insurance is not the point of contention here - it's whether depositors should be made hold especially if SVB's HTM securities are insolvent.
I could easily make an argument why student loan debt is a systemic issue in the united states - the government's guarantee of the loans as well as making them impossible to clear via bankruptcy has created both infinite demand (leading to higher tuition prices) and reckless loaning (due to the government essentially guaranteeing the loans). Why is this "systemic" issue unreasonable, while SVB is?
One important aspect is that we may be embedded in a vicious circle of discontinuity events and smoothing. A broad expectation that smoothing will be applied after a discontinuity event will tend to make people more willing to accept the future risk of discontinuity events in their decision making.
Less risk-avoiding behavior regarding discontinuity events makes discontinuity events more likely. Then, when the next discontinuity event happens, if smoothing is again applied, it reinforces this expectation, which reinforces the probability of future discontinuities, etc.
For this reason, swearing off active smoothing could actually result in a smoother system, eventually (after the pain of transition, of course).
Eh, the depositors aren’t totally blameless here. On Thursday they conspired to perform a huge bank run on SVB, on Friday they succeeded, and on Saturday they were demanding the government and taxpayers make them whole by Monday. They deserve to get their money back and they eventually will once SVB’s assets are liquidated. But that’s not good enough, they want it now, and they won’t hesitate to make you pay for the expedience. I don’t like that.
I don't think it's fair to blame the SVB depositors for the bank run. Perhaps you can blame public figures (VCs etc) who catalyzed it. Once a run starts, though, it's in your interest to run too.
If you had >250k in SVB and you managed to get it out before it was shut down, you'd be pretty happy with yourself right now. If you run a business and have an obligation to share-holders, it would be negligent not to try this at least.
Yeah, I can’t blame them at all for joining an ongoing bank run.
I can kinda blame them for starting one because they did it so aggressively, but only a bit, because that’s just how internet banking works these days.
I can definitely blame them for demanding the taxpayers make them whole by 9am next business day.
Individual depositors don't need to conspire to reach the conclusion that in a bank run scenario, it is virtually always in each depositor's own best interest to withdraw their money.
Some of the depositors, not all. My employer didn’t conspire about anything.
When and how much money is returned is going to make the difference between life and death for some of these companies. And the difference between having a job and healthcare or not for a lot of people.
Don’t forget that this is happening to depositors / companies after weathering a pandemic and in a really shitty economies where things are already very challenging. Having additional cash flow problems and/or additional debt to service all the sudden may be the proverbial straw that sends companies and people into bankruptcy.
I’m sympathetic. I was in the hospitality industry during COVID, I watched a company that employs 60 people struggle to make payroll while 90% of their business was legally barred from operating for months on end with no clue when it would end. I saw managers and fellow employees giving each other loans, I paid for a coworker’s car repairs. I am not wishing this on you.
By this evening you’ll know if a sale has gone through; if so, everything is back to normal. Otherwise, the FDIC has 250k waiting for your employer on Monday morning, guaranteed. Even if that’s not a week’s payroll, for all but the largest companies that’s enough to get employees by for a week.
The money isn’t gone, just locked up in securities. By the end of the week some percentage of the account will be released - I’ve heard predictions of 80%, 60%, 50%, but even if it’s 20% that is still enough for almost any place to run close to full payroll and operating costs for a month. By the end of the month you’ll have 50-80% back, and you’re back to normality. Maybe the last 20% takes a year. It can wait. This isn’t the end! It’s scary, but it is not the end.
Depositors aren't a monolith. In fact, the depositors that _didnt_ "conspire to perform a huge bank run" are the only depositors which would require government assistance to make them whole.
Many commenters have argued that it is the personal responsibility of depositors to be on top of the health of any institution where they have more than $250k. An obvious consequence of that is that it's their duty to cause the largest possible bank run at the earliest possible moment.
This is exactly the statement that's required, given the confusion and irresponsible politicization of deposit insurance.
Shareholders lose 100%, depositors get 100% of their deposits back. It's a simple situation, and the former point (as opposed to the solution during the GFC) counteracts moral hazard.
If depositors get 100% back (I assume the government pays the difference between selling SBV assets & the deposits)...then what's the purpose of saying "FDIC Insured up to $250k"? It's a moot then isn't it? I don't need to go through the hassle of distributing my money anymore?
Edit: I read the article. Yellen says "“But we are concerned about depositors, and we’re focused on trying to meet their needs.”
She says NOTHING about depositors getting 100% back. It could be that they get the share of deposits back faster.
Depositors get deposits back because their deposits are wrapped up in SVB assets. Once those assets are liquidated they get what is theirs. This could end up being less that 100% if the assets end up being sold for less than the total deposits.
The FDIC insures that no matter what you are covered for up to $250k. Let’s say the bank had zero assets then all deposits would get their $250k and likely nothing else since there’s no other assets to sell and distribute. This could have been the case if SVB had larger losses or turned out to be cooking the books or something. But that’s not the case here. They have the depositors money, it just happens to be in illiquid assets that they could’t liquidate fast enough to cover the bank run withdrawals.
The purpose of the $250k per-person-per-bank limit is to encourage large depositors to spread their money among many banks, which reduces risk for both them and the system. However, it's not clear that this limit is really the ideal design.
In the financial crisis 15 years ago, the FDIC in practice guaranteed 100% of deposits. They had to in order to keep people from running all the banks. Since then, we've all been told that banks are safe now because of new regulations. Lots of people have become complacent and haven't felt the need to manage multiple bank accounts to stay within FDIC limits.
SVB's collapse has suddenly let everyone know that, oh, those FDIC limits do actually matter and if you are over them in any of your accounts you had better start moving money. Unfortunately, that's likely to result in runs on lots more small banks as everyone moves their balance in excess of $250k over to JP Morgan (the bank that definitely can't fail).
Sure, it's easy to say now that it's all those people's fault for not managing their risk properly. But not long ago, a $2.5-millionaire opening 10 different bank accounts to stay under FDIC limits would have been called paranoid. And in any case, stupid or not, allowing runs on lots more banks could at some point lead to large-scale collapse of the financial system, which would be bad for much more than just those large depositors.
So it may be in everyone's interests for the FDIC to once again guarantee 100% of deposits. (I say "may", I don't pretend to be enough of an expert to decide this!) And maybe the $250k limit should be rethought going forward, into some other sort of rule that encourages diversification without encouraging contagion when a big bank fails?
(Disclosure: I had an account at SVB, but it was under the FDIC limit. So I don't have any personal need for a "bail out".)
Consider time it takes to get your deposit back:
FDIC says depositors will get $250k back on Monday morning (pretty incredible turnaround actually).
For the rest, they will have to wait for assets to be sold.
The 250k is messaging to minimize moral hazard. You want banks and depositors invested in minimizing their own risk.
I'd guess hesitancy to immediately declare full guarantee of funds is also due to these concerns (although there may be other reasons as well). The sweet spot here maximizes the appearance of consequences while minimizing actual fallout.
> what's the purpose of saying "FDIC Insured up to $250k"
The FDIC guarantees up to $250k, but if additional assets are available beyond that, then those will be paid out to depositors as well. It's a floor, not a ceiling
The politicisation should be obvious from the "eat the rich" rhetoric currently floating everywhere on Twitter. The government is mostly concerned with the stability of the economy and preventing cascading bank runs, which this climate is less conductive to. That much should be obvious to a slightly keen observer.
While it's well and good in theory that deposits are capped at $250k, adhering strictly to that rule right now will cause cascading consequences much more serious than the price of this guarantee.
Sensible realpolitik right now is to guarantee the deposits to prevent cascading wealth destruction that will very much hit Joe Average, then adapt the system to prevent moral hazard and ensure that this insurance premium is collected in the future. There will probably be a way to recoup the cost of the guarantee from debt holders to SVB, but right now the real concern is putting out the burning crisis of confidence.
There will be a lot of political and financial pressure to value their HTM bonds at 100% because otherwise it will precipitate more runs on banks and more distrust in the financial system. And these are in fact the safest bonds in the world—they're going to get paid out, but the problem is that in 10 years, money isn't going to be worth as much as it's worth today. So banks don't necessarily want to buy them at full face value (because there are better things they could be buying), but in this situation, they're probably going to
And that haircut won't be fun for many but I think the balance sheet had them at around $200 billion in deposits with $175 billion in assets. Obviously the question now becomes liquidity but I think the sky is not yet falling (unless more dominos start to tumble)
I think Yellen is signalling the right approach, frankly. First, the balance between the bank's assets (its loans and the investments it made with depositors money, plus the bank's capital) and its liabilities, is such that SVB has enough holdings to cover nearly all of its deposits. The banks capital (that is its equity, and subordinated debt) should all go toward making depositors whole. That's what bank capital is for. The question then becomes how much of a hole is left in order to make depositors whole? It won't be that big a number, if you assume that the vast majority of the deposits will remain as deposits in whatever bank the Feds find to purchase the corpse of SVB - remember, that SVB failed not because it it had a huge mismatch between liabilities and assets, but because its depositors tried to withdraw all their money all at once - that is because SVB was put in a situation where it had to make good on all its liabilities in a 2 day period. It couldn't do that, because its assets were tied up in loans to other customers which couldn't be instantly recalled, and government bonds which couldn't be sold quickly enough without incurring substantial losses, and its own capital. It became illiquid overnight. But the actual delta between assets and liabilities may well be a few billion dollars, if the deposits are not all yanked out. For the Feds to put up that money as part of a deal to sell SVBs portfolio intact to another bank, makes good sense to me. The right people (investors in the bank) take the haircut, the depositors get their money.
ooc why is unlimited deposit insurance a bad idea? A quick Google search didn't have many results, except some brief articles about section 343 of Dodd Frank (which itself seemed limited in scope).
You and your tax dollars depend on the USD being strong, and global trust in US banks. It's a worthwhile investment for taxpayers to make depositors whole to maintain that trust.
Capitalist society runs on free markets and good regulation. We let SVB bypass good regulation here, and that's our painful learning lesson that needs to be paid for.
> For the Feds to put up that money as part of a deal to sell SVBs portfolio intact to another bank, makes good sense to me
Honest question: why? I.e. why can't the capitalists invested in this business absorb the reasonable haircut? (I assume it's "reasonable" based on the information we have been provided with until now). Depositors (especially those holding more than 250k) were also investors, they were getting back more money than they had put in.
I make a clear distinction between depositors and investors. The holders of the bank's capital - it's equity and and subordinate bond debt, are at-risk investors, and should, as I said in my original post, take a 100% haircut (assuming the bank in fact has fewer assets than liabilities.) But a depositor - who probably was earning negligible interest for parking their cash in the bank - has a reasonable expectation that their deposit is safe in a regulated bank. And the government has an interest in assuring bank customers across the country that ordinary deposits are safe in regulated banks that are adequately capitalized.
SVB catered primarily to businesses - the last thing we need right now is every business worrying about where their bank deposits are. If they do worry, it may trigger more runs as they all try to move their funds to “safer” banks.
Accounts are worth money to a bank even with no balance. Likely if JPM or someone buys the bank people will continue to use those accounts. So yeah someone will fill the hole and their stock price will probably go up because of it
First, the balance between the bank's assets (its loans…)
Keep in mind those loans are largely being paid by SVB customers that are very likely scrambling to make sure they can pay their employees right now.
It’s pretty assured that more SVB loans will be defaulting in the coming weeks than if their depositors didn’t lose access to about half of their money.
Readit News
“Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry?
“This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs.
Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you own stock in a company that goes bankrupt. Claw back executive pay if that's something you can do. But kill a bunch of startups because of their choice of financial institution? I just don't get where that comes from.
Second of all, the purpose of having a limit to FDIC insured deposits is to limit the government's liability in case of bank failures to small-ish depositors. A company thag has millions of dollars to deposit also has more responsibility to evaluate the bank they are depositing in. Perhaps they shouldn't keep money in the bank in the first place, but find other uses for them.
Note that the true FDIC insurance limit is much larger than the 250k that usually gets cited - since there are various facilities for business accounts which can take that up to a million $ or more (multiple signers on the same account, multiple types of accounts). Should be plenty for most startups to pay their employees' salary outright, even without going bankrupt.
Cynicism reigns supreme on social media right now, and HN comments are a type of social media.
There is also a deeply engrained “us versus them” mentality baked into a lot of the anger. The SVB scenario has more people identifying the “us” part as taxpayers (who would presumably foot the bill for backstopping losses) and the “them” part as VCs and investors.
Interestingly, if this was rephrased as an “Ask HN” post where someone was concerned about their next paycheck because their startup’s bank failed, I suspect the sentiment would be completely reversed. The more relatable the story, the kinder the comments.
† (50% of which is outside the of the US, and a majority of which is people who don't work for "big tech", which ironically isn't much at all directly impacted by SVB)
One, anybody with a bank account has heard about the FDIC and the FDIC insurance limits. Presumably anybody smart enough to raise millions of dollars know that if part of something is insured, the rest is uninsured. There are in fact good systemic reasons both for the FDIC to exist and for the limit to be high for individuals but low for companies.
Two, the tech industry, especially the VC-funded end, is forever crowing about the power of the marketplace. How regulation stifles valuable innovation. How government intervention is a problem, not a solution.
Three, among startups, market-driven disruption is practically a religion. Startups destroy existing companies all the time. Quite often it's an explicit goal, where startup X lists existing players A and B as companies whose lunches will get eaten because they are making bad choices.
Four, there has been endless puffery and chest-thumping among VCs and tech startups how their genius justifies pocketing billions and billions of dollars when times are good. Best and brightest, incredibly hard workers, blah blah blah. Including a special tax exemption for VCs, because they're just such amazing financial wizards.
Five, startup go under all the time. Which, having experienced it, definitely sucks. But when a startup goes under due to bad choices or bad luck, that's the game.
So when I put this together, I firmly believe that startups with bad treasury management should not be subsidized by taxpayers. If we're so smart and amazing that we get to reshape segments of the economy, we're smart enough to follow basic financial advice like "don't put all your eggs in one basket". If we choose to play the game that might make us rich, we should not suddenly complain about the rules when we lose.
In practice, the likely outcome here is that depositors either take no haircut or a modest one. Anybody going out of business because of that was already on the edge. And that will be partly because their investors will not see them as worthy of a bridge loan or an accelerated next round.
Which, again, sucks for the people involved. But it's not a problem for taxpayers to solve. If we're going to spend billions of dollars on improving the safety net, I think startups are way, way down the list of priorities.
HN comment quality, thoughtfulness, and etc seems to drop off with higher visibility…. and sadly generally too.
The more visible the more comments resemble Reddit or the god awful knee jerk hot takes you get in local newspaper comment sections :(
It’s a bummer as I’ve enjoyed the generally high comment quality on HN for a long time.
HN has been around awhile and has been a hotbed of the same starry-eyed startup dream for a couple generations of young people getting on the carousel now, so I guess I'm not terribly surprised if the attitude "welcome to the club, we would print you a t-shirt but our printer startup went out of business" shows up around these parts from the folk who have been on the ride awhile.
There are a lot of folks who read HN who had their dream crushed for a lot stupider reasons.
ETA: that is something I'd like to see more of here though. There's a lot of folks who have been through a bust cycle and survived it and even stayed in the industry. What kept you going? How did you come out the other side? Was it as scary as it feels when you haven't done it before?
https://www.youtube.com/watch?v=RrFSO62p0jk
Spoiler alert (18:30): It was entrepreneurship that turned the economy around. Not fed policy.
SVB put their deposits in US Treasury Bonds. Commonly regarded as the safest investment vehicle there is. Then the fed raised interest rates, completely screwing over this strategy. Then VCs panicked, like sheep.
So now we're in a situation where the most successful startups in the innovation sector are at risk of being wiped out while the US economy is being guided toward recession to cool inflation. Go watch that talk- then tell me you really think its a good idea to let it all burn.
Such is life in the free market. Looks like the US government disrupted you. Doesn't mean the US taxpayer has to bail you out.
I'm just a Regular Joe, and I have saving and chequing accounts at two banks in case there's an account discrepancy / disagreement with one, I still have some funds I can pay bills with until things get sorted out. Stuff happens:
* https://en.wikipedia.org/wiki/2012_RBS_Group_computer_system...
I also have a couple of hundred dollars worth of cash (e.g, in case of power outages).
If you're a multi-million dollar operation, why do you have a single point of failure with regards to finances?
(And this has nothing to do with 'deserve': if you play golf during a thunderstorm, would you be surprised if you got zapped?)
On the flip side, I also have worked in startups much of my career, and think I and people like me should be paid for our work. I think we should help the startups out, bail them out, but without helping the VCs. I think what that means is the startups effected should get their money back, but the VC owned shares of the company then become government assets that can be sold in the future to offset the cost of the buyout.
It's simply not right for government money to bail them out, but fornthe VCs to profit from it years from now.
Edited to add: In the end the point I'm trying to make is that it's not right for us to take money from average non-rich Americans to pay back VCs (rich americans) who gambled their money. If the bailout comes from people that earn more than 500k a year exclusively then I'm all for it. But taking public money that was taken from a single mom who is barely getting by to do so is wrong.
The shareholders should lose all of their investment, that is a no-brainer, but the depositors should not lose 1 penny, and their funds be available on Monday morning.
Here's an overlooked deadline: 6:00 PM EST, that is when Sydney (Australia)'s stock market opens. If that opens a lot lower, it will be the start of a free-fall cascade of stock markets worldwide.
So, we have less than 5 hours as of this writing for an official FDIC/Federal Reserve statement.
Wait for it.
I got no dog in this fight(as I'm an Indian, and stay in India). But I guess what they are saying is they don't want to be paying for it. They just want whoever is responsible to make somebody else pay for these problems.
So bailout is ok, they just don't want to pay for it, and may be find other people(VCs, other billionaires) who can invest/bailout that bank on their terms.
I'm in the same position as you but this is a terrible take.
No one thinks we deserve to lose money or jobs.
They simply do not believe that other American taxpayers who likely make less than you should have to spend their hard earned money (or risk having it devalued by printing) in order to bail you out.
And they are broadly correct.
It is wrong to demand other people's money due to your own misfortune, especially when the misfortune is a lost business or job, versus something more existential. The reality is that most tech workers will be fine.
If you want to be paid by the government, you should be aware that salaries are significantly lower, and perks are non-existent.
The government regulates banks and provides deposit insurance to to 250K.
The whole point of deposit insurance is to prevent retail bank runs by the general public.
Beyond that, it is the job of your CFO to manage risks, including the risk bank failure.
The last large wave of bank failures happened barely over a decade ago. These things happen.
Also, it sounds like your company will lose at most a fraction of its deposits.
During a bankruptcy creditors get paid first, and investors are only allowed access to what is left after creditors are paid off. Hopefully a company declares bankruptcy before their total liabilities becomes larger than their total assets, otherwise creditors cannot be paid in full.
Bank bailouts were largely done so banking services are not disrupted. As valuable as SVB was to startups, it's small potatoes to what 2007/2008 bailouts prevented. "Too big to fail" clearly doesn't apply here.
HN has grown a lot and there are much more people who are not necessarily from SV.
In the real world, if you live in SF, work in startups doing what you like, get paid well, not trapped in 9-5 etc.
That's elite and nobody will ever feel sorry for you. As a general rule every guy should always expect nobody to feel sorry for them, but this particular set of circumstances and the area of the country where they unfolded scream 'millionaires problems' to those roaming in the interwebz.
And now HN is part of the interwebz.
Why don’t VCs double down and make their investees whole? They’re the ones who bankroll and believe in these ideas, and stand to make 1000x profits in their successful exits.
If the headline was "California Regional Mutual Bank and Trust fails" (I made up the name, I don't know anything about banking, don't nitpick the terms) it surely would have still been newsworthy because of the size of the bank, but I suspect there would be less vitriol around the situation with the Silicon Valley connotation removed from it.
When a building company, building my house goes bust. The government doesn't step in to get someone to finish building it. When I order goods from a company and it goes bust, the government doesn't step in to ensure I get my goods.
There’s a moral hazard to all choices made in business. Making a choice based on insufficient due diligence is a hazard. Chasing higher rewards at higher risk is a hazard. Are you saying the government should indemnify businesses for their choices?
My understanding is that SVB avoided some restrictions placed on other banks. It’s not clear to me the why’s and wherefor’s of this but there are only two options. Either malfeasance on the part of SVB, or ignorance/risk-taking on the part of the customers.
The scahdenfreude I believe comes because it’s assumed many customers would be from the “this time it’s different” school of business, in which case there’s a lesson akin to caveat emptor begging to be learnt.
I am suggesting that your CEO not adequately insuring the companies bank deposit is negligent. If your CEO does not insure your HQ against fire, and it burns down, should it be bailed out by the government just so that you're not out of a job? Or is it not their fault that the CEO didn't use a "well-reputed landlord with adequate fire suppression?"
Everyone agrees that shareholders and bondholders should we wiped out. Everyone agrees that deposits under 250k can and will be made whole due to FDIC. The disagreement if there is one is the 250k+, why should there be an exception just because these are tech startups?
Sorry to hear about your situation I really am. I'm personally in the camp that we as a collective country have made bad fiscal choices knowingly or unknowingly. It's time to start paying for these choices and stop looking to others else we drown in these bad choices.
I also felt differently about money when I was 25, because obviously I didn't have any. There was no way I could have any, because I had only been working for a few years (and junior devs were paid a lot less in those days). It seems like it would have been easy to be jealous of rich people at 25. Or just jealous of startup-employees who, judging by HN posts (/s), are all making 400k/year. In fact, I think some HN posts have claimed junior dev salaries more than what I was making after 20 years in the industry, which I could see might lead to some jealousy. Particularly if combined with a lack of perspective.
Why did I have to learn my lesson about the flawed system and the acceptance of tough luck, but politically-connected people didn't?
What we have today is a 2-class society.
It's the word of law above all... Unless you're politically connected; then suddenly the word of law yields to common sense.
1. Decision makers (the equity holders).
2. Active enablers (eg, certain creditors, possibly management).
3. Passive enablers (eg, other creditors, the startups who held money in the bank).
4. Bystanders (eg, taxpayers).
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Why should I lose my money because I bought the stock of "a well-reputed bank"?
I, too, have worked for startups much of my life. Sometimes you show up for work one day and the doors are locked because the place is done. It is part of the deal. There are lots of reasons this can occur - hey, we just couldn't close another round, the economy hit a speed bump, etc. 2008 happened. Worldcom and Cable and Wireless just declared bankruptcy and they were our lead customers. etc. It is part of the startup cycle.
If something like this this had managed to kill AirBnb, Uber and Lyft before they did the damage they did, the world would be better off.
YEARS of disinformation about "Personal Responsibility" and not a lot of critical thinking in the interim. I'm not specifically talking about the parent comment.
Your point is sound and seems obvious to me. I also spent several years studying and fighting coordinated inauthentic content its effects on the brain. Whether coordinated or not, hearing the same message over and over again gets internalized such that it becomes reflexive to parrot.
What happens when you give every single high school senior $1000 scholarship to read Ayn Rand? What happens in a society when hyper-capitalists, their politicians, and their media narratives leave no room to consider things that are beautiful and human? What happens when STEM education starves all of the humanities of oxygen?
If it isn't this, I don't know what it is, but we're all about to find out.
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Also, I don't think people in SV appreciate how much rancor and resentment their behavior has generated in the last fifteen years.
I don't see this as a fair statement. There is a difference between killing a startup and letting it die.
Zero interest-rate policy allowed for the creation of investors and startups that never had to think about the realities of managing cash.
Using FDIC insurance to keep them afloat is acceptable. Anything beyond that is silly.
Because you want to take my money, and your justification for wanting my money is simply “My company made a mistake.”
That didn’t have an investment grade rating, where $250k comes out of taxpayer coffers Monday morning, and where everyone has unemployment insurance? Yes.
The assets of the bank should go to your company first. But the public purse should not be opened.
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First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of a traditional bank it usually wouldn’t hit them hard since most funds are FDIC insured.
I can imagine being incensed about stockholders and debt holders being made whole, if that were to happen - since then people would learn the wrong lesson here. But nobody think that’s going to happen.
If depositors aren’t protected, then it’s going to have a lot of downstream impacts (people won’t make payroll, and employees who have no responsibility won’t get paid). And again, it’s not like folks who chose were gambling with a shady bank to get high interest rates, in many ways SVB was considered the least risky and most conservative bank to use as a startup. At least that’s why we chose it.
Note, one of the SVB executives was the former Lehman Brothers CFO in 2007, just one year prior to that institution’s collapse in 2008. What did he learn, exactly, besides how to get out in time?
https://www.foxbusiness.com/economy/silicon-valley-bank-exec...
But doesn't that hold true for basically every situation where private companies lose money?
If my employer goes bust, then there is also downstream impact. FAANG laying off workers also has a lot of downstream impact.
That VCs forced the small companies to operate in less safe way and gave them bad advice is 100% fault of these. I do not know why it was so, but this really seems like the case of "we want benefits of minimal regulation and getting better protection then everyone else gets from the goverment".
It does rubs people wrong when you are all about disruption and regulation bad, but first thing you do in case of failure is governmental bail out for large accounts.
I think most of America can’t even imagine having over $250k in an account. So people with this much wealth asking for a bailout is literally rich people asking for coverage because they did something dumb (banked with a bad bank, didn’t account for risk, didn’t insure, didn’t manage funds).
It’s not hate so much as it’s apathy and surprise as the ask for money. It’s like those millionaires who wept because they lost money with Madoff and they wanted the payout for all their earnings they had “made” over the years.
The rest of America hates Silicon Valley like they hate Wall Street
If depositors with deposits above the FDIC insurance limit _are_ protected then there will be nothing stopping this from happening repeatedly in the future. Depositors that exceed the FDIC insurance limit should be taking a haircut so they learn to do better risk analysis of their bank or purchase auxiliary deposit insurance on their assets at a bank or both. VCs/investors in the companies whose deposits exceed the FDIC insurance limit should take a bath for pushing one specific bank with bad risk management. (How this fact escaped VCs/investors is beyond me. I'm not a risk manager or investment manager by any stretch of the imagination but even I would recognize that investment in long-term near-0% bonds would have nowhere to go but down.)
When Netflix started sacking animators and animation studios to use AI startups instead, there are downstream impacts.
When bookstores shut up shop because of Amazon there were downstream impacts.
When Dell and HP lay people off because it's hard to sell against Azure and AWS, there are downstream impacts.
You're going to have a hard time arguing that the sector responsible for disrupting others' live deserves special consideration beyond what already exists - FDIC plus liquidated assets with a likely haircut - particularly when those companies appear to have been mismanaging their own money.
Well if you want to go down to the nitty gritty of it, depositors are competitors for stuff, especially in San Jose and San Francisco where every square inch of stuff (any stuff) is super-expensive.
The ones complaining and taking time to argue against any involvement of govt. in SVB are people and institutions who didn't hold any funds in SVB but think or have reason to think that their competitors do
This gets repeated over and over, but just like depositors have the highest priority to a failed bank's assets, so do employees of any failed company.
So, if a company goes bankrupt because it can't access funds stored with a bank, first stockholders would get wiped out, then debt holders, and only then employees (when talking about salaries already owed - of course, the company can fire staff to try to avoid bankruptcy).
I'm not at all passionate about the depositors. I dislike them but understand that screwing them would ripple across the entire world. I dislike banks and corporations but having many/most suddenly bankrupt would not serve me.
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I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth.
And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of their deposits back, because the remaining assets might not cover all of the deposits, or it might take a while to recover the deposits.
And that is what people are against.
Anyone spouting this kind of rhetoric isn't helping matters, but in any case when it comes to this situation there are really well-defined mechanisms for making depositors whole without bailouts.
It’s absolutely in the interest of the greater economy to have a functioning banking system backing high risk/high reward activities like Silicon Valley. And charge the risk appropriately high fees, of course. SV has been a very bright spot in the economy for several decades now - through thick and thin.
If anything, it’s a lesson about how assets should be accounted for in corporate statements. It’s also a statement that the perception of SV is a little sour and could use some reflection. Maybe look for ways to better engage the rest of the community and figure out where resentment stems. (I’d guess calling large swaths of the US “fly over country”, charging high prices, and other consumer feedback involved.)
If someone’s bank goes bust they can loose a much larger proportion of their wealth. Often causing them to go bust, causing more bankruptcies and job losses.
Governments act as insurer of last resort for most bank defaults, because the confidence of the banking system and money is integral to the countries existence.
I still think they will get away with bailing out several banks that will otherwise fall hence the system. Via means that adhere to whatever rules were put in place.
the creditors then take a haircut. It's basic bankruptcy.
What people oppose is taxpayers absorbing the losses beyond $250 000 as promised, and there's a very good reason for this: its another example of privatizing profits and socializing losses. In other words, it encourages risky behavior because they're gambling with the house's money.
Some argue, and they have an excellent point that if SVB's creditors aren't bailed out it could trigger a contagion. Thats a formidable risk. However, we already did mass banking sector bailout less than 15 years ago and it turns out all it did was incentivize irresponsible behavior.
I'd also be in favor of the feds helping to orchestrate a bailout by getting purchased by another bank/banks, or doing whatever it takes to get depositors access to as much of their money as quickly as possible.
But all this does is incentivize "if you're going to blow up, make sure you threaten the whole economy so you can use hostage tactics to get a payout." The feds wouldn't be doing shit if this were some small bank with no contagion risk.
And the political cronyism of this, on both sides, is nauseating. There was a tweet thread by a startup founder from Ohio, basically making the argument "I'm a small business owner from middle America Ohio, not some fat cat Silicon Valley tech bro." To be clear, absolutely nothing against her for posting this (on the contrary, she actually sounded pretty amazing with how she founded her business), but it sucks that she has to play this "Hey, I'm in your tribe too, I'm not a member of that evil other tribe" in order to curry favor with the political class to get a bailout.
But by not bailing them out, you're punishing the depositors, which I wouldn't exactly characterize as "gambling with the house's money".
Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut.
> “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds.
> Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs.
On the flip side, there's nothing special about many of the customers being small businesses, or startups, or big businesses, or really anything else. There's established rules for FDIC insurance and that's what we should be following.
FDIC limit should be way higher anyway (when was the last time it was raised?) but if we allow depositors to lose money it will quickly cause a stampede to the handful of huge banks and drive smaller regional banks out of business. That’s why other bank stocks are also plummeting right now. Is that what you want?
If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild?
For the record I believe SVB shareholders and debt holders will get wiped out, as they should.
From the FDIC’s site:
> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits.
For simplicities sake, let’s just assume 100% of the assets are actually there, but it’ll just take varying years for everything to mature. So, what’s next? FDIC finds a buyer for the assets, perhaps a private bank or a a pseudo-government body who has the ability to wait till maturity, and in the meantime, everyone gets all their deposits. That’s not a “bailout”, and is following the rules.
It makes sense to make depositors whole, they’re innocent here. It doesn’t make sense to make SVB whole for managing their risk poorly.
No. The feds aren't giving anyone fed money, they're selling SVB's assets and giving the people they owe their own money back. There isn't enough money to give everyone 100% back, so they won't be getting 100% back. There's no extra government money making anyone "whole". They're just winding down the assets so they don't all get stolen like FTX.
5% seems like the right balance between the two extremes.
Companies and people should pay a small penalty.
At the same time, we shouldn’t rock the financial system further. We need to have confidence in the system.
After this, the government should make new regulations to prevent this scenario from happening again.
For those wishing to just follow existing rules exactly as is, bear in mind that a contagion will likely reach your personal finances.
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I’m surprised to hear this perspective.
I think most people understand a bailout as cash injection. Not that you get more than what the government insures.
If it were the latter then bailouts happen all the time without bank failures or FDIC takeovers (all transfer > 250k).
The last I saw from Moody's was they're expecting "eighty-something" percent recovery rate, assuming no bailout or rule flexibility and no last minute forced merger.
This isn't like FTX where all the money is gone and ha ha you're not getting a penny of it back, ever. The SVB situation is a hyper regulated industry and the regulators flipped out when the asset ratio dropped below 95% or something like that, and as such, there will be inevitable expenses of a total shutdown, so figure everyone below $250K gets 100% back via insurance and everyone else gets $250K plus whatever was above $250K paid out at probably around eighty five percent when its all said and done (this is a guess although Moody's usually isn't all that wrong).
Historically when smaller banks collapsed (my hometown bank for example back in '08) the regulators semi-forcibly merge the small bank into a large bank and there's zero loss, you're just magically now a customer of some out of town megabank. The big bank eats the loss in a wink-and-nod agreement where the big bank gets some future favorable regulatory treatment in exchange, semi-informally. The problem with SVB is it is, or was, huge. So finding a huger bank to merge with will be tricky to impossible. Which was kind of the point of regulation intended to keep competition higher by making lots of small banks instead of few large ones.
The worst case outcome according to the last I saw from Moodys was big depositors will take maybe a fifteen percent haircut over $250K. The propaganda claims, of course, that all the money is gone and its 1933 again on Monday morning and the usual workers of the world unite stuff. But its not really THAT bad.
Idle speculation I've seen in chats that the solution to SVB being way too f-ing huge to merge with anyone is a forcible separation followed by a forcible multi-merge. So each 1/4 of you will be new customers with 100% rate of return of JP, BoA, Citi, and WF respectively. (off the top of my head those are the four largest banks by assets, I could be wrong) This is just internet chat nonsense I wouldn't plan on it. Although it is an innovative solution to having a "too big to fail" bank failure.
There's some of this, for sure. But there's an equivalent screeching from the tech finance world[1] demanding a full government guarantee. That ain't happening, and I think it's appropriate for the fed to make that clear.
FWIW: the dirty secret here is likely that there's a bunch of internal dealing going on as regards SVB. They were The Startup Bank for some reason, it's not random. And my guess is that we'll discover that a whole lot of big venture players turn out to be extremely exposed[2] to an SVB failure. A lot of VCs are probably losing their shirts here.
[1] Jason Calacanis's caps lock has been stuck down since Friday.
[2] Or worse. Genuine fraud has turned up in previous FDIC seizures. But no evidence exists right now.
To me, it sounds like SVB cut a lot of corners and SV customers enjoyed advantages of some of these cut corners.
I am deeply sympathetic to people who may not get paid for a while, or have their startups go under. That said, there are precise laws covering what the FDIC can and can not do. I think the general public is tired of very connected people and companies getting special treatment.
There is certainly a danger of contagion, of regional banks taking a hit, by being compared to SVB, but that does not change my opinion, and I certainly will not stop doing business with two relatively small Credit Unions in my state.
Bailing out the Peter Thiel’s of the world is not something that should be swept under the rug.
It's good for those "businesses" if VC and Big Tech are unharmed because were it not for VC investment and Big Tech acquisitions, these "companies" would have no money to pay the people who "work" at them.
Legitimate businesses that can pay employees from revenues and generate profits are generally not SVB's customers. They can use normal banks.
Arguably a "job" that depends on interest rates being "zero" and investors writing checks cover payroll is not something anyone should be relying on longterm.
"Generic screeching against the tech world" is a red herring. Perhaps it is easy for "tech" companies to dish out hype but difficult for them to accept any negative commentary. The question that must be considered is whether the "tech" company's so-called "business model" really is one. Arguably these "companies" never had a successful business model and never found one, if they remain reliant on VC, SVB and Big Tech. Intermediaries, surveillance, data collection, advertising services, all purely parasitic activity. If this is not something the world really needs and is willing to pay for, entities like SVB and their customers will burn out or fade away.
Big Tech fans commenting on HN have used the phrase, "The market has spoken" in the past to foreclose any debate on the merits of the so-called "tech" industry. Well, here the market is speaking.
if you buy an expensive house or car you generally pay a lot more to insure that asset. not sure why people don’t think of buying insurance on their bank deposits in the same way if you find yourself in a situation where you need to hold much more than $250k in one account for whatever reason.
But even if you’re an individual holding million in cash (and for whatever reason it is not invested), it isn’t exactly difficult to open 10 checking + savings accounts and putting $250k each. In fact that is the prudent thing to do.
However, the simple option here is to put money into short term govt bonds, there are ETFs like SGOV that make this extremely easy.
Even more ridiculous is that you are getting 4-5% yield on them.
This is what is so crazy about this entire saga - people should not be parking millions upon millions at a bank earning no interest when you could be getting 4-5%+ - regardless of solvency issues.
It is frightening to me people don't seem to understand this. It's absolutely basic money management. It would be more understandable when interest rates were basically 0 and you wouldn't get any yields from bonds. But that isn't the case and hasn't been the case for a long time now.
Now clearly SVB were offering perks for doing this, but say you had $100m parked there, are those perks really worth $5m/year? People should have been asking that. It's a whole team of engineers paid for!
And really offering personal perks to founders contingent on company money doesn't sit completely right with me, unless the founder owns 100% of the equity which most do not. It's one thing offering perks as goodwill but putting convents etc on company money for personal perks is suspect to me.
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And, yes, opening ten checking accounts is difficult and inconvenient.
The issue here is not about whether the government should seize SVB assets rather than return them to depositors. Hopefully no one is arguing for that.
(The issue is about what the government should do -- if anything -- about (1) shortfalls depositors may face; (2) delays depositors may face in accessing the funds that do remain.)
The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. Any scenario where uninsured depositors end up with all their money back is likely to be a bailout.
No, SVB is in receivership because they can make their depositors whole right now. They have most of the assets, it’s just that liquidating them immediately would result in losses far greater than SVB can afford, but that’s what a bank run demands.
The feds can take over, make depositors whole now by funding deposits from federal funds, while taking on SVBs assets and liquidating them on a timeline that maximises the value, ideally a value that covers all depositor funds.
In effect the feds provide a loan to SVB depositors, backed by SVB assets. Which is far better than either forcing the FDIC to actually payout the insured amount, because depositors get their funds, and the fed avoid having to handover cash to SVB to keep them afloat. Meanwhile shareholders take a bath, because their shareholding value drops to zero.
what we are saying is this should ONLY use the assets SVB has. Nothing more.
I’m not sure why y’all keep making a strawman to fight this.
1) anything beyond 250k is a known risk, you should’ve spread the money around.
2) why should tax payers be on the hook for more than the 250k amount? The companies took the risk and lost.
But if everyone spread their money around and kept each account less than 250k. Then in effect isn’t everyone insured for everything anyways?
Imagine there is a service that seamlessly took your total amount and spread it between various accounts for you to keep each account balance less than 250k. Now the totality of bank deposits are in effect all 100% insured. How is this now different from insuring all deposits regardless of size besides adding a middleman?
Depositors will get their insured money on monday. The FDIC will then dispose of all the banks assets and return the proceeds to its creditors, that is depositors.
Calling for the government to guarantee all deposits unconditionally is exactly calling for a bailout. Calling for the government to follow it's own laws and procedures as usual is redundant.
For the record I hope SVB gets taken over and depositors are made whole quickly but I think as an industry we are overestimating our political capital.
I think the question now is whether a bailout would provide better ROI to the US economy than no bailout.
Yellen seems to think the ROI is worth it.
We don’t want to erode global trust in US banks and dollars do we?
People implying other things probably don't really understand how banks work.
There’s a procedure to handle this, including dispersing the assets:
“The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
https://www.theguardian.com/business/2023/mar/11/silicon-val...
https://archive.is/aSx6E
The VCs whose money those startups are built upon, have connections to this bank. This entire back acted like some VC venture, with explicit design of taking the risk of zero return.
0 dollars should be given to depositors. Absolutely zero. These griefters learned how to use the common people as meat shields. It's the CFO of Lehman brothers. Let the VCs who supported this lose their investments and be forced to raise money now. If those businesses are worth something, investors will buy them. Let the VCs who gave bad advice be wiped clean from the investment. Their choices led to this.
I thought the argument some were making is that depositors should be guaranteed up to $250k and then get a proportionate share of whatever’s left (which is not zero!)
From the broader public's perception, you're splitting hairs. The gov - at taxpayer's expense - *are* ______ing* depositors with deposits over $250k. Depositors who are well aware of the limits of what's covered. Depositors with more advisors than most taxpayers have bank accounts.
Capable and well educated people made poor decisions. Why is The Nanny State the solution? Again??
* call it what you want, but it's special treatment of the very well to do.
The FDIC isn't funded by the government. FDIC runs and provides this insurance by premiums paid by banks.
No taxpayer money is going into SVB.
https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
> The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding.
> When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides.
We are still currently at "using premiums" and moving into "liquidating bank assets".
1. There should be no bailout.
2. The bank had a ton of assets and those assets still belong to the depositors.
3. The depositors shouldn't necessarily be made whole beyond their $250,000 insured amount, but denying them the bank deposits is also wrong. Getting 80 cents on the dollar for their deposits seems completely fine for example, or whatever that number turns out to be based on remaining assets.
4. Nothing is deserved to the bank owners/shareholders. If there happens to be more assets than there was deposits, then this money can go to owners/shareholders.
I notice several articles and threads derailing into conflations of semantic arguments around what a bailout is with specifics of the topic.
This is a trend (and, I suspect, tactic) on other topics and it only serves polarization. Try to not fall into this trap. It can be possible to call it out in a way which does not further derail the conversation.
(Saying it's a trend does not mean it's merely a recent thing BTW)
https://en.wikipedia.org/wiki/Weasel_word
https://en.wikipedia.org/wiki/Equivocation
https://en.wikipedia.org/wiki/Essentially_contested_concept
https://en.wikipedia.org/wiki/Persuasive_definition
Whether the statement "this is a bailout" is true or not is actually irrelevant.
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If the tech community reaction was "wow, this sucks, we're going to have to manage a lot of crap" the general reaction would be very sympathetic.
But when the consensus position is "gimme money to cover my mistake", I have to say "no" rather than "geez, that's terrible".
https://www.youtube.com/watch?v=CEee7dAk25c
"No bailouts!"
Nobody has been (seriously) talking about them. Shareholders in SVB are toast 100%. Debtors too probably.
"We should nationalize banks that fail!"
That's basically what receivership is. We just don't call it nationalizing because the government just wants to make depositors whole and then get their hands out of the pie.
"We need more (or less) regulation!"
The FDIC stepping in right now - where it appears the bank is solvent but can't satisfy liquidity requirements - is exactly when it should. SVB as a business failed but (it appears) depositors are being made whole by the sale of the banks assets. The system appears to have worked while also not cutting the bank prematurely (nobody seems to be complaining that SVB wasnt in major trouble).
Yes this is exactly what I support should happen. The remaining assets can of course be used towards depositors (even beyond $250k FDIC insure). But beyond that, tough luck. In our American systems thousands, millions of people and small businesses fail and the answer is "tough luck". Their failure is too small for anyone to care. But when big banks fail government helps them, which is how this is seen as. If you have more than $250k in a bank account sitting somewhere, you're objective not destitute and you objectively do not need tax money to help you out any further. So, yes "tough luck".
This is not depositors fault, but it's also not tax payers fault. A bailout is a bailout. If depositors are bailed out, it is still a bailout.
To me such statements feel like - either you are with me or against the humanity. Of course, the government should not gobble the money that belongs to the depositors and the fund should be distributed fairly to the depositors post liquidation. But making whole the deposits through the tax payers money will not be right. This is a business failure and what is insured is only what is guaranteed to be paid back. That is the risk business take when they engage in such transactions.
Individuals who had more than $250k sitting in bank account must be well-off and prudent enough to decipher the FDIC insurance limit.
My understanding of what I’ve seen people mention is that depositors shouldn’t get more than the insured 250k from the FDIC insurance fund, not that bank assets shouldn’t be used to make depositors whole.
This sentiment doesn’t come out of nowhere. There have been a few panicked and very angry VCs on social media effectively calling for an immediate and retroactive increase in the limit for FDIC-insured funds.
Essentially there are some folks that want the government to step in to make depositors whole will leaving bank assets to be divvied up to make investors whole.
Some folks see this crisis and immediately jump to “how can I take maximum personal advantage?” It is those people that are creating confusion and pushback wrt the FDIC’s involvement here.
Commentator can only rail against "the tech world" in this instance if they've failed to grasp that supporting large depositor here this isn't a tech world issue but a financial system issue. And that goes with a generally decline in how knowledgeable the average HN commentator is.
At this point, large bank deposits are implicitly guaranteed and if one pulls that away, the world's financial system would likely fall apart. You can argue this system is terrible and talk about how to change but no one who knows the impact of this stuff want "1929 on steroids" and neither is anyone with power going to implement it.
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FDIC pays out the $250,000 insurance to SVB depositor accounts. FDIC recoups those costs from the SVB assets, and then pays out depositor account holders as much % as possible from liquidating the remaining SVB assets. It sounds like the latter will be disbursed in several increments as the assets are liquidated. All of that assuming no buyer by Monday.
If there is anything left after depositors are made while, then that might go to shareholders.
Did the depositors (we're talking companies here) not know that the FDIC limit was $250K? If they did, why didn't they hedge accordingly by opening accounts at other banks? Was this not an unreasonable expectation of a company to do?
If I did the same thing, would I expect the government to cover the difference between the asset sale value and the insured amount?
On the other hand, if the bank had sufficient assets to make their depositors whole, how did they fail in the first place?
This is nowhere near the truth.
If it was, then actual shareholders would recover at least $250,000 from their investment. As it stands, shareholders are poised to recover pretty much nothing.
Except shareholders suffered massive or total losses in 2008, such as AIG or Washington Mutual, despite it being a bailout. A bailout means all depositors are made whole, not the shareholders.
1: https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#....
It's a the perfect opportunity to be angry at a group; in this case "tech bros", VCs, and anyone attached to Silicon Valley. Hey, it is right there in the name of the bank!
The usual suspects have been trying to frame it in terms of the regular old startup workers that will be affected.
But what about these entrepreneurs, the taxi drivers who were completely fucked by the onslaught of Uber and Lyft using financial engineering to lose money on each ride and undercut their livelihood:
https://www.nytimes.com/2019/12/23/nyregion/nyc-taxi-suicide...
Or these ones, who saw VC funded delivery services stealing their tips:
https://www.nbcnews.com/business/business-news/why-instacart...
And so on. We would also like to see social media held accountable for the harms done to children and communities and for our existing laws against anti-competitive behavior and collusion to be enforced against search and software platforms.
The chutzpah of the Silicon Valley influencer crowd over this weekend has become seriously fucking unbearable. My feeds are full of sociopathic libertarians calling for government to make sure they never suffer any consequences for their failure to adequately manage risk?
Many of the people expressing this frustration are in favor of having the government heavily involved in preventing this kind of thing and helping if it ends up happening.
But if we’re going to regulate let’s fucking regulate.
To the tech people unhappy with screeching my reply is that there is nothing special about your humanity here. Your lives aren’t more important than the lives of the children of employees at the Carrier plant in Indianapolis, or the workers at the Amazon faculty on Staten Island.
If your values system only applies to you and your friends it’s not much of a values system.
I would say that medallion holders, those with enough capital to pay the almost million dollars a license was running for around 2010, were the ones getting screwed. And if you ask me, I would compare them to whomever invested in SVB. Those will not get their money back.
But then wait. Zoom out. The former system did too. The new companies disrupted the absurd, customer-hostile, worker-hostile, cartel-like monopolies those legacy industries had evolved into. Did you ever try getting a taxi in any US city besides Manhattan — not even the rest of NYC — before Uber? It was expensive, frustrating, and completely lacking in integrity.
I remember calling taxis to go the airport in SF before Uber existed and nearly missing my flight on multiple occasions because the government-granted taxi monopoly I ordered from the day before just never showed up at 5am, and oh by the way the company is closed at 5am, so wouldn't answer the phone, but would still try to charge you and tell you you missed your taxi when it showed up and hour late while you were cussing them out the entire drive to the airport in your own car so you could pay the airport parking monopoly absurd rates so you didn't miss your flight. Yep, I want that system back.
Taxis were absolutely terrible before Uber, and they only benefitted taxi companies, the banks that financed them, and then maybe in some cases taxi drivers. Frankly, fuck those old taxi companies. Good riddens.
This is the nature of disruption. Entrepreneurs have a negative experience with an entrenched industry, have a lightbulb moment, raise some money (or not — that path actually exists, though it isn't often discussed here), disrupt the often terrible old industry and create a new market, dominate the new market, and then often stop innovating and focus on keeping out competitors and protecting their rents. Then the cycle repeats.
The disruption cycle existed before Silicon Valley VCs got involved. It is happening right now to Silicon Valley-fueled (and -fueler) Google and (Silicon Valley-fueled) AI LLM chatbots. Google once seemed unstoppable, and suddenly people, including apparently Google, think it's vulnerable. It happened with the iPhone and Nokia and Blackberry! Yet no one will stand up for the poor candy bar phone designers, or soon the poor AdWords salespeople, because something much newer and ostensibly better has come along.
It's literally a tale as old as time, though like any historic cycle it is on increasingly shorter timelines. Protectionist, rent-seeking, and in some cases full-on colluding legacy industries merely try to keep their grip on the market through their own forms of financial and political engineering rather than seeking to innovate on their own.
So the quaint pastoral notion of the innocent taxi companies being obliterated before terrible Uber came along is just flat out wrong. They knew that they were rent-seeking, they knew they could innovate, and they just didn't fix it. Even after Uber came out, for many years they sought — are still seeking? — to defend themselves rather than create a better customer and worker experience.
As for, "if we’re going to regulate let's fucking regulate," that is actually what gets us the entrenched industries described above. Which "we" might collectively agree we want in some cases. We just need to be aware of what the second-order and beyond consequences of that regulation are likely to be. If we regulate in response to this, it is might result in the mega banks taking over smaller ones, continuing the consolidation and obliterating more local banks like SVB.
Or perhaps what you are saying is let's establish regulations where we place the depositors' rights above the rights of the banks? Where we separate investment banking from "consumer" banking again? I agree. And also, good luck with that! It also has second-order and beyond consequences which also could suck. Careful hat you wish for.
I 100% agree with you about the chutzpah level being really annoying! I also like your comments about the groups of workers adversely affected in the past.
Not sure to whom you’re referring, but they’re not libertarians.
Move fast and break things, banking edition. Can I sign something somewhere to opt out of responsibility for these kind of things?
This is why direct democracy can't work for long. The average voter has a hazy and sometimes downright broken model of reality. I don't know how else to describe someone who wants to get back at Facebook by ganking the paycheck of some engineer at a 10 person startup.
The majority of people in the world don't have those connections or opportunities, so there's definitely hate.
No one seriously thinks there’s only $250K/client available. People are saying the same thing you are, just gleefully.
If depositors see strong signs of support they won’t run. They may very well be saving other banks without even having to deal with them with this move. No bank can survive a bank run beyond a certain point.
It would be a bailout of SVB shareholders if shareholders got their money back. But its a bailout of someone in any case.
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Framing bailout with a different word like 'make whole' does not make it not a bailout. The bank played with those people's deposits and screwed it up. Rescuing all the deposits would just exonerate the bank of all its wrongdoing and set a bad precedent. "There are no repercussions for bad business management".
Per capitalist philosophy, the bank should sink, along with whatever deposit was in there - "Buyer beware". If you dont agree with that principle, it means that you are not subscribing to capitalism, but to social democracy in which capitalist principles are overridden by socialist principles to protect the public. And the moment you go that way, you open the door for questioning a lot of the setup that rules the modern economy.
Why do you think that? There is no axiom of "capitalist philosophy" that says "when one party screws up all parties must maximally feel the pain".
There is a framework for unwinding these sorts of things. Depositor agreements as well as the relevant regulations and laws regarding business agreements and contracts are all part of the "capitalist philosophy".
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The entire business world could use a hard lesson here
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Ironically most small to mid non tech businesses will be just fine.
“This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
If the bank had sufficient assets to make all depositors whole the FDIC wouldn’t have stepped in. It doesn’t.
I assume, then, you agree uninsured deposits ought to take a haircut proportional to the shortfall?
If so, you have the same position as all the “salty” posters.
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But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enough assets to cover the liabilities (deposits), but its tied up in such long term investments that it could take a long time to get it out.
But moreso, when we invest in companies, we deep down know there is a possibility of the investment going to 0. We often don't think when I put money in a bank it can go belly up, this would obviously hurt the trust in our banking environment if depositors not made whole.
Also the term "too big to fail" comes to mind. Isolated risk vs systemic risk. Which one is it now? We can have opinions but Yellen may have more informed data about the gravity of the situation. It does make sense for governments to intervene in systemic risks such as this and covid.
It makes sense that they’ll make depositors whole before even thinking about the rest. From the top of that page:
“ All depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
It’s almost certainly not going to come to that in this case as the normal fdic playbook will work but the federal government has a history of taking action when extraordinary bank failures happen.
https://www.americanbanker.com/opinion/will-fdic-keep-protec...
Yes. Anything else?
You let one bank collapse, OK. If the collapse causes other banks to collapse then it's bad. When WalMart, Costco can't transfer money to fill shelves, people go hungry. When people can't get their wages, they go hungry.
I’m not sure exactly what Yellen is proposing (I only subscribe to print FT so no access), but it seems like special treatment for the well connected on Sandhill Road.
If it's a question of rigid legality that also doesn't make sense to me, because from what I remember from 2008 was the government's legal options were incredibly widespread.
The FDIC amount is a minimum, not a maximum.
But I agree, college loans should not be forgiven past what is legally available ($0).
Also, you are talking about a major banking collapse if people start thinking that their deposits aren't safe. (a lot of people will start pulling money, even if under 250k). There are so many irrational people out there...
edit: I guess somewhere in what I said was confusing, I was referring to past fails where most deposits were likely well under the 250k. NOT SVB where the vast majority were well above that threshold.
Funny how language is being used to frame all this. For depositors it's made whole, not bailed out, when of course it's no less a bail out.
And because we're not really bailing out depositors. The FDIC is just doing its best to make sure depositors take precedence over bank shareholders, which is as it should be.
Sure, you could let Roku lose a half billion dollars, but it's not their fault SVB couldn't meet its obligations. They didn't invest in the bank. Placing your money in a bank should not be a gamble.
When you purchase stock in a bank, there is a reasonable expectation that your investment could lose value.
When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back.
You can certainly argue that the expectation isn't fair, but I'm pretty confident it's nearly universal.
The insured amount is absolutely guaranteed. However, it's still standard for a failed bank to make it's depositors whole.
I don't have sources, but data I've seen indicates of the nearly 600 bank failures since 2000, few, if any, have resulted in a loss of deposits.
----
Put another way. Most employees don't have contractual obligations to receive severance. However, it's culturally expected that businesses performing layoffs will offer severance. Those who don't risk people not coming to work for them.\
Same situation in the US. The USD and it's banking system is seen as incredibly stable and robust. When chinks start to form, it raises concern and people might start looking to bank in other currencies.
The quote in the rather short article is:
> “But we are concerned about depositors, and we’re focused on trying to meet their needs.”
I don't think "trying to meet their needs" is the same as ensuring they will "be made whole".
The biggest issues around people with uninsured accounts (the vast majority) is both how much and how long. This will be a mess if either the amount is significantly less than "whole" or if the time to be made whole takes months not days.
If anybody gets an extra penny more than $250K from the Feds than that is by definition a bailout.
> But moreso, when we invest in companies, we deep down know there is a possibility of the investment going to 0. We often don't think when I put money in a bank it can go belly up, this would obviously hurt the trust in our banking environment if depositors not made whole.
FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.
And who knows what perks, direct or indirect, those depositors were getting for having that cash at SVB?
Whether it’s stupidity or greed doesn’t matter. No hand outs.
Let’s think about the risk of “morale hazard” in these case: Bail out the shareholders: we can throw more money into the stock and never lose money! Risk free returns, I better pump this bubble up! Bail out depositors: I feel safe having my money in a reputable bank! I can operate my business and pay vendors/employees, I can keep doing my job without interruption.
Bailing out one group makes them greedy, bailing out the other makes them productive.
This is not old testament judgement, this is a financial war and our gov has to use every appropriate tool to fight it.
I think we should really not forget that SVB hit duration risk on their assets that is almost definitionally not an issue for the FDIC. This isn’t “bank fell apart due to bad loans” this is “bank fell apart because money is locked away for 10 years but is basically guaranteed”.
Basically no risk to taxpayers!
I think this is naive. The FDIC or some government entity is in a pretty reasonable position to take on the longer duration assets that appear to have brought down SVB. If they hold those assets to maturity then everything is fine, and they can return deposits today if necessary because they don't need to sell assets to generate cash.
I hope you realize FDIC insurance isn’t even guaranteed to be $250k. The FDIC is funded by member fees and can only cover a very small amount of “insured” losses. If it goes beyond that, depositors would need a bailout.
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If all depositors are made whole at no cost to them then there is no incentive to avoid a repeat.
Remember that those depositors are not random members in the public, their are insiders of the SV microcosm.
Why in 2023 after other similar events is this special?
Accounts are insured to the specifed limit. That applies to all of us. Full stop.
What (read: who) makes this a special case in need of special treatment?
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Whatever the government decides to do, this makes the VC and startup industry look really weak and entitled, and knocks them down from risk takers building the future to the same status as a bunch of bankers looking for a handout.
There was an opportunity here for VCs with lots of clout, YC included, to come up with a private solution to backstop this. It would have shown independence, maturity, and that more government oversight and intervention is not needed. That adults can take care of themselves.
Instead they went whining to the government, made a petition, tweeted sadly, and whatever else. It's unbecoming of an industry that's supposed to be scrappy and have an appetite for risk.
We can talk about a depositor bailout if you want, but let’s not pretend it’s the same thing, not pretend it’s what the term “bailout” commonly refers to.
To call this action anything other than "bailout" is to mince words, plain and simple.
In terms of discussing risk, startups should minimize all risks possible because their core risk is to find a business model and product that works. Putting cash into a bank account isn't a "strategy" nor is it an investment. Much like choosing to incorporate in Delaware, it's something you do because it's standard and adds no unnecessary risk to the business. It's not smart to try to get fancy with boilerplate company things–you have enough risk already.
Anyway, at the core of your argument seems to be two beliefs: 1. VCs had the capability to stop this from happening with private means (no) 2. People who start companies or work at them just generally deserve bad things to happen to them, regardless of how proximal or not the causes are of their misfortune.
I am biased because I've sacrificed years of my life and probably the vast majority of my potential earnings to try to build a good business. It's been the hardest thing I've ever done, no one's impressed by it, it's not yielded any financial benefits, it's harmed my personal and social life, and by all likelihood I'll never see any significant success. But I keep trying because I like our customers and my coworkers and I care more about the possibility of building something great than I do all the rest.
It's hurtful to chalk up the (potential) death of companies like mine to being "weak and entitled". Of all the risks to account for in building a business, having our bank accounts disappear overnight didn't even crack the top 100 of risk factors. Things like losing customers, failing to grow revenue, keeping employees happy, etc. are at the top; below that are changes to the market, competition, and the death of co-founders or myself. It's not possible to account for every conceivable risk.
Anyway, it looks like we'll get some help here so it's not over for us yet. On behalf of companies everywhere, I'd like to apologize that you've been deprived the opportunity to dance on our graves.
Was this decision public and announced in a regulatory filing?
Right or wrong sometimes your own maturity gets called into question by the words you use and how you treat others who disagree.
Idk why I'm even bothering making an argument when your opening argument is ad hominem.
Dignity and an empty sack are worth the sack.
Interesting new world folks are suggesting here, where depositors can't trust the highly regulated banks they bank with.
I'm personally a conservative investor, which means amongst other things I forgo notional returns by making safer investments. So it definitely makes my angry to see people that had a less responsible money management strategy get to participate in all the upside and not have to take the downside.
If you want the backstop if the government you have to be willing to play within its rules during the good times too
No one is nor can argue that. But you’re presupposing it’s a bailout.
It's like all of the tech misbehavior packaged neatly up into one story.
So no, if the government and the fed would actually let the market set interest rates then this doesn’t happen. If the UST had to sell bonds at the real market rate for them then this doesn’t happen.
Believing and pumping the Fed pivot narrative and by doing so betting wagainst the Fed is what failed them.
I think the only consistent libertarian position on this would be to concede that bank runs are totally normal (and welcome even) aspect of a capitalist system and they should never be bailed out or depositors compensated as it would be rewarding irresponsible behaviour (both by shareholders AND depositors).
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Stepping in to smooth out systemic problems is another valid function— like Reagan did with the air traffic controllers, like the FDIC does with bank failures, etc.
Anyway, I don’t think folks are asking for a handout. They’re just asking the FDIC to do their jobs more quickly than usual because so many businesses are tied up here. This is the reason there is an FDIC in the first place. I don’t think it’s unreasonable to ask them to smooth the process out to help meet payroll. None of this requires handouts— just proper management and metering out of the assets under consideration.
Whether you consider this problem "systemic" is political. Note that the FDIC insurance is not the point of contention here - it's whether depositors should be made hold especially if SVB's HTM securities are insolvent.
I could easily make an argument why student loan debt is a systemic issue in the united states - the government's guarantee of the loans as well as making them impossible to clear via bankruptcy has created both infinite demand (leading to higher tuition prices) and reckless loaning (due to the government essentially guaranteeing the loans). Why is this "systemic" issue unreasonable, while SVB is?
Less risk-avoiding behavior regarding discontinuity events makes discontinuity events more likely. Then, when the next discontinuity event happens, if smoothing is again applied, it reinforces this expectation, which reinforces the probability of future discontinuities, etc.
For this reason, swearing off active smoothing could actually result in a smoother system, eventually (after the pain of transition, of course).
If you had >250k in SVB and you managed to get it out before it was shut down, you'd be pretty happy with yourself right now. If you run a business and have an obligation to share-holders, it would be negligent not to try this at least.
I can kinda blame them for starting one because they did it so aggressively, but only a bit, because that’s just how internet banking works these days.
I can definitely blame them for demanding the taxpayers make them whole by 9am next business day.
Individual depositors don't need to conspire to reach the conclusion that in a bank run scenario, it is virtually always in each depositor's own best interest to withdraw their money.
When and how much money is returned is going to make the difference between life and death for some of these companies. And the difference between having a job and healthcare or not for a lot of people.
Don’t forget that this is happening to depositors / companies after weathering a pandemic and in a really shitty economies where things are already very challenging. Having additional cash flow problems and/or additional debt to service all the sudden may be the proverbial straw that sends companies and people into bankruptcy.
By this evening you’ll know if a sale has gone through; if so, everything is back to normal. Otherwise, the FDIC has 250k waiting for your employer on Monday morning, guaranteed. Even if that’s not a week’s payroll, for all but the largest companies that’s enough to get employees by for a week.
The money isn’t gone, just locked up in securities. By the end of the week some percentage of the account will be released - I’ve heard predictions of 80%, 60%, 50%, but even if it’s 20% that is still enough for almost any place to run close to full payroll and operating costs for a month. By the end of the month you’ll have 50-80% back, and you’re back to normality. Maybe the last 20% takes a year. It can wait. This isn’t the end! It’s scary, but it is not the end.
They didn't "conspire", per se. But they failed to do due diligence on the nature of the financial institution they were relying upon.
Or even to think, for a minute, about fussy terminology like "FDIC insured" actually means.
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Shareholders lose 100%, depositors get 100% of their deposits back. It's a simple situation, and the former point (as opposed to the solution during the GFC) counteracts moral hazard.
Edit: I read the article. Yellen says "“But we are concerned about depositors, and we’re focused on trying to meet their needs.”
She says NOTHING about depositors getting 100% back. It could be that they get the share of deposits back faster.
The FDIC insures that no matter what you are covered for up to $250k. Let’s say the bank had zero assets then all deposits would get their $250k and likely nothing else since there’s no other assets to sell and distribute. This could have been the case if SVB had larger losses or turned out to be cooking the books or something. But that’s not the case here. They have the depositors money, it just happens to be in illiquid assets that they could’t liquidate fast enough to cover the bank run withdrawals.
In the financial crisis 15 years ago, the FDIC in practice guaranteed 100% of deposits. They had to in order to keep people from running all the banks. Since then, we've all been told that banks are safe now because of new regulations. Lots of people have become complacent and haven't felt the need to manage multiple bank accounts to stay within FDIC limits.
SVB's collapse has suddenly let everyone know that, oh, those FDIC limits do actually matter and if you are over them in any of your accounts you had better start moving money. Unfortunately, that's likely to result in runs on lots more small banks as everyone moves their balance in excess of $250k over to JP Morgan (the bank that definitely can't fail).
Sure, it's easy to say now that it's all those people's fault for not managing their risk properly. But not long ago, a $2.5-millionaire opening 10 different bank accounts to stay under FDIC limits would have been called paranoid. And in any case, stupid or not, allowing runs on lots more banks could at some point lead to large-scale collapse of the financial system, which would be bad for much more than just those large depositors.
So it may be in everyone's interests for the FDIC to once again guarantee 100% of deposits. (I say "may", I don't pretend to be enough of an expert to decide this!) And maybe the $250k limit should be rethought going forward, into some other sort of rule that encourages diversification without encouraging contagion when a big bank fails?
(Disclosure: I had an account at SVB, but it was under the FDIC limit. So I don't have any personal need for a "bail out".)
Consider time it takes to get your deposit back: FDIC says depositors will get $250k back on Monday morning (pretty incredible turnaround actually). For the rest, they will have to wait for assets to be sold.
I'd guess hesitancy to immediately declare full guarantee of funds is also due to these concerns (although there may be other reasons as well). The sweet spot here maximizes the appearance of consequences while minimizing actual fallout.
The FDIC guarantees up to $250k, but if additional assets are available beyond that, then those will be paid out to depositors as well. It's a floor, not a ceiling
Making all depositors completely whole is not insurance. That was not a risk that premiums were paid for. It’s a government bailout.
While it's well and good in theory that deposits are capped at $250k, adhering strictly to that rule right now will cause cascading consequences much more serious than the price of this guarantee.
Sensible realpolitik right now is to guarantee the deposits to prevent cascading wealth destruction that will very much hit Joe Average, then adapt the system to prevent moral hazard and ensure that this insurance premium is collected in the future. There will probably be a way to recoup the cost of the guarantee from debt holders to SVB, but right now the real concern is putting out the burning crisis of confidence.
Please leave me and my tax dollars out of it. I'm not just hard-hearted, BTW. Unlimited depositor insurance is an awful idea.
Capitalist society runs on free markets and good regulation. We let SVB bypass good regulation here, and that's our painful learning lesson that needs to be paid for.
Deal?
Honest question: why? I.e. why can't the capitalists invested in this business absorb the reasonable haircut? (I assume it's "reasonable" based on the information we have been provided with until now). Depositors (especially those holding more than 250k) were also investors, they were getting back more money than they had put in.
Look at their stock chart. Heck, look at what their bonds are paying.
There will very likely be nothing left for the “capitalists” after depositors are paid.
Keep in mind those loans are largely being paid by SVB customers that are very likely scrambling to make sure they can pay their employees right now.
It’s pretty assured that more SVB loans will be defaulting in the coming weeks than if their depositors didn’t lose access to about half of their money.