Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."
Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it.
At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
I understand part of this is human nature but I really wish we could plan for these entirely foreseeable events ahead of time so that it's not just cases of "selective justice" with regards to who gets bailed out.
Banks have lost all excuses to be making money out of other people's deposits. If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them.
There's absolutely no excuse left for why banks get to invest any of their clients money. They get free leverage from their clients for free. They can send it to zero and the entire risk will be held by the government. That's absurd.
Revoke banks ability to invest deposits. They can't get to have the cake and eat it too. They could offer higher interest rates for non guaranteed accounts which bear risk, or zero risk for the already zero interest rates.
>If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them.
>Revoke banks ability to invest deposits. They can't get to have the cake and eat it too. They could offer higher interest rates for non guaranteed accounts which bear risk, or zero risk for the already zero interest rates.
You are missing something crucial here - treasury bonds are a loan to the government - this is all by design.
Who will loan the government tens or hundreds of billions of dollars besides the banks? The [Fed/Treasury/FDIC] has no incentive to prevent banks from loaning customer deposits, because the Treasury needs banks to purchase government bonds
Do realize that the SVB bankers and shareholders remain completely screwed. This bailout does not save them. Nor will any FDIC bailout.
So the FDIC existing does not change how a bank behaves. From the perspective of the bank, bankruptcy and FDIC takeover are effectively the same thing.
Well that's far from the complete picture. It's not that the gov't is backstopping all bank stupidity -- the new facility simply says that for redemptions, US government bonds and MBS can be valued at face value not market value. Only for the purpose of ensuring liquidity for redemptions
They must pay salaries - about 2% of deposits. They must pay interest on deposits - now people are demanding 4%. They must pay some dividends too. So they must invest in something.
What's the point of cake if you can't eat it? You'd have to start charging for having the cake.
The current practice of limited investment is reasonable and helps keep the system self funded without much in the way of account fees. It's not as if banks are investing the funds in the equity market. Appreciate I'm commenting from afar and without emotion but these failures are normal. This kind of chaos makes the system stronger. And I think most commentators can agree that this is largely a symptom of a swift increase in the repo rate shortly after significant bond purchases by SVB. There are lessons to be learnt but I don't think if you were sitting on the SVB board and were part of the decision to purchase these low risk bonds did you in any way think it would lead to this outcome.
This strikes me as more a perspective of someone whose lived so long in a stable system that they consider it a fundamental immoral failing when something does occasionally go wrong. The loaning of your clients money is the fundemental idea that banking works on, if you weren't able to grow your clients money through lending it you would have no reason to accept clients money in the first place.
Bank runs used to happen all the time. The fact that this is the first bank collapse we have seen in basically a lifetime is more of a miracle than anything else, and should be considered a stunning success that a bank collapse is a once in a lifetime event rather than a yearly occurrence that it used to be.
Define “invest.” Banks invest. That’s literally what they do.
People deposit their money rather than put it under their mattress, and the banks reward them by giving extra money to them.
Then the banks figure out a way to put that money somewhere else that rewards them more than what they are giving the depositors.
I see this issue in so many areas. Government orgs and companies have different organizational incentives and tradeoffs. When we substitute a government function with a wallet for contractors, we lose those tradeoff. But it's even worse because now the company has moral hazard.
> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
I think everyone knew that already. Since 2008 at least.
It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones. A domino effect is very hard to prevent when it's based entirely on consumer confidence and those consumers can very easily create a bank run on literally anything if they freak out.
Not sure I follow the logic. SVB is done right? Saving the companies that banked there is very different than saving the bank. Yes, it might invite more risk by big banks if they know there is a parachute for their clients, but if we close the bank anyways or clear out all parties involved and they have large black marks then there are deterrents (theoretically at least). I like that the gov is acting more like a scrappy company here and getting some shit done when the stakes are high. I dunno, just spitballing here, curious about the counterpoint.
> It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones.
I don't get it. Doesn't the unlimited FDIC insurance encourage mega-banks? If funds were only insured up to 250k, wouldn't that just mean we would have to spread money across multiple banks. And sure some banks would be wiped out but new better banks would take their place. It's not a closed system
Banks used to fail and be smaller failures. Now we removed almost all failures except when we have a failure its huge:
And perhaps there's no other way? The Japanese did the same with their overpriced real estate provlem, Europe did the same with their almost defaulting countries.
>At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
No, there are systemic risk exceptions within the rules. If a bank is large enough, then the systemic risk to the economy as a whole is large enough to warrant this step. "Too big to fail" is typically a derisive comment, but it is not without practical reason. Governments are supposed to act in the best interest of the governed. I hope it is clear to all of us that avoiding the economic disruption of a cascade of bank failures is in our interest.
Smaller bank failures do not pose systemic risk and so they will not be backstopped in the same way. Might seem like unfair treatment, but practical concerns often outweigh the theoretical. By the way, SVB is still a failure and as a company is now gone. Some other entity will take over its assets, debts, and customer services. All senior management has been removed.
>I understand part of this is human nature but I really wish we could plan for these entirely foreseeable events ahead of time so that it's not just cases of "selective justice" with regards to who gets bailed out.
We did. That is why we have the FDIC, the Federal Reserve, and the Treasury department. They did their job and did it quickly and effectively. SVB did not get bailed out, the depositors did.
While what you say is true, maybe we shouldn't allow mergers and other avenues to allow these banks (and other verticals) to be too big to fail. We've made that a target for all companies. Just get too big to fail and you get all the upside and none of the downside for free. That is my main complaint. By allowing deposits to be invested without risk, these too big to fail banks are encouraged to chase the highest yield, highest risk re-investments possible. If it works, another yacht for everyone! If it fails, we must be made whole!
> > Governments are supposed to act in the best interest of the governed
Many of the governed see what policymakers and politicians call 'systemic risk' and 'instability' as a not so unwelcome wildcard considering that the wealthy of today are mostly descendants of wealthy land owners from the times of the Crusades.
> > They did their job and did it quickly and effectively
Where are the Fed , D.C. , the FDIC etc. when a gas station goes belly up? Or a small family owned boat builder in Maine? Nowhere to be found. Their fault? Not being systemically important enough. Whatever the fuck that means.
In cases where you can't predict the future appropriately, sometimes it's better to make prudent decisions that help everyone instead of attempting to punish the sinful.
Keep in mind that bank shareholders and senior management are going to get wiped out and fired.
I mostly agree with this, but I feel like the past 25 years or so, ever since "the Greenspan put", has just gone more and more in the direction of telling people that they don't need to worry about doing adequate risk assessments, because if you have powerful people that yell loud enough, and you can cause enough damage, that Washington will come to the rescue. Eventually, I just don't see this ending well.
As someone who is naturally risk averse, I feel like a sucker. I was having a conversation in a separate thread where someone remarked "How can you expect startup companies to spread their deposits across multiple banks?" Besides the fact that there are tons of account structures specifically set up to do that, as an individual, I know what these insurance limits are and have moved assets around accordingly (for me, FDIC limits weren't relevant but SIPC limits were).
How much time I wasted. I should have just gone with a powerful enough institution that I knew would get bailed out if they ever failed. I certainly won't waste my time doing this again, which is probably not the follow-on effect that the feds want.
"Punishing the sinful" isn't about morals, it's about incentives, and ensuring a level playing field where sinning doesn't improve your long-term competitiveness.
Will senior management have to return their 2021 performance bonuses? If not, successful sinning is just a matter of ensuring you cash out early.
I think it gives a great explanation why what you are saying in good faith is not quite right. Not punishing the sinful both pushes the problem into the future and makes it bigger.
Senior management is going to have their recent sales of millions of dollars and significant percentages of their stock and the bonuses they received hours before the FDIC took over reversed? Because otherwise they weren't really "wiped out" or even close to it.
> sometimes it's better to make prudent decisions that help everyone instead of attempting to punish the sinful
I'm conflicted about this. In the last seventy-two hours, I made a ridiculous amount of money standing still because risks that shouldn't have paid are being done so by people who shouldn't have to pay them. I personally benefit. But we've given tech companies a visible privilege American farms, factories and municipalities don't enjoy. T
I think that's fine as long as you are willing to then help anyone in that situation in the future. Not just people who are big enough to be "important".
They should claw back SVB CEO pay and televise the moment the funds move. Show the CEOs number going down and some other public number going up. Bonus points if his face is televised at that moment at well
That's all that's really necessary in terms of handling moral hazard and public perception that this is yet another bailout. Let ppl see the CEO suffer and they will be fine with having taxes foot the bailout bill. It's sad but a spectacle is necessary here.
> We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority.
Two closures in three days is a sign that you have to take this very seriously.
> > We are also announcing a similar systemic risk exception for Signature Bank, New York, New York
Signature was another bank whose business was primarily in a volatile and risky market:
"Signature is one of the main banks to the cryptocurrency industry, the biggest one next to Silvergate, which announced its impending liquidation last week. It had a market value of $4.4 billion as of Friday after a 40% sell-off this year..."
This is going to put every regional bank on the map for short sellers as equity holders are being wiped out in these cases without depositors being affected. Why would anyone invest in any regional bank with the risk of a equity wipeout day to day?
I'm pretty sure there would have been a run some other large banks had they not taken these measures. I've gotten several emails from a major regional bank basically saying "WERE FINE TRUST US" over the last few days and I don't even have an account which means they're spamming all their email lists. I did apply for a position at them a while ago so that's my best guess why they are spamming me their unreassuring message. The several banks I actually use have not done that.
At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
No, that's been the implicit rule since 2008 at least (arguably earlier). If anything, not supporting all depositors would have been changing the rules mid game and so would have lead to massive disruption.
The thing a lot of people aren't getting is that the rules of the game haven't been the law but what the Fed does for a while.
Certainly, the game as it's played favors the wealthy, yes. That should be changed. Knocking everything over by suddenly changing expectation wouldn't change things, just disrupt everything. But also, it wouldn't happen anyway 'cause the game is too important.
> No, that’s been the implicit rule since 2008 at least (arguably earlier).
No, depositors have lost money in failures since 2008. Its true that, for a long time, the FDIC has tried to resolve failures in a way which protects as much of the uninsured deposits as possible, but it has very much not been a guarantee.
The systemic risk exception invoked here is an exception.
Because a major component of this is human nature causing bank runs they are betting that by doing this upfront it will be cheaper than not doing it and risking a high number of similar bank runs in the coming month as word spreads it isn't safe to keep money over the insurance limit in banks because of the unrealized loses on bonds.
At the same time, they've essentially raised the insurance limit to infinity. Depositors will be made whole, and if they aren't the next time something happens, they'll need some very good arguments for why the 9th largest bank is now also too big too fail but e.g. the 11th largest isn't.
> At the same time, this is yet another example of changing the rules in the middle of the game.
No, its not.
The “rules” of the “game” authorize systemic risk exceptions, so applying them is not a change to the rules of the game. Moreover, civilization is one continuous game, changing the rules in the middle is the only way to ever change the rules.
My read is that they see the shortage at SVB as relatively small and that they may be closing some marginal banks like Signature ahead of true insolvency/illiquidity to both protect depositors and minimize reactionary withdrawals across the broader market.
And it sounds like they have the authority to just do this on a Sunday, so it doesn’t sound like any rules being changed.
If I was a banker with a marginal portfolio, I wouldn’t be encouraged by this. Depositors are making it out, but banks are being aggressively shuttered to make that happen.
I don't get it. The FDIC insurance threshold is the bare minimum provided by law. SVB's assets are being sold off or restructured to protect depositors. This is literally the whole point of the receivership process. This appears at this point to be a fairly pedestrian FDIC bank take-over, save for all the culture war B.S. that's cropped up around it.
So, at least two banks failed this week, 16th largest and a smaller one. Then Fed panics and effectively institutes an “unlimited” insurance/backstop policy, as a direct result.
I don’t know if I would call those events “pedestrian”.
Not much of a choice. Guarantee of the system takes highest precedence.
Although this problem was caused by bank malfeasance and yes this does imply de facto unlimited insurance, unlimited depositor insurance is kinda the whole point and is not itself a bad thing.
Yes, moral hazard is a huge consideration, but I don’t see depositor protection as encouraging future failures of this type, by encouraging bad risk taking by mgmt.
Rather, if banks bet their customers money unhedged on endless zero rate policy, as SVB did, there should be regulations that prevent it. Trace back to lobbying to exclude SVB from dodd frank regulations also at the heart of the crisis.
Part of the rules are that the regulators are supposed to shut down a bank before the run happens. They're not supposed to let the run happen and let the poor saps that were too slow moving their money bear the brunt of the losses.
Yes, and had SVB (among others) not successfully lobbied Congress in 2018 to get big regional banks excluded from more stringent "stress test" requirements, perhaps the regulators could've detected faults in SVB's capital before it was too late.
Worse, it is also a lie that the cost will not be paid by taxpayer. Of course it will be - the remaining banks are going to pass the cost on via fees, higher loan rates and lower deposit rates?
Yellen is not clueless. She knows exactly how this will play out but as it will be spread over time and to many counterparts she simply does not care.
This is terrible moral hazard. Uninsured depositors should have taken whatever haircut would result after the auction. That is, after all, the meaning of uninsured.
The “ahead of time” component is partially addressed by the Office of the Comptroller of the Currency which conducts period stress tests of banks. The people doing the testing know their stuff. These bank evaluations have likely caught and mitigated many issues like SVB ahead of time, and we will never know how many more failures would’ve occurred if it weren’t for their efforts and those of other auditors.
> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
You are almost certainly misreading that signal. Probably since Friday they have assessed that the depositors can be covered once the assets can be liquidated, and that they may even be able to make money doing it.
If they can’t, they can assess the rest of the losses to the system, and those losses once divided up are likely to be inconsequential, even if not considered in relation to a broader run on the banking system.
> Probably since Friday they have assessed that the depositors can be covered once the assets can be liquidated, and that they may even be able to make money doing it.
The same assets that are yielding <4% interest against a market rate of 5%+ or 7%+ or whatever it is? Seems like it's going to take a long while before those papers are trading at or above cost when you account for inflationary devaluation and their yield horizon.
There is certainly a cost here. The insolvency of the paper is the entire reason the bank failed in the first place.
How does this "special assessment on banks" work? Does the FDIC charge all US banks to cover the missing amount? How are the charges distributed? And what law is this?
Also if this option was available, why did they just bring it up now?
> "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."
This has happened before in 2008. Secretary Yellen's announcement is important to secure depositor confidence, so the contagion doesn't spread to more banks. If depositors are confident that the government has their back, there's no reason to pull money out.
> > If depositors are confident that the government has their back, there's no reason to pull money out.
There is also no reason to put the money in.
You go through the trouble of protecting your money because you deem them scarce and irreplaceable.
If tomorrow a commercial bank insured with the FDIC starts offering a product promising 20% interest, then by all means people should get together and apply in mass, get a couple of big political donors on board and all of a sudden there is no downside.
If the wacky bank keeps its promise then it's a 20% gain, if not then the FDIC will have depositors backs anyway to the full amount
Well, paying for it by a special assessment on banks means the banks aren't going to get a free ride. They, as a group, have to get their shit together otherwise they will pay dearly
I think (but am honestly not 100% sure here) that the argument is if other banks are going to have to pay for SVB being greedy, it is in some sense punishing banks for not being greedy enough; as while, sure, the SVB investors are getting hit: 1) a lot of them already made a lot of money years ago (and potentially exited), 2) many of the executives apparently literally sold out last month, and 3) they were hoarding a lot of deposits that other banks couldn't get because they weren't being risky enough. But so like, saying banks are paying dearly for this is strange, as it is the wrong banks... and, by extension, the customers at those banks, who are in turn making decisions about what bank to use in the future.
" I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ... "
EXACTLY! This will be born by the taxpayer. What were all the VCs f*cking thinking concentrating all their portfolio companies in one financial institution? This was terrible decision making on their part (and by the portfolio companies). Why does this all of a sudden become a taxpayer liability? Because All-In bros got on Twitter and started spamming people?
Yellen is an incompetent ideologue. I studied applied economics in university, and the first code I wrote for a real application were inflation simulations. When she and the Fed made the claim a few years ago that "inflation was transitory" I ended up calling several of my smartest classmates. It was a nice excuse to reconnect, and universally all of us were asking what she was smoking.
It wasn't just us. Larry Summers was prominently and publicly stating that the inflation was definitely not transitory. But the banks believed her, and continued in 2021 to buy these securities as if interest rates were going to be going low again in the near future.
> But the banks believed her, and continued in 2021 to buy these securities as if interest rates were going to be going low again in the near future.
The banks most certainly didn't believe her. The banks rightfully took it as a signal that the US gov would step in to cut losses if banks continued to loan. The Fed wanted banks to continue to loan so they didn't grind the overall economy to a halt instantly and send us into stagflation.
But everyone knew it would happen. The Fed knew they were playing a losing strategy. And they still know it. But they refuse to play the strategy that would win the inflation game because it would bankrupt the country.
The only way out now is through severe tax hikes + gov spending cuts OR war with China in the hope to reset debt at its conclusion. The political elite seem to be signaling the latter.
Have you considered the hypothesis that she is competent and was lying and/or bullshitting?
Hypothetically, if I ran a government that was engaged in geopolitical competition, I wouldn't want people to tell the truth to my detriment when alternatives could be gotten away with.
> Yellen is an incompetent ideologue. I studied applied economics in university, and the first code I wrote for a real application were inflation simulations.
Damn if only the US government could find someone with credentials as strong as yours
I just posted this on mastodon but I think maybe the community here knows better:
If you ran a bank that required insurance on all deposits over the $250k FDIC coverage, and then offered 3rd-party insurance as a convenience for those who wanted it... your bank would be much less likely to suffer a blow up due to a bank run and therefore that insurance should be relatively cheap.
Furthermore, people should prefer to bank someplace where all of the depositors are covered. Why is this not commonplace? Simply because the additional fee discourages it?
I think if Yellen announced this as a requirement it would remove that incentive to treat FDIC like free unlimited insurance.
Which apartment block do you thing a most people would rather live in, the one that charges you an extra 10 percent a year but promises to replace all your belongings if it ever burns down, or one that tells you it will never burn down?
>At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
If this wasn't done... nobody in the world is going to trust their bank within a few days (possibly faster than that thanks to twitter, et al), which would trigger Global Depression II
If someone in 1930 overheard a time traveler referring to World War 2.... the shock would have been overwhelming.
In the same way, seeing the start of World Depression II isn't something I could bear.
"Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."
Yeah, all corporate customers that have seen an FDIC charge on their statement, based on Q-end balances will have a "special" laugh at this. It's going to be passed through and not be bourn by the surviving banks - that benefit from this 'bailout' of their customers....
Changing the rules is good if evidence emerges that the rules are bad. In this case, the $250k guarantee was thought to be enough to prevent this kind of thing from occurring. We now know it was insufficient. The world has changed since that was implemented. Namely, social contagion, which is one of the causes of bank runs, can act harder and faster in the age of social media.
> Yellen has just broadcast that FDIC insurance is essentially unlimited
Although I agree with the Treasury's actions here so far, this is a potential issue. They should instantiate more stringent rules for banks that who cater to business accounts and then raise the cap for insurance on those accounts to a number that makes sense for small businesses across the country.
Too many CEOs and CFOs were allowing their business checking accounts to sit in dangerously uninsured positions. Headliner being Roku with nearly a half a billion dollars sitting in a single checking account with SVB. But plenty of smaller businesses leave ten million plus dollars in their accounts as a course of business as well.
The actual amount those accounts can be insured for needs to be formalized and it should probably be higher than the standard quarter million for consumer accounts as this is way too low for business larger than a half dozen employees.
Haven’t depositors always been first on the list to get paid, even their uninsured deposits? I don’t know if charging a special assessment to member banks is standard operating procedure, but that doesn’t sound like government intervention. It just sounds like reasonable operation of the FDIC.
> Does this statement reflect any shift in policy?
It’s a decision of how to apply existing policy to a specific situation, not a policy change. Existing policy is nonspecific enough that reasonable people could disagree on how best to apply it here without changing it.
> Haven’t depositors always been first on the list to get paid, even their uninsured deposits?
Yes.
> I don’t know if charging a special assessment to member banks is standard operating procedure
It isn’t routine, which is why it requires invoking the systemic risk exception.
> but that doesn’t sound like government intervention.
It’s a government decision to intervene in a particular way, so…
> It just sounds like reasonable operation of the FDIC.
It’s not just “reasonable operation of the FDIC”, since both Fed and Treasury actions are involved. And, even if it was, FDIC is a government corporation, so its actions are government intervention. Its reasonable operation is reasonable government intervention, but its still government intervention.
Not sure how "taxing depositors at other banks to pay for uninsured deposits" is "reasonable operation of the FDIC".
(And yes, it's taxing the depositors. Because even if it's "officially" a fee to the other banks, it will be trickled down to their customers through lower interest rates and higher fees rather than absorbed.)
If this was necessary to recover insured deposits, that would be reasonable. But instead, the people who made poor decisions aren't going to lose anything, because the extra money is coming out of the pockets of everybody else with money in banks.
How can they change the rules? Surely it’s already written into law… right? Are they actually able to unilaterally decide to tax banks to fill up their rainy day fund?
My guess is that they’re not changing the rules, they’re utilizing them. Either that, or they have far too much executive power over banks. Which would be shocking.
If this were a middle America community bank failure with deposits from a bunch of farmers and factory workers that is a 0% chance they would have changed the rules. This happened because the tech industry has massive lobbying power.
> At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy
And it doesn’t have to be that wide a threat. The threat here was pretty localized. Aside from blue chips that everyone has their pensions invested in (which don’t seem to be at risk) the rest of the country doesn’t have much exposure to this.
Maybe I’m wrong but that seems like a significant shift in policy, where the government will change the rules to respond to a localized crisis.
> I really wish we could plan for these entirely foreseeable events ahead of time.
This is unlikely TBH. When a system this complex and a global clear visibility if offered to no one on the planet, foreseeing ALL risks isn't a possibility.
> I really wish we could plan for these entirely foreseeable events ahead of time so that it's not just cases of "selective justice" with regards to who gets bailed out.
That’s an unrealistic utopian fantasy. The real world doesn’t even remotely lend itself to that kind of planning.
Even calling it “selective justice” involves an unrealistic bias. What is happening is that the particular circumstances are being weighed an a suitable response is being formulated.
The rulebook for planning for all such events ahead of time would not be that much shorter than the future history of human civilization.
> Every time the FDIC has stepped in like this they have made all depositors whole.
This is a false assertion. Usually depositors end up losing some of their money above the insurance limits-- only not doing so if the amount of remaining assets proves sufficient to pay the liabilities.
I thought the old $100k limit was statutory. Then in 2008 it was changed by the executive w/o Congress approving it (or has it, since?). Now it's being changed no limit and fees are being raised. These are fees charged by a government entity, so one would expect Congress to have to be involved. Can a depositor sue to have the old fees restored? Can a bank sue to have the old fees restored?
> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy
"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." - J. Paul Getty
(Or as I heard it more aptly paraphrased, "if you owe the bank a million dollars, the bank owns you. If you owe the bank a billion dollars, you own the bank.")
They know (and it is obvious) that all deposits are going to be fine without any extra funds, wacko VC's and nutjob politicians are stoking the sort of flames that might cause a contagion so they are forced to make statements like this.
The fact that the statement is so milquetoast is certainly on them, but being uber-conservative in your promises is generally a failing/asset for bank regulators.
… which is why Signature Bank was also placed in receivership this weekend. The contagion was spreading, if they did nothing there would be runs on a number of banks tomorrow. There still may be runs tomorrow.
>"At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy."
Rules exist to serve a purpose. If one risks fucking up the economy with the only goal that the rules are preserved - it could end up with pitchforks.
This is going to be the beginning of the end of the banking system. I foresee a huge dollar collapse, the US banking system has just lost its final shred of credibility. It's only a facade of a bank at this point. It's just privileged people with a government mandate to leverage on everyone else's money with no consequences.
It's not though, SVB equity holders are getting zeroed out. Raiding the DIF to pay out depositors in extraordinary circumstances and then recovering it through a special assessment is basically the whole point of having an FDIC. The justice is that SVB equity went to $0.
> broadcast that FDIC insurance is essentially unlimited
Shouldn’t it be? The government is in the best position to regulate and manage the risk of these institutions. We cannot expect average depositors to be financial analysts with the capacity to assess financial institutions.
> I really wish we could plan for these entirely foreseeable events ahead of time
That's exactly what Dodd-Frank did. The audit and stress testing requirements got rolled back in the Trump administration. "Planning" is not the problem here.
I can't pinpoint anything specific they did wrong, compared to peers. Their operating expenses were not that large, for example. So what happened to them, can happen to any bank now. That's why FED are worried.
> At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
The criteria isn't threatening a "wider disruption to the economy", it's threatening the quality of life of a certain class of people. When unions threaten a wider disruption to the economy for maintaining their quality of life, they'll do their damnedest to not give in. They'll pass laws outlawing strikes. Or send in "law-enforcement". As the saying goes, laws are for the poor.
> The criteria isn't threatening a "wider disruption to the economy", it's threatening the quality of life of a certain class of people.
In support of this view, they could have easily extended FDIC on a dynamic metric, for example 20k for each employee. If you are 5 employee VC fund sitting on 0.5 billion in cash, no bailout for you from taxpayer money (because let's be real, FDIC is all taxpayer money, it's irrelevant if that tax is collected by the govt directly or indirectly via mandatory banking fees).
An alternative path was to provide zero interest loans against your SVB holdings, with the expectation that you are on the hook for the shortfall that would be yielded by the liquidation. If SVB is well capitalized as the Fed claims it is and there is "no cost for the taxpayers", then this shortfall should be relatively small if any.
Another, even more radical option would be to quickly set-up a secondary market for the debt issued by these banks and let the market provide liquity and discover the value of the assets. This is one of the few innovations form the crypto world I wish we could see in traditional finance, we can't keep bailing out rich mofos like it's 2008 when we have all these wonderful new technologies which can stop contagion and bank runs, protect depositors and zero in on those responsible.
> it's threatening the quality of life of a certain class of people.
Like the jerks who chose to work for a company that picked a specific SaaS payroll provider. Or those entitled Etsy sellers that expected to get paid. The absolute nerve.
I view it kind of like parenting. Depending on what kind of kid you’ve raised you may not want to signal to them that no matter what you’ll financially bail them out. Hoping they’ll make the right choices.
Who are the kids in this analogy? It seems like what's at issue is whether or not depositors are protected (executives, shareholders, and creditors are all getting the shaft). Do you think depositors should have made different choices, and if so, which?
> At the same time, this is yet another example of changing the rules in the middle of the game.
Not exactly. Or rather yes, but the rules changed in 2008, not this week. Specifically after IndyMac failed in 2008, there was significant blowback on the FDIC from Congress, and an unoficial, unnounced policy was put in place to ignore the $250k limit and ensure uninsured depositors took no losses in (almost) all cases.
> Of the 127 banks and thrifts that failed from Jan. 1, 1993, to the last bank that failed before IndyMac was closed [...] 71% of the total deposits of the 127 failures were in institutions where uninsured depositors suffered a loss, while 29% of the deposits were in institutions resolved through a P&A that fully protected uninsured depositors from any loss whatsoever.
Whereas:
> Since IndyMac, there have been 522 failures, excluding Washington Mutual [...] Of the 522 failures, just 31, or 5.9%, were resolved in a manner that only protected insured deposits — uninsured depositors were therefore put at risk of a loss. Those 31 banks and thrifts held just 4.9% of the deposits of the post-IndyMac failures.
(Washington Mutual is excluded because it was enormous compared to the other failed banks - although since uninsured depositors were protected, including it just skews the stats even further.)
So for the past 15 years, we've had a system where the overwhelming majority (well over 95%) of uninsured deposits were protected, and thus, it would have been legitimately very surprising if recovery for uninsured deposits in SVB wasn't 100%, because it's very clear that unstated FDIC policy is to aim for that, and they've got a strong track record of achieving it. (I will state that I find the hidden nature of this policy problematic, however.)
The only thing surprising about events so far is that there's been enough noise that some new policies had to be announced, instead of it all just being quietly resolved like normal.
> this is yet another example of changing the rules in the middle of the game.
welcome to democracy bro. also, economies are literally black magic. if anyone claims to know how to make them work right, they are either lying or a witch.
Edit: oh shit I'm getting downvoted to hell. Was it my suggestion that economists are full of shit, or denigrating witches? Because I have nothing against witches.
Its incredible incompetence that the fed doesn't fully guarantee all deposits at FDIC member banks. The liability side of banking is not the place for disciple. MMT founders and Bill Black have been saying this since 2008. Insure depositors and blow out shareholders and management for making bad investments.
I was reading this and came across "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."
What does this "special assessment on banks" mean in practice? Do they just go to all the bulge bracket banks and demand that they buy the outdated Treasuries at a loss? How does this work?
IIRC banks pay a fee to the FDIC in exchange for providing insurance, and because the FDIC is not funded by taxpayer money, the fee simply goes up when needed.
Yellen and the FDIC have just made a disastrous long term mistake for the country.
1. By next month banks and companies will realize there is no limit to the printer at all. After 2008, we've seen the banks and financial sector misbehave constantly, so expect massive deliberate tanking of entire sectors of the economy because why work when infinity bail money exists.
2. People in the country are already agitated by many social and economic grievances. The average American savings account balance is $4,500. This will one million percent cause a social backlash that will make the Trump movement seem like a child's party. Both the left and right radicals view silicon valley as the center of fascism/wokism, and the average person is barely scrapping by in a time of rampant grocery store inflation. Twitter/Reddit/Etc are full of people taking pictures of their grocery store carts and comparing costs.
Examples need to be made to restore faith in the system, Yellen and the Biden could have used this moment to restore faith by punishing the banking executives.
Political instability and extremism will now increase dramatically.
"...recovered by a special assessment on banks, as required by law..." - Would love to know what law/regulatory framework she is referring to. Janet Yellen is ready to become a US based Liz Truss...
Now expect a contagion effect next week, if SVB liabilities are shown worst than currently known, and made to bare on other banks capital requirements...
> Would love to know what law/regulatory framework she is referring to.
This is not some conspiratorial secret. Banks pay premiums to the FDIC for their insurance, and it's a requirement of all chartered banks. The FDIC has the right to backstop deposits in excess of the deposit limit by invoking a "systemic risk" clause (I'm not sure exactly which law this comes under, whether it's some of the original laws that created the FDIC, or more recent post-financial crisis updates). When the FDIC fund gets depleted, they have the right to invoke a special assessment against banks.
> Now expect a contagion effect it next week
The whole point of doing this is to prevent a contagion. The reason there was a bank run against SVB was a mix not just that their asset values had deteriorated (that was well known for some time), it's that their non-diversified deposit base of VC-funded start ups have gradually needed to up their withdrawals since early 2022. SVB would have survived if there wasn't a run on the bank, and the whole purpose of this action was to prevent further runs by saying that deposits will be protected.
12 U.S.C. 1817(b)(5) is the “regulatory framework” you’re looking for. The FDIC can levy a special assessment for literally any purpose it seems necessary.
I never thought Mnuchin was the most competent of all people but regardless of how this particular SVB saga plays out, Yellen has to be one of, if not, the most incompetent treasury Secretary of the recent past.
She came into power and the first thing she did was suggest a global minimum tax rate, as if that would have fixed the accounting tricks that companies use to reduce the actual tax they pay.
Disconnecting the Russian central bank from swift and an oil and gas price cap have been immensely damaging for the western financial system and the international standing of the dollar(and the euro).
We now have countries increasingly integrating with alternative bank messaging systems and an accelerating of US reserve sell offs, along with what seems like the initial steps of the creation of something like an OPEC alternative for gas.
Not only that, it seems that because they never coordinated the sanctions with the banks it seems like only ~30 billion of the supposed 300 billion of frozen Russian assets can be accounted for, meaning they got to pull their money out and meanwhile the Russian on the other just from 150 billion in return.
Get this incompetent person out the door before she destroys more of the USs financial system.
“We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas.” - Milton Friedman
Agreed 100% Yellen sucks. She would be bad in "good" financial times, but in our current times, its even worse. Mismanaged inflation (or at least perception of it) and is offering the US as a personal bank to Ukraine (among 100x other things).
I have never seen such cognitive dissonance here at HN -- which I feel is really saying something! As an SVB customer who had to wire payroll on Tuesday, our perspective is naturally sharpened, but I found the lack of empathy here over the weekend galling. On the one hand, this is understandable, and Silicon Valley has done much to earn collective distrust. On the other hand, this is emphatically not all of us: many of us have been outspoken about our disagreements with the techbro culture, and have endeavored to create companies that are exemplars of what we want to see in the world. Speaking personally, I spent a lot of time DM'ing people privately who were saying absolutely outrageous things online, and almost uniformly hearing back: "No no, not you -- I love what you're doing." Well, if you want to see startups solving hard technical problems we need to have some real talk about how that has to be structured financially -- and maybe stop tweeting images of guillotines when our employees are anxious about their next paycheck?
I understand what you mean here. I don't think it's people having no empathy for employees (or even founders) who did not act in bad faith.
We are (or were) in a situation where the entire ecosystem blew up because VCs and funds inadvertently incited a bank run.
Backstopping capital so payroll can be made obvoiusly helps out employees, founders, and companies alot, but the ones that benefit the most financially on an absolute basis are these investors.
It just feels a bit disingenous to hear an argument that "this small company out of the Midwest needs to make payroll" (which is an example I just made up, any relation to real companies are entire coincidental), while ignoring the argument that "If the government doesn't backstop this my $3B fund goes to $0".
In summary I have a lot of sympathy for employees, and even founders who were held to terms that were completed standard and seemed reasonable at the time.
I have less empathy for the group that are (were) vocally calling for bail-outs and trying to incite further panic in an effort to protect their own investments.
Edit: switch the example to avoid inadvertently matching a real life example way too closely.
Banking shouldn’t be an investment. The entire economy runs on the idea that banks are fundamentally secure. This is why banks are regulated, and why deposit insurance exists. The extension of it past $250,000 is very good
As an employee of an otherwise decent company who happened to bank with SVB, I was mainly resentful of being stuck in the same boat as the latter group
There has been so many great reply to this comment already about how the lack of empathy is directed at the financial system itself rather than the small businesses and individuals directly impacted. The other thing that make it hard for me to have sympathy for a government backed solution is what makes these small companies and individuals anymore worthy of being 'bailed out' than any other small business that finds themselves unable to operate because of situations outside of their control or factored risk.
I don't see VC's and tech workers screaming for the government to step in when it's blue collar or service businesses failing. Thousands of small business with 5-20 people on payroll fail every year because of things outside of their direct control. I know small businesses that had to close doors because they got fucked over by things like landlords going bust and suppliers with half payments and no goods delivered collapsing. It's shitty for any small business to fail because of broader issues outside of their control, how is it fair to label this as anymore worthy of assistance?
you don't see the govt support that kick started all of the inflation and following rate hikes. I agree with the sentiment, however we can't thumb our ears to the facts that the govt HAS taken extraordinary measures to prop up the non-taxed fraction, at the expense of the middle class this decade
The subject is wrong though, SVB isn't getting bailed out, their depositors are. At the end of the day, SVB as a bank would be no more/the ownership would be washed.
The depositor didn't do anything wrong, they had the full right to withdraw at anytime and they didn't make the decision to invest into long term illiquid low interest MBS in 2021.
The reason employees are anxious about their next pay checks is because of the VC-induced panic which is entirely self-serving and has not one iota to do with making payroll — that’s just a palatable hand-wavey justification for demanding government intervention because their precious points are at risk.
I have a great deal of empathy for the workers anxious about being paid, but that goes without saying, there’s nothing to discuss there. Workers are victims of the VCs who rightly deserve to be derided for their behaviour, both in this incident and more broadly in squeezing every last drop of profit from normal people.
I don’t understand what you’re asking of people on HN. Are you asking us to preface all our comments with “…not all SVB customers are leeches…”?
I also think that people here are missing the game that was played by the VCs. I have a friend working at Insight who told me that they were preparing to issue loans and further funding to portfolio companies. This of course is less ideal than having the government bail their portfolio out, but they would have had no choice. So, having shot themselves in the foot by starting a panic, they decided that the best way to avoid getting in trouble was to push the panic even further to the point that it threatened the entire economic system.
Personally, that is what I find so disgusting and that is the source of my animosity. I believe the fed ultimately chose to maximize the probability of avoiding a crisis over punishing these morons. I think that is wise but still not good.
The analogy I choose is this. Imagine there is a forest that is due for a bit of a natural fire. We should let it burn - but wait it turns out some people built and sold houses in this forest. Instead of evacuating and having these people suffer and need to relocate, we put out the fire. Since we put out this fire, these people living in a hazardous way continue to do so. Eventually a massive fire will start and kill those people and spread to other areas that it otherwise would not have. All because we decided to stop the “maintenance” fire from clearing the brush.
I Do have a lot of empathy for those impacted here, but I think people are also reasonably angry about having the costs foisted onto them. Some people struggle to entertain or express both concepts at once.
It is like having sympathy for your friend that is mugged, but being angry that when the police came, they took money from your pocket to reimburse them.
If you feel shocked by the lack of empathy at "You knew all along that only $250K was insured, riiiggtt??", please consider empathy when you are about to type in " You knew that H-1B isn't an immigrant visa, right?".
I respect your work, but you have to realize that what many companies were doing with their money was the financial equivalent of developing by SSHing into prod and editing a 50kloc index.php.
And when they got into trouble, they did not stop to asses their situation (possible 5-10% haircut, nbd), but went into full blown existential meltdowns. One minute crying and begging, next minute threatening. In fact, after reading too many Twitter posts of founders complaining, they don't even seem remotely aware that they can even do things differently and properly.
And let's not even get into the outrageous behavior of tech leaders like Sacks et all. This episode makes me embarrassed to be part of this industry.
There are some absolute turkeys out there, no question -- but there were/are also a lot of people who have taken pay cuts and betting it all on themselves to try to bring something innovative and important into the world. And when you say "they got into trouble", what you mean is: the bank in which they (we) are depositors was subjected to a bank run (something that no bank can survive). And yes, I believed and believe that depositors should be made whole: we -- as a group -- were not acting with avarice or recklessness. I am proud of my government and our hard-working regulators who were able to ignore the shrill caricature and see the very real lives that would been adversely affected by deposit loss.
I've seen this argument made a few times, and it's nonsense. SVB didn't fail because they paid out 4.5% APY on their money market accounts; that's pretty safe for them because they can easily earn that much from low-risk bonds and Treasuries and as I understand it that doesn't have the duration mismatch problems that affected their normal, boring, no-or-minimal-interest demand deposit accounts. (Also, I'm pretty sure people weren't earning that kind of interest for the past few years - the interest rate increases that made it possible are really recent.) It's related to the cause of their failure, but only in the sense that the fact interest rates increased so much that it was viable to offer that kind of money market account caused outflows from other accounts - it didn't particularly matter whether it was SVB or any other bank, or even potentially corporations just buying bonds directly.
I think the concern is: this time they covered every cent of deposits to prevent systemic risk from spreading.
Now, what if, I, as a senior banker, start to abuse this policy. I'm not sure how senior bankers can abuse this policy but this is the concern here. So basically, if the FED can guarantee 100% of deposits, it encourages riskier moves. Worst case my equity gets wiped out, i.e. most of my unsold compensation vaporizes but that's it.
I personally don't think the thing holding banker-bros back from risky investment strategy is fear that their depositors won't get back 100% of their deposits.
> I have never seen such cognitive dissonance here at HN
> ...
> maybe stop tweeting images of guillotines
You're seeing randos on Twitter tweeting shit and somehow twisting it to suggest that HN commenters are doing this? Lumping together these edgy tweets in with the HN comments, which are by and large pretty inoffensive and civil, is a bit of a reach.
I am sure it is a bit of a stressful time to be an SVB customer and maybe it's a bit jarring to see people discussing its demise in such an open and matter-of-fact way. But I'm sorry, if you don't want to see people discussing the pros and cons of bailing out your bank, do not read the comments of a submission where your bank is being bailed out.
>I have never seen such cognitive dissonance here at HN
The cognitive dissonance is that most sv startups and SVB clients are run by people with very strong right wing economic beliefs. Suddenly when they're affected they're asking for bailouts of the parent institution so that they're not affected because of "too big to fail". This is quite simply capitalism for the poor and socialism for the rich.
Yes, this is exactly my issue. Libertarianism only lasts as long as it's not your $3bil at risk. Then it becomes "oh but the government can't let ME fail."
>>many of us have been outspoken about our disagreements with the techbro culture,
If this is what you have identified as the core issue people have with Silicon Valley, then you have really really missed the mark and do not understand at all what many people, particularly in the so-called "Fly out Country" have a problem with
>>Well, if you want to see startups solving hard technical problems we need to have some real talk about how that has to be structured financially
I want to see startups build sustainable business models built around solving complex problems. Not chasing quick adoption, with the goal to be bought out by a Google, Amazon, or Atlassian
I want startups to be driven by something other than Quarterly results that the MBA's at the VC firm's demand
There are a lot of vicious and blood thirsty people on the internet. It isn't specific to you or this event. Hardly any big event goes by without calls for executions.
Asking for equal treatment of the law as it is written is hardly a blood thirsty call for execution. It’s a call for fair treatment for all. Not special handouts to favored entities.
The actions of the Fed plainly stated that the rules don’t matter. Take risks, fuck up, and no big deal. We’ll just magically save everybody.
> many of us have been outspoken about our disagreements with the techbro culture
This is an odd thing to read. I always thought you were one of the people that began SV techbro culture when you replied to David Miller’s technical critique of Solaris with “have you ever kissed a girl?”
Yes, you have brought this up before.[0] And as I have said before[1] -- and will presumably say for the next 26 years as well -- I very much regret that quip. (The irony is that that was dredged up in part because people very strongly disagreed with my handling of the Noordhuis incident a decade ago.) But I will stand by my assertion that I have been outspoken about my disagreements with what I have found to be problematic in modern Silicon Valley, e.g. [2][3][4].
> maybe stop tweeting images of guillotines when our employees are anxious about their next paycheck?
I've been watching Elon Musk, Marc Andreessen, David Sacks, Peter Thiel, Jason Calacanis and on and on rant for the past weeks/months/years about the homeless in San Francisco, how students don't deserve student loan relief etc.
Now you're finding a lack of empathy galling? These prep school scions and maladroits, mostly wafting in angel/VC parasitism suddenly do an about face and beg for a government bailout. Of course they have been paying the piper and we hear before the weekend is over that their sweetheart deposits have been bailed out by the full faith and credit of the US taxpayer.
The structure of all of this points one way, and the intentions of a handful that are "outspoken about disagreements with the techbro culture" has no effect on that.
The reckoning did not come this week but it is coming, tweeted images and all.
We were required by covenant to bank exclusively with SVB as part of the venture debt line we had with them. This is a condition that is (was!) very standard and non-negotiable. This is part of what I mean about the real talk: that venture debt line was clutch for us -- and I would wager than any hard tech company that you revere has used venture debt at one time or another.
I've been told by numerous people, and ChatGPT apparently, that the way to minimize your risk at a bank is to only deposit a maximum of $250K into each bank, and use different banks with 250K at each bank, to ensure that FDIC will cover each person at each bank for that limit maximum of 250k.
Empathy is completely irrelevant. You agreed to a particular financial contract, one that ended up being a mistake ex-post. Now you want to wind back the clock and pretend you agreed to a different contract, and leave other people on the hook for it.
"Well, if you want to see startups solving hard technical problems we need to have some real talk about how that has to be structured financially"
There are deep, functioning, financial markets. Private buyers were already making offers to buy uninsured deposits at a discount. The world wasn't going to implode. Equity holders and founders were going to take a haircut. That's fine, that's equity's job here. Don't try to get out of it when shit hits the fan.
Putting your series A check into a fucking bank isn’t a risky financial strategy.
Speaking of private markets, they should have bid higher. Instead the government won and will likely come out ahead with their arrangement. No taxpayer money is being spent.
Sounds like you’re just bitter about tech/biotech companies surviving?
This is so aloof. People are engaging in a conversation about how to structure innovation. Many, many people don't want to see "startups solving hard technical problems." That's the nature of the guillotine images. They want a more equitable system and they want stricter vetting of what constitutes a problem worth working on.
The fact that you can't see that in the discourse -- that you instead just take personal offense despite the need in your message to claim you are sort of outlier -- is emblematic of our community's lack of self awareness, constant need for praise, and general ego. Much of the criticism being leveled right now is deserved. While you can complain about civility, you shouldn't expect that critics sentiments would not exceed your own critiques when you stand to gain by the continuation of the system.
A lot of people are asking “how is this not a bailout?” right now. I would caution against dismissing them, it’s a legitimate question. Pointing to the “Taxpayers will not pick up the bill” line counts as dismissive: this is a press release, and it’s from the government, that’s two strong reasons for some skepticism.
So, in earnest, how is it not a bailout? Feel free to offer your answer! Mine is:
“Banks are required by law to pay for insurance on deposits they take. FDIC stands for Federal Deposit Insurance Corp, and they are the ones that manage the Deposit Insurance Fund, which is where that insurance money goes. The FDIC is going to take from that fund to pay out all the depositors in SVB in one go on Monday morning, and then over the next few weeks and months it is going to sell off SVB’s assets and put the proceeds back into the fund. SVB has plenty of assets, so the FDIC expects to recover 99% of the money. If there’s a shortfall they will charge the banks a little extra in their next insurance payment, but keep in mind we’re talking about at most a few billion dollars spread over every bank; they are unlikely to pass on a small cost like that, but even if they do pass on the cost to the taxpayer it will be something like $10 per person maximum.”
Edit: if we take things like https://twitter.com/josephjacks_/status/1634569997266870272 at their word, the FDIC will likely see asset sales produce >100% of deposits, so absolutely no bailout of any kind. A good reminder that SBV didn’t die because they lied about their value or invested in financial instruments that exploded; they died because they didn’t have the cash on hand on the one day it mattered.
One reason why it's not (mostly) a bailout is that SVB's deposits are (as far as we know) still backed by bonds and mortgage backed securities, the problem is that those securities can't be easily sold right now (because people want higher valued investments) - a sudden forced sale means selling at a loss (or a cash flow crisis which is how SVB got into this state), holding on to them and letting them play out and they still have their value (worst case you sell them at a loss that is the difference between what they yield and what current investments yield)
One thing nobody seems to be talking about is whether SVB had more assets than liabilities- presumably they did since it was a money-making enterprise, right? So even if they sell at a loss there may be more than enough to cover the liabilities.
the problem is if I sell my own investments right now at loss nobody will come to pay my obligations. so why large institutions get to reap profit but get out of jail free when they screw up.. one set of rule for common man and another for investor..elite class.
Where do you see the 99%? My understanding is the bulk of their assets (long-term bonds) dropped 30% in value. If these bonds are sold on the market, they wont have 99% of the money.
Maybe the treasury is giving them the money back of the bond?
I'm guessing the FDIC can just hold them to maturity. The FDIC also has immediate access to a $100 billion loan from the treasury via statute if they needed cash.
Over the lifetime of the bonds/loans, they might even make money like what happened in the TARP program.
My answer: It is a bailout. And that's ok, if it was the best of bad options. Must we play the silly semantic game? By your explanation, all the bailouts during the '08 financial crisis also weren't bailouts. But they were.
I don’t like semantic games either. I always do my best to resolve a word to mean “the thing people care about when they use this word”. In the case of “bailout” it seems to me that what people care about is whether it will cost taxpayers.
In the case of SVB, it seems that their assets will cover their deposits, and FDIC has an insurance fund that gives them the liquid capital to cover deposits immediately while waiting for assets to sell. So no cost to taxpayers - not even in the form of “higher deposit insurance costs to banks being passed on to bank customers, who are taxpayers”.
(It’s possible to play semantic games until we formulate a picture that does show taxpayers will pay, e.g. “the FDIC’s deposit insurance fund is made up of payments made by banks, and banks would have passed on the cost of those payments to customers in the form of not offering as much interest on deposits as they otherwise would have offered, so the funds used to make the bridge are a bailout the taxpayer has already paid for”. Money is infinitely fungible, you can always tell a story where taxpayers paid the bill. But we said we weren’t going to play semantic games.)
> If there’s a shortfall they will charge the banks a little extra in their next insurance payment, but keep in mind we’re talking about at most a few billion dollars spread over every bank; they are unlikely to pass on a small cost like that, but even if they do pass on the cost to the taxpayer it will be something like $10 per person maximum.
Regardless of size that sure sounds like “taxpayers will pick up the bill”
Bank customers will pick up the bill. There are actually a large number of US residents that aren't bank customers or are too small to meaningfully increase fees on. This will cost money but it will be smeared out across businesses and middle class/upper class individuals.
Agreed, not a bailout as this is the purpose of the insurance scheme.
If someone gave me 10-to-1 odds that actually there will be no shortfall associated with this action I would happily take that bet. Shareholders will be wiped out but SVB's assets will cover all of the deposits, the regulator is just being extra-conservative.
Because even a single dollar disappearing from someone's bank account will drastically decrease confidence in the US banking sector. Modern society requires people to trust banks, if everyone tries to pull their funds and hide it under their mattress we are fucked.
This is merely an answer. Stock of SVB may ( may because at this point I am not discounting anything ) go to zero, however based on available information, vast majority of depositors ( 90% range ) were above FDIC insurance cap, which makes it a bailout of depositors AND, effectively and likely more importantly, all the smart ( and well-connected money ) that are invested in those startups.
It is a bailout. Its true beneficiaries are not as straightforward as in 2008 though.
<< bail outs keep the stock afloat. Here the stock goes to $0.
In such a case you are wrong about this statement then. This bailout is 100% intended to keep stock afloat; just not SVB's.
Its a (potential, whether any funds will be necessary is unknown) bailout of depositors (not the bank or its shareholders) at the (potential) expense of other banks (not taxpayers).
> If there’s a shortfall they will charge the banks a little extra in their next insurance payment, but keep in mind we’re talking about at most a few billion dollars spread over every bank; they are unlikely to pass on a small cost like that, but even if they do pass on the cost to the taxpayer it will be something like $10 per person maximum.
Sounds like a bailout at the taxpayers' expense, just with extra steps. A bailout of a few billion dollars that banks are allowed to pass on to their customers is still a bailout.
This is quite different than a bailout. They can’t just go to their customers and say, hey, we got this bill now you have to pay for it. They can raise fees, but then customers can go to another bank. They can lower what they pay in interest rates, but again, customers can go to other banks. Or customers can buy treasuries instead of keeping money in bank accounts. Banks are not the only place to keep money, nor the only way to raise money. Sure, chances are that some of the money will come from raising rates on customers, but some of this will just come out of bank profits.
> Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
Note the uninsured depositors clause in there — FDIC &co seem to have acted unilaterally to extend deposit insurance beyond the 250k and to the full amounts of any deposit account.
And they are charging the banks for it.
If this doesn’t stop a run on the banks, nothing will, frankly.
This round of bank failures was special because the debt held by these banks lost value because there is better stuff on the market, not because there was anything intrinsically uncollectable about the original debt. In fact, the debt probably is pretty similar to stuff held by everyone else in this ecosystem. This provides flexibility to meet the urgency of the situation, and FDIC, Fed, Treasury are simply saying "we know what the stuff is worth and there is enough money in the pot to make all depositors hole." "No more bank runs at this time please."
I would be careful using the past tense on this one. Tomorrow morning will be very interesting in a bad sort of way. A war, a pandemic, a financial crisis. What's next?
> In fact, the debt probably is pretty similar to stuff held by everyone else in this ecosystem.
This doesn't appear to be true. Everything I've read points to SVB being truly unique in their lack of risk management. SVB left these positions unhedged against rates. That is very atypical.
> how do you interpret this part? what is an example of somebody who would be an unsecured debtholder? as in somebody with a stake in SVB the buisness?
Yeah it's an investor who invested in a debt instrument offered by the bank. So CD holders will be made whole but holders of any corporate bonds won't.
We deserve to see more useful top comments on this matter.
The top ones in this and the main announcement thread [1] are just ad hominem complaining against some ostensibly "salty" or "cognitively dissonant" majority.
Let's talk about skin in the game and bailouts. Explain to a peasant why he should have to share the risk you took with your money. Explain to him this game being played where he gains nothing when you win but loses when you lose. And please inform him the recourse he has should he disagree with sharing your loss.
No moral appeals about making payroll, no ad hominems about non-positivism or cognitive dissonance, no complaints about "saltiness".
I speak for many when I say I'd like to hear a proper explanation on this matter, in terms of skin in the game.
EDIT: The above comment takes the following to be bullshit (from the article):
"Yellen approved actions enabling the FDIC to complete its resolution...in a manner that fully protects all depositors...
No losses...will be borne by the taxpayer."
If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden?
You are better off because the government is helping, and so are all of the people in the country who need to work for a living and need companies to work for. You can't let the banking system collapse and expect it will only hurt the people you don't like.
> If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden?
"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."
On top of that, SVB has the money to pay back almost all of the depositors. They just don't have it liquid right now because it's in bonds that won't mature for a while and would need to be sold for a loss. So the obvious and sensible thing to do is have the government lend money to cover the time until the bonds mature, in addition to using the FDIC's money which did not come from public funds.
> And please inform him the recourse he has should he disagree with sharing your loss.
You can vote for people who are dumb enough to let the entire banking system collapse because they want to hurt rich people. But of course that would probably put "peasants" out of work while the rich get slightly less rich.
This isn't grounded in reality. You make it sound like banks will just end as an enterprise, and we'll have to go back to carrying little bags of silver coins.
Depositors are the absolute last group to lose money in a bankrupt bank. When a bank collapses its assets don't just disappear, and depositors (and paychecks) get first scoop from the pot.
It would be nice if everyone didn't have such hostility towards personal responsibility. You never put all your eggs in one basket. You diversify where you keep your money.
The government can best help by doing what it does best. Let it invest in making bankruptcy courts super efficient. Set up automated systems to drip feed payouts to depositors as assets are sold.
The "heads you win tails we lose" deal we give to bankers, which we don't give to anyone else, is fundamentally evil, and we have to stop bowing to their terroristic threats that if you don't give us this deal you're all doomed.
Someone has to pay for the cost of lending the money. If the aim is to ensure that in the future depositors are always safe, then it might be cheaper to offer anyone an account at a risk free institution rather than backstop commercial banks.
> SVB has the money to pay back almost all of the depositors.
There seems to be this myth floating around that bond losses aren’t real. They are very real.
An 80 cent on the dollar (purchase price) bond is a loss of 20 cents. And it doesn’t matter if the holder holds to maturity.
Welcome to interest rates.
Edit: Fundamental fallacy here is not understanding the time value of money. Thinking of money without the time dimension is like thinking about space without time.
> So the obvious and sensible thing to do is have the government lend money to cover the time until the bonds mature, in addition to using the FDIC's money which did not come from public funds.
The cost of the loans should be in the same ballpark as the losses on the long term bonds.
> On top of that, SVB has the money to pay back almost all of the depositors. They just don't have it liquid right now because it's in bonds that won't mature for a while and would need to be sold for a loss.
Imagine another bank BVS of similar size that didn’t quite have the money. It has lost part of it in monkey NFTs or whatever. They have a loss similar to the mark-to-market loss of SVB.
Can they buy the same bonds that SVB has to patch the hole in their balance sheet? Can they then say “we have the money, we just don’t have it liquid right now because it's in bonds that won't mature for a while ”?
If not, why not? Both banks would have the same assets.
>You are better off because the government is helping, and so are all of the people in the country who need to work for a living and need companies to work for. You can't let the banking system collapse and expect it will only hurt the people you don't like.
The only problem with this line is that a ton of people on here are explicitly against social safety nets. Now that they need one, all kinds of equivocation and hand waving.
Safety nets for all (or none)! FWIW, I prefer the former.
> "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."
If you're trying to say "look, 'taxpayer' isn't mentioned, all good", you're either in self-delusion or you're playing dumb.
It doesn't matter how you dress it - "taxpayer money", QE, Sammy's piggybank - the inflationary repercussions will affect everyone.
> On top of that, SVB has the money to pay back almost all of the depositors. They just don't have it liquid right now because it's in bonds that won't mature for a while and would need to be sold for a loss.
This is a self-contradiction, yet it's written as an explanation.
Bravo.
> You can vote for people who are dumb enough to let the entire banking system collapse because they want to hurt rich people. But of course that would probably put "peasants" out of work while the rich get slightly less rich.
This isn't about "hurting rich people", you can throw away that straw man (along with the twitter favorite "it's not a bailout, the bank equity goes to zero!").
It's about the response to a complex system's failure.
Most would agree injecting liquidity ASAP is mandatory in the short-term, but that does not mandate insuring 100% of deposits.
Any sort of response has negative repercussions, but it isn't a matter of fact that the banking system would collapse otherwise.
Nobody has "the answers", it's a complex system.
The VC tech bro take draws a line in the sand and cries wolf for any approach that doesn't cover them 100%, and it's done under the guise of looking out for others; "the workers", "the banking system", "the economy", "a generation of technological progress evaporated".
Is it possible that the best thing to do for the long-term is to allow a worse short-term outcome (affecting a small part of the economy more drastically), so that the system is altered in a way that actually fixes/improves it?
Even if we grant that hypothetical, should it be done? It's a complex question with no right answer.
The VC tech bro take on technological advancements that have negative short-term side effects, wiping industries and causing people to lose jobs usually falls in the range of "learn to code" to "that sucks, but we must march forward".
There is a poignant sense of hypocrisy when grandstanding holier-than-thou "technologists" who claim in abstract that progress and efficiency trump all, find themselves on the other side and act oh so predictably.
The cynical responders aren't partaking in the question of "what is the correct response", but just because they don't gobble up the predictable VC tech bro take as gospel doesn't make them dumb.
> You are better off because the government is helping
If they believe they are helping, why does the response always emerge suddenly on the day of the crisis with no debate or well explained contingency plan being activated?
The whole system seems to be built on one group revealing a sudden crisis that have obviously been building for a while. Then another group of people explaining that they have a plan, there is no time to explain, no need to explain and the objections are all mean-spirited fools who don't understand the plan. The plan which will be clearly explained sooner or later.
They're acting like people running a scam. None of these crisises are that surprising. Raising interest rates were likely to lead to this sort of fireworks display at some point in the short term. If the panic is genuine they should all be removed on the basis that they can't spot a tree in a forest. This has to be a long-planned contingency.
> You can't let the banking system collapse and expect it will only hurt the people you don't like.
The hurt happened a while ago now; banking collapses are the market recognising that it was mistaken about actions that it thought were wealth-creating but turned out not to be. This isn't a question of trying to "hurt" rich people, whatever that means. This is about concentrating the pain on people with skin in the game.
If people with skin in the game eat the losses, losses will happen less often. If the losses are diffuse, then losses happen more often. They're trying to cover up for incompetents because they meet them at parties, go to the same schools and have the same friends. And invest in similar assets, one suspects.
"So the obvious and sensible thing to do is have the government lend money to cover the time until the bonds mature, in addition to using the FDIC's money which did not come from public funds."
From where do you think this money will, or has come from?
All banks take risks with the money that their customers deposit with them.
Sometimes those risks are bad, and banks cannot fulfill their obligations to their customers, so the FDIC, which is funded by banks (its deposit insurance) steps in and fixes a bank so that customers of that bank do not get screwed by picking a bad bank.
I dont see how any peasants are 'sharing any risk' here.
Everybody who held stock in SVB, just lost literally all of that. They invested in a bank that failed. Just like if they invested in a company that failed. Nobody is bailing those people out.
Anyone having a bank account will pay for it trough the banks fees/rates etc. Yellen avoided directly using tax money for the bail out, but it just is the next closest thing.
> Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
That sounds a lot like some type of bailout to me. What does "make funding available" mean? Where does that funding come from? It's going directly to banks, not to depositors. How does that work?
Companies making payroll or not is where the general public's skin in the game comes from. We can let them fail by crossing our arms, but this would lead to mass layoffs and financial turmoil as otherwise healthy companies have to shut doors due to this bank's mistakes. This would then also likely lead to a huge bank run, as most other companies realize they have to diversify their accounts and start scrambling to divert money at the same time.
I would also like to add that the vast majority of people losing their money were not betting on a risky asset. They merely had bank accounts with an institution that was mismanaged. We are not bailing out risk-takers like we did in 2008.
> mass layoffs and financial turmoil as otherwise healthy companies have to shut doors due to this bank's mistakes
Perhaps I'm missing something, but I would suggest that one key aspect of a company being able to call itself healthy is that its finances are diversified.
Making depositors whole isn't coming from taxpayer money, it's coming from FDIC and potentially higher fees on banks if it's needed as a function of the end result of SVB liquidation.
But even if the only option was to use taxpayer money, clearly it would be need to be done. If depositors weren't made whole, this week would've been a disaster with multiple bank runs that could cause a huge systemic issue. Eventually the fallout from such an event would bite the economy and the average taxpayer very badly.
The amount of money required to make depositors in SVB whole is negligible compared to the potential damage not doing so would cause, so it doesn't really matter where that money comes from.
That sounds an awful lot like "too big to fail". Are we here again? Why do we still have companies that big?
Why do we let companies grow that large then? Or maybe the FDIC protection should be increased for everyone?
I don't disagree that what you say is right when the argument doesn't go beyond the short term. But I expect to see protest against this from tax payers whose wealth is lower than the FDIC limit. Again.
I like this all upside, minimal downside method of business. How can I set up a nice company that will partially insure the money I get but ensure a bailout will cover the rest should the risks come to fruition?
Also, how do I make it hard for my customers to understand the risks they are taking on so that I can use compassion to ensure such bailouts?
Our society has created a complex set of rules and regulators to prevent bank runs. That system society created failed to detect a problem in one of the top 20 banks in our country. What other problems is it not detecting? The full backstop to the depositors is because this should have never happened - the system should have prevented it.
An organization with over $250,000 in cash is not an outlandish amount. Employers (obviously), but also municipalities, schools, churches and heck even grocery stores can exceed that limit. While it is reasonable to expect some individuals to have some sense and monitoring of the financial well being of the organizations they are directly affiliated with it is extremely unreasonable to believe that those same individuals are going to be aware of the balance sheet risks of the transitive banking partners of those organizations. People expect that money in the bank today will be there tomorrow.
Who wants to live in a world where everyone is keeping tabs on which organizations are banking where? It's a tremendous waste of time.
People don't want bank failures to be a thing, and if/when they do happen they want the damage limited to the senior leadership and investors of the bank.
If you were responsible for managing over 250,000$ of cash what is an acceptable Treasury operations strategy? Put it in a TBTF bank (still socializing losses). Split it into multiple banking partners - that creates operational risk in addition to extra complexity and overhead.
people will once again try to defend the indefensible. antediluvian fractional reserve banking as it currently stands is not fit-for-purpose and the price paid by society is high and will keep growin.
The other side of lazy private profits from "riding the yield curve" or which-ever else inane business model is recurrent crises and social costs, sometimes overt, sometimes obscure.
Arbitrary and ad-hoc explicit or implicit insurance schemes and put options, obfuscation and complexity, moral hazards and perverse incentives under every carpet.
A fair and democratic society, especially in the hyperconnected digital age must very seriously consider the wiring of the monetary/credit system. The rule should be simplicity, transparency and working hard for the money: return strictly coupled to risk.
Core to a better design will almost certaintly have to be the concept of risk free deposits with the central bank that are not subject to runs. The rest needs to be worked out.
>If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden?
The shareholders already lost everything and unsecured creditors are about to lose everything. That's still not enough to make all depositors whole though, which is why the statement said the FDIC will be paying for the rest and funding that payment by "a special assessment on banks". Therefore, the simple answer to your question is "all other FDIC insured banks, rather than the taxpayers, are picking up the tab here".
Do we know for sure that there’s not enough to make all depositors whole, all assets considered? Or is it just that they can’t quickly liquidate things to get to the total?
I had read a summary of a Kleiner Perkins analysis recently that said the total assets they hold, some of which are those awful-yielding instruments they’re locked into for 10 years, covers their assets. But since some of those instruments cannot be liquidated anywhere close to quickly, the FDIC will just need to hold onto those for awhile and front money for the bank in the short term.
Of course, who knows if that analysis or the summary of it is correct.
It's sleight of hand. I'm guessing the solution is that the money comes from all of us, but just through bank fees, higher interest rates on loans, and lower interest rates on deposits because the banks are paying more to the FDIC, as opposed to the money coming directly from the treasury and thus our taxes.
That is a reasonable sacrifice in exchange for a functional financial system.
For what it's worth, TARP ended up turning a profit for the government, so in my mind there's some track record of stiff-nosed decision making at Treasury. I'd feel differently if SVB stockholders were getting something out of this.
A charitable response I think is that depositors did not choose to make risky bets, the bank did. It's a shame really. So, you're blaming the wrong party.
Somehow, the bank definitely needs to be punished, but I'm not sure how or if that can happen in this current system.
What greater penalty for a bank or any other corporation is there than what has already happened to SVB? The shareholders are wiped out. The only thing left would be pursuing individual executives for… something, but aside from possible insider trading it’s not clear what.
Why does everybody think this is going to be a huge burden on the government, lots of sensationalism here.
Just by saying “we will backstop depositors” the government will likely have calmed things down enough that that’s the end of the story. Nothing else needed.
The bank has or can likely get the money to pay everyone back just not in 48 hours which is unnecessary anyway given normal outflows for the bank.
Unsurprisingly, the top comment complaining about top comment quality is the worst of them all.
This is one of those cases where the most obvious and mundane answer happens to be correct. The government is attempting to nip an existential threat to the wider banking system in the bud. Everyone who uses said system (read: literally everyone) has an interest in seeing it survive.
Anyone having a bank account will pay for it trough the banks fees/rates etc. Yellen avoided directly using tax money for the bail out, but it just is the next closest thing.
IDGAF about the morality of SVB's clients being able to make payroll or not.
But it strikes me that there's a second-order "too big to fail" effect at work here.
Not only bank runs. How many businesses who don't have any banking with SVB are operationally dependent on cloud services provided by SVB-banked companies?
What's curious is that this wasn't a risk in the 2000-2001 crash, and barely an emerging one in 2008.
Let's say 20% of cloud service providers can't make payroll and shut down. What does the disruption in the wider, real economy look like? Pretty messy, no?
I disagree with this non-bailout bailout, but I can somewhat easily generate one such response without even engaging my brain. As a member of this society, you, by default, have skin in the game. If you do not want to see a run on more banks as a result of wide-spread panic that would effectively undermine the entire system and result in unpredictable chaos ( as opposed to predictable anger that can be managed ), then the choice seems relatively simple. Unless, naturally, one does not want to enjoy relative stability.
Does this comment really start by complaining the rest aren't "useful" and then immediately switched to assuming it knows better than Janet Yellen about whether something will cost taxpayers?
Also, there isn't a bailout - protecting unnamed bank depositors is not a useful definition of a bailout.
> If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden?
No one can tell you what will happen because to my knowledge the FDIC hasn’t told us yet. They may not have settled on a final outcome yet — there may be multiple options still live — finding a buyer for the assets of the bank, for instance. All this statement is saying is that they’ve verified that even in the worst case, the resources exist to make the depositors. whole.
Meanwhile,’bullshit’ is a strong claim. And I’m not going to fight you on the trustworthiness of government officials in general. But someone who’s been at this as long as Yellen isn't going to blow the Treasury Department’s credibility on a dumb, easily-discovered, get-you-through-the-day-and-then-fall-to-pieces sort of lie.
The taxpayer won't bear the burden, at least theoretically. The money still exist in the form of bonds which are not liquid right now. The FDIC will provide the liquidity so one of the most important sector of the us economy doesn't implode. This is not the same situation as FTX
I'll just copy one of my previous comments on this, but this time I'll leave out the /s
"Hey, the FDIC coould raise the limit to, say, 10 million, and just let the FED reserve print out the moneys to everyone.
Not much different than what the US government is already doing. Reached the debt limit? Just raise it again, lol."
This but unironically. In Germany the government guarantees every deposit in a regulated bank. The US should do the same, even if that means substantially tightening the regulations on banks.
> can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden
Depositors are made whole. Shareholders are not. There were enough assets sold over the weekend to cover deposits.
That’s inflation, the word you’re looking for right? It’s a form of tax that isn’t thought of as a tax through the act of printing more money. Or, some similar mechanism of that shape.
> Explain to a peasant why he should have to share the risk you took with your money
Well.. in this specific case I don't think tax payers (I assume this is what you mean by "peasant") actually do share any of the risk/cost. The bank failed due to a liquidity problem. It actually has a pretty solid financial situation except for that! This isn't a "bail out" per se.
> It actually has a pretty solid financial situation except for that!
Then why couldn't they find a buyer in the auction today? If Silicon Valley Bank had positive equity, someone would have bought them out for an easy profit.
> Explain to a peasant why he should have to share the risk you took with your money.
Dear Peasant,
I empathize with your pain and suffering on a daily basis. I know life isn’t easy being a peasant, you perhaps work as hard as anyone in Silicon Valley. You pay taxes just like everyone else and expect your government to protect you and provide opportunities not just for you but for your children and their’s. Silicon Valley is a major growth engine of our economy, it means lots of jobs for your future grand grandchildren. It means better lives for all of us benefiting from innovations that happen there. You no longer need to farm in freezing weather when your John Deere tractor can drive itself or hail a ride on Uber and know exactly when to go outside on a snowy day. So hope you understand that when a place that people trust with keeping their money collapses it means major disruption to the economy. It means those tech companies have to fold not to a fault of their own, but because of a series of domino effects that would have been not easy to predict. It comes with the territory, not too dissimilar to a famine. We need to do something to save those companies and thousands of people who work there contributing to the prosperity of our country and the world. We need to do what is smart, socially and economically responsible and save those companies by providing the cash reserves they stored in the failed bank. We need to borrow money from the tax payers to do that, just like when we did that in the last couple of years to help another group of citizens. I know you understand this is good not just for our country but it’s good for you and your children. I know many will not understand why a large population of the medium class should benefit as if they live in a vacuum and anything that happens to them will have no effect on the rest of us.
> It means better lives for all of us benefiting from innovations that happen there. You no longer need to farm in freezing weather when your John Deere tractor can drive itself
That's not done out of charity, it's done for profit. And when they're good enough they won't need the farmer. Forget about the grand grand children, what opportunities will the government provide for him when when he's no longer needed?
It's all about solidarity when the VCs are hurting, but what about poorly educated in the middle of nowhere?
It should be the same for everyone: you make your own choices, and if that has bad consequences you should suffer them alone. VCs don't share profits when things are good because stocks aren't taxed.
The discourse on this thread and Twitter is astoundingly inept. If the FDIC had permitted uninsured depositors to not be made whole, there would’ve been a systemic risk to American banking. Confidence in the banking system is critical to its well functioning. Quite literally banks are built by confidence that their depositors will get their money back. Discussing whether SVBs depositors should’ve taken a haircut misses the point entirely.
People are arguing whether SVB depositors should’ve been permitted to take a haircut. This not a discussion. Had depositors lost a SINGLE penny, there would be a very widespread run on bank deposits as people try to get below the $250k figure. There was never a question that the Treasury was going to ensure that uninsured depositors were made whole. To argue about whether the depositors should’ve been made whole or not is tantamount to arguing whether we should willfully inflict a depression worse than 1929 on American citizens. It’s unconscionable and profoundly stupid.
> Any other action would create systemic contagion that could spread far and wide.
They could increase the FDIC coverage limit to a level that would avert a run, shoring up public confidence in other U.S. banks.
The BTFP if I'm reading this correctly values assets at par instead of face which is wild. It's not just providing liquidity to banks but rather giving them free money.
It is not inept. People aren't however pointing out the actual switcheroo here: by the definitions everyone was using just 48 hours ago SVB was not systemically important nor did it post systemic risk. That designation was meant to be for financial institutions that were directly depended on by other financial institutions. Nobody is saying that's true here.
What Yellen has done now is redefine "bank that poses systemic risk" to mean "any bank at all", which in turn shows that the insurance limit was never real, and that in turn the winners of the system are those who don't believe in the rules, but rather those who gamble on duplicity and the socialist leanings of government employees. Those who tried to believe in the honesty of the system got burned, again, and those who bet on it being meaningless won, again. The long term consequences are fearful.
You're correct, in that it was not immediately clear whether SVB warranted the systemic risk declaration. However, it should appear clear that fear is very contagious and it has never been easier to move tens of billions of dollars of deposits with just a few button clicks. This poses a sincere risk to banks not already declared Systematically Important Banks (SIBS). The Treasury and Federal Reserve correctly intuit that it would cost far more to the real economy, and to tax payers to cover the cost of SIBs then it would be to signal that uninsured depositors will be made whole.
Your claim that "those who believed in the honesty of the system got burned again", is not entirely true. Equity and debt holders have been completely wiped out. Compared to the Trouble Asset Relief Program (TARP), in 2008, this barely constitutes a bailout. Furthermore, if the Frank-Dodd stress test requirements for banks with greater than $50 billion had not been relaxed in 2018 to $250 billion, then SVB and Signature bank would have been seized and sold off well before there was this bank run. It is clear that even smaller regional banks need to face the same rigorous stress tests that SIBs face.
> Shouldn't the goal be to create a bank ecosystem that is more robust?
You are seeing the robustness in the actions taken by the FDIC right now. Not all failure modes can be prevented ahead of time. There is no failure-proof banking system structure.
> So that the failure of one does not lead to a domino reaction of failures?
The "domino effect" in the context of bank runs is a result of human psychology, specifically herd panic behavior - not something that can be changed by the financial system. At best it can be tempered.
When the future cannot be predicted accurately, it may be wiser to prioritize making prudent decisions that benefit everyone, rather than seeking retribution against wrongdoers. It's important to consider that both bank shareholders and senior management could face significant losses and lose their positions.
No, they don’t know about the risks and they’re shouldn’t be any to the depositors. Banks are highly regulated institutions and the creation of the FDIC was intended to prevent a systemic bank run, with people shoving cash into their mattress. This is precisely what would’ve happened had SVBs depositors taken any form of haircut.
Toilet paper consumers should know the risk of not having 30 rolls of toilet paper stashed at all times and should face the consequences for that risk.
So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke.
It's great at a personal level that "founders" and startup employees didn't have to do without. But it's important to remember that they no longer automatically deserve any credit for taking risks and doing something new. It might as well be a bunch of FAANG employees
And here it starts.. Lots of prominent people have just been exposed by this whole fiasco. 100% truly exposed and they're not gonna like it.
They're gonna want to try to rebuild their reputations. What's coming is a lot of "who are you gonna trust me or your lying eyes?". Starting soon you're gonna hear all the sob stories about how the VCs all this wonderful all did X and Y and Z. And nothing we just saw really mattered. And downplaying how as soon as the going got tough they abandoned all of their SV ethos and immediately went begging to the government to be bailed out.
Be prepared because there will be a huge PR push soon like you haven't seen.
> Having your bank account randomly disappear isn't one of the risks that anyone should have to take.
But that is the risk founders chose when they put their money in (a) any bank and (b) specifically SVB.
Your money is only insured to $250k. SVB had no CRO, lobbied against regulation, made no efforts to comply with Basel 3 and was engaging in risky bets that many had previously warned about.
CEOs have a fudiciary responsibility to understand and mitigate risks. And expecting taxpayers to bail you out (either directly or indirectly) when your incompetence causes harm is simply not fair.
A lot of prominent VCs were also screaming their heads off that other banks were about to fail.
These people played a zero-sum game, purposefully generating as much panic as possible to force the fed to act.
> Having your bank account randomly disappear isn't one of the risks that anyone should have to take.
The fed has sat on its hands for decades and done nothing to mandate better protection for ACH transactions, done nothing to mandate phasing ou magstripe transactions (Europe has been on chip and pin for decades), our check cashing system is a complete mess in ways scammers take advantage of, and debit cards have a fraction of the protection credit cards do despite "real money" being involved instead of credit.
But then a bunch of billionaires force hundreds of companies to do business with just one bank, that bank is outright incompetent in how it manages its funds and employed people who were central in the last financial crisis, and suddenly it's "well, we must act to protect confidence in the banking system"?
I have zero confidence in the banking system. My money doesn't feel remotely safe from being stolen. I can't even find a bank that will do hardware 2FA instead of SMS 2FA, which is worse than not having it at all.
"Having your bank account randomly disappear isn't one of the risks that anyone should have to take." Companies actually do. That's why they keep their assets as cash at a minimum and typically don't concentrate that cash in one institution. Risk management is a big part of institutional financial management. This isn't the first bank failure and this isn't going to be the last. This situation will, however, probably make bank bail outs less likely in the future. The political fall out will be huge. 100% this is a big point in the 2024 election. (Having a bank named Silicon Valley Bank collapse couldn't be a better metaphor).
> Having your bank account randomly disappear isn't one of the risks that anyone should have to take.
Not only is it a risk many take, but many end up losing a significant amount. The FDIC actually has a list of the numerous failed banks they've helped depositors recover assets from here[1]. You can see that depositors often lose a lot when banks fail.
Now I don't think this is a good thing, and I think it would be worthwhile to have a conversation about a systemic way to avoid this. But it was eye-opening to see so many not advocating any systemic approach, and instead just saying "the government should do whatever it can to cover all SVB loses because people like us are special."
> Having your bank account randomly disappear isn't one of the risks that anyone should have to take.
I mean, having all your data randomly disappear isn't one of the risks that anyone should have to take. But if a company suffered systems failure without backups, what would we be saying? If a company had a breach and all their data got release or encrypted by ransomware attackers, would people seriously be arguing for a taxpayer-funded government bailout?
> Having your bank account randomly disappear isn't one of the risks that anyone should have to take.
Then you put your funds in less risky banks who did not lobby to get an exemption from the regulations that protect against precisely this kind of thing. Even, spread it around safer banks.
Putting all of one's money in a bank because they have better returns or other investment opportunities is business. Not something that someone can be safe at the public's expense.
The public, because the public will pay for this one way or the other - if this is paid from the insurance that insures all banks like how the statement says, then it will cause all the banks who pay into this insurance pool to reflect it on their customers with fees. So every single person with a bank account in the US will pay. Its still public money, but it doesnt come directly from the US govt.'s pocked, so its 'okay'.
> A ton of the prominent VCs were writing out checks from their personal bank accounts so that founders could meet payroll.
Because they have duty to do so, as (part) owners of those companies. They could face personal liability for being negligent enough. You'd think any company with non-trivial payroll should've known better than not to hedge on all the things, including their banking partner.
>Having your bank account randomly disappear isn't one of the risks that anyone should have to take.
This bank choose to _avoid_ safety regulations from the 2008 financial crisis, which is completely open information. They used this avoidance to pursue greater risk.
What is "randomly disappear" about putting your money into such a bank?
Not the OP and I hadn't put them in the noble class category, but until a few years ago I had truly believed that the innovation that was still coming out of the US (and out of the West more generally) was in no small part thanks to SV startups (and hence thanks to the VC industry supporting them).
The whole crypto fiasco plus a few other things (these SV people going from worshipping Musk to hating him in a very short period, for example) have convinced me that I was a holding a view that was not based on anything of substance.
Which begs the question: where does real innovation come from in the US (and the West more generally)? The SV start-ups are not providing it, ditto for the FAANGs, what's left?
Most people that I have come across who are not experienced in tech startups seem to have some kind of holy image of VCs. They seem to think they're all "rich and successful". They think it is some kind of highly esteemed job to possess. Contrastingly, people who have been in the startup game for years know that VCs are just salespeople, and a great majority of them lose other peoples' money while just raking in a normal salary.
Hey, there’s nothing wrong with the government protecting people when they lose everything due to circumstances beyond their control. I’m glad to see VCs finally fighting for their progressive ideals.
I cannot decide if the idea that VCs are some kind of kindhearted patrons and startups in general are all moral straight arrows dedicated to only good things is outright propaganda or just distilled Silicon Valley delusion. Hanlon's Razor indicates the latter, but I do wonder.
For every one company that genuinely is working out of the goodness of their hearts, there are 10 serial founders seeking to inveigle their way into something as a middleman, sorry "disruptor", then cash out and go round again before anyone notices the cracks.
I used to believe it until about 7 years ago, when I started to build an open source alternative to the rentseeking Big Tech industry. Too much of Web2 and Web3 was based around the profit motive, and no one stuck around long enough to replicate their stack and give it to the people:
Absolutely. People like Garry Tan, Sam Altman, Michael Seibel, Paul Graham, Mark Cuban, all pushed hard to keep their money, not caring if it's at taxpayer expense. Rich people tend to only care about helping others when it aligns with helping their own pockets.
This may have been the most prudent decision by the government, though it'll be hard to say what would've happened otherwise. But in the end, it sounds like the average person will still be negatively affected, by having small accounts under the $250k limit subsidize insurance for larger accounts.
Should they not push for a good policy just because it benefits them? I don't really get the criticism, unless you think they were hiding the fact they had skin in the game.
I don't understand this comment. 1) SVB was not managed by VC's. 2) SVB went under because they bought US Treasuries, not because they took risky bets on startups.
1. If they had more short dated treasuries, they could have used them to fund drawdowns, and would not have had to sell their long dated treasuries, that went underwater as interest rates rise.
2. If they had not been overly exposed to one sector, a sector that largely existed due to 'free money' of zero interest rates, then large scale draw downs would not have happened as interest rates rise.
I think this is very much in question. Silicon Valley Bank was absolutely part of a cohesive microeconomy. There's no other explanation for the absolutely uniformity with which all those startups were using it for what should have been 100% commodity banking services. Those startups all banked with SVB because their VCs told them to.
And the VCs told their startups to bank with SVB because... we don't know yet. But any time you have a signal this strong, there's a driver.
Add to that the fact that the moment all those startups seemed likely to lose banking services, however temporarily, those same VCs freaked the fuck out of their minds on twitter and started shrieking in all caps about the end of western capitalism. That's not mere concern for their poor startups (most of whom were going to fail anyway, after all -- they're startups!). These VCs were exposed to the SVB failure. They were leveraged somehow and about to get caught holding the bag.
There was some kind of insider dealing going on with SVB. It wasn't just a bank. We for sure know that much. Whether we have criminal fraud or not is an open question.
"I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty."
The point is that these VC's didn't act to support their investments, they flailed around begging for bailout (that they probably didn't need but they didn't understand banking well enough to know that or bother to consult any experts before making public statements).
They behaved badly and should be embarrassed and everyone should remember it.
SVB regularly provides credit to risky startups, which is why they existed in the first place (because other banks wouldn't lend at those rates). So, yes, they sorta did place risky bets on startups.
Some VCs were definitely better than others: the very worse was probably the All In Crew who were trying to spread a bank run to tie the government's hand. Truly despicable.
Agreed, I‘m a big fan of the all in podcast but this really showed them (especially Sacks) from their worst side. They clearly pressured the regulators by saying that everyone who has more than the amount insured by the FDIC in their account at a regional bank is stupid and reckless if they don‘t transfer it to one of the top four banks on Monday. The situation at SVB seemed very manageable but even a small chance of this „mind virus“ spreading would be so devastating that they decided to backstop the situation.
> It's great at a personal level that "founders" and startup employees didn't have to do without. But it's important to remember that they no longer automatically deserve any credit for taking risks and doing something new.
Mm hmm. Yes, after all is said and done, the main take away from this is that startup employees and founders no longer deserve credit for taking risks and doing something new. Glad our priorities are straight here on hackernews.
> For some sily reason I had some respect for the startup industry before this, now I see it as a joke.
1. silly reason
2. It's a joke
It looks like you just found your silly reason.
The greed of startups have evolved to become bigger and bigger as years pass by.
The romanticizing of startups came from propaganda. It's just that some of us were too young and naive to understand the puppetmaster while others had seen the puppeteer before...
> they no longer deserve credit for taking risks and doing something new
What on earth. Putting money in the bank was never a risk founders were lauded for, nor should it be on the titanic list of things they have to worry about.
We can brawl in the peanut gallery over FDIC limits and precedents and moral hazard (which lies with the banks, btw) but at the end of the day there can only be one “best country to start a startup” and whatever that is, it’s definitionally one where you don’t have to worry about getting rugged by the bank because someone you wouldn’t know from Adam made a bad bond trade.
VC's and YC have burned a lot of credibility overnight with their tech employees during this mask-off moment. I wouldn't be surprised if this forum harbors long term resentment, lack of respect, and a more adversarial relationship going forward. I haven't ever seen such a large lack of respect for them as the past couple days. This industry has gone full Wall St. The next generation of individualist, regulation-disruption startup founders will be reconsidering the YC club a bit more...
> VC's and YC have burned a lot of credibility overnight with their tech employees during this mask-off moment
Why? It should be other way round. They worked hard to make sure that payrolls are met and jobs are secure, that is my most important expectation from my management and investors.
There is nothing but economic interest. If you want to predict how any company, startup or not, will behave just look at how they make money. In 99% of the cases companies act according to their business model. It is that simple, there is nothing else. All the "we will make the world a better place" rhetoric and mission statements are just recruiting and PR BS.
What did VCs do wrong here? They warned of impending solvency problems at SVB and told founders to withdraw their money ASAP. And indeed, the bank failed the next day. The companies in trouble are those who didn't listen to the VCs.
VCs Group-B to Z were too late so they asked Govt to help them.
It's not just founders who put their money there, VC funds are there as well and they are probably close to 100% uninsured (cause it's the Fund Series I - XXX).
If you get your hands on the list of depositors, you'll see the list of Funds Series from VCs.
Everyone withdrawing their money ASAP is what caused the solvency problem. There's a big difference between warning people of a problem and encouraging them to behave in a way that creates it.
They went around begging for bailouts when they could have just had the companies sell the uninsured deposit claims at a discount, paid their workers, and, as equity, eaten the loss.
Part of the issue is a common one: assigning blame for actions taken by individuals to the collective. It’s a nasty internet trope. But these things are true:
- the crisis was at the most caused and at the least exacerbated to the point of no return by the advice that some firms gave
- the general zeitgeist amongst certain firms and from particular individuals in firms leaned towards libertarian ideology, which seemed to go out the window when ish hit the fan. I can really only find one prominent example of this, so I don’t know if it’s fair to paint all of VC-land with the same brush
- it is probably the case that there are members of firms in both group one and group two, which looks bad, because panicking at the last second looks bad, especially when your panic screws (for your own benefit) a business partner of decades who was essentially only in a risk zone because they chose to do business with you. That’s an oversimplification of course, but it all is
Why should they not get credit for taking risks or doing something new? How is that related at all? The risks they take are based on the viability of their product. It was never (supposed to be) based on the risk of if their banking institution could provide them with their cash as needed. None of that has changed.
We’ll because taking risks by definition means you could end up in a negative situation and so it should be more of a personal decision?
It seems like SVB took a risk and lost.
If the majority of Americans voted for SVB taking higher risks it would be understandable but now who comes up with the missing money ? The government, which is tax payers who are already probably getting the raw end of the stick financially compare to silicon valleys.
I think this bailout will see a lot of political backlash.
People like Jason Calcanis were screaming on Twitter like the world was going to collapse and that the contagion would take down regional banks hurting ordinary consumers.
All because he wanted the government to bail out his startups.
Running to the Fed for help as soon as shit got real; made a lot of the bootstrapping libertarian ethos stereotypically espoused by a certain of VC seem very hollow.
Who would've thought post-hand-wringing-over-poor-300k-salary-tech-workers realizing their disposability that we would have another event reminding HN just how different the rules are for capital owners than the rest of us.
Why is that tech workers, many of whom easily have earned over a million dollars in salary over the past few years can't be told to "live within their means"?
Why is it that the same VCs that rallied against student debt relief think their poorly run bank should be bailed out?
I know why, this thread is chalk full of it. "We were smart, we were playing the game with the advantage we were told made us untouchable, we can't fathom gasp 'negative consequences' whatever those are".
I'm sick of it and thankful to see people seeing through this a bit more than usual. Downvoting isnt going to change a damn thing, click your hearts out and enjoy the dissonance. See ya in the next too-big-to-fail-as-a-result-of-unchecked-corporate-greed thread. lmao
> Who would've thought post-hand-wringing-over-poor-300k-salary-tech-workers realizing their disposability that we would have another event reminding HN just how different the rules are for capital owners than the rest of us.
no offense this comment shows lack of even basic understanding of situation.
SVB collapse a zero impact on big tech workers earning $300k. this problem effect small business, maybe 50-75 employee who did not risk they money. they literally put in bank to do thing like pay employees and other bills.
start up employee is not earning $300k USD per year. start up hardly compete with big tech on any compensation. these people working hardest.. not rest and vest like big tech.
Yes, regular people get their bank accounts automatically protected, and the capital owners had to sweat for a few days.
The bank is not bailed out, it's out of business, its shareholders get nothing, and its execs just lost their jobs. The bank's customers got bailed out.
How many startup employees do you believe are making 300k? That’s FAANG, big-tech companies that were in no way affected by SVB going under. If anything, startups are known for paying below market rate because they have tighter margins and compensate with the tenuous promise that more money might be made in the form of stock options if the company makes it big, which usually doesn’t pan out.
> I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke.
the long term fallout was never going to come from only getting 90 cents on the dollar vs 100%
it’s the fact that the lender most willing to work with non traditional borrowers eg tech startups is now gone, and there’s no bank or lender that will replace them. if anything this will mean lending standards will tighten, and it will be very difficult for any customer with a SVB credit line to find another bank willing to lend to them on the same terms.
this is also coming at a time when more startups relied on debt to fund their companies because the equity raising environment is so tough, so now many founders might be forced to attempt to raise equity in a tech bear market on very bad terms if they can at all
Glorifying founders has always been stupid, they're all trying to get rich, not exactly a noble cause. It's not something to demonize them for either, but founder worship is kinda gross.
It's impossible to move on. There were insufficient funds to pay depositors; meaning, the money was gone - Since the money didn't vanish into thin air; somebody got that money through some scheme.
Now taxpayers are going to be footing the bill... It's a government-ordained transfer of wealth from good, honest taxpayers to whatever (possibly malicious) entities got that money.
It's theft. It's straight theft. Not even complicated. Theft is now legal depending on who you are.
> It's impossible to move on. There was insufficient funds to pay depositors; meaning, the money was gone - Since the money didn't vanish into thin air; somebody got that money through some scheme.
There was no theft. The bank bought bonds that decreased in value rapidly due to rising interest rates. Pure mismanagement, but not theft.
An equally silly error would be concluding that all VCs are like this. Although we heard absolutely unhinged and insane panic from a few (like Jason Calacanis), and some milquetoast statements from others (Redpoint), we heard no panic from the largest players.
I won't reshare anecdotes here, but I heard stories over the weekend about intense and direct conversations between the largest VCs and the Fed.
I will never forget, they revealed their true faces. All these CEOs also. It's a big game, words are just tools to manipulate others into doing what you want them to do, nothing more.
Does realizing this, that they were always like this change your perception of the last decade in any particular way?
I'm genuinely very curious. I've always considered them a bunch of smarmy opportunistic cutthroats, but that shift must be jarring right? Again I don't mean this negatively, genuinely interested in how it changes your understanding of the "startup era," pandemic, etc.
Now they are going to see the light and give the employees the same "bailout" they got when times got tough in the form of "not getting laid off" right? .... Right? Because everyone deserves a break, right?
The people I lost respect for was a large portion of HN commenters calling on bank depositors - largely small businesses - to be snuffed out because there was a run on their bank. The comments have largely been factually wrong, misleading, and downright psychopathic. I am glad our government is not controlled by such people, but I question the value of this forum going forward given the large portion of it that is so incredibly toxic and so poorly informed.
These are the same people that influenced most of the recent opinions around Google, Amazon, Meta, etc. I'm not saying everything is peachy keen at those companies, but just keep this in mind next time you see the next "Google eats babies" or similar un-nuanced headline and comments section.
All of these companies could have sold their uninsured deposits at a discount, made payroll, and let their equity holders take the loss. This is what equity holders are supposed to do. Instead they went on an embarrassing twitter begging campaign and unfortunately succeeded. The whole "workers missing mortgage payments" or "destroying a generation of innovation" is an insane, buck-passing take.
The bank's shareholders are getting wiped out. The depositors are protected. Banks -- who depend on the continued faith of the public -- chip in a little more in insurance. The taxpayer pays nothing.
A bunch of software companies get to succeed or fail now on the basis of whether their business models and execution make any sense, as opposed to whether their bank bought enough interest-rate swaps.
Small regional banks can continue to exist. This will not necessitate even more consolidation in American capitalism. And there will be no follow-on bank runs to jeopardize grandma's CDs.
Seriously, what is there to complain about? The government did its job here. It governed. Fairly and competently.
Money to cover deposits that didn't previously didn't exist, suddenly exists, and there are people like you trying to tell everyone else that everything is rosy and that it's not going to cost the taxpayers anything.
It sounds like a revolutionary system that you're working with and if it truly costs "nothing", may I ask where I can sign up to have my bad financial investments refunded for free?
You're going too far by calling VCs "rent seekers". They do provide value with other peoples' money to build companies. No matter how much people love to hate them, they are a necessary part of the startup ecosystem. Most of them fail and end up in tears in the long run -- it's just the nature of VC. There's no need to punch them when they're down.
in my personal opinion most if not all modern startups are seeking to create a system in which rent seeking behaviour is the end goal.
The stereotypical SV playbook is to enter a market, don't give a crap about the local regulation or laws, try to get big by using your cheap money to outstrip to competition and do rent-seeking when you are the largest.
Also, a lot of startups are solving non fundemental problems.
We should be spending all that engineering effort fixing things like climate change, food security for the global south and a way to deal with the aging population in the western world instead of thinking about algorithms to get more clicks on ads.
“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
This special fee will most likely be passed onto bank account holders either through lower interest rates or higher fees, so most taxpayers with bank accounts will likely be affected indirectly.
They'll be less affected than they would have been if contagion had been allowed to spread unchecked. All banks have a vested interest in the stability of the financial system in general.
Readit News
Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it.
At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
I understand part of this is human nature but I really wish we could plan for these entirely foreseeable events ahead of time so that it's not just cases of "selective justice" with regards to who gets bailed out.
There's absolutely no excuse left for why banks get to invest any of their clients money. They get free leverage from their clients for free. They can send it to zero and the entire risk will be held by the government. That's absurd.
Revoke banks ability to invest deposits. They can't get to have the cake and eat it too. They could offer higher interest rates for non guaranteed accounts which bear risk, or zero risk for the already zero interest rates.
>Revoke banks ability to invest deposits. They can't get to have the cake and eat it too. They could offer higher interest rates for non guaranteed accounts which bear risk, or zero risk for the already zero interest rates.
You are missing something crucial here - treasury bonds are a loan to the government - this is all by design.
Who will loan the government tens or hundreds of billions of dollars besides the banks? The [Fed/Treasury/FDIC] has no incentive to prevent banks from loaning customer deposits, because the Treasury needs banks to purchase government bonds
"Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."
Does this mean all American banks (indirectly bank customers) will pay to cover depositor losses that exceed insurance funds?
All owners of the bank will end up with nothing, I think that's a good enough deterrence against bad things.
Deleted Comment
So the FDIC existing does not change how a bank behaves. From the perspective of the bank, bankruptcy and FDIC takeover are effectively the same thing.
Bank runs used to happen all the time. The fact that this is the first bank collapse we have seen in basically a lifetime is more of a miracle than anything else, and should be considered a stunning success that a bank collapse is a once in a lifetime event rather than a yearly occurrence that it used to be.
This is literally the purpose of holding deposits for banks.
Then the banks figure out a way to put that money somewhere else that rewards them more than what they are giving the depositors.
Basically that’s the foundation of civilization.
I think everyone knew that already. Since 2008 at least.
It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones. A domino effect is very hard to prevent when it's based entirely on consumer confidence and those consumers can very easily create a bank run on literally anything if they freak out.
I don't get it. Doesn't the unlimited FDIC insurance encourage mega-banks? If funds were only insured up to 250k, wouldn't that just mean we would have to spread money across multiple banks. And sure some banks would be wiped out but new better banks would take their place. It's not a closed system
Banks used to fail and be smaller failures. Now we removed almost all failures except when we have a failure its huge:
Total number of bank failures: 512
2023 1
2022 0
2021 0
2020 4
2019 4
2018 0
2017 8
2016 5
2015 8
2014 18
2013 24
2012 51
2011 92
2010 157
2009 140
https://www.bankrate.com/banking/list-of-failed-banks/
Not typical consumers, right? Typical bank consumers have < $250k in their account, and thus there's no reason for them to cause a run.
It'll look not very much unlike Canadian domestic banking which has the "big 5" of banks: TD, CIBC, RBC, BMO, Scotiabank.
But instead, with Wells Fargo, Citibank, BOA, etc.
And everything else is really quite tiny in comparison.
No, there are systemic risk exceptions within the rules. If a bank is large enough, then the systemic risk to the economy as a whole is large enough to warrant this step. "Too big to fail" is typically a derisive comment, but it is not without practical reason. Governments are supposed to act in the best interest of the governed. I hope it is clear to all of us that avoiding the economic disruption of a cascade of bank failures is in our interest.
Smaller bank failures do not pose systemic risk and so they will not be backstopped in the same way. Might seem like unfair treatment, but practical concerns often outweigh the theoretical. By the way, SVB is still a failure and as a company is now gone. Some other entity will take over its assets, debts, and customer services. All senior management has been removed.
>I understand part of this is human nature but I really wish we could plan for these entirely foreseeable events ahead of time so that it's not just cases of "selective justice" with regards to who gets bailed out.
We did. That is why we have the FDIC, the Federal Reserve, and the Treasury department. They did their job and did it quickly and effectively. SVB did not get bailed out, the depositors did.
Very clearly there is a large chuck of this forum that doesn't understand that.
Many of the governed see what policymakers and politicians call 'systemic risk' and 'instability' as a not so unwelcome wildcard considering that the wealthy of today are mostly descendants of wealthy land owners from the times of the Crusades.
> > They did their job and did it quickly and effectively
Where are the Fed , D.C. , the FDIC etc. when a gas station goes belly up? Or a small family owned boat builder in Maine? Nowhere to be found. Their fault? Not being systemically important enough. Whatever the fuck that means.
Keep in mind that bank shareholders and senior management are going to get wiped out and fired.
As someone who is naturally risk averse, I feel like a sucker. I was having a conversation in a separate thread where someone remarked "How can you expect startup companies to spread their deposits across multiple banks?" Besides the fact that there are tons of account structures specifically set up to do that, as an individual, I know what these insurance limits are and have moved assets around accordingly (for me, FDIC limits weren't relevant but SIPC limits were).
How much time I wasted. I should have just gone with a powerful enough institution that I knew would get bailed out if they ever failed. I certainly won't waste my time doing this again, which is probably not the follow-on effect that the feds want.
Will senior management have to return their 2021 performance bonuses? If not, successful sinning is just a matter of ensuring you cash out early.
That misses the point that it is possible to both help everyone and punish the sinners.
Here is a game I recommend that you play: https://ncase.me/trust/
I think it gives a great explanation why what you are saying in good faith is not quite right. Not punishing the sinful both pushes the problem into the future and makes it bigger.
Yeah, let's punish the management like we did in 2008...
"SVB executive was Lehman Brothers CFO prior to 2008 collapse"
https://m.economictimes.com/news/international/business/svb-...
Wasn’t one of executives working at Lehman Brothers or some such before? This is just failing upwards and doing same thing.
Yeah I kinda doubt they'll get what's coming to them unfortunately. Insider trading's only a crime when it's poor people doing it.
Deleted Comment
I'm conflicted about this. In the last seventy-two hours, I made a ridiculous amount of money standing still because risks that shouldn't have paid are being done so by people who shouldn't have to pay them. I personally benefit. But we've given tech companies a visible privilege American farms, factories and municipalities don't enjoy. T
And do the same thing again. Wasn't the CEO ex-Lehman?
https://www.cnbc.com/2023/03/11/silicon-valley-bank-employee...
That's all that's really necessary in terms of handling moral hazard and public perception that this is yet another bailout. Let ppl see the CEO suffer and they will be fine with having taxes foot the bailout bill. It's sad but a spectacle is necessary here.
> We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority.
Two closures in three days is a sign that you have to take this very seriously.
Signature was another bank whose business was primarily in a volatile and risky market:
"Signature is one of the main banks to the cryptocurrency industry, the biggest one next to Silvergate, which announced its impending liquidation last week. It had a market value of $4.4 billion as of Friday after a 40% sell-off this year..."
https://www.cnbc.com/2023/03/12/regulators-close-new-yorks-s...
https://www.cnbc.com/2018/05/24/trump-signs-bank-bill-rollin...
https://en.wikipedia.org/wiki/Glass–Steagall_legislation
No, that's been the implicit rule since 2008 at least (arguably earlier). If anything, not supporting all depositors would have been changing the rules mid game and so would have lead to massive disruption.
The thing a lot of people aren't getting is that the rules of the game haven't been the law but what the Fed does for a while.
Certainly, the game as it's played favors the wealthy, yes. That should be changed. Knocking everything over by suddenly changing expectation wouldn't change things, just disrupt everything. But also, it wouldn't happen anyway 'cause the game is too important.
No, depositors have lost money in failures since 2008. Its true that, for a long time, the FDIC has tried to resolve failures in a way which protects as much of the uninsured deposits as possible, but it has very much not been a guarantee.
The systemic risk exception invoked here is an exception.
No, its not.
The “rules” of the “game” authorize systemic risk exceptions, so applying them is not a change to the rules of the game. Moreover, civilization is one continuous game, changing the rules in the middle is the only way to ever change the rules.
And it sounds like they have the authority to just do this on a Sunday, so it doesn’t sound like any rules being changed.
If I was a banker with a marginal portfolio, I wouldn’t be encouraged by this. Depositors are making it out, but banks are being aggressively shuttered to make that happen.
That seems unjust and probably illegal. What makes you think Signature isn’t actually insolvent?
I don’t know if I would call those events “pedestrian”.
You believe invocation of the systemic risk exception is the norm?
Deleted Comment
Although this problem was caused by bank malfeasance and yes this does imply de facto unlimited insurance, unlimited depositor insurance is kinda the whole point and is not itself a bad thing.
Yes, moral hazard is a huge consideration, but I don’t see depositor protection as encouraging future failures of this type, by encouraging bad risk taking by mgmt.
Rather, if banks bet their customers money unhedged on endless zero rate policy, as SVB did, there should be regulations that prevent it. Trace back to lobbying to exclude SVB from dodd frank regulations also at the heart of the crisis.
No offense, but I thought we all learned the principle underlying this in 2008.
Part of the rules are that the regulators are supposed to shut down a bank before the run happens. They're not supposed to let the run happen and let the poor saps that were too slow moving their money bear the brunt of the losses.
Yellen is not clueless. She knows exactly how this will play out but as it will be spread over time and to many counterparts she simply does not care.
This is terrible moral hazard. Uninsured depositors should have taken whatever haircut would result after the auction. That is, after all, the meaning of uninsured.
Feds are averting national crisis here.
If it's not a loss to the tax payers, then it seems like good governance to me.
Source:
https://www.occ.treas.gov/topics/supervision-and-examination...
You are almost certainly misreading that signal. Probably since Friday they have assessed that the depositors can be covered once the assets can be liquidated, and that they may even be able to make money doing it.
If they can’t, they can assess the rest of the losses to the system, and those losses once divided up are likely to be inconsequential, even if not considered in relation to a broader run on the banking system.
The same assets that are yielding <4% interest against a market rate of 5%+ or 7%+ or whatever it is? Seems like it's going to take a long while before those papers are trading at or above cost when you account for inflationary devaluation and their yield horizon.
There is certainly a cost here. The insolvency of the paper is the entire reason the bank failed in the first place.
Also if this option was available, why did they just bring it up now?
This has happened before in 2008. Secretary Yellen's announcement is important to secure depositor confidence, so the contagion doesn't spread to more banks. If depositors are confident that the government has their back, there's no reason to pull money out.
There is also no reason to put the money in.
You go through the trouble of protecting your money because you deem them scarce and irreplaceable.
If tomorrow a commercial bank insured with the FDIC starts offering a product promising 20% interest, then by all means people should get together and apply in mass, get a couple of big political donors on board and all of a sudden there is no downside.
If the wacky bank keeps its promise then it's a 20% gain, if not then the FDIC will have depositors backs anyway to the full amount
" I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ... "
"Greenspan: I was wrong about the economy" - https://youtu.be/XQFq97ljy3k
> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.
with this quote from the Treasury Dept statement?
> "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."
The fungibility of money aside, my personal taxes will not pay for this.
It wasn't just us. Larry Summers was prominently and publicly stating that the inflation was definitely not transitory. But the banks believed her, and continued in 2021 to buy these securities as if interest rates were going to be going low again in the near future.
The banks most certainly didn't believe her. The banks rightfully took it as a signal that the US gov would step in to cut losses if banks continued to loan. The Fed wanted banks to continue to loan so they didn't grind the overall economy to a halt instantly and send us into stagflation.
But everyone knew it would happen. The Fed knew they were playing a losing strategy. And they still know it. But they refuse to play the strategy that would win the inflation game because it would bankrupt the country.
The only way out now is through severe tax hikes + gov spending cuts OR war with China in the hope to reset debt at its conclusion. The political elite seem to be signaling the latter.
Hypothetically, if I ran a government that was engaged in geopolitical competition, I wouldn't want people to tell the truth to my detriment when alternatives could be gotten away with.
Damn if only the US government could find someone with credentials as strong as yours
If you ran a bank that required insurance on all deposits over the $250k FDIC coverage, and then offered 3rd-party insurance as a convenience for those who wanted it... your bank would be much less likely to suffer a blow up due to a bank run and therefore that insurance should be relatively cheap.
Furthermore, people should prefer to bank someplace where all of the depositors are covered. Why is this not commonplace? Simply because the additional fee discourages it?
I think if Yellen announced this as a requirement it would remove that incentive to treat FDIC like free unlimited insurance.
You actually answer this question in the second half, because banks have been treating the government as free unlimited insurance.
If this wasn't done... nobody in the world is going to trust their bank within a few days (possibly faster than that thanks to twitter, et al), which would trigger Global Depression II
If someone in 1930 overheard a time traveler referring to World War 2.... the shock would have been overwhelming.
In the same way, seeing the start of World Depression II isn't something I could bear.
It must be true that bank deposits are safe.
Yeah, all corporate customers that have seen an FDIC charge on their statement, based on Q-end balances will have a "special" laugh at this. It's going to be passed through and not be bourn by the surviving banks - that benefit from this 'bailout' of their customers....
That's literally how legal systems work.
Although I agree with the Treasury's actions here so far, this is a potential issue. They should instantiate more stringent rules for banks that who cater to business accounts and then raise the cap for insurance on those accounts to a number that makes sense for small businesses across the country.
Too many CEOs and CFOs were allowing their business checking accounts to sit in dangerously uninsured positions. Headliner being Roku with nearly a half a billion dollars sitting in a single checking account with SVB. But plenty of smaller businesses leave ten million plus dollars in their accounts as a course of business as well.
The actual amount those accounts can be insured for needs to be formalized and it should probably be higher than the standard quarter million for consumer accounts as this is way too low for business larger than a half dozen employees.
Haven’t depositors always been first on the list to get paid, even their uninsured deposits? I don’t know if charging a special assessment to member banks is standard operating procedure, but that doesn’t sound like government intervention. It just sounds like reasonable operation of the FDIC.
It’s a decision of how to apply existing policy to a specific situation, not a policy change. Existing policy is nonspecific enough that reasonable people could disagree on how best to apply it here without changing it.
> Haven’t depositors always been first on the list to get paid, even their uninsured deposits?
Yes.
> I don’t know if charging a special assessment to member banks is standard operating procedure
It isn’t routine, which is why it requires invoking the systemic risk exception.
> but that doesn’t sound like government intervention.
It’s a government decision to intervene in a particular way, so…
> It just sounds like reasonable operation of the FDIC.
It’s not just “reasonable operation of the FDIC”, since both Fed and Treasury actions are involved. And, even if it was, FDIC is a government corporation, so its actions are government intervention. Its reasonable operation is reasonable government intervention, but its still government intervention.
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(And yes, it's taxing the depositors. Because even if it's "officially" a fee to the other banks, it will be trickled down to their customers through lower interest rates and higher fees rather than absorbed.)
If this was necessary to recover insured deposits, that would be reasonable. But instead, the people who made poor decisions aren't going to lose anything, because the extra money is coming out of the pockets of everybody else with money in banks.
My guess is that they’re not changing the rules, they’re utilizing them. Either that, or they have far too much executive power over banks. Which would be shocking.
And it doesn’t have to be that wide a threat. The threat here was pretty localized. Aside from blue chips that everyone has their pensions invested in (which don’t seem to be at risk) the rest of the country doesn’t have much exposure to this.
Maybe I’m wrong but that seems like a significant shift in policy, where the government will change the rules to respond to a localized crisis.
This is unlikely TBH. When a system this complex and a global clear visibility if offered to no one on the planet, foreseeing ALL risks isn't a possibility.
That’s an unrealistic utopian fantasy. The real world doesn’t even remotely lend itself to that kind of planning.
Even calling it “selective justice” involves an unrealistic bias. What is happening is that the particular circumstances are being weighed an a suitable response is being formulated.
The rulebook for planning for all such events ahead of time would not be that much shorter than the future history of human civilization.
Every time the FDIC has stepped in like this they have made all depositors whole. This is not new behavior.
This is a false assertion. Usually depositors end up losing some of their money above the insurance limits-- only not doing so if the amount of remaining assets proves sufficient to pay the liabilities.
SVB takes a dive and wants a bailout, HN is like, think of the workers!
WTF?
"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." - J. Paul Getty
(Or as I heard it more aptly paraphrased, "if you owe the bank a million dollars, the bank owns you. If you owe the bank a billion dollars, you own the bank.")
They know (and it is obvious) that all deposits are going to be fine without any extra funds, wacko VC's and nutjob politicians are stoking the sort of flames that might cause a contagion so they are forced to make statements like this.
The fact that the statement is so milquetoast is certainly on them, but being uber-conservative in your promises is generally a failing/asset for bank regulators.
Rules exist to serve a purpose. If one risks fucking up the economy with the only goal that the rules are preserved - it could end up with pitchforks.
This is like a hotfix.
I don't think that the pile of money is unlimited - all bets are off if something happens to a big bank.
Or they stop raising interest rates, and then inflation goes up. Don't know how the banks will cope (or anyone else for that matter...)
I guess the banks know that, so they may be afraid to take up new risks in the near future.
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Shouldn’t it be? The government is in the best position to regulate and manage the risk of these institutions. We cannot expect average depositors to be financial analysts with the capacity to assess financial institutions.
yup. it doesn't matter how big you fuck up if you are too big a risk to US economy. the US govrt (American tax payers) will bail you out.
The only people being bailed out are the depositors, who were not being irresponsibly risky.
That's exactly what Dodd-Frank did. The audit and stress testing requirements got rolled back in the Trump administration. "Planning" is not the problem here.
The criteria isn't threatening a "wider disruption to the economy", it's threatening the quality of life of a certain class of people. When unions threaten a wider disruption to the economy for maintaining their quality of life, they'll do their damnedest to not give in. They'll pass laws outlawing strikes. Or send in "law-enforcement". As the saying goes, laws are for the poor.
In support of this view, they could have easily extended FDIC on a dynamic metric, for example 20k for each employee. If you are 5 employee VC fund sitting on 0.5 billion in cash, no bailout for you from taxpayer money (because let's be real, FDIC is all taxpayer money, it's irrelevant if that tax is collected by the govt directly or indirectly via mandatory banking fees).
An alternative path was to provide zero interest loans against your SVB holdings, with the expectation that you are on the hook for the shortfall that would be yielded by the liquidation. If SVB is well capitalized as the Fed claims it is and there is "no cost for the taxpayers", then this shortfall should be relatively small if any.
Another, even more radical option would be to quickly set-up a secondary market for the debt issued by these banks and let the market provide liquity and discover the value of the assets. This is one of the few innovations form the crypto world I wish we could see in traditional finance, we can't keep bailing out rich mofos like it's 2008 when we have all these wonderful new technologies which can stop contagion and bank runs, protect depositors and zero in on those responsible.
Like the jerks who chose to work for a company that picked a specific SaaS payroll provider. Or those entitled Etsy sellers that expected to get paid. The absolute nerve.
By that you're talking about the average citizen right? Suff like railroad strikes would dramatically affect the average citizen.
Could you expand? My first thought was that the bank who is in verge of crisis could tip over with additional burden.
This is exactly the way I’d expect a good government to respond: protect the people who could not have known better and fuck the rest.
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Not exactly. Or rather yes, but the rules changed in 2008, not this week. Specifically after IndyMac failed in 2008, there was significant blowback on the FDIC from Congress, and an unoficial, unnounced policy was put in place to ignore the $250k limit and ensure uninsured depositors took no losses in (almost) all cases.
From https://www.americanbanker.com/opinion/will-fdic-keep-protec...:
> Of the 127 banks and thrifts that failed from Jan. 1, 1993, to the last bank that failed before IndyMac was closed [...] 71% of the total deposits of the 127 failures were in institutions where uninsured depositors suffered a loss, while 29% of the deposits were in institutions resolved through a P&A that fully protected uninsured depositors from any loss whatsoever.
Whereas:
> Since IndyMac, there have been 522 failures, excluding Washington Mutual [...] Of the 522 failures, just 31, or 5.9%, were resolved in a manner that only protected insured deposits — uninsured depositors were therefore put at risk of a loss. Those 31 banks and thrifts held just 4.9% of the deposits of the post-IndyMac failures.
(Washington Mutual is excluded because it was enormous compared to the other failed banks - although since uninsured depositors were protected, including it just skews the stats even further.)
So for the past 15 years, we've had a system where the overwhelming majority (well over 95%) of uninsured deposits were protected, and thus, it would have been legitimately very surprising if recovery for uninsured deposits in SVB wasn't 100%, because it's very clear that unstated FDIC policy is to aim for that, and they've got a strong track record of achieving it. (I will state that I find the hidden nature of this policy problematic, however.)
The only thing surprising about events so far is that there's been enough noise that some new policies had to be announced, instead of it all just being quietly resolved like normal.
With FDIC take over the bank asset, this is not paying from taxpayer's money ..
I'm pretty sure that rules is already established. What makes you say they just changed it?
It was at $50B for a reason since 2008. But Trump administration lifted to $250B in 2018.
welcome to democracy bro. also, economies are literally black magic. if anyone claims to know how to make them work right, they are either lying or a witch.
Edit: oh shit I'm getting downvoted to hell. Was it my suggestion that economists are full of shit, or denigrating witches? Because I have nothing against witches.
We did with Dodd-Frank after the 2008 housing crisis, signed into law by Obama. Would have stopped over leveraging found at SVB.
Then it was rolled back in 2018, signed by Trump. Wasn't a hard sell to Trump at the time. "Obama did it? Okay, let's undo it!"
What does this "special assessment on banks" mean in practice? Do they just go to all the bulge bracket banks and demand that they buy the outdated Treasuries at a loss? How does this work?
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1. By next month banks and companies will realize there is no limit to the printer at all. After 2008, we've seen the banks and financial sector misbehave constantly, so expect massive deliberate tanking of entire sectors of the economy because why work when infinity bail money exists.
2. People in the country are already agitated by many social and economic grievances. The average American savings account balance is $4,500. This will one million percent cause a social backlash that will make the Trump movement seem like a child's party. Both the left and right radicals view silicon valley as the center of fascism/wokism, and the average person is barely scrapping by in a time of rampant grocery store inflation. Twitter/Reddit/Etc are full of people taking pictures of their grocery store carts and comparing costs.
Examples need to be made to restore faith in the system, Yellen and the Biden could have used this moment to restore faith by punishing the banking executives.
Political instability and extremism will now increase dramatically.
I think you misunderstand. Unlike bailout, FDIC insurance means that
1. Shareholders owners are wiped out,
2. Senior management is removed.
3. Unsecured debtholders *will not be protected*. They are made whole only when it's possible using banks assets.
Now expect a contagion effect next week, if SVB liabilities are shown worst than currently known, and made to bare on other banks capital requirements...
"US banks sitting on unrealized losses of $620 billion" - https://edition.cnn.com/2023/03/12/investing/stocks-week-ahe...
This is not some conspiratorial secret. Banks pay premiums to the FDIC for their insurance, and it's a requirement of all chartered banks. The FDIC has the right to backstop deposits in excess of the deposit limit by invoking a "systemic risk" clause (I'm not sure exactly which law this comes under, whether it's some of the original laws that created the FDIC, or more recent post-financial crisis updates). When the FDIC fund gets depleted, they have the right to invoke a special assessment against banks.
> Now expect a contagion effect it next week
The whole point of doing this is to prevent a contagion. The reason there was a bank run against SVB was a mix not just that their asset values had deteriorated (that was well known for some time), it's that their non-diversified deposit base of VC-funded start ups have gradually needed to up their withdrawals since early 2022. SVB would have survived if there wasn't a run on the bank, and the whole purpose of this action was to prevent further runs by saying that deposits will be protected.
She came into power and the first thing she did was suggest a global minimum tax rate, as if that would have fixed the accounting tricks that companies use to reduce the actual tax they pay.
Disconnecting the Russian central bank from swift and an oil and gas price cap have been immensely damaging for the western financial system and the international standing of the dollar(and the euro).
We now have countries increasingly integrating with alternative bank messaging systems and an accelerating of US reserve sell offs, along with what seems like the initial steps of the creation of something like an OPEC alternative for gas.
Not only that, it seems that because they never coordinated the sanctions with the banks it seems like only ~30 billion of the supposed 300 billion of frozen Russian assets can be accounted for, meaning they got to pull their money out and meanwhile the Russian on the other just from 150 billion in return.
Get this incompetent person out the door before she destroys more of the USs financial system.
“We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas.” - Milton Friedman
We are (or were) in a situation where the entire ecosystem blew up because VCs and funds inadvertently incited a bank run.
Backstopping capital so payroll can be made obvoiusly helps out employees, founders, and companies alot, but the ones that benefit the most financially on an absolute basis are these investors.
It just feels a bit disingenous to hear an argument that "this small company out of the Midwest needs to make payroll" (which is an example I just made up, any relation to real companies are entire coincidental), while ignoring the argument that "If the government doesn't backstop this my $3B fund goes to $0".
In summary I have a lot of sympathy for employees, and even founders who were held to terms that were completed standard and seemed reasonable at the time.
I have less empathy for the group that are (were) vocally calling for bail-outs and trying to incite further panic in an effort to protect their own investments.
Edit: switch the example to avoid inadvertently matching a real life example way too closely.
I don't see VC's and tech workers screaming for the government to step in when it's blue collar or service businesses failing. Thousands of small business with 5-20 people on payroll fail every year because of things outside of their direct control. I know small businesses that had to close doors because they got fucked over by things like landlords going bust and suppliers with half payments and no goods delivered collapsing. It's shitty for any small business to fail because of broader issues outside of their control, how is it fair to label this as anymore worthy of assistance?
https://www.sba.gov/funding-programs/loans/covid-19-relief-o...
The depositor didn't do anything wrong, they had the full right to withdraw at anytime and they didn't make the decision to invest into long term illiquid low interest MBS in 2021.
I have a great deal of empathy for the workers anxious about being paid, but that goes without saying, there’s nothing to discuss there. Workers are victims of the VCs who rightly deserve to be derided for their behaviour, both in this incident and more broadly in squeezing every last drop of profit from normal people.
I don’t understand what you’re asking of people on HN. Are you asking us to preface all our comments with “…not all SVB customers are leeches…”?
Personally, that is what I find so disgusting and that is the source of my animosity. I believe the fed ultimately chose to maximize the probability of avoiding a crisis over punishing these morons. I think that is wise but still not good.
The analogy I choose is this. Imagine there is a forest that is due for a bit of a natural fire. We should let it burn - but wait it turns out some people built and sold houses in this forest. Instead of evacuating and having these people suffer and need to relocate, we put out the fire. Since we put out this fire, these people living in a hazardous way continue to do so. Eventually a massive fire will start and kill those people and spread to other areas that it otherwise would not have. All because we decided to stop the “maintenance” fire from clearing the brush.
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It is like having sympathy for your friend that is mugged, but being angry that when the police came, they took money from your pocket to reimburse them.
If you feel shocked by the lack of empathy at "You knew all along that only $250K was insured, riiiggtt??", please consider empathy when you are about to type in " You knew that H-1B isn't an immigrant visa, right?".
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And when they got into trouble, they did not stop to asses their situation (possible 5-10% haircut, nbd), but went into full blown existential meltdowns. One minute crying and begging, next minute threatening. In fact, after reading too many Twitter posts of founders complaining, they don't even seem remotely aware that they can even do things differently and properly.
And let's not even get into the outrageous behavior of tech leaders like Sacks et all. This episode makes me embarrassed to be part of this industry.
I'm feeling that more and more these days. I don't want to wake up one day and think "what have I done?".
Well, my accounts don't pay as much. Are you okay refunding the extra APY you get by having your bank takes more risks for the past years?
Now, what if, I, as a senior banker, start to abuse this policy. I'm not sure how senior bankers can abuse this policy but this is the concern here. So basically, if the FED can guarantee 100% of deposits, it encourages riskier moves. Worst case my equity gets wiped out, i.e. most of my unsold compensation vaporizes but that's it.
This is the unfortunate outcome of just mass producing us vs them rhetoric at EVERY level of discourse. Nuance is dead.
> ...
> maybe stop tweeting images of guillotines
You're seeing randos on Twitter tweeting shit and somehow twisting it to suggest that HN commenters are doing this? Lumping together these edgy tweets in with the HN comments, which are by and large pretty inoffensive and civil, is a bit of a reach.
I am sure it is a bit of a stressful time to be an SVB customer and maybe it's a bit jarring to see people discussing its demise in such an open and matter-of-fact way. But I'm sorry, if you don't want to see people discussing the pros and cons of bailing out your bank, do not read the comments of a submission where your bank is being bailed out.
The cognitive dissonance is that most sv startups and SVB clients are run by people with very strong right wing economic beliefs. Suddenly when they're affected they're asking for bailouts of the parent institution so that they're not affected because of "too big to fail". This is quite simply capitalism for the poor and socialism for the rich.
If this is what you have identified as the core issue people have with Silicon Valley, then you have really really missed the mark and do not understand at all what many people, particularly in the so-called "Fly out Country" have a problem with
>>Well, if you want to see startups solving hard technical problems we need to have some real talk about how that has to be structured financially
I want to see startups build sustainable business models built around solving complex problems. Not chasing quick adoption, with the goal to be bought out by a Google, Amazon, or Atlassian
I want startups to be driven by something other than Quarterly results that the MBA's at the VC firm's demand
The actions of the Fed plainly stated that the rules don’t matter. Take risks, fuck up, and no big deal. We’ll just magically save everybody.
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This is an odd thing to read. I always thought you were one of the people that began SV techbro culture when you replied to David Miller’s technical critique of Solaris with “have you ever kissed a girl?”
[0] https://news.ycombinator.com/item?id=8958705
[1] https://news.ycombinator.com/item?id=9041086
[2] https://www.youtube.com/watch?v=px9OjW7GB0Q
[3] https://www.youtube.com/watch?v=0wtvQZijPzg
[4] https://www.youtube.com/watch?v=VzdVSMRu16g
I've been watching Elon Musk, Marc Andreessen, David Sacks, Peter Thiel, Jason Calacanis and on and on rant for the past weeks/months/years about the homeless in San Francisco, how students don't deserve student loan relief etc.
Now you're finding a lack of empathy galling? These prep school scions and maladroits, mostly wafting in angel/VC parasitism suddenly do an about face and beg for a government bailout. Of course they have been paying the piper and we hear before the weekend is over that their sweetheart deposits have been bailed out by the full faith and credit of the US taxpayer.
The structure of all of this points one way, and the intentions of a handful that are "outspoken about disagreements with the techbro culture" has no effect on that.
The reckoning did not come this week but it is coming, tweeted images and all.
"Well, if you want to see startups solving hard technical problems we need to have some real talk about how that has to be structured financially"
There are deep, functioning, financial markets. Private buyers were already making offers to buy uninsured deposits at a discount. The world wasn't going to implode. Equity holders and founders were going to take a haircut. That's fine, that's equity's job here. Don't try to get out of it when shit hits the fan.
Speaking of private markets, they should have bid higher. Instead the government won and will likely come out ahead with their arrangement. No taxpayer money is being spent.
Sounds like you’re just bitter about tech/biotech companies surviving?
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The fact that you can't see that in the discourse -- that you instead just take personal offense despite the need in your message to claim you are sort of outlier -- is emblematic of our community's lack of self awareness, constant need for praise, and general ego. Much of the criticism being leveled right now is deserved. While you can complain about civility, you shouldn't expect that critics sentiments would not exceed your own critiques when you stand to gain by the continuation of the system.
How should we choose the approved projects and to whom should we assign them ?
Where shall I pick up my work-book for the month ?
Who will stamp it for me ?
So, in earnest, how is it not a bailout? Feel free to offer your answer! Mine is:
“Banks are required by law to pay for insurance on deposits they take. FDIC stands for Federal Deposit Insurance Corp, and they are the ones that manage the Deposit Insurance Fund, which is where that insurance money goes. The FDIC is going to take from that fund to pay out all the depositors in SVB in one go on Monday morning, and then over the next few weeks and months it is going to sell off SVB’s assets and put the proceeds back into the fund. SVB has plenty of assets, so the FDIC expects to recover 99% of the money. If there’s a shortfall they will charge the banks a little extra in their next insurance payment, but keep in mind we’re talking about at most a few billion dollars spread over every bank; they are unlikely to pass on a small cost like that, but even if they do pass on the cost to the taxpayer it will be something like $10 per person maximum.”
Edit: if we take things like https://twitter.com/josephjacks_/status/1634569997266870272 at their word, the FDIC will likely see asset sales produce >100% of deposits, so absolutely no bailout of any kind. A good reminder that SBV didn’t die because they lied about their value or invested in financial instruments that exploded; they died because they didn’t have the cash on hand on the one day it mattered.
they can be sold easily, they just happen to not be worth very much
We’ll see I guess.
A gentle sale at their leisure over the next six months would also mean selling at a loss.
Where do you see the 99%? My understanding is the bulk of their assets (long-term bonds) dropped 30% in value. If these bonds are sold on the market, they wont have 99% of the money.
Maybe the treasury is giving them the money back of the bond?
Over the lifetime of the bonds/loans, they might even make money like what happened in the TARP program.
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In the case of SVB, it seems that their assets will cover their deposits, and FDIC has an insurance fund that gives them the liquid capital to cover deposits immediately while waiting for assets to sell. So no cost to taxpayers - not even in the form of “higher deposit insurance costs to banks being passed on to bank customers, who are taxpayers”.
(It’s possible to play semantic games until we formulate a picture that does show taxpayers will pay, e.g. “the FDIC’s deposit insurance fund is made up of payments made by banks, and banks would have passed on the cost of those payments to customers in the form of not offering as much interest on deposits as they otherwise would have offered, so the funds used to make the bridge are a bailout the taxpayer has already paid for”. Money is infinitely fungible, you can always tell a story where taxpayers paid the bill. But we said we weren’t going to play semantic games.)
Regardless of size that sure sounds like “taxpayers will pick up the bill”
If someone gave me 10-to-1 odds that actually there will be no shortfall associated with this action I would happily take that bet. Shareholders will be wiped out but SVB's assets will cover all of the deposits, the regulator is just being extra-conservative.
I find the dissonance deafening.
I don’t think they have a choice. Congress decided for them.
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It is a bailout. Its true beneficiaries are not as straightforward as in 2008 though.
<< bail outs keep the stock afloat. Here the stock goes to $0.
In such a case you are wrong about this statement then. This bailout is 100% intended to keep stock afloat; just not SVB's.
Sounds like a bailout at the taxpayers' expense, just with extra steps. A bailout of a few billion dollars that banks are allowed to pass on to their customers is still a bailout.
> Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
Note the uninsured depositors clause in there — FDIC &co seem to have acted unilaterally to extend deposit insurance beyond the 250k and to the full amounts of any deposit account.
And they are charging the banks for it.
If this doesn’t stop a run on the banks, nothing will, frankly.
Anyone responsible that ended up holding similar bonds would've bought interest rate swaps to hedge their interest risk.
This doesn't appear to be true. Everything I've read points to SVB being truly unique in their lack of risk management. SVB left these positions unhedged against rates. That is very atypical.
how do you interpret this part? what is an example of somebody who would be an unsecured debtholder? as in somebody with a stake in SVB the buisness?
https://finance.yahoo.com/quote/SIVB/
Bondholders, not just shareholders.
The implication is that every security here is wiped out: https://ir.svb.com/shareholder-and-bondholder-information/of...
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The top ones in this and the main announcement thread [1] are just ad hominem complaining against some ostensibly "salty" or "cognitively dissonant" majority.
Let's talk about skin in the game and bailouts. Explain to a peasant why he should have to share the risk you took with your money. Explain to him this game being played where he gains nothing when you win but loses when you lose. And please inform him the recourse he has should he disagree with sharing your loss.
No moral appeals about making payroll, no ad hominems about non-positivism or cognitive dissonance, no complaints about "saltiness".
I speak for many when I say I'd like to hear a proper explanation on this matter, in terms of skin in the game.
EDIT: The above comment takes the following to be bullshit (from the article):
"Yellen approved actions enabling the FDIC to complete its resolution...in a manner that fully protects all depositors...
No losses...will be borne by the taxpayer."
If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden?
---
[1] https://news.ycombinator.com/item?id=35096877
> If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden?
"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."
https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
On top of that, SVB has the money to pay back almost all of the depositors. They just don't have it liquid right now because it's in bonds that won't mature for a while and would need to be sold for a loss. So the obvious and sensible thing to do is have the government lend money to cover the time until the bonds mature, in addition to using the FDIC's money which did not come from public funds.
> And please inform him the recourse he has should he disagree with sharing your loss.
You can vote for people who are dumb enough to let the entire banking system collapse because they want to hurt rich people. But of course that would probably put "peasants" out of work while the rich get slightly less rich.
Depositors are the absolute last group to lose money in a bankrupt bank. When a bank collapses its assets don't just disappear, and depositors (and paychecks) get first scoop from the pot.
It would be nice if everyone didn't have such hostility towards personal responsibility. You never put all your eggs in one basket. You diversify where you keep your money.
The government can best help by doing what it does best. Let it invest in making bankruptcy courts super efficient. Set up automated systems to drip feed payouts to depositors as assets are sold.
The "heads you win tails we lose" deal we give to bankers, which we don't give to anyone else, is fundamentally evil, and we have to stop bowing to their terroristic threats that if you don't give us this deal you're all doomed.
There seems to be this myth floating around that bond losses aren’t real. They are very real.
An 80 cent on the dollar (purchase price) bond is a loss of 20 cents. And it doesn’t matter if the holder holds to maturity.
Welcome to interest rates.
Edit: Fundamental fallacy here is not understanding the time value of money. Thinking of money without the time dimension is like thinking about space without time.
See https://www.investopedia.com/terms/t/timevalueofmoney.asp
Secondary fallacy here is equating value in the financial sense with gain/loss in the accounting sense.
The cost of the loans should be in the same ballpark as the losses on the long term bonds.
Imagine another bank BVS of similar size that didn’t quite have the money. It has lost part of it in monkey NFTs or whatever. They have a loss similar to the mark-to-market loss of SVB.
Can they buy the same bonds that SVB has to patch the hole in their balance sheet? Can they then say “we have the money, we just don’t have it liquid right now because it's in bonds that won't mature for a while ”?
If not, why not? Both banks would have the same assets.
The only problem with this line is that a ton of people on here are explicitly against social safety nets. Now that they need one, all kinds of equivocation and hand waving.
Safety nets for all (or none)! FWIW, I prefer the former.
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If you're trying to say "look, 'taxpayer' isn't mentioned, all good", you're either in self-delusion or you're playing dumb. It doesn't matter how you dress it - "taxpayer money", QE, Sammy's piggybank - the inflationary repercussions will affect everyone.
> On top of that, SVB has the money to pay back almost all of the depositors. They just don't have it liquid right now because it's in bonds that won't mature for a while and would need to be sold for a loss.
This is a self-contradiction, yet it's written as an explanation. Bravo.
> You can vote for people who are dumb enough to let the entire banking system collapse because they want to hurt rich people. But of course that would probably put "peasants" out of work while the rich get slightly less rich.
This isn't about "hurting rich people", you can throw away that straw man (along with the twitter favorite "it's not a bailout, the bank equity goes to zero!"). It's about the response to a complex system's failure. Most would agree injecting liquidity ASAP is mandatory in the short-term, but that does not mandate insuring 100% of deposits. Any sort of response has negative repercussions, but it isn't a matter of fact that the banking system would collapse otherwise.
Nobody has "the answers", it's a complex system. The VC tech bro take draws a line in the sand and cries wolf for any approach that doesn't cover them 100%, and it's done under the guise of looking out for others; "the workers", "the banking system", "the economy", "a generation of technological progress evaporated".
Is it possible that the best thing to do for the long-term is to allow a worse short-term outcome (affecting a small part of the economy more drastically), so that the system is altered in a way that actually fixes/improves it? Even if we grant that hypothetical, should it be done? It's a complex question with no right answer.
The VC tech bro take on technological advancements that have negative short-term side effects, wiping industries and causing people to lose jobs usually falls in the range of "learn to code" to "that sucks, but we must march forward". There is a poignant sense of hypocrisy when grandstanding holier-than-thou "technologists" who claim in abstract that progress and efficiency trump all, find themselves on the other side and act oh so predictably.
The cynical responders aren't partaking in the question of "what is the correct response", but just because they don't gobble up the predictable VC tech bro take as gospel doesn't make them dumb.
If they believe they are helping, why does the response always emerge suddenly on the day of the crisis with no debate or well explained contingency plan being activated?
The whole system seems to be built on one group revealing a sudden crisis that have obviously been building for a while. Then another group of people explaining that they have a plan, there is no time to explain, no need to explain and the objections are all mean-spirited fools who don't understand the plan. The plan which will be clearly explained sooner or later.
They're acting like people running a scam. None of these crisises are that surprising. Raising interest rates were likely to lead to this sort of fireworks display at some point in the short term. If the panic is genuine they should all be removed on the basis that they can't spot a tree in a forest. This has to be a long-planned contingency.
> You can't let the banking system collapse and expect it will only hurt the people you don't like.
The hurt happened a while ago now; banking collapses are the market recognising that it was mistaken about actions that it thought were wealth-creating but turned out not to be. This isn't a question of trying to "hurt" rich people, whatever that means. This is about concentrating the pain on people with skin in the game.
If people with skin in the game eat the losses, losses will happen less often. If the losses are diffuse, then losses happen more often. They're trying to cover up for incompetents because they meet them at parties, go to the same schools and have the same friends. And invest in similar assets, one suspects.
>> it will only hurt the people you don't like.
>> people who are dumb enough to let the entire banking system collapse
when did gp expresses his dislike for people who banked with svb :D
From where do you think this money will, or has come from?
From Yellen's backside?
Sometimes those risks are bad, and banks cannot fulfill their obligations to their customers, so the FDIC, which is funded by banks (its deposit insurance) steps in and fixes a bank so that customers of that bank do not get screwed by picking a bad bank.
I dont see how any peasants are 'sharing any risk' here.
Everybody who held stock in SVB, just lost literally all of that. They invested in a bank that failed. Just like if they invested in a company that failed. Nobody is bailing those people out.
> Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
That sounds a lot like some type of bailout to me. What does "make funding available" mean? Where does that funding come from? It's going directly to banks, not to depositors. How does that work?
I would also like to add that the vast majority of people losing their money were not betting on a risky asset. They merely had bank accounts with an institution that was mismanaged. We are not bailing out risk-takers like we did in 2008.
Perhaps I'm missing something, but I would suggest that one key aspect of a company being able to call itself healthy is that its finances are diversified.
But keeping all your money in one bank is surely a huge, obvious risk?
But even if the only option was to use taxpayer money, clearly it would be need to be done. If depositors weren't made whole, this week would've been a disaster with multiple bank runs that could cause a huge systemic issue. Eventually the fallout from such an event would bite the economy and the average taxpayer very badly.
The amount of money required to make depositors in SVB whole is negligible compared to the potential damage not doing so would cause, so it doesn't really matter where that money comes from.
Why do we let companies grow that large then? Or maybe the FDIC protection should be increased for everyone?
I don't disagree that what you say is right when the argument doesn't go beyond the short term. But I expect to see protest against this from tax payers whose wealth is lower than the FDIC limit. Again.
Also, how do I make it hard for my customers to understand the risks they are taking on so that I can use compassion to ensure such bailouts?
An organization with over $250,000 in cash is not an outlandish amount. Employers (obviously), but also municipalities, schools, churches and heck even grocery stores can exceed that limit. While it is reasonable to expect some individuals to have some sense and monitoring of the financial well being of the organizations they are directly affiliated with it is extremely unreasonable to believe that those same individuals are going to be aware of the balance sheet risks of the transitive banking partners of those organizations. People expect that money in the bank today will be there tomorrow.
Who wants to live in a world where everyone is keeping tabs on which organizations are banking where? It's a tremendous waste of time.
People don't want bank failures to be a thing, and if/when they do happen they want the damage limited to the senior leadership and investors of the bank.
If you were responsible for managing over 250,000$ of cash what is an acceptable Treasury operations strategy? Put it in a TBTF bank (still socializing losses). Split it into multiple banking partners - that creates operational risk in addition to extra complexity and overhead.
The other side of lazy private profits from "riding the yield curve" or which-ever else inane business model is recurrent crises and social costs, sometimes overt, sometimes obscure.
Arbitrary and ad-hoc explicit or implicit insurance schemes and put options, obfuscation and complexity, moral hazards and perverse incentives under every carpet.
A fair and democratic society, especially in the hyperconnected digital age must very seriously consider the wiring of the monetary/credit system. The rule should be simplicity, transparency and working hard for the money: return strictly coupled to risk.
Core to a better design will almost certaintly have to be the concept of risk free deposits with the central bank that are not subject to runs. The rest needs to be worked out.
The shareholders already lost everything and unsecured creditors are about to lose everything. That's still not enough to make all depositors whole though, which is why the statement said the FDIC will be paying for the rest and funding that payment by "a special assessment on banks". Therefore, the simple answer to your question is "all other FDIC insured banks, rather than the taxpayers, are picking up the tab here".
I had read a summary of a Kleiner Perkins analysis recently that said the total assets they hold, some of which are those awful-yielding instruments they’re locked into for 10 years, covers their assets. But since some of those instruments cannot be liquidated anywhere close to quickly, the FDIC will just need to hold onto those for awhile and front money for the bank in the short term.
Of course, who knows if that analysis or the summary of it is correct.
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For what it's worth, TARP ended up turning a profit for the government, so in my mind there's some track record of stiff-nosed decision making at Treasury. I'd feel differently if SVB stockholders were getting something out of this.
Somehow, the bank definitely needs to be punished, but I'm not sure how or if that can happen in this current system.
Umm, any and every bank deposit in excess of the deposit insurance limit has a risk associated with it.
Depositors can pick the banks whose risk profile they prefer.
Just by saying “we will backstop depositors” the government will likely have calmed things down enough that that’s the end of the story. Nothing else needed.
The bank has or can likely get the money to pay everyone back just not in 48 hours which is unnecessary anyway given normal outflows for the bank.
This is one of those cases where the most obvious and mundane answer happens to be correct. The government is attempting to nip an existential threat to the wider banking system in the bud. Everyone who uses said system (read: literally everyone) has an interest in seeing it survive.
> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
> As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
But it strikes me that there's a second-order "too big to fail" effect at work here.
Not only bank runs. How many businesses who don't have any banking with SVB are operationally dependent on cloud services provided by SVB-banked companies?
What's curious is that this wasn't a risk in the 2000-2001 crash, and barely an emerging one in 2008.
Let's say 20% of cloud service providers can't make payroll and shut down. What does the disruption in the wider, real economy look like? Pretty messy, no?
More bailouts now, lead to riskier behaviour in the future.
Also, there isn't a bailout - protecting unnamed bank depositors is not a useful definition of a bailout.
Also, you spelled "depositors" wrong.
No one can tell you what will happen because to my knowledge the FDIC hasn’t told us yet. They may not have settled on a final outcome yet — there may be multiple options still live — finding a buyer for the assets of the bank, for instance. All this statement is saying is that they’ve verified that even in the worst case, the resources exist to make the depositors. whole.
Meanwhile,’bullshit’ is a strong claim. And I’m not going to fight you on the trustworthiness of government officials in general. But someone who’s been at this as long as Yellen isn't going to blow the Treasury Department’s credibility on a dumb, easily-discovered, get-you-through-the-day-and-then-fall-to-pieces sort of lie.
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"Hey, the FDIC coould raise the limit to, say, 10 million, and just let the FED reserve print out the moneys to everyone. Not much different than what the US government is already doing. Reached the debt limit? Just raise it again, lol."
Depositors are made whole. Shareholders are not. There were enough assets sold over the weekend to cover deposits.
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Well.. in this specific case I don't think tax payers (I assume this is what you mean by "peasant") actually do share any of the risk/cost. The bank failed due to a liquidity problem. It actually has a pretty solid financial situation except for that! This isn't a "bail out" per se.
Then why couldn't they find a buyer in the auction today? If Silicon Valley Bank had positive equity, someone would have bought them out for an easy profit.
Dear Peasant,
I empathize with your pain and suffering on a daily basis. I know life isn’t easy being a peasant, you perhaps work as hard as anyone in Silicon Valley. You pay taxes just like everyone else and expect your government to protect you and provide opportunities not just for you but for your children and their’s. Silicon Valley is a major growth engine of our economy, it means lots of jobs for your future grand grandchildren. It means better lives for all of us benefiting from innovations that happen there. You no longer need to farm in freezing weather when your John Deere tractor can drive itself or hail a ride on Uber and know exactly when to go outside on a snowy day. So hope you understand that when a place that people trust with keeping their money collapses it means major disruption to the economy. It means those tech companies have to fold not to a fault of their own, but because of a series of domino effects that would have been not easy to predict. It comes with the territory, not too dissimilar to a famine. We need to do something to save those companies and thousands of people who work there contributing to the prosperity of our country and the world. We need to do what is smart, socially and economically responsible and save those companies by providing the cash reserves they stored in the failed bank. We need to borrow money from the tax payers to do that, just like when we did that in the last couple of years to help another group of citizens. I know you understand this is good not just for our country but it’s good for you and your children. I know many will not understand why a large population of the medium class should benefit as if they live in a vacuum and anything that happens to them will have no effect on the rest of us.
I know you will.
That's not done out of charity, it's done for profit. And when they're good enough they won't need the farmer. Forget about the grand grand children, what opportunities will the government provide for him when when he's no longer needed?
It's all about solidarity when the VCs are hurting, but what about poorly educated in the middle of nowhere?
It should be the same for everyone: you make your own choices, and if that has bad consequences you should suffer them alone. VCs don't share profits when things are good because stocks aren't taxed.
Some might say that confidence created this situation in the first place.
We did not see broad bank runs because confidence in the banking system did not fall. And now we can see why: because the FDIC backstopped depositors.
They could increase the FDIC coverage limit to a level that would avert a run, shoring up public confidence in other U.S. banks.
The BTFP if I'm reading this correctly values assets at par instead of face which is wild. It's not just providing liquidity to banks but rather giving them free money.
What Yellen has done now is redefine "bank that poses systemic risk" to mean "any bank at all", which in turn shows that the insurance limit was never real, and that in turn the winners of the system are those who don't believe in the rules, but rather those who gamble on duplicity and the socialist leanings of government employees. Those who tried to believe in the honesty of the system got burned, again, and those who bet on it being meaningless won, again. The long term consequences are fearful.
Your claim that "those who believed in the honesty of the system got burned again", is not entirely true. Equity and debt holders have been completely wiped out. Compared to the Trouble Asset Relief Program (TARP), in 2008, this barely constitutes a bailout. Furthermore, if the Frank-Dodd stress test requirements for banks with greater than $50 billion had not been relaxed in 2018 to $250 billion, then SVB and Signature bank would have been seized and sold off well before there was this bank run. It is clear that even smaller regional banks need to face the same rigorous stress tests that SIBs face.
You are seeing the robustness in the actions taken by the FDIC right now. Not all failure modes can be prevented ahead of time. There is no failure-proof banking system structure.
> So that the failure of one does not lead to a domino reaction of failures?
The "domino effect" in the context of bank runs is a result of human psychology, specifically herd panic behavior - not something that can be changed by the financial system. At best it can be tempered.
Toilet paper consumers should know the risk of not having 30 rolls of toilet paper stashed at all times and should face the consequences for that risk.
It's great at a personal level that "founders" and startup employees didn't have to do without. But it's important to remember that they no longer automatically deserve any credit for taking risks and doing something new. It might as well be a bunch of FAANG employees
A ton of the prominent VCs were writing out checks from their personal bank accounts so that founders could meet payroll.
> For some silly reason I had some respect for the startup industry before this, now I see it as a joke
Wait seriously? You somehow lost more faith from this than you did from
- crypto - Adam Neumann - $100m seed rounds
and like 30 other things???
> But it's important to remember that they no longer automatically deserve any credit for taking risks and doing something new.
What are you even talking about?
Having your bank account randomly disappear isn't one of the risks that anyone should have to take.
They're gonna want to try to rebuild their reputations. What's coming is a lot of "who are you gonna trust me or your lying eyes?". Starting soon you're gonna hear all the sob stories about how the VCs all this wonderful all did X and Y and Z. And nothing we just saw really mattered. And downplaying how as soon as the going got tough they abandoned all of their SV ethos and immediately went begging to the government to be bailed out.
Be prepared because there will be a huge PR push soon like you haven't seen.
But that is the risk founders chose when they put their money in (a) any bank and (b) specifically SVB.
Your money is only insured to $250k. SVB had no CRO, lobbied against regulation, made no efforts to comply with Basel 3 and was engaging in risky bets that many had previously warned about.
CEOs have a fudiciary responsibility to understand and mitigate risks. And expecting taxpayers to bail you out (either directly or indirectly) when your incompetence causes harm is simply not fair.
These people played a zero-sum game, purposefully generating as much panic as possible to force the fed to act.
> Having your bank account randomly disappear isn't one of the risks that anyone should have to take.
The fed has sat on its hands for decades and done nothing to mandate better protection for ACH transactions, done nothing to mandate phasing ou magstripe transactions (Europe has been on chip and pin for decades), our check cashing system is a complete mess in ways scammers take advantage of, and debit cards have a fraction of the protection credit cards do despite "real money" being involved instead of credit.
But then a bunch of billionaires force hundreds of companies to do business with just one bank, that bank is outright incompetent in how it manages its funds and employed people who were central in the last financial crisis, and suddenly it's "well, we must act to protect confidence in the banking system"?
I have zero confidence in the banking system. My money doesn't feel remotely safe from being stolen. I can't even find a bank that will do hardware 2FA instead of SMS 2FA, which is worse than not having it at all.
What is jpow doing about that?
Not only is it a risk many take, but many end up losing a significant amount. The FDIC actually has a list of the numerous failed banks they've helped depositors recover assets from here[1]. You can see that depositors often lose a lot when banks fail.
Now I don't think this is a good thing, and I think it would be worthwhile to have a conversation about a systemic way to avoid this. But it was eye-opening to see so many not advocating any systemic approach, and instead just saying "the government should do whatever it can to cover all SVB loses because people like us are special."
[1] https://closedbanks.fdic.gov/dividends/
I mean, having all your data randomly disappear isn't one of the risks that anyone should have to take. But if a company suffered systems failure without backups, what would we be saying? If a company had a breach and all their data got release or encrypted by ransomware attackers, would people seriously be arguing for a taxpayer-funded government bailout?
Then you put your funds in less risky banks who did not lobby to get an exemption from the regulations that protect against precisely this kind of thing. Even, spread it around safer banks.
Putting all of one's money in a bank because they have better returns or other investment opportunities is business. Not something that someone can be safe at the public's expense.
The public, because the public will pay for this one way or the other - if this is paid from the insurance that insures all banks like how the statement says, then it will cause all the banks who pay into this insurance pool to reflect it on their customers with fees. So every single person with a bank account in the US will pay. Its still public money, but it doesnt come directly from the US govt.'s pocked, so its 'okay'.
Is this true? I've been following this story pretty closely and haven't heard anything about that.
Because they have duty to do so, as (part) owners of those companies. They could face personal liability for being negligent enough. You'd think any company with non-trivial payroll should've known better than not to hedge on all the things, including their banking partner.
Absurd take.
Source? Who specifically, how much and can you independently verify that they actually did it?
This bank choose to _avoid_ safety regulations from the 2008 financial crisis, which is completely open information. They used this avoidance to pursue greater risk.
What is "randomly disappear" about putting your money into such a bank?
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But what we've seen in the last few days is utterly despicable behaviour by many of the leading figures driven solely by greed and self-interest.
I think increasingly startups will look to bootstrap in the coming years.
The whole crypto fiasco plus a few other things (these SV people going from worshipping Musk to hating him in a very short period, for example) have convinced me that I was a holding a view that was not based on anything of substance.
Which begs the question: where does real innovation come from in the US (and the West more generally)? The SV start-ups are not providing it, ditto for the FAANGs, what's left?
For every one company that genuinely is working out of the goodness of their hearts, there are 10 serial founders seeking to inveigle their way into something as a middleman, sorry "disruptor", then cash out and go round again before anyone notices the cracks.
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https://github.com/Qbix/Platform
https://github.com/Intercoin
I believe in gift economies (science, wikipedia, open source) being superior to capitalism and private ownership of platforms.
Instead of Zuck, Elon and Bezos we could use more Linus, TimBernereLee and Vitalik.
This may have been the most prudent decision by the government, though it'll be hard to say what would've happened otherwise. But in the end, it sounds like the average person will still be negatively affected, by having small accounts under the $250k limit subsidize insurance for larger accounts.
Rest of your comment, I mostly agree with though.
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1. If they had more short dated treasuries, they could have used them to fund drawdowns, and would not have had to sell their long dated treasuries, that went underwater as interest rates rise.
2. If they had not been overly exposed to one sector, a sector that largely existed due to 'free money' of zero interest rates, then large scale draw downs would not have happened as interest rates rise.
I think this is very much in question. Silicon Valley Bank was absolutely part of a cohesive microeconomy. There's no other explanation for the absolutely uniformity with which all those startups were using it for what should have been 100% commodity banking services. Those startups all banked with SVB because their VCs told them to.
And the VCs told their startups to bank with SVB because... we don't know yet. But any time you have a signal this strong, there's a driver.
Add to that the fact that the moment all those startups seemed likely to lose banking services, however temporarily, those same VCs freaked the fuck out of their minds on twitter and started shrieking in all caps about the end of western capitalism. That's not mere concern for their poor startups (most of whom were going to fail anyway, after all -- they're startups!). These VCs were exposed to the SVB failure. They were leveraged somehow and about to get caught holding the bag.
There was some kind of insider dealing going on with SVB. It wasn't just a bank. We for sure know that much. Whether we have criminal fraud or not is an open question.
The point is that these VC's didn't act to support their investments, they flailed around begging for bailout (that they probably didn't need but they didn't understand banking well enough to know that or bother to consult any experts before making public statements).
They behaved badly and should be embarrassed and everyone should remember it.
SVB regularly provides credit to risky startups, which is why they existed in the first place (because other banks wouldn't lend at those rates). So, yes, they sorta did place risky bets on startups.
Some VCs were definitely better than others: the very worse was probably the All In Crew who were trying to spread a bank run to tie the government's hand. Truly despicable.
Mr Libertarian himself David Sacks crying for govt intervention was hilarious. What a clown.
Mm hmm. Yes, after all is said and done, the main take away from this is that startup employees and founders no longer deserve credit for taking risks and doing something new. Glad our priorities are straight here on hackernews.
1. silly reason
2. It's a joke
It looks like you just found your silly reason.
The greed of startups have evolved to become bigger and bigger as years pass by.
The romanticizing of startups came from propaganda. It's just that some of us were too young and naive to understand the puppetmaster while others had seen the puppeteer before...
What on earth. Putting money in the bank was never a risk founders were lauded for, nor should it be on the titanic list of things they have to worry about.
We can brawl in the peanut gallery over FDIC limits and precedents and moral hazard (which lies with the banks, btw) but at the end of the day there can only be one “best country to start a startup” and whatever that is, it’s definitionally one where you don’t have to worry about getting rugged by the bank because someone you wouldn’t know from Adam made a bad bond trade.
Why? It should be other way round. They worked hard to make sure that payrolls are met and jobs are secure, that is my most important expectation from my management and investors.
VCs Group-B to Z were too late so they asked Govt to help them.
It's not just founders who put their money there, VC funds are there as well and they are probably close to 100% uninsured (cause it's the Fund Series I - XXX).
If you get your hands on the list of depositors, you'll see the list of Funds Series from VCs.
No bank could survive this kind of run. See https://en.wikipedia.org/wiki/Bank_run
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- the crisis was at the most caused and at the least exacerbated to the point of no return by the advice that some firms gave
- the general zeitgeist amongst certain firms and from particular individuals in firms leaned towards libertarian ideology, which seemed to go out the window when ish hit the fan. I can really only find one prominent example of this, so I don’t know if it’s fair to paint all of VC-land with the same brush
- it is probably the case that there are members of firms in both group one and group two, which looks bad, because panicking at the last second looks bad, especially when your panic screws (for your own benefit) a business partner of decades who was essentially only in a risk zone because they chose to do business with you. That’s an oversimplification of course, but it all is
It seems like SVB took a risk and lost.
If the majority of Americans voted for SVB taking higher risks it would be understandable but now who comes up with the missing money ? The government, which is tax payers who are already probably getting the raw end of the stick financially compare to silicon valleys.
I think this bailout will see a lot of political backlash.
How did they behave? Try to pull their money out of a failing bank?
I would too ...
All because he wanted the government to bail out his startups.
Why is that tech workers, many of whom easily have earned over a million dollars in salary over the past few years can't be told to "live within their means"?
Why is it that the same VCs that rallied against student debt relief think their poorly run bank should be bailed out?
I know why, this thread is chalk full of it. "We were smart, we were playing the game with the advantage we were told made us untouchable, we can't fathom gasp 'negative consequences' whatever those are".
I'm sick of it and thankful to see people seeing through this a bit more than usual. Downvoting isnt going to change a damn thing, click your hearts out and enjoy the dissonance. See ya in the next too-big-to-fail-as-a-result-of-unchecked-corporate-greed thread. lmao
no offense this comment shows lack of even basic understanding of situation.
SVB collapse a zero impact on big tech workers earning $300k. this problem effect small business, maybe 50-75 employee who did not risk they money. they literally put in bank to do thing like pay employees and other bills.
start up employee is not earning $300k USD per year. start up hardly compete with big tech on any compensation. these people working hardest.. not rest and vest like big tech.
The bank is not bailed out, it's out of business, its shareholders get nothing, and its execs just lost their jobs. The bank's customers got bailed out.
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You have some serious disillusion.
it’s the fact that the lender most willing to work with non traditional borrowers eg tech startups is now gone, and there’s no bank or lender that will replace them. if anything this will mean lending standards will tighten, and it will be very difficult for any customer with a SVB credit line to find another bank willing to lend to them on the same terms.
this is also coming at a time when more startups relied on debt to fund their companies because the equity raising environment is so tough, so now many founders might be forced to attempt to raise equity in a tech bear market on very bad terms if they can at all
Now taxpayers are going to be footing the bill... It's a government-ordained transfer of wealth from good, honest taxpayers to whatever (possibly malicious) entities got that money.
It's theft. It's straight theft. Not even complicated. Theft is now legal depending on who you are.
There was no theft. The bank bought bonds that decreased in value rapidly due to rising interest rates. Pure mismanagement, but not theft.
I won't reshare anecdotes here, but I heard stories over the weekend about intense and direct conversations between the largest VCs and the Fed.
[0] https://twitter.com/tomharari/status/1634577650856632321
I'm genuinely very curious. I've always considered them a bunch of smarmy opportunistic cutthroats, but that shift must be jarring right? Again I don't mean this negatively, genuinely interested in how it changes your understanding of the "startup era," pandemic, etc.
Which, as an investee, is exactly what I want.
Dead Comment
The final decision was eminently reasonable.
The bank's shareholders are getting wiped out. The depositors are protected. Banks -- who depend on the continued faith of the public -- chip in a little more in insurance. The taxpayer pays nothing.
A bunch of software companies get to succeed or fail now on the basis of whether their business models and execution make any sense, as opposed to whether their bank bought enough interest-rate swaps.
Small regional banks can continue to exist. This will not necessitate even more consolidation in American capitalism. And there will be no follow-on bank runs to jeopardize grandma's CDs.
Seriously, what is there to complain about? The government did its job here. It governed. Fairly and competently.
Money to cover deposits that didn't previously didn't exist, suddenly exists, and there are people like you trying to tell everyone else that everything is rosy and that it's not going to cost the taxpayers anything.
It sounds like a revolutionary system that you're working with and if it truly costs "nothing", may I ask where I can sign up to have my bad financial investments refunded for free?
The stereotypical SV playbook is to enter a market, don't give a crap about the local regulation or laws, try to get big by using your cheap money to outstrip to competition and do rent-seeking when you are the largest.
Also, a lot of startups are solving non fundemental problems.
We should be spending all that engineering effort fixing things like climate change, food security for the global south and a way to deal with the aging population in the western world instead of thinking about algorithms to get more clicks on ads.
> Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system
I laughed.