Readit NewsVery curious to see who ends up paying this special assessment. Are we all going to pay in lower deposit/investment interest from banks? Are bank shareholders/profits gonna eat it?
Startups are going to get most of their deposits back-- perhaps all if there's an acquisition. If SVB is not acquired, I hope the FDIC is able to get a substantial dividend quickly so that they can keep operating and that everyone works to keep disruption low.
But I don't think the federal government needs to make depositors whole beyond the insurance limits. I think that sets its own bad precedent. Maybe some startups are going to lose 5-40% of their cash because of their treasury management choices. That is OK.
The times when I was a founder of a startup with a substantial cash balance--- we hedged the bank risk. There was a cost to it. I don't think those costs should be socialized.
The FDIC has publicly said there will be an advance dividend and I don't see why it wouldn't be substantial, given that there's going to be a LOT of recovery unless SVB has big non-public problems.
Just my 2 cents on this strawman part of discussion.
To my knowledge SVB was never required, and startups always had choice.
Exactly. And "don't put all your eggs in one uninsured basket" is the exact sort of 101-level business advice I'd expect the experienced hands at YC or any Angel investor to provide pretty routinely.
If they had deposited that 3B in, say two banks rather than one, they'd have 1.5B in that other bank
Sounds like YC should invest more in mentoring their portfolio companies to manage their treasury correctly.
(And obviously actual losses are gonna be like 20% here, not 100%, but you get the picture).
It's a win/win situation, they can't lose. They've invested nothing in their scam to begin with.
Not really. It's not like the FDIC would normally give everyone $250k and then light the bank's remaining money on fire. If there is money left over after depositors all get their $250k, the depositors have a claim on that money too.
Thought experiment: Consider a bank with only one customer. Let's say that customer had a million dollars in an account. The bank fails. That customer gets $250k. The FDIC finds out that another half a million is left over. The customer gets that too. The shareholders get shafted because they don't get anything because the depositors have precedence over the shareholders. Shareholders are the last ones to get paid, if there is anything left.
This is not a bailout. It's the way things normally work.
[1] - the $250K insurance is normally only supposed to apply if there are insufficient assets to cover it. Unless I'm misunderstanding your wording and the bank in the thought experiment has $750K in assets.