U.S. officials weigh protecting all deposits at Silicon Valley Bank(washingtonpost.com)
washingtonpost.com
U.S. officials weigh protecting all deposits at Silicon Valley Bank
https://www.washingtonpost.com/us-policy/2023/03/12/silicon-valley-bank-deposits/
23 comments
The reality is, $250k is a very low limit, even for a small business. Do we want to make it so every business has to do due diligence on its checking account provider? More importantly, do we want to start a bank run on every mid-sized bank in the country? Because if the depositors to SVB don't get 100% of their money back, every competent CFO in the country, in every industry, is going to take their business from the regional or local bank they've been with for years and switch to JP Morgan or another Too Big To Fail bank. There will be cascading bank runs everywhere.
To be clear, SVB's investors should be zeroed out. They made a bad investment and should lose it all. But depositors must be made whole or the economy will be rocked. And going forward we'll either need to raise the $250k limit or create a second line of FDIC insurance for business accounts.
To be clear, SVB's investors should be zeroed out. They made a bad investment and should lose it all. But depositors must be made whole or the economy will be rocked. And going forward we'll either need to raise the $250k limit or create a second line of FDIC insurance for business accounts.
That misses the point that litterally everyone knows that anything above 250k is uninsured.
Everyone learned this during the collapse of banks in the mid 2000s. Everyone knows that holding accounts at multiple banks is a way around it.
This isn't something that's specific to businesses either - it applies to individual accounts the same. They took a risk by holding more than 250k in a single account and a risk isn't a risk if there's no chance of failure.
I can't stress this enough, but markets do better when agents have skin in the game. Commercial survival of the fittest requires failure.
Everyone learned this during the collapse of banks in the mid 2000s. Everyone knows that holding accounts at multiple banks is a way around it.
This isn't something that's specific to businesses either - it applies to individual accounts the same. They took a risk by holding more than 250k in a single account and a risk isn't a risk if there's no chance of failure.
I can't stress this enough, but markets do better when agents have skin in the game. Commercial survival of the fittest requires failure.
This applies individual-person logic to a company. Maybe a person can have a bunch of separate $200k accounts, but it would be strange for a company to do that. If you have a dozen engineers, that's just one month's payroll. I would expect a company to have some buffer in its bank account, not to have literally 100% laddered rigidly in T-bills.
This also doesn't reflect on the fitness of the companies in question. If you're starting a software company, you should be able to go to the bank and it should Just Work. If it doesn't, that's the bank's fault, not yours. You shouldn't have to think about the average duration of the bank's bond portfolio, or about how many interest-rate swaps it has on the books. That responsibility and risk should go with the bank. That's their role.
This also doesn't reflect on the fitness of the companies in question. If you're starting a software company, you should be able to go to the bank and it should Just Work. If it doesn't, that's the bank's fault, not yours. You shouldn't have to think about the average duration of the bank's bond portfolio, or about how many interest-rate swaps it has on the books. That responsibility and risk should go with the bank. That's their role.
Ok, for one strange and legal are different axes, and companies are only constrained by what is legal. They have no reservations about the strange.
Secondly, what a person or company thinks should happen bears no actual relation to what actually does happen. Why should we start giving credit to misconceptions? This is on par with someone arguing that it's ok to distribute copyrighted property for free because no one made any money on it and when confronted with the legal reality that the courts don't care, pleading, "but thats the way it should just work."
Sorry, but that's doesn't reflect the reality of the terms of the banking arrangement. Excesses of 250k are not insured.
There's a lot of things I think should just work, but using that as a justification is beyond logic.
Secondly, what a person or company thinks should happen bears no actual relation to what actually does happen. Why should we start giving credit to misconceptions? This is on par with someone arguing that it's ok to distribute copyrighted property for free because no one made any money on it and when confronted with the legal reality that the courts don't care, pleading, "but thats the way it should just work."
Sorry, but that's doesn't reflect the reality of the terms of the banking arrangement. Excesses of 250k are not insured.
There's a lot of things I think should just work, but using that as a justification is beyond logic.
There are insuring agreements that can cover this kind of risk. It ought to be a part of any risk-management program.
>Everyone learned this during the collapse of banks in the mid 2000s.
No depositors lost a penny to bank failures in 07-08, or to any bank failures since 1933. If you had a billion dollars on deposit with Lehman, you got a billion dollars back. The lesson everyone has learned is that bank deposits are safe.
Which makes sense! Why should anyone with more than $250k have to become a bank analyst just to keep their money in a single account? It's not as if mid-sized businesses are going to hire CPAs to navigate this jungle. They'll just pick a giant bank, and we'll end up with a total of three banks in the whole country.
No depositors lost a penny to bank failures in 07-08, or to any bank failures since 1933. If you had a billion dollars on deposit with Lehman, you got a billion dollars back. The lesson everyone has learned is that bank deposits are safe.
Which makes sense! Why should anyone with more than $250k have to become a bank analyst just to keep their money in a single account? It's not as if mid-sized businesses are going to hire CPAs to navigate this jungle. They'll just pick a giant bank, and we'll end up with a total of three banks in the whole country.
This is the political/elite class of SF pressuring Treasury and the Fed to protect their investments in the startup world. We shouldn't stand for this.
The fact that VCs would rather have taxpayers save their investments rather than pony up themselves really tells you all you need to know about fucking VCs.
The observation that the elites in capitalist society consistently seek to privatize the upside and socialize the downside of their investments (while opposing that approach for other segments of society) is…not new.
The problem is that we all too often have socialism for the rich and rugged free enterprise capitalism for the poor. — Rev. Dr. Martin Luther King, Jr., February 23, 1968
The problem is that we all too often have socialism for the rich and rugged free enterprise capitalism for the poor. — Rev. Dr. Martin Luther King, Jr., February 23, 1968
Well put.
>really tells you all you need to know about fucking VCs.
That they want government intervention when it benefits them? I think that describes most people, not just VCs.
That they want government intervention when it benefits them? I think that describes most people, not just VCs.
Most people lack the ability to help themselves when they need government intervention.
Yeah but conditional on being able to "help themselves", most people still would want government intervention when it benefits them. For the /r/personalfinance users that have a 6 month emergency fund, I doubt they'd turn down the stimulus checks that the government was handing out, for instance.
So overall all we figured out were:
1. VCs "can help themselves" (aka. are rich)
2. VCs, like most people want government intervention when it benefits them
Not exactly a groundbreaking discovery that requires a crisis to unearth.
So overall all we figured out were:
1. VCs "can help themselves" (aka. are rich)
2. VCs, like most people want government intervention when it benefits them
Not exactly a groundbreaking discovery that requires a crisis to unearth.
> “This isn’t a systemic event. This is a midsize bank that was badly managed,” he said “It may be a little messy. But that’s different than if you have somebody at the core of the financial system stop making payments to somebody else at the core of the system and then the core implodes."
This is the dilemma for any nascent panic. Do nothing so as not to alarm markets, and the thing goes down the tubes, potentially dragging many others along with it through a chain reaction.
Do something and spook the markets because you need to explain why you're taking the extraordinary action.
This was exactly the problem during the opening phases of the GFC.
The other problem is the populist outcry of fat cats getting a free ride on the backs of working people. Stories like this one of bonuses paid out just before the implosion don't exactly help the medicine go down:
> Silicon Valley Bank employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments.
https://www.cnbc.com/2023/03/11/silicon-valley-bank-employee...
This is all happening against a backdrop of futures markets about to open. The last thing any of these officials wants to see is a selloff in stocks.
It's hard to see any other outcome but the depositors getting bailed out. Then again, bailout for Lehman seemed obvious, and yet things took a different path.
FWIW, yield curves around the world have been screaming "Catastrophe Ahead" for months now. Sophisticated traders know this and it can't be lost on them this this is exactly the kind of setup that would be consistent with massive and prolonged curve inversions.
This is the dilemma for any nascent panic. Do nothing so as not to alarm markets, and the thing goes down the tubes, potentially dragging many others along with it through a chain reaction.
Do something and spook the markets because you need to explain why you're taking the extraordinary action.
This was exactly the problem during the opening phases of the GFC.
The other problem is the populist outcry of fat cats getting a free ride on the backs of working people. Stories like this one of bonuses paid out just before the implosion don't exactly help the medicine go down:
> Silicon Valley Bank employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments.
https://www.cnbc.com/2023/03/11/silicon-valley-bank-employee...
This is all happening against a backdrop of futures markets about to open. The last thing any of these officials wants to see is a selloff in stocks.
It's hard to see any other outcome but the depositors getting bailed out. Then again, bailout for Lehman seemed obvious, and yet things took a different path.
FWIW, yield curves around the world have been screaming "Catastrophe Ahead" for months now. Sophisticated traders know this and it can't be lost on them this this is exactly the kind of setup that would be consistent with massive and prolonged curve inversions.
Designating SVB as systemically important and freeing up taxpayer money to backstop uninsured deposits seems like a big stretch politically. I have no doubt they're examining the legal authority, but I'd be very surprised if the Biden administration goes down that path.
I guess you're pretty surprised then. Not going to be taxpayer money though.
The USD($) wants to commit double suicide, that's impressive
Can we just cut through the bull and admit the only reason the federal government is even considering this is because all the super wealthy who own all the startups and who had a lot of their own money in SVB are Democrats? If these people were all Republicans, we wouldn't be having this discussion.
That doesn't make me comfortable.
That doesn't make me comfortable.
One of the single biggest customers of SVB (well, was, until they took out $42B) is Peter Thiel and his funds and startups. That was close to 20% of the bank's total deposits.
And very very very far from Democrat.
And very very very far from Democrat.
Nah, Dems are too skittish to support their investments. If the Republicans investments were at stake the bank would have gotten their instant help, direct from taxpayers. Plus the setup would work in such a way that it’s only the taxpayers in the Democratically voting states that would actually see the increase of their taxes.
I think the downvotes prove my point.
It's not the hotdog seller on the streets that has to pay for the mistakes that the high-risk ventures bank did.
Here, we talk about private guys doing deals together; it's a specialized corporate bank, made for high-risk ventures.
So, its main customer base are companies that are funded by VCs.
The fact is that many VCs already pulled out billions in profit by doing successful exits with their startups.
If the VCs want to continue to have more successful exits, then their own interest is to support or save SVB.
If the VCs don't save SVB, then they know that their future return on investment on non-exited ventures will get unlikely.
VCs already have incentive to save the companies that were dependent on SVB (or to directly save SVB) to maximize the chances of getting a return.
All of that means that VCs or other capital sources will anyway take the opportunity to offer loans at outrageous rates to these companies to "save them", and happily say "hey, we at VC [ABC], we support our companies so much that we negotiated new issue of convertible notes".
At the same time, they should offer not too outrageous conditions, to not demotivate the founders.
It's not the role of the government to sponsor the profit of the VCs, and to take all the losses when things go sour.