[bratao]

I want to have sympathy for the depositors, but it is hard to knowing that they chose to keep their funds in an bank that was actively lobbying to weaken risk regulations.

There multiple products that would help in this situation, such as insurances and virtual accounts that split between multiple FDIC accounts/banks.

Bailing out these depositors would send the wrong message and encourage moral hazard, i.e., the belief that someone else will always bear the costs of risky behavior. Educating entrepreneurs and investors on the importance of diversification, due diligence, and risk management would create a more resilient and sustainable innovation ecosystem, where success is based on merit and hard work, not on cronyism or government intervention.

[hn_throwaway_99]

> Bailing out these depositors would send the wrong message and encourage moral hazard, i.e., the belief that someone else will always bear the costs of risky behavior.

Totally agree, and this is what makes me so furious. On one hand, you have all these business leaders demanding fewer regulations because they're "costly", but then when shit hits the fan suddenly everyone, from congresspeople on both sides, to billionaire investors and tech leaders, is crying on Twitter how it's the "end of civilization" if they don't get a bailout.

The whole purpose of things like insurance and regulations is so that you can plan for disasters before they occur. If political pressure can ensure a bailout regardless if depositors are over the FDIC limit, than we should just drop the pretense of there being "uninsured deposits" and demand that depositors pay for insurance, regardless of their deposit amount, up front.

At the very least they need laws in place so they can claw back money from those who took advantage of loose regulations (or prosecute egregious cases). The CEO of SVB sold millions of stock 2 weeks before it collapsed. He better be first in line to return money to make depositors whole if there is a bailout.

So sick of this "heads I win tails you lose" BS.

[nico]

> Bailing out these depositors would send the wrong message and encourage moral hazard

This seems to be the way the financial system has operated in the last 20 years. So I’d expect a bailout.

Also, SVB depositors weren’t just random individuals, they are some of the wealthiest people and organizations in the country or even the world. They are going to leverage their power and influence to recover as much as they can as quickly as they can.

> where success is based on merit and hard work

That’s the lie we all want to believe, but reality is that people at the top are a small club that will always prefer their family/friends/network than some hardworking rando from “the outside”.

You are far more likely to be successful (money/career-wise), if you are born into a well off, well connected family, than if you are born poor but super hardworking.

[lp0_on_fire]

> Also, SVB depositors weren’t just random individuals, they are some of the wealthiest people and organizations in the country or even the world. They are going to leverage their power and influence to recover as much as they can as quickly as they can.

All the more reason regular people need to be screaming to high heaven that those rich and powerful people will get eaten if they push for and eventually receive a bailout.

[mrkurt]

There's no bailout. SVB is dead. People are pushing for depositors to get their money back. Which is, I think, reasonable.

Putting your company money in a bank account should be safe. We should regulate banks like SVB to make it more safe. We should also make sure when the regulations fail the people who use a bank, they can continue doing business.

[mangosteenjuice]

It is a bailout for any amount over $250,000

[mrkurt]

$10mm of deposits at SVB is worth way more than $250k. We don't know exactly how much though. That money didn't just vanish, it got tied up in ways that make it hard for depositors to withdraw it.

So no, it's not a depositor bailout for everything greater than $250k.

[dalyons]

It’s really not. They have assets.

[MrMan]

depositors are only entitled to what is left over after resolution of the assets, nothing more! dont make this situation worse by advocating for something unethical and which is bad for the entire system

[boeingUH60]

Of course, that is likely what they're getting. People with sub-$250k will be taken care of by the FDIC as expected and the $250k+ depositors will be made whole from the proceeds of asset sales (bonds, securities, et al) held by Silicon Valley Bank. I really don't think the U.S. government will step in to provide additional funds.

It's also possible that the FDIC might sell the remnants of Silicon Valley Bank to a larger bank that will assume all deposits.

[nico]

> I really don't think the U.S. government will step in to provide additional funds.

If it was some small bank that was only impacting “regular people”, then probably the government would not do anything.

But that is not the case here. The depositors of SVB are very wealthy and powerful. Also the standard process of selling assets is too slow, and that delay could create a catastrophic domino effect. Famous investors are already calling for the government to fix the issue within 48hrs.

Maybe the government will step in as a temporary lender, letting depositors borrow against their deposits, which they will eventually get back.

[mrkurt]

Why does FDIC insurance exist at all?

[swatcoder]

To provide safe haven for the vast majority of people/orgs whose cash assets can fit in that bucket, since there's some scale at which you can't afford the overhead of privately managed risk management (diversification, private insurance, etc). It provides stability on the low end, especially for naive and casual wealth, so that their naivite doesn't cause problems for everyone else.

But above that bucket, people/orgs are expected to know and appropriately manage the risks that they're taking with their money or have the float to pay someone who does.

Experienced money doesn't see large bank deposits as safe by nature because they never have been. It's only people new to wealth and chronically blind to tail risk (hello startup industry!) that assume a $5M portfolio can be treated as casually as their personal checking account.

[NordSteve]

In the general case, it acts to prevent bank runs triggered by individual depositors.

SVB is a special case -- a bank focused on commercial customer base.

[lp0_on_fire]

Every bank account in the United States is insured up to $250,000 by the FDIC. I have zero sympathy for these depositors who decided it would be "too costly" or "too much hassle" to split their deposits into multiple accounts.

If you've got $25,000,000 dollars at SVB, you need 100 accounts. This is not rocket science. I really hope that they find a buyer to make depositors whole but if one cannot be found why should the public reimburse depositors for more than 250K simply because they were too cheap to hire a couple of accountants to manage it?

[salawat]

Incorrect.

Every depositor has 1 account per account type per institution insured up to 250k.

If you had 100 accounts of the same type at the same institution, you're still only getting 250k back from the FDIC.

To do what you're proposing, you'd have to have 100 accounts at different FDIC insured institutions. The logistics there is vastly different, but meshes quite well with designing for fault tolerance/resilience.

[simfree]

Brex offers a product to do this for you IIRC?

[Ekaros]

I don't expect everyone to essentially game FDIC insurance. And not sure if that is even possible or wanted.

But doesn't mean it is unreasonable to expect people with this level of cash funds not to have more than one egg basket. Split it in two, three or four. One goes down, you still have money locked up but can use other accounts to take care daily operations and possibly mitigate some of the issues.

[nibbleshifter]

> Also, SVB depositors weren’t just random individuals, they are some of the wealthiest people and organizations in the country or even the world

Not anymore!

[capableweb]

Even if you end up getting back "only" 250K USD, you end up being in the 1% of the world when it comes to wealth. That sort of cash is really not "normal" or "common" to have in a bank account, in the world at large. Looks differently in concentrated high-wealth areas like Silicon Valley of course, but still plenty of wealth compared to the rest of the world.

[mrkurt]

That's an incredibly normal amount for a business. That's one payroll cycle for ~50 people making $75k per year each.

[capableweb]

Sure, in the context of the US (and specifically Silicon Valley), but context was "SVB depositors weren’t just random individuals, they are some of the wealthiest people and organizations in the country or even the world"

[dv_dt]

I think it's a mistake to equate simply having an amount of wealth in the 1% worldwide having any significant power or independence. It's basically something of a non-sequitur ignoring what that wealth gets you in context.

[mistrial9]

> prefer their family/friends/network than some hardworking rando

this is naive and badly mistaken. This kind of criticism on a very large scale is exactly the driver the flavor of business today; constant, ruthless and formula-driven partnerships taking control and demanding new 'opportunities'.

[somsak2]

> it is hard to knowing that they chose to keep their funds in an bank that was actively lobbying to weaken risk regulations

what an insane standard. as a customer of any company I'm now supposed to investigate their lobbying activity? what else do I need to do due diligence on?

[mindslight]

If you loan someone millions of dollars, yes you should probably do some diligence on them.

(The limitless extrapolation of HN never ceases to amaze)

[dehrmann]

Agreed. They put their money in a regulated bank that's an FDIC member. Banks are a bit like the US airline in that they're heavily regulated, how they treat you and the fees the charge are all over the place, but they're all safe.

[mrkurt]

SVB was the place investors told companies to put money. SVB was also somewhat difficult to work with, they created a tremendous amount of pressure to do all your banking with them.

And SVB didn't have products that would help you maximize FDIC insurance.

It wasn't exactly predatory, but they set everything up to leave everyone very exposed to SVB issues. I think on purpose, just to maintain power in the ecosystem.

[jasonwatkinspdx]

Are you aware of all the lobbying your current bank does? Seems an unreasonable expectation.

[bratao]

I´m not, but I do expect sophisticated companies such as Roku to do better risk management than me.

[mrkurt]

If this was just Roku money, I doubt there would be an uproar. This hit a lot of very small startups with, like, $2mm and 14 months to live. These are not sophisticated companies.

[dehrmann]

Setting aside whether or not the due diligence is to be expected, early-stage startups are in no position to do it, so they listen to their VCs.

[jasonwatkinspdx]

There's solo freelancers that run things through their LLC as well. It's not just all fat cats for sure.

[ProllyInfamous]

"Privatize profits, subsidize losses."

It's the global economy way!

Hint: nothing will change, depositors and banks will get bailed out. Water is wet.

[mrkurt]

SVB isn't getting a bailout. That company is gone. Their shareholders lost everything they invested.

Depositors don't get bailouts. That's not what bailouts are.

[gregw2]

If taxpayers help wealthy depositors get more than their insured amounts, (and more than a normal liquidation of assets) that is a bailout

It may or may not be the right thing to do, but it most definitely is a bailout.

[mrkurt]

Yes that's reasonable. That's probably not what's happening here. In some ways, the _promise_ of the FDIC getting depositors almost all their money back is enough.

The biggest problem people have right now is time. Over time, everyone will probably get most of their deposits from SVB back from SVB assets.

What people (the ones who know what they're talking about, anyway) are asking for is closer to taxpayers covering the costs of getting that money back sooner. There's a definite cost, but it's not taxpayers writing checks to cover deposit values.

[lp0_on_fire]

> Over time, everyone will probably get most of their deposits from SVB back from SVB assets.

> What people (the ones who know what they're talking about, anyway) are asking for is closer to taxpayers covering the costs of getting that money back sooner. There's a definite cost, but it's not taxpayers writing checks to cover deposit values.

Except it's literally asking the taxpayer to cover the costs to cover these funds for some indeterminate period of time in the HOPES that SVB will "probably" be able to make their depositors whole, someday.

[mrkurt]

I think that's what I said?

There's a cost, we don't know what it is. It's not as high as it sounds when you say "we should only let people get $250k liquid and everyone else should pound sand".

The cost to letting these companies keep their money tied up is a lot of people not getting paychecks. Which suddenly means no tax witholdings. And more unemployed people. And companies that can't pay vendors.

Doing nothing is not free. It might be cheaper, it might not. I get the instinct to hold the man accountable but it's not as simple as most people are suggesting.

[adharmad]

But why can their investors not cover the costs? Surely the same VCs who lent the startups money can lend them some more for the short period until SVB's assets valuation gets sorted out? Aren't they the ones to lose most if the startups go down under?