[garry]

These are depositors of a bank. Most startups only have one bank.

Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.

There's also a real risk of bank contagion if it is only safe to deposit in the largest banks.

[axlee]

There was nothing arbitrary about that choice. This bank promised better deals BECAUSE they were not careful enough about the risk it entailed. That was their competitive advantage, and they made bank for it. Well, tough luck, now it's not anymore: it has nothing to do with being a large bank or a small bank, it has to do with healthy business practices.

[jlmorton]

Sorry, I'm not sure if you're confused, but these are simple bank accounts. There was no high interest yield. The average interest yield was a fraction of a percent.

No one was chasing any yield. No one was taking any risks. It's a bank account.

Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?

And what about all the other regional banks? Based on your comment, do you think the prudent thing would be for every single small business in America to transfer their funds out of regional banks into a large bank?

[lolinder]

They were definitely doing high interest yield:

> ## Up to 4.50% annual percentage yield

> Help make your money last longer with our Startup Money Market Account. Like with a savings account, you’ll earn up to 4.50% APY on deposits — so you gain a longer runway. Certain restrictions apply.

https://www.svb.com/startup-banking

[axlee]

Bingo. Anyone who has dealt with SVB knows that. And that's just the public part.

[muzz]

Funny how this not mentioned in the petition or any of the posts

[beezle]

You can find similar rates from some other banks today. It is not so hard to do when 1mo treasury bills are yielding 4.80 and 3m over 5.0%

[medvezhenok]

It's about 1% higher than most solid/large high-yield online banks right now (Capital One 360 at 3.4%, Discover Savings is at 3.5%, Ally Bank is at 3.6%).

So I wouldn't say that you could get 4.5% from a reputable bank at the moment.

[beezle]

If your amount is under 250K, its insured. If not, take 1/4 (or 1/8th) of funds and place in 4 or 8 week t-bills every week for 4 (or 8) weeks with automatic roll over. On Wed those rates were 4.80% and 4.88%.

[jlmorton]

The 4.5% rate linked above is in a money market account. It's the exact same rate available from Vanguard today.

[oarabbus_]

>No one was chasing any yield. No one was taking any risks. It's a bank account.

It is by definition a risk for a corporation (or individual) to keep over $250k at a single institution ($750k if including SIPC-protected accounts). Reports are stating 97% of SVB's customers kept more than FDIC guaranteed limits. How can you claim this is not risky?

There is also additional insurance clients can purchase or the financial institution can themselves provide a statement they've purchased excess insurance for their clients.

>Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?

If they're keeping more than $250k in a single account, absolutely, yes, I cannot be sure this is even a serious question.

[pixl97]

>Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?

100% yes.

[axlee]

You are misled regarding the kind of offers SVB was running. They were offering above market returns specifically aimed at startups. I believe the documentation has been offered in another comment, and anybody who has been in touch with SVB knows what their sell pitch is, so I will not copy/paste it there. Most of it is undocumented publicly anyway, but even the public part should inform you enough.

[rumdonut]

> Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?

Honestly yes. All it takes is one financial analyst's time. I do it with my retirement plan for example, and I'm only a "small business" of one family. If there was demand for such info, I'm sure there would be a small community/industry for evaluating bank books like there is for financial planners (if that might not even be something a financial planner could already do).

And particularly with Y Combinator advising so many companies, I think it's on the side of negligence that they didn't evaluate the bank they were steering their companies towards. They were steering them there because they knew that tended to be the only bank that would deal with their high-risk companies - and it's too hard to believe that professional VCs didn't recognize that such a bank could have a lot of risk in some dark corner to compensate.

[Asparagirl]

> "Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?"

Golly, some of us even chose non-banks, and use local credit unions. There are millions of us!

[tekla]

> Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks

Yes? I do it with my personal after 2008

[ashwagary]

> "Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?"

Yes, this exactly why millions of people, not just businesses, avoid banks like Bank of America and Wells Fargo. They review how they have historically operated and what risks they passed on to their customers.

[gnicholas]

Interesting take — I imagine these banks will be getting net inflows as a result of this fiasco because people will assume (perhaps correctly) that they are too big to fail.

[goodluckchuck]

I’m saying banks should not be able to lend without tracing and specific consent from the individuals whose money is being loaned out.

When a bank promises to keep your money, then converts it for their own use and purchases investments and lends it to others… that’s fraud.

[garry]

Many startups chose SVB because they were the ones willing to open a bank account for them at all.

I remember going to a branch of Bank of America to open a bank account for Posterous and not being able to.

[klyrs]

So let's get this straight. You want a bank who will take risks willy-nilly on start-ups. But you also want that bank to be subject to regulations to prevent banks from taking risks. But those regulations exist, and SVB begged for exemptions to them, so they could take risks. But your experience with more-regulated banks shows that they're too risk averse. What exactly are you asking for here?

You want your flock made whole. I get that. But are you also asking for regulators to kill the startup economy by shutting it out of banking?

[dragontamer]

> Many startups chose SVB because they were the ones willing to open a bank account for them at all.

I mean, given the epic scale, herd-mentality of tech startup types to cause a $46 Billion bank run in a singular day (March 9th), can you blame them?

Its clear that other banks have seen systemic risk in focusing on this sector, and are pickier about choosing their customers.

-------

I get that this is a problem in any case. But the systemic risk / scale associated with the tech startup scene has just been proven to the world. "Other banks didn't want to take $100+ Billions in startup deposits" is beginning to look like the smarter move, given the circumstances.

[Ekaros]

Now I wonder what is the intersection of those asking for this petition and the ones that organised this bank run... As things might not be so bad if it wasn't organised...

[nicenewtemp84]

There is no way this is accurate. I've started several bank accounts for the smallest most poorly articulated, poorly documented, businesses you can imagine starting from 18 years old. Never had a problem.

[stephen_g]

Why? Is that normal in the US? Credit is a different thing (did you need a big overdraft facility?), but here in Australia I can’t imagine that a bank would refuse to open transaction or savings accounts for a legal business… The main exception is a few banks are stopping directly offering products to fossil fuel companies and the like, but that’s it.

[trogdor]

>I remember going to a branch of Bank of America to open a bank account for Posterous and not being able to.

I believe you, but this doesn’t make any sense to me. I have opened multiple business accounts at Bank of America. It’s just paperwork. If you have a dollar and a legal entity, you can open a bank account for that entity.

What was the issue?

[api]

What? Just about any bank will open a basic small business checking and savings account. It won’t be fancy or high yield but they will bank for you.

Are you really saying BofA would not take deposits for you?

[TedDoesntTalk]

This is not true. I had the same problem with my business at two banks (not BofA). In think it’s related to KYC regulations that makes them cautious. All I wanted was a checking account, no loans.

[umanwizard]

What’s your take on SVB vs. First Republic?

[NikolaNovak]

I think it'd help understand the situation to answer "why not?", and for svb then, "why yes?"

(understanding it may have had little to do with why they tanked)

[secondcoming]

Was that before you had an account at SVB?

Would BoA have been more willing to open an account for you if your business already had one?

[drcode]

Yeah this is a fact lots of people don't want to accept

To be fair though, in the US we've long established an expectation that if you have funds in a bank account at a registered bank, the government would back those funds

It's stupid to have set that expectation, but it seems very destructive to suddenly remove that expectation

[theGnuMe]

Your funds are insured up to $250k. That's the expectation and reality. Every account has the disclaimer that amounts in excess of $250k are not insured.

[drcode]

You are right of course, but we've established a moral hazard

There will be a cost to suddenly altering expectations, I guess there's a chance we might see what that cost is now (but probably they will just get a boring bailout)

[theGnuMe]

No we have not established a moral hazard. It's always been $250k. You are trying to make one up implying that we are "suddenly altering expectations". The narrative has always been, FDIC insured accounts are insured up to $250k.

I've known this since I opened my first bank account.

[drcode]

It's a moral hazard if people over 250K got bailed out in the past. Look up the Temporary Liquidity Guarantee Program.

[Supermancho]

> in the US we've long established an expectation that if you have funds in a bank account at a registered bank, the government would back those funds

Not since around 2010. The ~2007 crash was not without consequence.

[muzz]

Indeed. Deposits at IndyMac Bank were only paid 50 cents on the dollar in 2008.

[WhatTheFlak]

Wait so now everyone has to sit down and evaluate their banks balance sheet before trying to do business with them?

Silicon Valley Bank had nothing wrong with it's business practices other than they were concentrated in one particular industry, and a slowdown in VCs pumping money resulted in them shrinking deposits suddenly. They asked their investors for money, some VCs basically yelled fire in a crowded theatre and boom a 40 year old institution was wiped out in 24 hours.

America has thousands of banks, and the way you would have this work would shrink that to 5. This way of operation would also wipe out every single credit union. Literally none of them have the insane levels of stability necessary to trust with money, if larger accounts are going to be at risk of a bank run.

That 250,000 number hasnt changed in nearly a 100 years. Maybe it isn't what we should be going off of?

[rudedogg]

> That 250,000 number hasnt changed in nearly a 100 years. Maybe it isn't what we should be going off of?

For what it's worth, it used to be $100K and was increased to $250K in 2008.

Here's a timeline:

https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...

[lolinder]

> everyone has to sit down and evaluate their banks balance sheet before trying to do business with them?

No, if you're not keeping more than $250k in the account, you don't have to do the homework. If you're keeping more than $250k in the account, you can afford to pay someone $1k to do a bit of due diligence.

[Mystery-Machine]

$250k is nothing for a company. It's 1 engineer salary. And, no, it's not $1k. It's more like $10k-$20k per month, plus all the overhead of having your money in multiple bank accounts and shuffling it all around just to never hit the $250k limit.

Just my 2 cents on this strawman part of discussion.

[lolinder]

My parent wasn't talking about shuffling money around, they were talking about reading the bank's balance sheet.

$1k gets you several hours of an accountant's time to go through the bank's balance sheet and tell you if their interest rates and other perks are, in fact, too good to be true.

If you want to go the extra mile and try to move money around to keep under the limits, more power to you, but paying someone to occasionally keep an eye on your bank's balance sheet and make sure it's not going to collapse under you is totally within the capabilities of pretty much any company.

[dlubarov]

How could my accountant have known the risks? I don't think there was any public information about SVB's poorly-timed MBS purchases, the main cause of this incident.

[ZachPruckowski]

I mean, completely reducing this risk to 0 is probably expensive and annoying, yes. But you could halve the risk by splitting your money into just two bank accounts, and reduce it further by keeping medium/long-term savings in short-duration no-coupon T-Bills or something.

[trogdor]

You can purchase insurance for excess deposits. Businesses that have to keep large amounts of cash on hand routinely do this.

[subsistence234]

if $250k is nothing then $1k is less than nothing.

[kelnos]

> Most startups only have one bank.

There's the problem: startups are doing an inadequate job of managing the risk around their treasury operations. That sucks, but that's on them.

I as a taxpayer do not care to bail out -- yes, that is what that is -- these startups, when they could have done a better job at risk management. I know some smaller startups that do have their cash at multiple banks (SVB one of them). While this is still a headache for them to deal with, it's not an existential threat. Perhaps more startups should be like that.

If you take a risk, you have to be prepared to accept the consequences of what might happen.

> Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.

False. Companies live or die because of every business-related decision they make. Choosing a particular bank, and choosing not to diversify where they keep their cash, is one of those decisions.

[bentlegen]

Garry I have a question (and this is not intended to be snarky).

Why should a company, perhaps a slower and more risk-averse company who intentionally chose a different, safer banking institution to do business with, do they not get to benefit from their discretion in choosing that banking partner? One could argue that choice put them at a disadvantage against their fast-moving competitors, who chose fast-moving “corporate infrastructure” like SVB.

If bailouts like this take place, how do those companies ever benefit from being prudent? Should nobody bother?

(FWIW, this is just a thought exercise, I am not opposed to the petition.)

[koheripbal]

Large bank failures are rare enough, that I suspect very few, if any, had intentionality to select a more traditional bank.

[garry]

Choice of bank historically has been one of the lower priority things people have to worry about. I think this changes now.

If your personal bank went out of business through no fault or gain of your own, most individuals would feel that it would be fair for you as the depositor should be made whole. That's the same with a business, and as important since this represents the payrolls of thousands of people.

[bentlegen]

As an individual, I am keenly aware of deposit insurance - it’s much lower where I live, in Canada - and as such it’s common to spread your savings among multiple banking institutions to ensure you are covered (and to remove risk where any individual bank is impacted, even temporarily).

Are consumers smart for doing that? Or are they dumb for even bothering, since it sounds like they should expect to be made whole regardless? Should consumer deposits not benefit similarly if these SVB corporate deposits are made whole? What dollar limit would you recommend the FDIC or CDIC (Canada) insure going forward?

(I ask because you comment on YC asking to advance banking regulation elsewhere in this thread, and I’m wondering what a good number should be going forward. Like, should the insured amount be $10mm, or $50mm, or what?)

[JohnFen]

> If your personal bank went out of business through no fault or gain of your own, most individuals would feel that it would be fair for you as the depositor should be made whole.

But at the same time, you are also aware of the limits of your protection. If you leave all but $250k uncovered, you're willingly and knowingly taking a risk.

How is it fair to ask a bunch of people who had nothing to do with any of this to make the depositors whole from a risk those depositors willingly took? I really don't understand the ethical stance here.

[hartator]

> Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice.

If you choose a bank because they were offering better products because they were taking more risks, why I should bare the cost?

[bananapub]

> Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.

What on earth are you talking about? SVB had so many startup companies because they offered perks like mortgages for illiquid founders and high yield savings accounts funded by their poorly thought bond strategy, and, allegedly, because they were recommended to them by various VCs.

It’s not arbitrary, all these startups specifically chose to use SVB and chose to not hire a competent CFO or accountant who could tell them “lol no, bank account insurance isn’t free or infinite”.

This is one of the most pathetic pro-YC-startup-culture-nonsense posts I’ve ever seen on HN and that is saying something.

[ajross]

> not because they made an arbitrary choice like which bank they started using

If the choice was "arbitrary" then you'd expect startup banking to be distributed arbitrarily among the various banking choices in the market. Clearly that's not the case.

No, this was "the startup bank". It was the startup bank because it operated in tandem with the startup funding ecosystem (an entity of which the startups themselves are really just a small part). That's not an efficient market. That's more or less a cartel.

The VC world, YC included, is a toxic mess at this point. I don't see why a bailout is a bad idea, but... yeah, the startup ecosystem needs a reboot. Bail out the startups if we must, but nothing for the dealmakers.

[altdataseller]

Why do startups only have 1 bank? I own a bootstrapped startup with literally just 1 employee and am easily able to get an account in Chase or Citi. Why do startups with much more revenue not able to get the same account in major banks?

[pseudo0]

His own petition says:

> In the Y Combinator community, one-third of startups with exposure to SVB used SVB as their sole bank account.

So apparently two-thirds of startups in YC with SVB have at least one other bank. That might not be representative of startups as a whole, but is at least a good data point.

[molsongolden]

SVB was a major bank and most businesses in the USA only have one bank. Once you have an established relationship it’s just easier to do all of your banking with that bank.

[b1c1jones]

That doesn't answer the question. Why does the government need to underwrite the risk you assume for convenience? And "everybody does it" isn't an excuse, it just makes the prospect of the government doing so all the more expensive to the taxpayer.

[muyuu]

https://www.bloomberg.com/news/articles/2022-04-07/marc-lasr...

[somewhereoutth]

Possibly 'bootstrapped' is the key factor here - many non-bootstrapped startups will want to open an account with a very big cheque and little else (from the bank's point of view), and likely will fall foul of Anti Money Laundering policies.

[CyanBird]

> not because they made an arbitrary choice.

It is not an arbitrary choice, svb was known for their risk taking behavior which is why so many risky small businesses landed on their lap

Rather than taking standard loans designed to reduce systemic risk, startups chose to use this bank because it allowed them to access capital more rapidly or in exchange for their own pennystocks, which ofc leads to increasing systemic risk and leads to the situation today

Sow winds and reap whirlwind

[greatpostman]

If SVB knew they would be punished for such risks, they wouldn’t have acted like they did. This needs to stop. Public shame for wrecking so many startups will deter future risk seeking. YC is extremely wealthy as it is, shameful for you to shill for more money

[vasco]

> not because they made an arbitrary choice like which bank they started using

Most companies live and die by what most people would call arbitrary choices in things they wouldn't think of. I use more than one bank account for my personal finances and I don't even have 250k cash. Begging for tax payer money after the 10 year tech bull run we've seen, shame.

[Supermancho]

> Most companies live and die by what most people would call arbitrary choices in things they wouldn't think of.

How true. You can imagine that most people have only a vague idea of what is supposed to happen and why. There are entire professions devoted to many aspects of life (eg Healthcare, law, education, finance, politics, software). Even if you are such a professional, you probably have a mere specialty within the breadth of a vertical. The vast majority of choices people make are gambles based on intuition, localized/anecdotal deduction, and the type of education someone has been exposed to.

Taking stock of what everything anyone knows is true and why, will take longer to explore than a lifetime. A company, as an entity, is worse off.

[simple-thoughts]

Every business holding uninsured deposits is responsible to do due diligence on their banking partners. There should be no bailout for negligence.

[rvz]

Sorry but absolutely NO to a bailout or government intervention or help. The VCs got themselves in to this mess of a pyramid scheme and now you have to get yourself out by yourself with others.

Before the crash, YC, Founders fund and others could have raised money to stop the collapse but it seems the VCs just let the bank fail and now are begging to the US government for a bailout put on the taxpayer to foot the bill?

Absolutely NOT this time.

[baq]

Why did startups choose a bank so heavily invested in long duration assets while having long duration liabilities and 0 (zero) interest rate hedges? If VCs told them to open accounts there, what were they thinking? You do due diligence on your founders but skip it on the banks? Guys please.

[chirau]

It is financial negligence on your companies' part. And that too is a risk of doing business. Risk is not just on the product, but also the partners you get into bed with along the way.

[smcl]

Garry Tan there, making the case for a strong social safety net to shield people from the more ruthless side of capitalism, particularly when it’s as a result of events outside of their control. I’m a little surprised, but I am glad you have joined us.

[anonymous_sorry]

Banks should live or die based on their management of risk. If the business customers of bad banks are fully protected, then they never need to assess the quality of their bank. Where then will the competitive pressure for prudent risk management come from?

[WalterSear]

Contagion, you say?

SVB had $20 billion in unrealized losses. There's estimated to be $600 billion more in the banking system.

[nocoiner]

A competent CFO probably would have helped.

[chernevik]

You've made no reply to the many comments pointing out the many ways to safely manage cash.

Why aren't these companies, and the VCs advising them, responsible for neglecting Cash Management 101?

[gremlinsinc]

BOA should buy the bank, it'll be a big loss, but the clientele are some of the richest in America, or may someday become so, of course I'm not sure they could make everybody whole fast enough.

[rahimnathwani]

https://twitter.com/Mayhem4Markets/status/163434702300352921...

[tiffanyh]

> Startups should live or die because they create good products and solve real problems in real markets

What happens if the startup you're referring to is a bank itself?

[IncRnd]

They can't all be unicorns. Some are going to fail.