[garry]

The equity holders and management of SVB are likely to be wiped. In the petition we specifically call this out: we are not asking for their risks to be "socialized."

Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe. If this is not true, then most people will only bank with the largest banks. That's not a good situation.

We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.

[syntheticcdo]

Perhaps I would be more sympathetic had SVB themselves not recently successfully lobbied to have the exact regulations you are asking for to not apply to their bank.

[1] https://www.theguardian.com/business/2023/mar/11/silicon-val...

[axlee]

This is damning.

[rahimnathwani]

The possibility of changing the rules of the game once it's started can create moral hazard. For example, if people believe that the govt will use taxpayers' money to reimburse funds that were not FDIC protected, then they won't be careful about picking their bank.

And it's a lot of money (e.g. 30% loss on $200bn is about $600 per US resident household).

But I'm conflicted, because:

- the federal administration doesn't seem to care about moral hazard or changing the rules of the game retroactively (e.g. handouts to people who borrowed lots of money whilst they were enrolled in college)

- banking is necessary for companies to operate, and it doesn't seem reasonable for every business to become expert in managing counterparty risk

- bank regulation seems to have failed, and that's a responsibility of govt

- it's almost impossible to be neutral about this; if you're a founder/CEO you aren't going to feel you did anything wrong by choosing SVB; if you're a random taxpayer you are going to feel any obligation to pay some west coast companies because their bank failed.

[nuclearnice3]

> And it's a lot of money (e.g. 30% loss on $200bn is about $600 per US resident household).

This calculation really put it in perspective.

CEO of HN asks that every family in America send his friends $500.

[axlee]

I don't even understand why he would even make that comment in good faith in the first place. They are not asking for risks to be socialized, but they are asking for their "deposits" to be safe and the depositors to be "whole". Well, sounds like a lot like socializing the losses, unless there is a magical way to make the depositors whole without burdening the taxpayer.

[muzz]

It absolutely IS burdening the taxpayer-- he just doesn't want to say it

"Regulatory backstop" sounds a lot better than "tax grandma to make sure out portfolio companies don't lose a penny of their deposits on this"

[xupybd]

There is a risk in using a bank. The risk should be low and it's normal to assume your money is safe in the bank. This incident proves it's not. The tax payer didn't take on this risk so why should they have to cover the losses?

[NonEUCitizen]

It is not normal to assume your money is safe in the bank beyond the FDIC insured amount. A lot of startups have highly compensated (higher salary and/or more stock options than engineers) CFOs -- what are they doing?

[Shish2k]

> A lot of startups have highly compensated CFOs -- what are they doing?

Cocaine, mostly :P

[jimnotgym]

Indeed I have read countless times on hn that it would be very risky to keep more than the insured amount in a bank.

Sounds like YC should invest more in mentoring their portfolio companies to manage their treasury correctly.

[ZachPruckowski]

Well and it's not just that they had money over the insured amount in a bank. It's that they had ALL of their money in ONE bank. If they had $500K in three different banks instead of $1.5M in one bank, there would still be a risk, but it would be that they'd lose $250K if any of those three banks failed, not that they'd lose $1.25M if one particular bank failed.

(And obviously actual losses are gonna be like 20% here, not 100%, but you get the picture).

[Fatnino]

Except low income families shoulder less of this than mega gazillionairs. In theory.

[benmccann]

> And it's a lot of money (e.g. 30% loss on $200bn is about $600 per US resident household).

I'm not sure where you got this number, but it's different than what I've seen. Yes, SVB had $200B in deposits, but it had $15B in unrealized losses. The FDIC is probably contributing $12B as roughly 6% of deposits were insured. That means the gap is probably $3B if the government is to step in, which is very different than the $60B you're suggesting. If these instruments can't be held to maturity then the losses may be greater as many of them are illiquid and would have to be sold at a discount, but the government has the liquidity to avoid that.

[rahimnathwani]

You're right, the gap is likely much smaller.

I did a quick calculation based on:

- $200bn deposits (on which we agree)

- press reports that Jefferies and hedge funds are offering to buy claims at up to 70c on the dollar (suggesting 30% loss)

[DennisP]

Apparently the offer from hedge funds gives them a substantial profit.

[nuclearnice3]

Does the FDIC work like that?

I imagined they would sell assets for the insured. And then sell more for the uninsured. If that process didn't cover the insured, they would bring money.

In this case, the insured are well covered by the assets, so the FDIC won't bring money.

We have a $12B difference of opinion here. Although, more generally, I agree from initial reports the assets - deposits gap does not seem to reach 30%. We should know more tonight and Monday morning.

[chernevik]

The FDIC will pay off insured deposits from bank assets.

Those deposits get first call on the assets. The FDIC only chips in if those assets aren't enough.

[scarface74]

While I saw first hand what happened in 2008 and afterwards I said “fuck it” and let my three underwater properties that were combined worth a quarter million less than I owed go and did “strategic defaults”, I can’t imagine running a business and having my funds spread across enough banks to meet the $250K protected amount and still try to run payroll and meet all of my other obligations.

[professoretc]

You don't necessary have to have all your funds spread out enough that every account is under 250k; you just have to determine how much you are willing to risk. E.g., if you split your funds between two banks, if one of them goes under, you lose 50%. Your risk threshold determines how many splits you need; only if it's 0 do you need to keep every account under 250k.

[scarface74]

My risk threshold for cash is $0. So yeah, it would be split across however many banks.

Of course I don’t have all my positions in cash and I take into account the necessary risk/reward equation into account.

But then again, I would never work for a non public company where part of my compensation comes from “equity” and I sell/diversify all my after tax RSUs within 6 months after that vest. So I’m very risk averse about holding positions in any company I work for

[isignal]

You can just buy short term us treasuries instead of trying to spread out 250k everywhere.

[trogdor]

You don’t have to do any of that. You can purchase insurance for excess deposits.

[briHass]

Just to clarify, these depositors specifically exceeded the FDIC deposit insurance limit (250K), right? That isn't a new or unknown rule; either through ignorance or calculated risk, those depositors that exceeded the limit took a chance.

I don't disagree that something should be done in the future to prevent this, but when you gamble, sometime you lose.

[Ekaros]

Chose to exceed that and also not diversify at the same time. In my mind they have only themselves to blame. They could have gotten one or two more accounts if they are legitimate businesses.

[popol12]

What if you have 3 billions to deposit, like Circle ? Open 1200 accounts in 1200 different banks ?

[oarabbus_]

Let's not act like Circle's options were either to put 3 billion in one bank, or open 1200 accounts at 1200 banks.

-Purchase high-limit cash insurance from a Reinsurer like Lloyds of London or Berkshire Hathaway up to their underwriting limit, perhaps $100M. Do this across 4-5 different banks with 4-5 different reinsurers.

-Put the remaining $2-2.5B into mixed US Treasuries of varying maturities

[dlubarov]

They did already have 77% of the collateral in short-term T-bills, and the 23% in cash was spread out across multiple banks. They held $3.3bn at SVB, but that's out of $42bn total.

[oarabbus_]

So then it sounds like they probably had 10-15 banks (entirely reasonable for them to be expected to open this many accounts at unique banks, given their business model) which is a far cry from the 1200 OP complained about.

If your entire business model revolves around moving multiple billions of dollars via an asset-backed stablecoin model, it's reasonable to expect you to have dozens of bank accounts, in at least 3 time zones, and likely more.

I don't know why people (not saying you specifically) seem to have this expectation any entity should be able to deposit billions of dollars risk-free at a single institution.

Ironically it's often the same people who can intuitively grasp why to hold your crypto across multiple wallets, who cannot fathom that infinite $ cannot be deposited at a single bank, without risk.

If you're leaving 7 to 9+ figures in a single account, then either buy custom insurance, or only do business with banks which offer excess insurance.

[Ekaros]

If you have 3 billion deposits, why not have let's say 3 different accounts with billion each? They don't cost that much money. And then even if one bank has system failure preventing transactions, you could have two others working. Or even some reasonable amount like one with each top 10 in users. With some amount of money in each allowing customers even better interaction.

[isignal]

Just buy us treasuries. There is no rule that you have to have cash at a bank.

[dlubarov]

They did have ~77% of collateral in T-bills. I do wonder why that wasn't even higher though.

[aaomidi]

Open 4 banks and you’ll lose at most 25%?

Use treasures bills if you’re that concerned.

[dlubarov]

They did use mostly T-bills, and spread out the cash over 6 banks - that's why it's "only" $3.3bn out of $42bn.

[aaomidi]

I mean then you accept that banks aren’t risk free? I’m not sure why people have been under the assumption they are.

[CyanBird]

You can buy specific insurance in case of bank defaults. That's what large businesses do on the regular, it is not a new or strange thing

People here simply decided to not inform themselves or seek appropriate assistance and therefore got bitten

[downvotetruth]

You want to play at a risky bank, you get to pay for risky insurance.

[muzz]

Is your goal to eliminate risk, or to mitigate it?

If they had deposited that 3B in, say two banks rather than one, they'd have 1.5B in that other bank

[ZachPruckowski]

They actually had like $12B split across 5 or 6 banks. But yeah, they definitely could've split it better. "No more than $1B per bank" seems like an easy rule, and even maxing at $500M could be doable.

[subsistence234]

two accounts at two different banks already decreases the expected loss by 45% or so. (not 50%, because of contagion)

[scarface74]

Were they gambling by putting their money in an FDIC insured bank?

How do you even run a payroll system if your money is spread out between a dozen banks?

[aaomidi]

You use the various services that exist to do this? Or you just have enough money in your payroll source account?

[swatcoder]

> Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe.

Not if they know how banks work, and plenty of those depositors do. They know that there’s a risk to their uninsured deposits (that’s why the insurance exists!) and so they either account for that risk or play dirty and pretend, after the fact, that they didn’t know better and that the government should pretty please make them whole.

> If this is not true, then most people will only bank with the largest banks. That's not a good situation.

No. They’ll do what they’ve doing for a century: diversify banks and asset classes, sweep accounts, buy private insurance, etc.

Deposits are a loan to the bank. If the bank doesn’t have any risk of default on those loans, that’s no free and efficient market. That’s the government giving bankers free money to play with. We already do that for small accounts held by naive investors because the stability is worth it and they can’t be expected to afford the inherent risk themselves, but that can’t extend to all accounts.

[andsoitis]

> If this is not true, then most people will only bank with the largest banks. That's not a good situation.

It is an elite class of people who banked at SVB. Most people bank with less risk-taking community banks or the very large ones.

Casting SVB as an underdog and the people who bank with them as helpless is upside down.

[mikeho1999]

> Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe

@garry, while it may be a reasonable expectation, it's always been very clear and _explicit_ that it's not a guarantee beyond $250k (or $500k).

What's more troublesome is that VCs and Y! have portfolio companies that either didn't understand this and/or didn't take the time to shore up their exposure to this otherwise very easily, manageable risk.

Open additional accounts, utilize CDARS, etc. -- there are so, so, so many incredibly simple, straightforward ways your portfolio companies could've mitigated this.

And yes, I agree with you -- the risk _was_ negligible. But it was risk nonetheless. And the fact that the mitigation options are _so_ simple but that your portfolio companies didn't do this really brings into question their ability to manage cash / risk management in general.

So then to ask for taxpayer money to bail out companies who didn't take the time, thought or energy to minimize exposure to this is what I think most people on this thread are pushing back on.

> We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.

In fact, depositors can _already_ prevent this from happening from themselves.

[standapart]

With all respect, Garry: YC is to blame for the consolidation of this risk in a single counterparty.

Those who led all these entities from the same industry to bank at the same place must be held accountable too.

[garry]

This isn't some sort of complex bid call option strategy. This is a checking account, and one choice out of many that founders make regularly.

To my knowledge SVB was never required, and startups always had choice.

[Rury]

You're asking for taxpayers to pay for depositors losing their stash. Why should others be responsible to pay for the irresponsibility here? We all take a risk when it comes to storing/investing our money. Same could happen to anyone. Depositors should have been more responsible, and taken better precautions - like by not storing everything in one account, at one institution. So depositors are also in part to blame (certainly more so than taxpayers who have nothing to do with SIVB), even if the culpability mostly lies with the management at SIVB.

[xupybd]

Yes but they got screwed by incompetence at their bank. Why should the tax payer get screwed instead?

[muzz]

Because "they did nothing wrong" is his way of saying they are entitled to a taxpayer bailout

[subsistence234]

kinda like student loan forgiveness, which would have penalized financially responsible people in favor of redditors.

[xupybd]

100%

But I think this is worse. Bailing out individuals is one level, bailing out massive banks is pure corruption.

[ZachPruckowski]

> "This isn't some sort of complex bid call option strategy"

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.

[standapart]

Requirements aren't the only way to steer someone to a product. Google pays Apple billions to be the default search engine on iOS.

Nor does the lack of a requirement indemnify someone from responsibility.

[standapart]

When the smoke has cleared, it would be interesting to quantify whether this event affected a (statically significant) higher percentage of YC offspring than other incubator offspring.

Could be a selling point for alternative incubators in the future.

Perhaps being a part of YC puts you at greater risk from these events. Draw your own conclusion about the reason why.

[muzz]

The comments from head of YC alone might be that selling point

If bank regulators move swiftly and ensure orderly withdrawals, his comments will go down in history as crying wolf, and that's putting it lightly

[trogdor]

I think they are a bad look regardless.

[_9hey]

I agree with this. The consequences are unfortunate.

[hendzen]

I would be happy to support a bailout of SVB in exchange for some reasonable concessions to American taxpayers.

1) Skin in the game - GPs of YC / a16z / Sequoia / Founders Fund / etc put in some equity in to a joint venture to acquire SVB's assets and make depositors whole. Government will backstop some portion of it.

2) YC / a16z / Sequoia / Founders Fund / etc agree to support ending the carried interest tax exemption

[muzz]

Many people would would support this, however what's being proposed is a pure money grab of taxpayers money

[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

[pixl97]

I mean the 250-500k limits have been around for a long time now, that said they are rather low due to inflation. Most larger companies reduce this risk by spreading assets over a number of banks. Just banking with a large bank does nothing if they fail.

[morelisp]

Not that long, it was raised from $100k to $250k in 2008. They were up for review last in 2020, and again in 2025.

Most people - people - have far, far less than this. And it's fundamentally about protecting people - institutions, like we're discussing here, are supposed to be considerably more risk-aware.

[TedDoesntTalk]

You don’t even need to use multiple banks. Each individual amount is insured to $250k. So if you have monthly payroll due of $1M, then open four checking accounts (all at the same bank), and don’t keep more than $250k in each.

[dseravalli]

It's per bank, not per account

> Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.

https://www.fdic.gov/resources/deposit-insurance/faq/index.h...

[toast0]

Four checking accounts at the same bank and titled in the same name get only one helping of deposit insurance.

> Coverage Limit: All deposits owned by a corporation, partnership, or unincorporated association at the same bank are added together and insured up to $250,000, separately from the personal accounts of the owners or members.

> The corporation, partnership, or unincorporated association must be separately organized under state law and operate primarily for some purpose other than to increase deposit insurance coverage.~

https://www.fdic.gov/resources/deposit-insurance/financial-p...

[pfhayes]

Banks will almost certainly not let you do this

[SkyMarshal]

It honestly seems like the best solution here is for a large bank like JP Morgan or Goldman to acquire SVB over the weekend and guarantee their deposits. SVB isn’t insolvent if their debt assets can be held to term, but the duration mismatch in assets and liabilities, and declining value of some of those assets due to interest rate increases, caused a liquidity shortfall and panic. But of all the types of financial problems a bank can incur, that seems like the easiest to fix via acquisition. Guarantee the deposits, restore confidence, the panic goes away, and the asset portfolio can be restructured appropriately.

The benefit to the larger bank is that SVB’s customer base represents a large chunk of the most innovative sector of the US economy and beyond. And scientific and technological innovation is only going to increase in importance as a main driver of economic growth in the world, as the developing world becomes developed and their growth rates inevitably slow. Acquiring SVB at cost seems like a great deal in that regard, and stops a panic as nice side effect.

[nuclearnice3]

That solution seems possible.

One one hand, end of December, they self-assessed that they had $209.0B in assets and $175.4B in deposits. Enough to pay everyone. [1]

On the other hand, they've suffered some losses. The regulator that closed them explicitly called them out as insolvent. [2] Possibly sloppy language, possibly they have relevant recent information.

I expect we know by Sunday night.

[1] https://www.fdic.gov/news/press-releases/2023/pr23016.html [2] https://www.cbsnews.com/news/silicon-valley-bank-sivb-stock-...

[beezle]

I think it quite likely that if there is any haircut at all it will be quite small and that is honestly a price that should be paid by the large depositors for failing to consider the many risks of keeping all their free cash at one institution.

[nmalaguti]

Why not let the market sort it out? Maybe these startups need to take a down round, or be acquired for a fraction of their value?

Maybe the VCs should step in and make bridge loans available if they want to keep their investments? If you believe in your portfolio, why not help them weather the storm? Or are you afraid to be exposed to additional risk? Should the taxpayers take on that risk instead?

[muzz]

Indeed, VCs bridge startups all the time. There are other mechanisms available also-- hedge funds are willing to pay 80 cents on the dollar for these deposits (indicating that they expect to recover more than that)

[haiti_outlaw]

> Why not let the market sort it out? Maybe these startups need to take a down round, or be acquired for a fraction of their value?

This is actually the right answer. Something something founders deserve their money because they take on all the risk.

Well, since we all love capitalism and meritocracy so damn much, let's see those at play for once, shall we?

[nuclearnice3]

FDIC should treat these guys the way hn funded firms coinbase[1] and airbnb[2] do.

[1] https://news.ycombinator.com/item?id=27468549 [2] https://news.ycombinator.com/item?id=27654940

[blep_]

You swapped your two links, btw.

[jjtheblunt]

> Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe.

The limits to FDIC have been on physical stickers legibly and purposefully placed all over every bank for decades, and define reasonable expectation clearly, for decades, to all customers.

That reasonable expectation states insurance limits are not unbounded.

[somsak2]

There's other ways to make this work -- FDIC insurance is per-bank so you can spread your deposits across distinct banks to be covered in the low-to-mid-millions.

If you have >$5m and you haven't done due diligence on this, I'd call that a failure on the part of the company (or its advisors, like the accelerator they're a part of).

[friend_and_foe]

You do have a reasonable expectation, up to $250,000. You did at the time too. Nobody made any depositor incur excess risk beyond the insured amount. It was all clear and open, available to everybody. Everyone in the US knows that if they put over that amount in a bank, only up to that amount is guaranteed safe. Those that don't know pay other people to know, or they have so little they don't have to worry about the amount.

[muyuu]

you're essentially asking for SVB, and whatever other bank in the same position, to take the entirety of the risk beyond per-contract insurance at no cost for you

sounds kinda rich tbh

[runnerup]

Why not use YC’s bully pulpit to push for the creation of a federal deposit bank for businesses and consumers? Both the profit and risk could be socialized. It would likely offer lower interest rates on deposits than private competitors, in exchange for FDIC guarantee on unlimited deposits.

[EFreethought]

YCombinator is a VC firm. Give them money.

And frankly, if you say, "We're not a VC firm, we're an accelerator", that is a distinction without a difference. You give money to companies that need it. So do that and do not use mine or my family's money. End of discussion.

[AH4oFVbPT4f8]

Depositors have a reasonable expectation up to 250k, after that they (the depositor) also assumed the risk. ...We're asking for regulations to prevent this from happening again...., then why campaign to have those regulations eased or removed just a few years ago?

[trogdor]

>Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe.

Respectfully, no sophisticated entity should ever expect their deposits to be safe beyond their insured limits. That is why businesses purchase insurance on their excess deposits, and/or use other financial products to ensure they have no excess deposits.

Frankly, YC failed to advise its companies in rudimentary financial risk management. Holding millions of dollars in a single bank account and taking no measures to mitigate the obvious, enormous, (and yes, unlikely) risk of bank failure is mind-boggling.

[b1c1jones]

You are asking for corporate welfare.

[wpietri]

You are absolutely asking for risks to be socialized. You're asking for corporate welfare.

Depositors do have a reasonable expectation that their deposits are safe. That's what the FDIC does: makes sure that 99% of people never have to worry about bank failures. For the 1%, well, it's time to put the big-boy pants on and accept sometimes in market economies there are disruptions. Something startup CEOs were perfectly happy to accept as long as it was other people experiencing the disruption.

No regulation can totally prevent this from happening to rich depositors in the future as long as the banks are capitalist institutions trying to turn a profit. There is no reward without risk. Arguing for zero risk is basically arguing for nationalizing the banks and creating a federal Boring Depository Bank whose job it is to just hold cash and that takes no risks with it.

Which honestly, it would be great to see the CEO of YC arguing for reducing the role of capitalism in key parts of the economy. But I'm guessing that the VC class's interest in tighter regulation is going to last exactly as long as it takes to get government subsidies, and then will go back to its previous extremely negative levels.

[chernevik]

Your reasonable expectation is not and should not be underwritten by the government. You are in fact asking that your risk be socialized.

It's bad enough to be asking for a bailout, at least be upfront that you're asking for a bailout.

[aaomidi]

Why do you have that assumption? What gave you that assumption?

In which law does the US say that your deposits are safe? You get insurance up to 250K. That’s it.

Why didn’t you mitigate risk by using a few banks? Even 4 would’ve meant only a 25% loss.

[berniedurfee]

In hindsight, were there actions that depositors could have taken to reduce the risk?

Was there any level of due diligence that could have warned people off of SVB?

[chernevik]

Put the money in a money market fund backed by T-bills. Zero credit risk and easy access to cash.

> Was there any level of due diligence that could have warned people off of SVB?

Really no. A small business manager doesn't have time or expertise to read a bank's financial statements. SVB's did show serious problems but most businesses don't have the capacity to spot this.

But the answer to that is to not trust any bank for any long period when zero-risk options are available.

[youngtaff]

> Really no. A small business manager doesn't have time or expertise to read a bank's financial statements. SVB's did show serious problems but most businesses don't have the capacity to spot this.

But surely smart VCs with millions / billions invested are capable and have capacity to do this?

[trogdor]

Yes. They could have purchased insurance for their excess deposits. Other large businesses do this as a matter of course.