[sithlord]

This actually makes a ton of sense, lets not forget that a bailout in this term is really pointing towards saving the bank itself, and its shareholders. There is inherent risk in equity investments, and it likely should have to suffer for its poor decisions.

But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enough assets to cover the liabilities (deposits), but its tied up in such long term investments that it could take a long time to get it out.

But moreso, when we invest in companies, we deep down know there is a possibility of the investment going to 0. We often don't think when I put money in a bank it can go belly up, this would obviously hurt the trust in our banking environment if depositors not made whole.

[NotACop182]

Did they help depositors that lost money in the last 500+ bank collapses? Why do they get special treatment? The government has laws and rules the depositors are insured up to 250k. Either they liquidate and everyone takes a hair cut. Or they wait till the bonds mature and can pay them out. But the government should not relieve anyone past what is legally available.

[roseway4]

Yes, in the case of large retail banks, the government did help. In 2008, the federal government purchased stock in several banks in order to recapitalize them. One could argue this was a starker example of moral hazard than letting the bank fail, but making depositors whole.

[MomoXenosaga]

Which is why you should always bank at a "too big to fail" institution.

Why America has 4000 banks is beyond me. In my country they all consolidated in the 60s and 70s into a half a dozen giants.

[joecasson]

I don't agree. There are many instances where using a boutique or smaller institution is better for your business to run.

My company used to bank with Bank of America. It was awful. They seemed to have no concept of how to work with small business or a tech startup. We moved to another bank (not svb) and it's been a much better experience.

Only leveraging the giants of a given industry is not good for innovation nor specialization.

[johnny_canuck]

It does seem as though larger banks can only work with entities that fit inside their self-described personas. If you do not align exactly with one of their personas - good luck.

At least that is what I have seen here in Canada, I imagine the US is very similar in that regard.

[dannyw]

Until your money gets locked up and/or you face a haircut...

[joecasson]

Yes, there is safety in size. But operational capabilities of companies using the big banks would be cut as well.

To draw an analogy, should every business owner with physical goods only sell and distribute their goods through Amazon and/or Walmart? Yes, their size provides many benefits, but also has dramatic costs to their business and impacts how customers are served.

[azinman2]

This is a very strange take. You’re arguing for the consolidation of wealth into a few giants? These giants then in turn will own a significant portion of the economy, will be subject to far less competition, will stagnant any given area based on what they’re willing to invest in or what they’re not (as a service and in the economy), make them extremely capable of owning politicians and setting the directions of the country, and enable few to gain the experience and opportunity that comes with going up the banking ladder because few seats exist.

Local community banks make it far easier for farmers and coffee shops to get loans. Local community banks keep money locally and grow locally. The consolidation of banks is a problem to avoid, not desire.

[mark_l_watson]

I don’t agree. I diversify by using two small local Credit Unions. I also use a large bank for specific services.

Local Credit Unions and small local banks rock.

[teawrecks]

Wait so, you're in favor of the bank being bailed out here?

The phrase "too big to fail" doesn't mean it's impossible for it to fail; that's not a thing. It means the govt/public feeling obligated to bail it out when it does fail because the public thinks they're so dependent on it that they're worse off of they let it fail.

[anamexis]

That's all well and good until a "too big to fail" institution fails.

[kelnos]

The government, as we saw in 2008, won't allow those banks to fail. That's literally what "too big to fail" means. If the government doesn't have the ability to keep such banks afloat, then we have worse problems.

[altairprime]

By ‘afloat’, do you mean, “keep the depositors whole” or “keep the bank operating” or both?

A lot of confusion centers around the assumption that any bailout will be for the bank’s operations, not for the depositor’s deposits. That’s perfectly valid confusion - historically it’s been the latter! - and the FDIC isn’t willing to talk about deposits yet, either.

[teawrecks]

Right, which is literally the argument against a small set of giant "too big to fail" banks.

[atdrummond]

Banks are too big to fail - until they aren’t.

[kshacker]

We do not know what specifically they are going to do. Helping depositors may just mean expediting the recovery process even if there is a 10% haircut. It could mean something else. The government forced the sale of countrywide and other companies so this would be no different.

Also the term "too big to fail" comes to mind. Isolated risk vs systemic risk. Which one is it now? We can have opinions but Yellen may have more informed data about the gravity of the situation. It does make sense for governments to intervene in systemic risks such as this and covid.

[Waterluvian]

The law is clear on the priority of claims. You can get a quick overview at the bottom of this page: https://www.fdic.gov/resources/resolutions/bank-failures/fai...

It makes sense that they’ll make depositors whole before even thinking about the rest. From the top of that page:

“ All depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”

[booleandilemma]

More than 85% of Silicon Valley's Bank's Deposits Were Not Insured.

https://time.com/6262009/silicon-valley-bank-deposit-insuran...

[Waterluvian]

Insured means they’re guaranteed to get it back. But the uninsured deposits are at the very front of the line for all further fundraising efforts.

[kelnos]

So? That doesn't change anything.

[kasey_junk]

Yes? Most famously when IndyMac failed they retroactively raised the insurance limits.

It’s almost certainly not going to come to that in this case as the normal fdic playbook will work but the federal government has a history of taking action when extraordinary bank failures happen.

[dap]

Not special treatment? The FDIC has been doing this for recent bank failures:

https://www.americanbanker.com/opinion/will-fdic-keep-protec...

[skwirl]

> Did they help depositors that lost money in the last 500+ bank collapses?

Yes. Anything else?

[travisjungroth]

[sounds of goalposts shifting]

[nabla9]

Because there was a systemic risks.

You let one bank collapse, OK. If the collapse causes other banks to collapse then it's bad. When WalMart, Costco can't transfer money to fill shelves, people go hungry. When people can't get their wages, they go hungry.

[NotACop182]

Then the laws need to change and a solution for the future must be made. We can't keep bending the rules when the laws don't work out for this one entity but when the little guy is in the same position he’s on his own. We need a system that's fair across the board. Increase fdic insurance add optional insurance options. Call it a day.

[specialist]

Alternately, recognize that Capitalism is chaotic and prone to collapse. Then require risk management be updated accordingly AND use something like Socialism for when that chaos and risk are unacceptable.

And then don't mix the two.

Basically the (idealized) Democratic Socialism of the Nordic governments.

Food for thought:

David Graeber in Debt: The First 5,000 Years asks if Capitalism might be intrinsically unmanageable, so therefore prone to collapse. He notes that every economy in history experienced a debt crisis, requiring intervention (eg revaluing currency, revolution).

More recently, Katarina Pistor wrote The Code of Capital, which documents the modern economy built on top of our shared legal fiction of property. Here's a pretty good interview. https://the-ezra-klein-show.simplecast.com/episodes/katharin...

FYI, I'm not an economist, so I'm not aware of anyone making the specific case that Capitalism is chaotic and so therefore will eventually collapse (aka chaos theory).

[wheelerof4te]

Then, at least be fair and nationalize the big banks.

There's no point pretending that the large banks are "private" if they are subjected to some special rules.

People put their money there willingly, no one forced them to. Let them all feel the joys of "free market capitalism".

[nabla9]

> nationalize the big banks.

That would be a good idea. If bank is too big to FDIC to absorb and "too big to fail" and it fails it becomes Treasury owned overnight.

For example Paul Krugman agrees. https://www.nytimes.com/2009/02/23/opinion/23krugman.html

>What Alan Greenspan, the former Federal Reserve chairman, and a staunch defender of free markets, actually said was, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” I agree.

>The case for nationalization rests on three observations.

>First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.

>Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.

>Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.

... >Still, isn’t nationalization un-American? No, it’s as American as apple pie.

[criddell]

No need to nationalize them. AFAIK, Canada has had two bank failures over the past 100 years. Regulation can work.

[Ekaros]

Or we could just go with CBDC give everyone government paid 0-interest account at central bank. With zero risk to lose the money. As it could truly be cash equivalent while being there.

Then if people want more they could get account somewhere else, but fully carry the risks from that.

[nabla9]

People and businesses still need loans.

When my business gets a new order, and needs $200,000 loan we don't have to buy the raw material, we need short loan of 1-2 months from the bank. The bank uses your deposits to make that loan.

[Ekaros]

So the people could instead give their money to a bank which then would offer various deals. Give money to 1 year and receive certain rate on it.

Point is that no one should be forced to take on risk if they are using a bank. Instead it should work like any other investment.

[wheelerof4te]

The bank uses a portion of everyone's deposit to make the loan. The rest is made out of thin air.

FIAT currency is proped up by private bussiness banks. Only a tiny fraction of the money supply is the M1, or base money (printed by FED).

[SirensOfTitan]

I’m inclined to agree, this kind of special treatment is fairly ridiculous, depositors in other bank failures with funds over FDIC limits have to wait for fire sales to recover, which can take years in some cases.

I’m not sure exactly what Yellen is proposing (I only subscribe to print FT so no access), but it seems like special treatment for the well connected on Sandhill Road.

[auntienomen]

It's not particularly unusual. The FDIC has generally arranged things via sales and capital injections so that the bank owners get ruined while the depositors, insured and otherwise, get just about every back. If they did otherwise, no one would bank at local banks.

What is unusual is the Treasury secretary making public comment about it. But this is a unusually large bank failure and a rather critical moment.

[Mistletoe]

The response to this crisis has been very telling. No one I meet wants Big Tech to be saved or has any good response when asked about Silicon Valley. The response is one we would expect for a group of people that have enslaved us rather than liberated us. Made us miserable rather than delighted.

I see two waves in Silicon Valley. Wave one was actual innovation, computers etc. Wave two was rent-seeking conmen fueled by zero interest rates and privacy thieves.

[omginternets]

This has nothing to do with Big Tech. This is about SMBs.

[komali2]

This seems to be a core argument for those in opposition to shareholders getting liquidated bank assets vs depositors, but I don't really understand it because it seems to be kind of arbitrary. So there's fdic insurance, that's nice, but why does that mean anything regarding whether depositors or investors should be made whole first? The more important and real question is which option has what outcomes in terms of future investor behavior, or future depositor behavior?

If it's a question of rigid legality that also doesn't make sense to me, because from what I remember from 2008 was the government's legal options were incredibly widespread.

[stephen_g]

Shareholders are paid last by law. So if depositors are not made completely whole, shareholders don’t get anything.

1. https://www.fdic.gov/consumers/banking/facts/priority.html

[hyperpape]

FDIC insurance covers protecting depositors if a bank fails. I don’t see how you could interpret that as allowing anyone to give money to investors.

[drstewart]

>But the government should not relieve anyone past what is legally available.

The FDIC amount is a minimum, not a maximum.

But I agree, college loans should not be forgiven past what is legally available ($0).

[sithlord]

My guess ( I havn't looked at is the last ones ) is that the majority of deposits were well under 250k, and that hundreds of thousands of jobs weren't on the line.

Also, you are talking about a major banking collapse if people start thinking that their deposits aren't safe. (a lot of people will start pulling money, even if under 250k). There are so many irrational people out there...

edit: I guess somewhere in what I said was confusing, I was referring to past fails where most deposits were likely well under the 250k. NOT SVB where the vast majority were well above that threshold.

[waboremo]

BusinessInsider[1] has a different view:

>About 37,000 customers accounted for nearly $157 billion or 74% of the bank's assets with an average account size of over $4 million

So it seems the opposite is almost true, because the accounts are valued so high with generally more flexible account holders, they're able to move swiftly

[1]: https://www.businessinsider.com/how-silicon-valley-bank-impl...

[giaour]

GP is talking about the majority of accounts, and the number you cite is a percentage of funds. If 98 people have an account with $1 in it and one person has an account with $102, then 51% of the bank's assets are in accounts > $100, and the vast majority of accounts have $1.

[waboremo]

What makes you think the majority of accounts would operate that way? Seems ridiculous considering it's SVB, not your average bank.

[giaour]

I would expect larger accounts to make the percentage of deposits in accounts with > $250K to be higher than the percentage of accounts with > $250K because that's how numbers work.

[ericmay]

Average or median?

[zamfi]

No one here actually reading the thread, all assuming you’re talking about SVB and not (as the parent says) previous bank failures.

To address your actual point: we don’t know whether WaMu depositors had a lot in uninsured accounts, probably not as much as SVB, but we do know that all depositors were made whole when JP Morgan Chase bought the bank — from assets WaMu already had, not the FDIC’s pool. Even senior creditors received some amount back!

[IG_Semmelweiss]

Thats not true. It was said elsewhere in HN thread and also in several articles online.

The majority of avg deposits were NOT < 250K.

Only 3-7% of SVB accounts under FDIC limits.

Edit: corrected to have specific languange

[giaour]

Where did the 3-7% of accounts number come from?

According to [0], regulatory filings disclosed that 85% of deposits (not accounts) were uninsured.

[0]: https://time.com/6262009/silicon-valley-bank-deposit-insuran...

[IG_Semmelweiss]

their 12/31 10k.

no one knows what it was as of 3.10.23

[bostik]

I'm going to copy-paste a good chunk of my answer from an earlier thread. (Original: https://news.ycombinator.com/item?id=35101797) - the article "The Demise of Silicon Valley Bank" wasn't on the front page long, probably because it was slightly dry and didn't provide any new hot take angles. But it did give out actual numbers:

> As at the end of 2022, it had 37,466 deposit customers, each holding in excess of $250,000 per account -- and -- The bank does have another 106,420 customers whose accounts are fully insured but they only control $4.8 billion of deposits

So SVB had only about ~150k banking customers. And of those, less than 40k are actually affected by this debacle.

-- -- -- --

The numbers are being mixed up, it feels. Only 3% of total deposits are covered witn the guaranteed FDIC insurance. The rest are spread across less than 40k depositors. And the average (not median, but plain mathematical average) amount on those accounts appears to be $4M.

[rtpg]

I think this is referring to other banks, not SVB’s special case.

[sithlord]

I am stating for prior fails, the number from SVB was that only ~3% were insured. Which was my point, that in the past, there wern't as many e(a)ffected (and they (uninsured) could have received special treatment for all I know).

[wheelerof4te]

Hey, the FDIC coould raise the limit to, say, 10 million, and just let the FED reserve print out the moneys to everyone.

Not much different than what the US government is already doing. Reached the debt limit? Just raise it again, lol.

/s

[Mistletoe]

With this place the majority were over 250k. Something like 97% or something. It was a big bank for businesses. Why they were bizarrely keeping such large sums in one bank account I don’t understand. Roku had almost $500 million there.

[rapsey]

SVB claimed the money is in treasury bills not just cash in the account. Which is a completely sensible place to put it.

[tsimionescu]

Apparently much of the money was in long-term treasury bills, which is only perfectly sensible if you believe you will not have to access that money for 5-10 years.

[chipgap98]

No it isn’t. You’re exposing yourself to interest rate risk when doing that

[ehzy]

Not in any meaningful sense if you are only looking to park the money safely and hold to maturity.

Buying 3 month T bills won't pay much, but it will pay more than the interest SVB pays on your checking account balance and importantly is backed by the full faith and credit of the us govt.

[Kephael]

Yeah, you can short eurodollars or maybe something else to hedge risk. At a certain point, you need to be sophisticated enough to manage your funds.

[chipgap98]

> is that the majority of deposits were well under 250k

What gives you that indication? The bank specialized in working with startups, most of whom have more than $250k in the bank

[QuantumSeed]

S&P Global Market Intelligence reports that as of Dec 31, 2022, 97% of Silicon Valley Bank's deposit accounts exceeded the $250,000 insurance cap.

[orwin]

He wasn't talking about SVB but the other 500+ small banks that failed in the last 15 years.

[lkschubert8]

I can't seem to find it now, but either here or on reddit someone had numbers from a filling indicating ~8% of accounts were below 250k.

[hanoz]

Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time?

Funny how language is being used to frame all this. For depositors it's made whole, not bailed out, when of course it's no less a bail out.

[macintux]

Because businesses need to be able to pay their employees, because the banking system as a whole relies on trust to function.

And because we're not really bailing out depositors. The FDIC is just doing its best to make sure depositors take precedence over bank shareholders, which is as it should be.

Sure, you could let Roku lose a half billion dollars, but it's not their fault SVB couldn't meet its obligations. They didn't invest in the bank. Placing your money in a bank should not be a gamble.

[nodemaker]

Businesses need to pay their employees from the money they have not from taxpayer money. If a business loses that money because their banking partner lost the money, taxpayers have no obligation to help (beyond the 250k)

[macintux]

Taxpayers benefit enormously from a banking system that isn't a crapshoot. Workers benefit from businesses being able to make payroll.

The government isn't offering to bail out depositors. And taxpayers aren't even paying the $250k, that's from an insurance fund paid into by banks.

[nodemaker]

Can the banking system learn from this and improve? For sure it can and that would benefit everyone. But we cant retroactively change the rules. In fact you can argue that people would vote more pro-legistation if something like this was allowed to fail like it should and that would protect more people in the long run.

And yes if an insurance fund pays for it then I am all for it. Someone other than the taxpayer has to foot this bill thats all.

[colinmorelli]

The only way taxpayers avoid footing the bill here is if the FDIC can sell assets to cover 100% of deposits in a very short timeframe, or if another bank comes in and agrees to cover the shortfall.

In any other scenario, if businesses with deposits in SVB lose some material amount of their cash, people will be getting laid off, prices will increase for some goods, and some companies will fail. All of these things negatively impact taxpayers.

It's not clear to me what the better outcome here is, but this is going to affect everyday people either way.

[macintux]

Each time we learn new things, impose new regulations, and make new mistakes.

[SkyPuncher]

> Taxpayers benefit enormously from a banking system that isn't a crapshoot.

I wonder how many people here would be screaming the exact opposite if this was their personal banking account?

Yes, you can spread your money among multiple accounts. However, data shows it's exceedingly rare (1) an individual bank to fail (2) depositors to loose any money when a bank fails.

According to the FDIC list of failed banks [0], there have only been 17 bank failures in the past 5 years. It's been 9 years since a bank has failed without finding an acquirer.

To say this is something you must plan for is a bit of a stretch.

* https://www.fdic.gov/resources/resolutions/bank-failures/fai...

[admax88qqq]

Taxpayers arn't paying the 250k, the FDIC is funded by fees they charge the banks, not taxpayers.

[lambo4bkfast]

Taxpayers do have an obligation to ensure that I do not view my checking account as a risky loan to the bank... It is not a positive outcome for taxpayers if they no longer view their deposits as safe. $250k is also a ridiculously low insurance amount for any company with a non-trivial number of employees.

[luckylion]

Why are you pretending that Roku would get $250k and not a cent more? They won't. The bank has plenty of assets, they'll take a 5% loss for their strategy of taking on counter party risk, not a 99% loss.

Everyone is going to be able to pay their employees, unless they're looking for a reason not to.

[macintux]

I was replying primarily to this sentence.

> For depositors it's made whole, not bailed out, when of course it's no less a bail out.

It's not a bail out for depositors.

[luckylion]

But if they were to get 100% of their deposits, even if the bank's assets would only cover e.g. 95%, it would be a bail out, wouldn't it? The government would step in and cover the difference with tax payer money.

Because that seems to be what some people are demanding, but they don't use the term bailout, because of the connotations.

[macintux]

Yes, that would be a bailout. That’s not what the government is talking about (yet).

[stanleydrew]

It's a matter of differing expectations.

When you purchase stock in a bank, there is a reasonable expectation that your investment could lose value.

When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back.

You can certainly argue that the expectation isn't fair, but I'm pretty confident it's nearly universal.

[hanoz]

In Britain the protected amount is £85k per person per banking group, and it's universal that anyone with more than that splits it over accounts with multiple banks, taking care to make sure the banks aren't part of the same banking group.

Is it any different over there, albeit for the rather higher limit, in America?

[stanleydrew]

The whole reason we're having this discussion is that it appears to not be universal for anyone with more than the insured limit to split deposits over multiple accounts.

But there's also a big distinction between the working capital required for a business and the size of e.g. a personal savings account, which is kind of getting lost here.

If your payroll is $1M every month then it may not really be practical to split deposits across many accounts.

[tome]

> If your payroll is $1M every month then it may not really be practical to split deposits across many accounts.

Why not? That's only four accounts' worth of full protection.

[Kephael]

Sure you do, banks fail and you shouldn't expect more than $250,000 of coverage.

[tome]

> When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back.

This is an assumption which desperately needs to change, in my opinion, otherwise the risk of bank runs will be a think ad infinitum.

[stanleydrew]

Isn't the risk of bank runs increased without this assumption? If we're all consistently attentive and worried that we may not get our bank deposits back, then every minor hiccup at a bank could plausibly cause a run.

[tome]

I wonder if it works at both extremes:

1. if you know your deposits are at risk then you actively work to derisk them, for example placing most of your cash in T-Bills.

2. if you know your deposits are safe then you just keep them in the bank.

The middle seems less stable.

[SkyPuncher]

> Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time?

The insured amount is absolutely guaranteed. However, it's still standard for a failed bank to make it's depositors whole.

I don't have sources, but data I've seen indicates of the nearly 600 bank failures since 2000, few, if any, have resulted in a loss of deposits.

----

Put another way. Most employees don't have contractual obligations to receive severance. However, it's culturally expected that businesses performing layoffs will offer severance. Those who don't risk people not coming to work for them.\

Same situation in the US. The USD and it's banking system is seen as incredibly stable and robust. When chinks start to form, it raises concern and people might start looking to bank in other currencies.

[PheonixPharts]

> to make them whole.

The quote in the rather short article is:

> “But we are concerned about depositors, and we’re focused on trying to meet their needs.”

I don't think "trying to meet their needs" is the same as ensuring they will "be made whole".

The biggest issues around people with uninsured accounts (the vast majority) is both how much and how long. This will be a mess if either the amount is significantly less than "whole" or if the time to be made whole takes months not days.

[shrimpx]

This is an implicit argument for de-privatizing banking. There is inherent risk of losing your uninsured money when you lend it to a private company. If all deposits were to be fully insured we’re talking public banking, or much worse, private for-profit banking that is fully de-risked by taxpayers, incentivizing execs to make arbitrarily risky decisions and, basically, freely take however much money they want from tax coffers.

[koolba]

> But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enough assets to cover the liabilities (deposits), but its tied up in such long term investments that it could take a long time to get it out.

If anybody gets an extra penny more than $250K from the Feds than that is by definition a bailout.

> But moreso, when we invest in companies, we deep down know there is a possibility of the investment going to 0. We often don't think when I put money in a bank it can go belly up, this would obviously hurt the trust in our banking environment if depositors not made whole.

FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.

And who knows what perks, direct or indirect, those depositors were getting for having that cash at SVB?

Whether it’s stupidity or greed doesn’t matter. No hand outs.

[rib3ye]

Don’t you think there is a huge difference between the bank shareholders getting bailed out and depositors getting bailed out?

Let’s think about the risk of “morale hazard” in these case: Bail out the shareholders: we can throw more money into the stock and never lose money! Risk free returns, I better pump this bubble up! Bail out depositors: I feel safe having my money in a reputable bank! I can operate my business and pay vendors/employees, I can keep doing my job without interruption.

Bailing out one group makes them greedy, bailing out the other makes them productive.

This is not old testament judgement, this is a financial war and our gov has to use every appropriate tool to fight it.

[koolba]

> Don’t you think there is a huge difference between the bank shareholders getting bailed out and depositors getting bailed out?

Of course they're different. But they're both bail outs.

If my house burns down and I have $250K of home owners insurance, do I get the rest covered by the Feds?

> Let’s think about the risk of “morale hazard” in these case: Bail out the shareholders: we can throw more money into the stock and never lose money! Risk free returns, I better pump this bubble up! Bail out depositors: I feel safe having my money in a reputable bank! I can operate my business and pay vendors/employees, I can keep doing my job without interruption.

SVB, and banks in general, offer incentives for people to deposit money. It can be anything from account bonuses to non-monetary perks like access to other sources of capital. To say that depositors had nothing to do with the losses is extremely naive.

> Bailing out one group makes them greedy, bailing out the other makes them productive.

They're both greedy. Or stupid. Or both. Either way, no hand outs.

> This is not old testament judgement, this is a financial war and our gov has to use every appropriate tool to fight it.

The government does work solely for the depositors or investors of SVB. It works for all of us and we've established rules for when it is authorized to step in and provide both liquidity and direct bail outs.

Romanticizing a specific customer base does not earn them special treatment.

[rib3ye]

> If my house burns down and I have $250K of home owners insurance, do I get the rest covered by the Feds?

Not on your home, no.

But if it were your factory and you were responsible for a respectable percentage of the workforce being able to put food on their tables, I would hope a gov entity step in and try to reduce friction for getting the factory back on its feet.

And again, that reduced friction doesn’t need to be a check to you, it could simply be forced asset sale.

[nodemaker]

There is not much difference if you look at it from the point of view that one of those parties was just underestimating the risk they were taking (which is true of all bad decisions in life). I see no reason to bail out depositors over 250k

[rib3ye]

When you capitalize a bank with deposits, are you really an “investor” with expected risk/reward?

I am not for totally punishing someone who expects a near-zero return on a loan, especially when they made the loan with the expectation the borrower would help other businesses be productive.

[nodemaker]

We should not take for granted that value can be transferred through time for free and without any risks. When you give another party control of your money (including a bank) they make decisions on your behalf for which there are consequences.

[rtpg]

> FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.

I think we should really not forget that SVB hit duration risk on their assets that is almost definitionally not an issue for the FDIC. This isn’t “bank fell apart due to bad loans” this is “bank fell apart because money is locked away for 10 years but is basically guaranteed”.

Basically no risk to taxpayers!

[koolba]

> This isn’t “bank fell apart due to bad loans” this is “bank fell apart because money is locked away for 10 years but is basically guaranteed”.

They fell apart due to greed. Not being satisfied with low short term rates that matched their short term liabilities.

They gambled on longer durations and got burned. It’s not the tax payers responsibility to cover their gambling losses.

[stanleydrew]

> If anybody gets an extra penny more than $250K from the Feds than that is by definition a bailout.

I think this is naive. The FDIC or some government entity is in a pretty reasonable position to take on the longer duration assets that appear to have brought down SVB. If they hold those assets to maturity then everything is fine, and they can return deposits today if necessary because they don't need to sell assets to generate cash.

[tome]

> If they hold those assets to maturity then everything is fine, and they can return deposits today if necessary because they don't need to sell assets to generate cash.

The federal government will be out of pocket by the interest rate spread if it does that. That is a bailout.

[skwirl]

> FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.

I hope you realize FDIC insurance isn’t even guaranteed to be $250k. The FDIC is funded by member fees and can only cover a very small amount of “insured” losses. If it goes beyond that, depositors would need a bailout.

[ericmay]

It’s practically infinite precisely because if a bank goes under and you lose your checking account the entire banking system immediately collapses and there is a real bank run 1920s style.

I look at the FDIC and its ability to either pay or be bailed out to pay as an existential function of the State (US specific) and the inability to do so threatens its existence.

[skwirl]

You are making the same kind of argument that people asking for SVB depositors to be made whole are making.

[ericmay]

It’s not because the FDIC insurance is for the masses - everyday workers and waiters and taxi drivers and teachers. Lack of it can cause a revolution and actually destroy the economy whereas SVB will bring some companies down with it (unless investors take care of their portfolio companies) and VCs will send lots of Tweets and stuff.

The scale is extremely important.

But also we didn’t bail out Enron shareholders including regular folks who lost their life savings - this is more akin to that or something similar. VCs are professionals and sometimes shit happens and this time some of them got screwed (undeservedly) but screwed nonetheless. But it’s no different than the employees losing their jobs or when someone up and moves a factory - we don’t bail them out either and they also get screwed.

[bagels]

We shouldn't accept that bank deposits should be as risky as investments. Functioning low risk bank deposits benefit all of us.

[rib3ye]

Additionally, it sounds like a total depositor “bailout” is just float until the receivership can unload the banks assets

[mytailorisrich]

It may make sense to prevent many companies from going under but for the long term good of Silicon Valley it should sting.

If all depositors are made whole at no cost to them then there is no incentive to avoid a repeat.

Remember that those depositors are not random members in the public, their are insiders of the SV microcosm.

[chiefalchemist]

Makes sense? Why??

Why in 2023 after other similar events is this special?

Accounts are insured to the specifed limit. That applies to all of us. Full stop.

What (read: who) makes this a special case in need of special treatment?