[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.

[colinmorelli]

Isn't this just exactly what the FDIC is? The vast majority of people do not have more than $250k in deposits sitting in cash. More than that sitting around in cash wouldn't be a prudent financial decision anyway, since putting that capital to work (even in very safe investments), would yield a better return.

Those that are below $250k are taking effectively zero risk. The worst case scenario is possibly losing access to funds for one business day before the FDIC returns deposits up to the coverage limit.

This is, of course, without playing games using sweep accounts or other instruments.

[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).

[Armisael16]

All of the money the bank gives out comes from deposits or shareholder capital. The bank isn’t the mint; it isn’t allowed to print money.

The way that banks expand the money supply is by providing the illusion that all my money is there and available while at the same time being loaned out to someone else.

Fractional reserve banking means that banks don’t have all their deposits in hand. It does not mean that they invent cash for loans.

(The distinction here is less obvious in a digital world, but it’s quite clear if you think about how it would work if physical cash was used)

[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.