[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.

[yterdy]

Neither of the first two are happening, and in any case, would result in losses by another name (because the assets are likely not worth 100% of deposits, and any buyer would have to adjust their business to eat that shortfall).

There is no evidence that your doomsday set of "any other scenario"s would be any more destructive than bailing out companies that are evidently poor at managing their risk, and - as startups - are at a generally high risk of folding in the future anyway. Such a bailout constitutes a headfirst dive into the sunk cost fallacy. Are the people who lose their jobs more or less likely to have a network that will help them find a job, compared to those who will lose the taxpayer-funded services cut to pay for a bailout? Are the startups in question actually producing anything of material worth to the average American's budget? Frankly: do we care if these businesses fail? Maybe some of us would be happy to see them go away?

[colinmorelli]

I quite literally said in the message you're replying to "It's not clear what the better outcome is here" so I'm not really opining on what's preferable. It doesn't change the reality that this is going to impact "regular people" in the end whether it's intentional and direct in the form of a bailout, or indirect in the form of layoffs.

To your questions: The companies you'd prefer to see shut down almost certainly will outside of the zero interest rate environment we've recently excited. But there's quite a big difference between businesses running their course and dying, and them rapidly laying off employees alongside one another because they just lost much of their runway. Mass layoffs create a sudden oversupply of candidates and strain the system, making it more difficult for those laid off to find new jobs.

While I'd prefer businesses not die for "random chance" of having chosen the wrong bank, my concerns here are not for the companies themselves. I'm much more worried about the downstream impact of employees who will go without wages or systemic failures of other banks if we can't regain confidence quickly.

[tome]

> 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

Why so necessarily? The first thing to happen is that their equity holders will take a hit. Only then will the other things you state happen. And if the equity holders take a hit, well, that's exactly why they're equity holders.

[colinmorelli]

Losing deposits means losing cash flow to fund runway. Many tech companies just spent the last year optimizing to get 18-24 months cash runway. If they just lost several months of that, they will need to recover it somehow. That will come either from layoffs or increasing prices.

Similarly, companies raise capital to achieve goals. If 10-20% of that capital vaporizes, the ability to achieve those goals will be harmed. Some companies will not achieve those goals, and may be unable to raise future financing.

We're talking about operating cash for these companies. The hit to equity holders is not the problem right now.

Of course my comments above refer mostly to venture backed tech companies, but that represents a significant share of SVB's clients.

[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).

[luckylion]

But that's what everyone is talking about when they say the government "should make depositors whole", because otherwise they won't be getting their whole money back. And clearly nobody would say "I want the government to follow the known procedures, get your congressman on the phone today". They want the government to deviate from the known and agreed upon procedures: they want a bailout.

There wouldn't be any necessity to say anything at all if that wasn't their demand.