[dumdumdumdum]

> At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.

The criteria isn't threatening a "wider disruption to the economy", it's threatening the quality of life of a certain class of people. When unions threaten a wider disruption to the economy for maintaining their quality of life, they'll do their damnedest to not give in. They'll pass laws outlawing strikes. Or send in "law-enforcement". As the saying goes, laws are for the poor.

[cornholio]

> The criteria isn't threatening a "wider disruption to the economy", it's threatening the quality of life of a certain class of people.

In support of this view, they could have easily extended FDIC on a dynamic metric, for example 20k for each employee. If you are 5 employee VC fund sitting on 0.5 billion in cash, no bailout for you from taxpayer money (because let's be real, FDIC is all taxpayer money, it's irrelevant if that tax is collected by the govt directly or indirectly via mandatory banking fees).

An alternative path was to provide zero interest loans against your SVB holdings, with the expectation that you are on the hook for the shortfall that would be yielded by the liquidation. If SVB is well capitalized as the Fed claims it is and there is "no cost for the taxpayers", then this shortfall should be relatively small if any.

Another, even more radical option would be to quickly set-up a secondary market for the debt issued by these banks and let the market provide liquity and discover the value of the assets. This is one of the few innovations form the crypto world I wish we could see in traditional finance, we can't keep bailing out rich mofos like it's 2008 when we have all these wonderful new technologies which can stop contagion and bank runs, protect depositors and zero in on those responsible.

[boole1854]

> In support of this view, they could have easily extended FDIC on a dynamic metric, for example 20k for each employee.

Implementing any such "dynamic metric" would have taken time, which would mean they would not have been able to restore all deposits by Monday, which means a significant risk of contagion.

[Swenrekcah]

Also that would really have been an example of arbitrary changes to the rules on the fly.

[cornholio]

They can make those rules and preparations beforehand, for the next SVB, Signature etc. Banks would definitely want to optin under such a protective regime and have their systems ready since it alleviates customer panic in an event of a liquidity crisis.

[mike_d]

> it's threatening the quality of life of a certain class of people.

Like the jerks who chose to work for a company that picked a specific SaaS payroll provider. Or those entitled Etsy sellers that expected to get paid. The absolute nerve.

[fumeux_fume]

The money isnt going directly to the workers. It goes to the companies who employ them to make sure the employers are ok. I think the point being made is that when workers ask for protections or concessions it's this massive struggle but when Etsy needs help the money somehow appears literally overnight.

[insanitybit]

> It goes to the companies who employ them to make sure the employers are ok.

No, it's so that payroll continues...

[brazzy]

What you're glossing over is that when the employers suddenly lose most or all of their liquid assets and don't have perfect positive cash flow, then they cannot pay their employees.

[quadrifoliate]

As long as the Fed is making up rules on the spot, they could make up a fund to pay employees of the depositors directly in the short term, and start liquidating any assets of Silicon Valley Bank to pay for those. Call it, say, the Silicon Valley Bank Victims Fund.

Avoids the moral hazard created by propping up SVB while still keeping workers paid. But I bet that would be showcased by the upper class as a "handout".

[zopa]

By Monday morning? With protections in place against fraud or double-dipping? It wouldn’t be as easy as you think.

(And for the nth time, SVB isn’t being propped up. The owners are losing their whole stake.)

[quadrifoliate]

> By Monday morning? With protections in place against fraud or double-dipping? It wouldn’t be as easy as you think.

But you are somehow convinced that this fund [1] created in 1 day by the Fed to solve "temporary liquidity issues" with vague promises of "loans against securities" and "assessment charged on the banks" will be entirely free of fraud or double-dipping?

Everything involving money has the potential for fraud and double-dipping, and the banking sector has a ton of it. We can figure it out and prosecute people afterwards (or not, it's not like senior management at SVB is going to be prosecuted).

> (And for the nth time, SVB isn’t being propped up. The owners are losing their whole stake.)

Oh sure, three Federal departments make a joint statement on the weekend and create a new liquidity fund every time a company goes bankrupt. Nothing to see here!

----------------------------------------

[1] https://www.federalreserve.gov/newsevents/pressreleases/mone...

[insanitybit]

This is such an absurd idea to implement in a weekend, you have to see that, right?

[quadrifoliate]

Sure, but why is it any more absurd than creating a fund out of thin air to guarantee SVB deposits?

Money provided to individuals is highly trackable; ask anyone with student loans. And this would give the former SVB's employees something to do past the current 45-day window. More employment for the win!

[treeman79]

It’s a government take over of the private sector.

Government official picking losers and winners. Winners will mostly be those who supported government officials party.

Either using money from tax payers. Or creating new money out of thin air. Leading to yet more punishing inflation.

[watwut]

This is not about salaries to employees or risk of companies dying. Neither of those get help when they are unlucky on free market.

[brazzy]

You can spin "what this is about" whatever way you want, but it's simply a fact that for the kind of businesses that typically had deposits at SVB, the overwhelming part of those deposits existed to pay employee's salaries.

[watwut]

Yep. And when other business can not pay salaries because of events they could not control, neither them nor their employees get any extra help. They get mockery from very same people that call for help now. This is about who got it.

The startups did not had all of their money in this particular bank randomly. It was by design.

[ENGNR]

Every depositor is getting $250k back immediately, surely that's enough to make payroll a few times over, factoring in other revenue they must have if their payroll is that large.

For the rest of it, they might take a 20% haircut at most. Even if they had no revenue, and that was say 10 months runway, then it's down to 8 months. It's not like people aren't going to get paid, there's plenty of notice there.

[toyg]

> $250k back immediately, surely that's enough to make payroll a few times over

I'm not sure I follow. A US 60k/Y job means the company has to pay 5k p/m (to employee and taxman). So a company-depositor getting 250k would be enough to serve 50 employees. "A few times over" would only be true for less than 25 employees. If we go Silicon-Valley level, where salaries seem to be twice as high (or more), those numbers would halve again. They seem very small numbers, most SMEs would not fit them.

[gizmo]

> They seem very small numbers, most SMEs would not fit them.

In the USA 78% of businesses have fewer than 10 employees. 89% percent have fewer than 20. The typical SMB has only a couple of employees.

When you include sole proprietors (like the typical etsy store) "the share of U.S. businesses with fewer than 20 workers increases to 98.0% and the share with fewer than 10 employees registers 96.0%".

Source: https://sbecouncil.org/about-us/facts-and-data/

[est31]

Yeah that is probably wrong but I think a notion of "omg all my money is gone" is also wrong. As long as the bank run is stopped in time, people with uninsured deposits would lose who didn't make it out of the bank in time will only a minority share instead of everything. That's what a bank run basically is, if you have 102$ in liabilities and 100$ in assets, and the FDIC steps in, everyone who holds 1$ at the bank gets 0.98$ out. Not bad. If 99$ exit the bank then the owners of the remaining 3$ only get 1$ out, a 66% loss.

The customers of SVB were quickly growing business in an industry where you can quickly obtain immensely high profit margins. A 20% cut is not the end of it.

I believe the big impact of this announcement is not the money itself, in fact it was the lowering in value of government bonds that caused the bankruptcy in the first place, so the govnernment effectively made money from the 10-year bonds deal they struck with SVB. Maybe in the end it might still be a profit for taxpayers/USD users overall. But this announcement still implies something for banks: they can do the dumbest decisions (like this failure for risk management), and the government will bail them out.

[op00to]

I'm amazed at how inexperienced the average hacker news commenter is with money.

[carlosjobim]

50 employees should cover most of startups.

[TheCoelacanth]

Understood, but where is the protection for workers who suddenly lose their job and can't pay rent?

[hellojesus]

Their emergency funds.

Don't get me wrong, it would suck. But there is a proven way to fix misallocation of capital via the market.

[cto_of_antifa]

Or, said anorher way, it becomes more difficult for them to profit off of the labor of others.

[geocar]

I mean, yeah.

Lots of people are starving and homeless for as trivial a "decision" as that.

I'd much rather give everybody food and a home, including the Etsy seller, instead of: giving the bankers a ski jolly, people still starving and homeless, less this Etsy seller. Why can't we do that?

Some of those entitled Etsy sellers voted against everybody having food and a home; My heart breaks, but not as much for those who have and hate. Maybe now that they are hungry and homeless too they will be a little more sympathetic. Surely that would be best.

[justsayinstuff]

Rather than prop up a bank that support x number of businesses that support y number employees, you'd had the government prop up xy employees? For how long? And if another z number of banks fail? Support xyz employees?

[feraloink]

This! Exactly this, because the government is also doing a backstop for a second bank, Signature Bank of New York. Silicon Valley Bank is the 2nd largest bank failure in U.S. history, and one day later, Signature Bank was also closed and its uninsured deposits guaranteed by the FDIC.

When does it stop?

First Republic Bank isn't looking too good.

You are correct.

[geocar]

Yes. Forever. Yes those too. All of them.

I live in a socialist European country, but I'm originally from the USA, and I wish it was better there.

[ameister14]

I was unaware that there were any socialist countries in Europe. Where do you live?

[tremon]

All of Europe is regularly dismissed as socialist whenever the EU enacts regulations that a certain part of the HN population does not like. I would consider the label "socialist" an epitheton ornans here.

[creato]

> giving the bankers a ski jolly

What banker got a “ski jolly” here? The bankers in this case are in exactly the same position they would have been in if the bank were allowed to fail without supporting depositors.

[geocar]

> What banker got a “ski jolly” here?

Well, this guy for one:

https://www.forbes.com/sites/brianbushard/2023/03/10/svb-fin...

[xmcqdpt2]

That happened before the fdic got involved. If it turns out he was hiding something, the SEC might get involved but otherwise he was fully allowed to sell his own stock based compensation. That's how stock based compensation works.

[op00to]

... and that trade will certainly be investigated. If the trade was not part of an existing trading plan, it's highly likely the CEO will have some very uncomfortable conversations.

How is selling stock tantamount to a government bailout?

[eppp]

Ill be glad to have an uncomfortable conversation for a few million dollars.

[ModernMech]

> the CEO will have some very uncomfortable conversations.

Oh no! Not uncomfortable conversations! Anything but that! Maybe it will be followed up with a strongly worded letter with an implied threat of a performative vote by Congress. How will they cope?! They might even have to show up at a gasp House committee hearing! shudders

Wake me when someone is convicted.

[raspberry1337]

What a weird post.

>Lots of people are starving and homeless for as trivial a "decision" as that.

Most homeless are either severely mentally ill, drug addicted, usually both.

>I'd much rather give everybody food and a home, including the Etsy seller, instead of: giving the bankers a ski jolly, people still starving and homeless, less this Etsy seller. Why can't we do that?

You could be running a soup kitchen homeless shelter right now instead of posting on HN. It's always someone elses fault!

>Some of those entitled Etsy sellers voted against everybody having food and a home;

Great analysis and input - if we would all vote x, everybody would have food and home, problem sovled!

[codeddesign]

We don’t live in a socialist society. These companies chose not to diversify their risk. If they didn’t know their accounts had a max insurance rating of $250k, then they deserve to fold. FDIC insurance is intended for consumers not to be instantly without. If you are a corporation, you are responsible for you own financial risk. 9 banks have failed in the last 5 years. The fed is treating this special and that’s why it’s an issue. Essentially they are telling the public “as long as you are with a large bank that holds large assets, we will protect you”.

[initplus]

They are treating it differently because the alternative is a run on every small/medium bank with high numbers of business customers.

It’s not to protect the existing depositors of SVB - but to shore up the stability of the entire banking sector.

[pdpi]

The problem is that that shoring up comes at the cost of enabling bad behaviour. Banking right now seems to run on the assumption that you’re allowed to erode the stability of the system for your personal gain, because governments world-wide will shore it up from the other side.

It’s important to remember that SVB lobbied hard to gain an exemption from banking stress test regulations. Their “inherently low risk” business clearly wasn’t, and they failed to defend against the inevitability that was the fed going up from the anomalously low rates of the 2010s.

[initplus]

What bad behaviour is being enabled here? The people who stand to gain from taking risks here (bank owners) have lost everything and are not being bailed out.

What is the bad behaviour of the depositors? Trusting that their deposits were safe in a bank? This isn’t bad behaviour, the government wants people to think that bank deposits are safe. Safety of bank deposits is really important to the economy.

[hellojesus]

> What is the bad behaviour of the depositors? Trusting that their deposits were safe in a bank? This isn’t bad behaviour, the government wants people to think that bank deposits are safe. Safety of bank deposits is really important to the economy.

Yes, it is exactly this bad behavior. The gov has only guaranteed safety up to $250k. Any entity exceeding this limit does so at their own risk. By depositing far above the insured limit, you are allowing that bank to transact with your money. The banks loans it out. So by definition those consumers thay ignored the limits incentivized the bad behavior.

Had this bank started losing customers because they faced insolvency risks, they may have changed their behavior. The market provides a feedback loop.

[RandomLensman]

This policy could also encourage deposit flight at the slightest notion of risk - if everyone is made whole anyway the stability of a bank isn't any consideration for any of the depositors anymore. There is no game theory to moving deposits then.

[psychlops]

That's what you are told. A bad bank went down due to risky investments and no hedging against obvious interest rate hikes. Yes, more will fail as a result and they should and the losses should not be socialized to the rest of us.

[xmcqdpt2]

https://www.fdic.gov/bank/historical/bank/bfb2019.html

Actually I think you'll find out if you look at the bank failure list that most deposits are paid out in full even if above the insured limit.

[egberts1]

Except that FDIC considers SVB to be a non-bank financial institution and thusly are not insurable.

[CapstanRoller]

What does any of that have to do with socialism (an economic system where the working class owns and control the means of production)?

Socialism doesn't mean "when the government does stuff"

[dmichulke]

What OP might mean:

Technically, your "jerks" don't lose capital (wealth) while the people with deposits in those banks do.

Yes, losing a job is a bad thing but a job is a mere right to a transaction (we exchange labor for money in the future) and not lost capital.

[codeddesign]

It’s the fed protecting a bank with a large financial interest. This isn’t the last bank this year…but one of few that will be protected.

[feraloink]

How fair is that? You aren't suggesting that it is fair, I realize.

And you are correct! Silicon Valley Bank was the first bank this year for whom the Fed is paying for uninsured deposits. The second bank is Signature Bank of New York, which regulators shut down one day later, on Friday March 10th. They are being protected as well. https://www.nytimes.com/2023/03/12/business/signature-bank-c...

[Godel_unicode]

SVB was publicly traded, and it’s not being bailed out. Who do you think owns the now-worthless stock?

[inferiorhuman]

  SVB was publicly traded, and it’s not being bailed out.

SVB deposits are being paid for with an assessment on FDIC members. Who do you think is going to pay for that?

Sincerely,

A PG&E ratepayer

[ahepp]

My understanding is it's not yet known whether a special assessment will need to be levied. The FDIC is making all deposits available before they find out, and if it turns out they cannot sell SVB assets to cover deposits, they will levy a special assessment to make up the difference.

Certainly open to being corrected if that's wrong. But as far as I know it's a bit premature to talk about this being a "tax on depositors at other banks". It seems like these actions ensuring stability in the banking system may be beneficial to everyone.

If it turned out that all SVB assets were worthless and a HUGE special assessment would need to be levied to cover deposits, I would agree that this could be a moral hazard. But right now I think it just looks like prudent management.

[inferiorhuman]

You're absolutely right. It's entirely possible for SVB to sell their assets and cover the entirety of the deposits above FDIC limits.

Get real. The issue has never been that SVB's assets were completely worthless, it's that they're not going to cover all of the deposits over the FDIC limits. Ten year bonds were a bad idea and nobody wants them given the current interest rate trajectory. If SVB's assets could've been sold for their full cost they would've been. An assessment will happen, it's just a question of how large it will be.

[ahepp]

It's possible the bank is only a "little bit" insolvent. Is it not possible that the difference can be made up by wiping out shareholders and giving unsecured bondholders a haircut?

Per Robert Armstrong of FT: https://www.ft.com/content/9ee5edda-a038-4992-863f-242bd69c8...

https://archive.is/OQdR7/43e461dad99a58217efdfde3878ee6b56cc...

It looks as though SVB may be "only $5 billion" short on its uninsured deposits, with $22 billion in other creditors

[tankerkiller]

> Is it not possible that the difference can be made up by wiping out shareholders

In the US it's illegal to do anything that would be "bad" for shareholders. It's quite literally the law that CEOs must return a profit for shareholders (or attempt to). The FDIC however has no such requirements, so while the bank itself can't wipe out shareholders, the FDIC can do it without care.

Publicly traded companies will ALWAYS put shareholders above anyone else. It's the primary reason I'm very much against banks being publicly held. Just as I feel it's immoral for healthcare both insurance, pharma, and hospitals to be publicly traded entities.

[op00to]

> SVB's assets could've been sold for their full cost they would've been

Why? No one thinks the FDIC is gonna close their bank until the FDIC padlocks your front door with you inside. This literally surprised almost everyone.

[lordnacho]

If this is so prudent, how come nobody was suggesting it before it happened?

I agree though that it sounds like a reasonable solution, at least superficially.

Wiping out the shareholders at least is something I agree with. They need to eat risk.

I also think that deposits have carved out a space of its own in the mind of the public. You can't think of it as a risk investment like any other debt because people just don't treat it that way, they think of it as a safe place to store their money for convenient access for things like payroll. If you haircut them, everyone will have to re-evaluate where to keep their deposits and chaos ensues.

The big question then is how this levy on the rest of the banking system will work. That may turn out to be a clever solution or a carpet to brush future problems under. We'll see when there's more details.

But the question still remains, why didn't someone think of this earlier?

[ahepp]

> If this is so prudent, how come nobody was suggesting it before it happened?

I guess this is kind of facile, but isn't it because the bank wasn't insolvent yet?

Interestingly, it sounds like systemically important banks may be required to do "resolution planning" for insolvency. If I'm understanding correctly, that sounds similar to what you're talking about.

SVB seems to have successfully lobbied for raising some of the thresholds for increased oversight from $50bn to $250bn. I don't know the specifics of exactly what was involved at this threshold, but it does seem clear that was a mistake.

[throwaway2037]

Your last paragraph is dead on. Here is analysis from a blog run by Financial Times ("FTAlphaVille"): https://www.ft.com/content/c95e7708-b903-405d-a017-963844eb3...

Scroll down to screenshot of tiny text to find the "one trick" to explain it all. SVB poorly managed their balance sheet and had weak regulations for which they lobbied (oh, the lulz). Nothing more. FDIC wind-down or maybe sale. Plus, tighten up that rule. End of story. Maybe a few billion of special assessment (_in total_) on all other banks -- this is how deposit insurance works _in one form or another_ in all advanced economies.

Why is this darn story getting so much attention? Dunno. Slow news cycle?

EDIT: balance -> balance sheet

[op00to]

> If this is so prudent, how come nobody was suggesting it before it happened?

Because if you tell someone "hey, we're gonna wipe your shit out" they're going to try to rescue as much money as they can.

> The big question then is how this levy on the rest of the banking system will work.

https://www.fdic.gov/news/financial-institution-letters/2009... Here's how it worked in 2009.

> why didn't someone think of this earlier

Like in 2009, the last time they did it?

[ClumsyPilot]

> everyone will have to re-evaluate where to keep their deposits and chaos ensues.

That chaos is normal functioning of the market.

Nobody has a right to safe placement of large sums of capital.

It is not the government's job to protect your market winni g from the market moving against you.

[op00to]

> SVB deposits are being paid for with an assessment on FDIC members.

You're not being totally honest here. If there isn't enough capital to satisfy deposits, the FDIC facilitates an auction of assets owned by the bank. This occurred Sunday night. Not every asset owned by the bank is in the toilet, and ALL the value built up in any asset is given to depositors, not shareholders.

If there is a shortfall between the assets owned by the bank, yes, there may be a special assessment on FDIC members. Special assessments have happened before, and they'll happen again. In 2009 it was 5 basis points, or a whopping 0.05% of deposits after a huge, sprawling economic meltdown.

[egberts1]

Yeah, but FDIC considers SVB to be a non-bank financial company.

[tankerkiller]

SVB itself is a FDIC bank company, SVFG (Silicon Valley Financial Group) is the non-FDIC portion of the company.

[egberts1]

What was it back in 2014 when Yellen of FRB exempted them?

[op00to]

And if my aunt had wheels, she’d be a tea cart. What does that have to do with anything?

[miguelazo]

The stock isn’t being bailed out, but a certain class of society/account-holder is (again), which seems to be just as bad in terms of perpetuating the moral hazard.

[porknubbins]

What moral hazard being created though? Most SVB customers, unless they are finance experts, are not in any position to do due diligence on how their bank invests its loans and are pretty blameless in my opinion. They weren’t capturing any real risk premium by banking with this bank.

[jimnotgym]

Hang on, companies with over 250k on deposit should be, or be engaging finance experts. YC should have finance experts.

[thesimon]

If lots of millionaires were losing money, everyone would say that the should have known better and had finance experts help them manage their money.

But somehow the same doesn't hold true for companies.

[hellojesus]

Especially considering the government disallows people that aren't "qualified investors" from investing in specific asset classes entirely because people that don't meet that threshold are just too stupid to participate.

[r_hoods_ghost]

But they were by, for smaller but over 250k depositors, not spreading their deposits between multiple banks. Which can be done manually or through a sweeping account very very easily. Or, for larger depositors, having other safety mechanisms in place. Really depositors over 250k do need to take some moral responsibility, even though I think it is better that they be made whole to stave off a 2008 style financial crisis.

[tempestn]

So what is the risk premium they were collecting? The time savings of not managing multiple accounts? Is it really desirable for larger depositors to carry the inefficiency of spreading their deposits across multiple banks, if the net liabilities of the banks end up being the same?

[dtf]

The risk premium was access to a large and very cheap credit facility:

https://twitter.com/jonwu_/status/1634250770555219970

[r_hoods_ghost]

Net doesn't matter to the individual firm. And who should carry it? Everyone else who had the gumption to spend, what, a few man hours, to guarantee that they won't end up not being g able to make pay roll?

[331c8c71]

Doesn't matter. The rules are the rules.

[BlueTemplar]

What does moral rather than fiscal responsibility have to do with this ??

[watwut]

No, VCs who literally demanded they put their money there did. Guess who cries the most about bail out - VCs. The same people who wanted regulations to ease up, the same people that actually indirectly profited from bank taking higher risk.

It is ridiculous that the supposedly smartest groups whose literally did this to themselves gets bailed out.

[headsoup]

By design I would guess

[eshnil]

They don't need to do extra due diligence. Just buy insurance for the excess amount above the FDIC limit. After all, they do benefit from the upside like cheaper mortgages for execs.

[RandomLensman]

One way this could create moral hazard is that large depositors are happy to lend to quite risky banks at high rates because they know they will be made whole in case of a bank failure. Btw., this could also make deposits less sticky as moving for opportunity has no downside in such a scenario.

[ClumsyPilot]

> Most SVB customers, unless they are finance experts, are not in any position to do due diligence

Someone wants to have it both ways - they are sophisticated investors and entreneurs when it suits them. Leaders of our time, telling the rest of us how to live.

Other times, they can't be expected to have basic financial literacy or consult a financial adviusor accessible to a regullar joe

[subsistence234]

>most SVB customers

I'm just a little smol bean startup with a 9 figure valuation not a finance expert, how could I have any idea about financial markets or risk?

[vintermann]

Wasn't the selling point of this bank its "libertarianism"? It's a fairly new bank, why did they switch to it if not for doing some research on it?

[notfromhere]

SVB is a 40 year old bank that's been doing business in the valley since the VC era started.

[yawpitch]

> SVB is a 40 year old bank that's been doing business in the valley since the VC era started.

So it’s a fairly new bank, by the standard or banks, and the point remains, why did they choose to risk keeping money in excess of the $250K insurance backstop in one bank with no real track record?

Until this event the whole idea of the FDIC insurance fund was to ensure that people (not corporations) with relatively small nest eggs wouldn’t lose the whole thing and therefore starve if their bank made bad bets… once your nest egg grew beyond the backstop it was your right (and privilege) to assume the risk of losing it, if you wanted to.

Now because VCs and CEOs were essentially asleep at the wheels of companies that, for the part that have gotten this absurdly quick action from the government, consider $250K to be a rounding error, the rules have changed. That’s the special class… the kind of people who somehow think 40 years is a substantial track record for a business that’s big enough to underpin an economy.

[op00to]

You don't know that a "certain class of society/account-holder is" being bailed out. Maybe you think it's likely, but the only people who really know the deal is the FDIC, and they seem confident that everything will wrap up cleanly.

[alistairSH]

FDIC typically insures up to $250k. The government is now doing a one-off (well, two-off) to make ALL depositors whole.

"People with in excess of $250k cash" is most assuredly a "certain class of society". Or, maybe a few classes - rich individuals AND small companies. In either case, both groups should be better diversified OR have insurance against banking losses. The FDIC limit isn't unpublished - it's well known among people with even moderate amounts of cash.

[op00to]

The FDIC limit comes into play when there are no underlying assets to distribute to depositors. If the bank has no assets, it's likely all you'll see is $250k.

If there are assets, they can be disposed of, and the depositors with over $250k can receive dividends. The fact that the FDIC is confident that the deposits will be available says to me they were able to successfully sell enough assets to ensure liquidity for whoever took over the deposits.

This isn't a "government two-off to make ALL depositors whole". This is how these bank failures happen.

[ClumsyPilot]

The class is quite clear -weathly and risk taking and/or stupid/doesnt read the fine print.

[miguelazo]

Umm, yes I do. I read the joint press release which stated exactly that.

[muzz]

The market cap of SVB on Friday was $6 B

The amount of uninsured deposits was $150 B

The value of all the stock is 4% of the amount of uninsured deposits

[Godel_unicode]

First, since we’re comparing numbers to each other, you should go back before Wednesday to get a real number for pre-run market cap, it’s about 2.5x that. Not that it really matters.

Second, just so we’re clear is your point that the holders of that $6B-$15B of useless paper won’t care because it’s less than $150B? At the end of the day, you don’t care what percent of the bag you’re holding, just that you’re holding it.

[svnt]

No, the point is that shareholders of the bank are investors in the bank, and investment comes with the risk of loss. Depositors in a bank are not investors in that bank.

[yawpitch]

> Depositors in a bank are not investors in that bank.

No, they’re not. But until just now depositors in any other bank assumed the risk for any deposit in excess of $250K… and if these depositors weren’t morally different than the depositors that would absolutely have lost their wealth in excess of $250K when their chosen bank did a stupid thing, then they’d have paid the piper just like you and I would have.

These special depositors are getting special treatment and aren’t suffering what countless non-special depositors have suffered… the rules are changing because of who took the risk, that’s the very definition of moral hazard at work.

[RhodesianHunter]

Their point is that the value of equity is insignificant to the upper class, as compared to the value of the uninsured deposits.

IE the equity isn't enough to leverage political capital. The deposits are.

[ericd]

The amount of the potential losses on the uninsured deposits was a very small fraction of $150B.

[vintermann]

Was it? I think I read somewhere that this bank had an unusually large share of depositors over the deposit insurance limit, or in other words a high share of uninsured deposits.

[lordnacho]

Yes but that doesn't mean they would lose everything over the insured limit. If I owe you 1M but only have 950k to give you that's a lot better than having only 100k, in which case you'd end up with 250k.

[yawpitch]

Ok, but assuming the numbers above are correct, 150B in uninsured deposits - 5B in market cap firesale = 145B that SVB apparently didn’t have the cash on hand to repay.

If every depositor walks in first thing Monday morning and withdraws their bad bet in their (apparently single) chosen bank’s management, the customers of all other banks are now on the hook for 145B… which ultimately means everyone on the planet can expect to pay more for their haircuts.

[vehementi]

Why would you directly compare those two numbers? It owes all those deposits to other entities.

[mattbillenstein]

What is the shortfall once all the assets of the bank are sold though? It's not like anyone is putting $150B into this to make sure those deposits are made whole.

[Phlarp]

You can't say that right now, I'm not sure anyone can. The government is literally writing a blank check because they don't yet know how much it's going to cost to fix.

Everyone seems to be operating under the idea that while their liquidity came into question the underlying assets were and are strong-- if that were true they would have found a private sector solution early in the weekend. Waiting until 6pm on Sunday and a second regional bank collapsing to announce "oops, all bailouts!" seems like an open admission we're in the early stages of another banking crises.

[friendzis]

> the underlying assets were and are strong-- if that were true they would have found a private sector solution early in the weekend

One does not follow the other. The triggering problem here were unmatched maturities of assets and liabilities, i.e. liquidity crunch. They have created that liquidity by selling some assets at a loss and tried to recoup that loss from investors.

But that was not the problem. The problem was now-imminent bank run, potentially requiring up to ${total-deposits } liquidity injections and unclear future then. Once VCs told their portfolio companies to pull out svb was effectively toast.

[loandbehold]

Bigger bank with more cash could have bought them, fixing liquidity issue. This didn't happen, suggesting that there's problems with bank's assets, not just liquidity.

[mjevans]

As far as coverage has stated so far, the underlying assets ARE solid...

Problem is they're just not even a good investment compared to brand new fed bonds / bills of short / long (might have that backwards) due to the now MUCH HIGHER interest rates. They locked in at historically low rates, and had a bank run on their free reserves.

[heisenbit]

But then the coverage has mentioned also CMBS. An if you think about those, think about Covid and think about SV remote working…

[femto113]

Nobody has to put in anything other than confidence. Given enough time the bank already has plenty of assets--the whole point of the feds saying "all deposits will be made whole" is to stop the panic withdrawals and thus obviate the need to sell those assets.

[deepsun]

Better count "enterprise value" than market cap, as that's the price the company is worth.

[BlueTemplar]

What is the difference and where can you see it ?

[deepsun]

Here is full info: [1]

As I see it, market cap/valuation _should_ resemble the price you'd need to pay to buy a company, but it often is not. E.g. a company has marketcap of 10B, but has 30B in liquid cash on hand. It's clear it cannot be bought for 10B. Or the other way around, the company has 30B in liabilities -- the company should pay you 20B to be bought.

[1] https://www.investopedia.com/terms/e/enterprisevalue.asp

[shjake]

I think the main goal is to prevent a wider banking crisis and this spiraling out of control. That would surely affect everyone..

[philosopher1234]

Why should we take for granted that that is likely? Because that is what the VCs say? Perhaps this is a convenient belief

[edanm]

Or perhaps the experts at Treasury, FDIC, etc, actually made this decision because they think it's true in their expert opinion, not just because VCs said so?

They're the officials appointed to be the experts at these things by the people elected to run the government, what better mechanism is there for making this kind of decision?

[berniedurfee]

I wish this were true. This is how I thought things worked when I was a kid.

Or did I miss your sarcasm?

[edanm]

I think it is true. Not sarcastic at all. Curios why you think it's not?

[berniedurfee]

Jaded, I suppose.

I don’t think the majority of legislators truly align the best interests of individual citizens to their decisions and actions.

[RandomLensman]

I think the issue is that 15 years after the GFC, again the government seems to be needed to prevent a systemic banking crisis. What ever rules where enacted etc. had maybe very little effect if a small bank (and the 16th largest bank isn't a mega-bank) can bring down the system without a government backstop.

If lending to banks is too risky for most, then perhaps most should not be allowed to lend to banks. Are bank deposits really the right way to fund banks if they come with these systemic risks or should it all be bonds etc. (and then also have very narrow limits for regulated investors)? Maybe a lot more should be direct lending and not bank lending?

[edanm]

I'm not sure I follow.

The depositors aren't lending to banks. They're putting money in a bank. What's the alternative? Have them stash all their money under a pillow?

This wasn't (to my knowledge) an investment bank like Goldman Sachs etc, where people put in money to get upside. It was a bank like any person uses to store their money, cause it has to be stored somewhere.

> [A]gain the government seems to be needed to prevent a systemic banking crisis. What ever rules where enacted etc. had maybe very little effect if a small bank (and the 16th largest bank isn't a mega-bank) can bring down the system without a government backstop.

I mean, the whole original point of the FDIC deposit insurance was because bank runs happen. We prefer people put their money in a bank, it's better for many reasons, but as long as we allow fractional reserve banking (which we should, IMO,) people will always feel at risk, which either makes them not use banks (bad,) or cause a bank run if they do use a bank (also bad.)

The whole point of deposit insurance is to put a government backstop to all potential bank runs by promising people they will always be able to get their money, which causes the system to keep working.

The only difference here is that it's for money corporations put in a bank instead of people (and of course that the amounts are much bigger.) But the same logic applies - we want companies to put money in a bank, and we don't want companies afraid that their bank will fail and they'll suddenly be out all their cash. That would cause worse effects in the long run.

And I'll emphasize, the people getting "bailed out" are the depositors, not the shareholders. They're the people who just trusted the bank to be a normal bank, and that weren't in a position to affect what the bank does. "Punishing" them doesn't help resolve any systemic risk, because they couldn't have acted differently! (Except for spread money across multiple banks, which is against the point because we want people to trust banks and not have to worry about where to store their money, cause that comes at the cost of doing more important things!)

[RandomLensman]

Depositors are lending to banks - the bank is not just storing the money!

For me, what isn't clear anymore is, if we really prefer deposits to be in banks or rather in some other more narrow "thing". If people just want to store liquidity very safely, then maybe there is any offering missing in the market (and in some countries things like that existed prior to GFC but got shut down afterwards. In Germany, anyone could directly deposit daily liquidity with the Bundesbank for while, for example).

Yes, it would take some cheap funding away from banks, but if that were to be long-term bad or not we don't know as different funding equilibria with different market participants might not result in worse lending situations for the economy as a whole.

Btw., of course, depositors can affect what a bank does: if they don't give their deposits or pull them away if they deem the business to risky it does matter. At what point is lending then risky? If a corporation buys a bank bond with excess liquidity not needed daily - should they be made whole, too?

[hackerlight]

That's what the history of bank runs says and why the FDIC was created in the first place.

[throwaway1851]

Cynicism isn't interchangeable with critical thinking.

[forgetfreeman]

True but it is all too often the product of critical thinking.

[wolverine876]

IMHO and IME, it's never the product of critical thinking. It's an emotional reaction, not thinking and especially not thinking critically.

[forgetfreeman]

Whereas IMHO pollyannaism is a product of some combination of denial, naivete, and privilege, and mumbling about cynicism instead of engaging with the point made is nothing more than an expression of cognitive dissonance or worse simple childishness.

[wolverine876]

Right, but who advocates pollyannaism?

The alternative to pollyannaism is not cynicism but actual critical thought.

The alternative to cynicism is not pollyannaism but actual critical thought.

[throwaway1851]

> mumbling about cynicism instead of engaging with the point made

I was leaving it in the subtext, but in case it wasn’t clear: I don’t think the “point” made reflected anything resembling analysis, and therefore deserved no engagement.

[eru]

Huh, how are strikes still widely legal, then?

[SkeuomorphicBee]

I guess you haven't been following the news.

The previous commenters clearly makes a reference to the rail worker's strike from a few months ago, which was the first strike in decades powerful enough to threaten a "wider disruption to the economy", and the fact that government quickly passed special laws to declare that strike illegal.

So, to spell it out for other living under a rock:

- Labor fighting for better work conditions threaten a wider disruption to the economy, government fights and bends rules against labor. - Capital losing bets threaten a wider disruption to the economy, government fights and bends rules in favor of capital.

[eru]

Why don't they outlaw strikes in general?

[bioemerl]

> the quality of life of a certain class of people

By that you're talking about the average citizen right? Suff like railroad strikes would dramatically affect the average citizen.