[antibasilisk]

This is a total disanalogy because banking concerns depositors who are actively trusting you to secure their wealth, while a restaurant owner supplies a temporary service that ceases after maybe an hour or two.

A better analogy would be lastpass getting hacked, and then rightfully disclosing that instead of just keeping it under wraps.

[riskneutral]

As restaurant's customers actively trust the restaurant to not jeopardize their health.

The banking equivalent of Lastpass getting hacked and not disclosing it would be if a bank was insolvent and instead of rightfully disclosing that it instead just kept it under wraps. That would be accounting fraud and executives would be charged with crimes like they were in the Enron scandal. SVB experienced a sudden liquidity problem, not a solvency problem. Solvency and liquidity are two separate things.

[neilwilson]

"SVB experienced a sudden liquidity problem, not a solvency problem. "

They had a solvency problem.

The MBS they held with a six year duration didn't generate sufficient income. That meant they couldn't meet the cash letter from the Fed. That's why the FDIC was called in.

The whole strategy was based upon holding uninsured non-interest bearing liabilities for the duration - ie the cash of startups in burn mode.

It wouldn't have mattered if they had insured the HTM portfolio in the traditional manner.

Any sought equity investment in the bank would have had to be sufficient to get the net income up to the level where they could meet the terms of the cash letter from the Fed. I doubt anybody would have gone for that when the alternative was to attend the FDIC auctions and pick up the assets on sale.

[antibasilisk]

But it was insolvent, all of them are.

[jsjohnst]

No, it wasn’t insolvent until the bank run on Thursday. Very few, if any, banks can handle a $40 billion transfer off their balance sheet unexpectedly, but a bank CEO should’ve known their reckless actions could easily have triggered one, especially one with very high deposits and very few customers (as in, it doesn’t take many customers to decide to move their deposits to cause a real hurt).

[antibasilisk]

>Very few, if any, banks can handle a $40 billion transfer off their balance sheet unexpectedly

The conclusion from this isn't that it was solvent and suddenly became insolvent. The conclusion is that almost every bank is insolvent.

[jsjohnst]

> The conclusion is that almost every bank is insolvent.

In as far as “the sky is blue”, except when it’s cloudy, or night time, or the sun goes supernova.

[xiphias2]

The difference is that the whole banking business model is about not never having 100% of the deposits on hand (the banking license is a license to not be 100% fully backed with liquid assets, but you have to follow special rules/regulations in return).

FTX was a different issue, because it had a requirement of 100% backing of customer deposits for example (that's why SBF was trying to acquire a bank).

[antibasilisk]

>The difference is that the whole banking business model is about not never having 100% of the deposits on hand

It sounds to me like there's a big disconnect between what banks actually do, and what their customers think they do.

[cwsx]

Do people really not know how fractional reserve banking works? I'm not saying the general public, but those with >$250K sitting in a bank.

I agree on the disconnect, but I don't think it's all relevant to this situation. Almost every party involved should have been well aware of this fairly basic concept.

[antibasilisk]

Given the fact that alot of people didn't think to diversify their cash between banks to stay insured, do you really think it would be a stretch to suggest they don't really know what they're doing?

It's a bit like suggesting zoomers know what a filesystem is because they grew up with computers; seems like it should be the case on the surface but you'll quickly realise they've never dealt with the underlying realities of the system, they just use the interface.

[cwsx]

I would be suggesting that if those zoomers ran a business that could die with poor file system management, but that's hardly what we're talking about is it?

I am suggesting that business owners with substantial cash holdings should be well aware of fractional reserve banking, or at least the notion that money in the bank is not guaranteed.

Do you seriously think any of these companies weren't aware of the $250k insurance limit?

I'm genuinely curious what you mean, as your example sounds like a straw man, but I'm hoping there's something I'm missing.

[antibasilisk]

You would be genuinely surprised at the number of people in charge of publicly listed companies, who have absolutely no idea about the existence of fractional reserve banking, or even the fact that money isn't backed by gold anymore.