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Agreed. Lots of people here in the comments are making assumptions about a system they don't understand. Depositors with > $250k aren't necessarily going to "ta

Agreed. Lots of people here in the comments are making assumptions about a system they don't understand. Depositors with > $250k aren't necessarily going to "take a haircut," for the reason you mentioned, plus a few others. Additionally: 1. Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. It's totally possible (and regularly done) to spread out cash among several financial institutions to protect against this very issue. 2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k. 3. If spreading out your 6- or 7-figure assets to multiple institutions is too much of a burden, literally every business bank has special accounts or add-on features that either raise the FDIC default limit of 250k, or supplement it with external insurance. Again, if any startup's financial handlers didn't recommend this: fire them because they entirely failed to do their job.

jabart 4y ago
I don't think the signers count towards the limit like a personal joint account does and would keep a business account at $250k. https://www.usbank.com/bank-accounts/fdic-deposit-insurance-coverage.html https://www.usbank.com/bank-accounts/fdic-deposit-insurance-...
kgwgk 4y ago
> 2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k. Is it typical for business accounts to be owned by someone other than the business?
panarky 4y ago
SVB is not a typical regional bank taking deposits from middle-class workers, where most accounts are under the 250k insurance limit. Banks that primarily serve ordinary workers typically have over 50% of total deposits in accounts that are under the limit, and are fully insured. But for SVB, less than 3% of deposits are in accounts with less than $250k. The cold, hard fact is that if the bank doesn't have sufficient assets to pay back depositors, no regulatory sleight of hand changes that fact. There's a reason why large deposits aren't insured, and that's because the rich have the knowledge and resources to take care of themselves, and shouldn't co-opt the power of the state to force ordinary people to subsidize them when their bets go bad. It would be hideously immoral to bail out fabulously wealthy VCs with funds from taxpayers and small depositors.
- fairity 4y ago
  > The cold, hard fact is that the bank doesn't have sufficient assets to pay back depositors. That's not true. As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. Even if liquidating assets forced a 15% haircut, depositors will be made whole. If a bail out is necessary, it's likely in the form of a short-term loan to make depositors whole sooner rather than later. And, such a bail out can/should be structured as a loan with significant interest in which case it's not really a cost to taxpayers.
  - panarky 4y ago
    That $209 billion number was not marked to market. Their assets weren't worth that much then, and they're worth less now. The cold, hard fact is that if the bank had sufficient assets to let depositors withdraw their cash, then they wouldn't be in receivership now. You can argue that they actually do have sufficient assets, but they just can't access them right now, and we just need to wait ten years for bonds to mature. But that argument only makes sense if you also say that large depositors should wait ten years to get their money out. Naturally, a dollar that you might receive ten years from now is worth a lot less than a dollar you can actually spend today, and if regulatory sleight of hand obscures that essential fact to bail out the 1% of the 1%, that would be extraordinarily unjust.
    - fairity 4y ago
      Once again, my point is that your following statement is untrue: The cold, hard fact is that the bank doesn't have sufficient assets to pay back depositors. It is not a cold, hard fact that they don't have sufficient assets. It's entirely possible that after liquidating their assets (on the time scale of months), they can make depositors whole even after factoring in the time cost of money.
      - panarky 4y ago
        Of course you're correct, nobody knows the future. It's possible the $80 billion in mortgage-backed securities they bought yielding 1% and maturing in 10 years might be salvaged. They're now worth far less than they paid because interest rates are up to 5% and nobody wants to buy bonds that yield 1%. Maybe this receivership will bork a thousand startups, throw a bunch more people out of work, and cascade into a larger recession, driving interest rates back down to 1%, and restoring the value of the mortgage-backed securities, and making the bank solvent again! Or maybe a recession severe enough to drive interest rates back to 1% would also be severe enough to prevent homeowners from paying their mortgages, which wouldn't be great for the valuation of mortgage-backed securities.
roflyear 4y ago
> 3. If spreading out your 6- or 7-figure assets to multiple institutions is too much of a burden, literally every business bank has special accounts or add-on features that either raise the FDIC default limit of 250k, or supplement it with external insurance. Again, if any startup's financial handlers didn't recommend this: fire them because they entirely failed to do their job. Contractual obligations often prevent this, btw. Many SVB customers had loans with SVB, which prevented them from using other banks.
- drewbeck 4y ago
  Wow, is this common? From a systems perspective it seems like pure folly, increasing systemic risk and reducing resilience. (from SVB’s perspective I’m sure it seemed great …) it feels like it should be illegal !
  - roflyear 4y ago
    I asked a handful of people with experience in those things and they all said it is very common. I was very surprised as well.
VagueMag 4y ago
For Pete's sake, 1 month Treasury bills are yielding more than almost every bank account. Just set up a TreasuryDirect account and be done with it.
roguecoder 4y ago
It seems like SVB was exploiting the lack of sophistication among early startups, and now it is going to bite all those startups in the ass. Wealthfront offers me as an individual better tools for managing risk that it sounds like people who banked with SVB were getting.
duped 4y ago
How does that work with payroll? 500k is not enough for a moderately sized startup to make payroll.
cormacrelf 4y ago
To be clear, if you have 10 million cash, and you need >250k to make payroll a couple of times while your banks assets are sold off and you get the rest of your cash back (or 95%, or whatever), there is no need to spread that 10 mil over 40 different banks. That would be very inconvenient. Just to set it up so you have enough insurance to help you survive a short while. You can put 9.75M in one account and 250k in another bank.
jjav 4y ago
> Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. Looks like not just startups, e.g. Roku had ~500M in SVB https://edition.cnn.com/2023/03/10/business/roku-svb-cash/index.html https://edition.cnn.com/2023/03/10/business/roku-svb-cash/in...

jabart 4y ago

I don't think the signers count towards the limit like a personal joint account does and would keep a business account at $250k. https://www.usbank.com/bank-accounts/fdic-deposit-insurance-coverage.html https://www.usbank.com/bank-accounts/fdic-deposit-insurance-...

kgwgk 4y ago

> 2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k. Is it typical for business accounts to be owned by someone other than the business?

panarky 4y ago

SVB is not a typical regional bank taking deposits from middle-class workers, where most accounts are under the 250k insurance limit. Banks that primarily serve ordinary workers typically have over 50% of total deposits in accounts that are under the limit, and are fully insured. But for SVB, less than 3% of deposits are in accounts with less than $250k. The cold, hard fact is that if the bank doesn't have sufficient assets to pay back depositors, no regulatory sleight of hand changes that fact. There's a reason why large deposits aren't insured, and that's because the rich have the knowledge and resources to take care of themselves, and shouldn't co-opt the power of the state to force ordinary people to subsidize them when their bets go bad. It would be hideously immoral to bail out fabulously wealthy VCs with funds from taxpayers and small depositors.

fairity 4y ago
> The cold, hard fact is that the bank doesn't have sufficient assets to pay back depositors. That's not true. As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. Even if liquidating assets forced a 15% haircut, depositors will be made whole. If a bail out is necessary, it's likely in the form of a short-term loan to make depositors whole sooner rather than later. And, such a bail out can/should be structured as a loan with significant interest in which case it's not really a cost to taxpayers.
- panarky 4y ago
  That $209 billion number was not marked to market. Their assets weren't worth that much then, and they're worth less now. The cold, hard fact is that if the bank had sufficient assets to let depositors withdraw their cash, then they wouldn't be in receivership now. You can argue that they actually do have sufficient assets, but they just can't access them right now, and we just need to wait ten years for bonds to mature. But that argument only makes sense if you also say that large depositors should wait ten years to get their money out. Naturally, a dollar that you might receive ten years from now is worth a lot less than a dollar you can actually spend today, and if regulatory sleight of hand obscures that essential fact to bail out the 1% of the 1%, that would be extraordinarily unjust.
  - fairity 4y ago
    Once again, my point is that your following statement is untrue: The cold, hard fact is that the bank doesn't have sufficient assets to pay back depositors. It is not a cold, hard fact that they don't have sufficient assets. It's entirely possible that after liquidating their assets (on the time scale of months), they can make depositors whole even after factoring in the time cost of money.
    - panarky 4y ago
      Of course you're correct, nobody knows the future. It's possible the $80 billion in mortgage-backed securities they bought yielding 1% and maturing in 10 years might be salvaged. They're now worth far less than they paid because interest rates are up to 5% and nobody wants to buy bonds that yield 1%. Maybe this receivership will bork a thousand startups, throw a bunch more people out of work, and cascade into a larger recession, driving interest rates back down to 1%, and restoring the value of the mortgage-backed securities, and making the bank solvent again! Or maybe a recession severe enough to drive interest rates back to 1% would also be severe enough to prevent homeowners from paying their mortgages, which wouldn't be great for the valuation of mortgage-backed securities.

roflyear 4y ago

> 3. If spreading out your 6- or 7-figure assets to multiple institutions is too much of a burden, literally every business bank has special accounts or add-on features that either raise the FDIC default limit of 250k, or supplement it with external insurance. Again, if any startup's financial handlers didn't recommend this: fire them because they entirely failed to do their job. Contractual obligations often prevent this, btw. Many SVB customers had loans with SVB, which prevented them from using other banks.

drewbeck 4y ago
Wow, is this common? From a systems perspective it seems like pure folly, increasing systemic risk and reducing resilience. (from SVB’s perspective I’m sure it seemed great …) it feels like it should be illegal !
- roflyear 4y ago
  I asked a handful of people with experience in those things and they all said it is very common. I was very surprised as well.

VagueMag 4y ago

For Pete's sake, 1 month Treasury bills are yielding more than almost every bank account. Just set up a TreasuryDirect account and be done with it.

roguecoder 4y ago

It seems like SVB was exploiting the lack of sophistication among early startups, and now it is going to bite all those startups in the ass. Wealthfront offers me as an individual better tools for managing risk that it sounds like people who banked with SVB were getting.

duped 4y ago

How does that work with payroll? 500k is not enough for a moderately sized startup to make payroll.

cormacrelf 4y ago

To be clear, if you have 10 million cash, and you need >250k to make payroll a couple of times while your banks assets are sold off and you get the rest of your cash back (or 95%, or whatever), there is no need to spread that 10 mil over 40 different banks. That would be very inconvenient. Just to set it up so you have enough insurance to help you survive a short while. You can put 9.75M in one account and 250k in another bank.

jjav 4y ago

> Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. Looks like not just startups, e.g. Roku had ~500M in SVB https://edition.cnn.com/2023/03/10/business/roku-svb-cash/index.html https://edition.cnn.com/2023/03/10/business/roku-svb-cash/in...