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I don't understand why anyone would park any sum larger than, say, $5mm in a bank deposit for more than a minute. It isn't hard to dump those funds into a mone
by chernevik 4y ago
I don't understand why anyone would park any sum larger than, say, $5mm in a bank deposit for more than a minute.
It isn't hard to dump those funds into a money market fund backed by short-term commercial paper or even short-term Treasury bills. Or to just buy the Treasury bills outright. Such holdings are quite liquid and can be absolutely secure.
Use the bank account for clearing, keep a couple million in it and sell assets as needed to top-up the account or to prepare for known cash outflows.
I'm sure there are cost and complexity trade-offs. But "don't lose the cash" would seem to be priority #1 and worth some trouble.
I suppose the idea was that SVB managed all that for you. But one look at its financials shows the asset/liability term mismatch, and interest rate risk, so the risk of loss of cash was nonzero. So they were NOT managing maturity risk for these large depositors, and, well, now look where they are.
- cglace 4y agoIf you take an SVB loan you have to keep your money in SVB.
- fundad 4y agoSVB is a closely held organization in these funding terms. All the more reason VCs should be on the hook for the losses because managing risk is their business, their venture if you will.
- timdaub 4y agoWould love to understand if this is actually good financial advice here. My bank plays broker for all the assets I own and tbills are part of that. FDIC wrote: > As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors. So to me that sounds like those „risk-free“ assets will get liquidated too. I‘d love to hear an actual professional confirm/deny this. Because if it‘s true, then the real risk-free assets are gold, in your teeth, real-estate and BTC.
- kgwgk 4y agoThe bank's assets will be liquidated. If you have a securities account at a bank those are your assets, not the bank's.
- timdaub 4y agoso if I own $1M in Treasury bills I'll get them back while if I own $1M in cash then I'll get back $250k?
- kgwgk 4y agoYes. (I mean, you may even get more. But the important point is that in the first case you do not have a deposit and the bank doesn't owe you anything.)
- perfecthjrjth 4y agowith some caveats: if you keep $250k in your personal checking, another $250k in your personal savings, another $250K in a joint checking account, another $250K in a joint savings account, all accounts being with SVB, you will get $1M back. FDIC states "The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category"
- chernevik 4y agoBut accessing the securities in that account might be delayed if the bank were in receivership -- the FDIC might freeze everything while it sorted out what's what. I don't know how that works. If the securities are in an account at another institution that certainly wouldn't be a problem.