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So every YC startup that raises a few million dollars now needs a bank stability analyst?

wpietri 4y ago
What if they had, say, an executive-level person who knew a lot about finance? One whose job was understanding money and what to do with it? Maybe an officer of finance. Heck, managing all the company's cash sounds pretty important if it's millions of dollars, so we should probably put them pretty high up. Some sort of C*O title? Just spitballing here, but since apparently a lot of people with millions of dollars who have heard their whole lives about FDIC-insured deposit limits are suddenly waking up to the fact that things above the line are uninsured, seems like a good time to innovate.
- deleted 4y ago
  [deleted]
- jlmorton 4y ago
  Except no one thought the deposits were actually uninsured. Back in 2008, the FDIC launched the Transaction Account Guarantee Program to provide unlimited insurance to uninsured deposits in non-interest bearing accounts, and then later expanded to low interest accounts, on an emergency basis. This program protected nearly a trillion dollars in uninsured deposits, and made all of them whole. After Dodd-Frank, the program was ended. However, if the FDIC deems a situation to have systemic risks, it's within their statutory authority to do this again. And it now seems the Government is planning to do exactly that, should they be unable to find a buyer for SVB.
  - wpietri 4y ago
    Oh, "no one". Gosh golly, impressive how you can read minds like that. That program was an always-temporary response to a major financial crisis. I expect most finance professionals knew that it was temporary. But suppose you're right. Suppose all the cool kids thought they'd get bailed out no matter what. In that case, it's even more important now to not use taxpayer money to prevent the big-money SVB accountholders from taking a haircut. Because your justification here is exactly the kind of moral-hazard problem that regulators are very eager to prevent.
    - jlmorton 4y ago
      The Transaction Account Guarantee Program was industry-funded. There is precisely zero moral hazard in protecting depositors, who have no ability to gauge the risk in any particular bank on an ongoing basis, particularly with an industry-funded program.
      - wpietri 4y ago
        It wasn't the industry guaranteeing the funds, it was the FDIC, meaning the taxpayer. If the industry wants a program like that, they can create it. Indeed it already exists: https://www.difxs.com/DIF/Home.aspx https://www.difxs.com/DIF/Home.aspx But depositors obviously have the ability to gauge risk, especially sophisticated depositors with millions of dollars of cash lying around. Otherwise people wouldn't be squawking right now about the risk of money being moved out of certain banks to certain other banks. Otherwise things like the DIF wouldn't exist. Otherwise treasury management wouldn't be a whole profession. The problem is that many depositors are not looking just for safety, they pick other things, sometimes over that. Which is their right! But sometimes when trade safety for other things, it turns out badly for them.

What if they had, say, an executive-level person who knew a lot about finance? One whose job was understanding money and what to do with it? Maybe an officer of finance. Heck, managing all the company's cash sounds pretty important if it's millions of dollars, so we should probably put them pretty high up. Some sort of C*O title? Just spitballing here, but since apparently a lot of people with millions of dollars who have heard their whole lives about FDIC-insured deposit limits are suddenly waking up to the fact that things above the line are uninsured, seems like a good time to innovate.

deleted 4y ago
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jlmorton 4y ago
Except no one thought the deposits were actually uninsured. Back in 2008, the FDIC launched the Transaction Account Guarantee Program to provide unlimited insurance to uninsured deposits in non-interest bearing accounts, and then later expanded to low interest accounts, on an emergency basis. This program protected nearly a trillion dollars in uninsured deposits, and made all of them whole. After Dodd-Frank, the program was ended. However, if the FDIC deems a situation to have systemic risks, it's within their statutory authority to do this again. And it now seems the Government is planning to do exactly that, should they be unable to find a buyer for SVB.
- wpietri 4y ago
  Oh, "no one". Gosh golly, impressive how you can read minds like that. That program was an always-temporary response to a major financial crisis. I expect most finance professionals knew that it was temporary. But suppose you're right. Suppose all the cool kids thought they'd get bailed out no matter what. In that case, it's even more important now to not use taxpayer money to prevent the big-money SVB accountholders from taking a haircut. Because your justification here is exactly the kind of moral-hazard problem that regulators are very eager to prevent.
  - jlmorton 4y ago
    The Transaction Account Guarantee Program was industry-funded. There is precisely zero moral hazard in protecting depositors, who have no ability to gauge the risk in any particular bank on an ongoing basis, particularly with an industry-funded program.
    - wpietri 4y ago
      It wasn't the industry guaranteeing the funds, it was the FDIC, meaning the taxpayer. If the industry wants a program like that, they can create it. Indeed it already exists: https://www.difxs.com/DIF/Home.aspx https://www.difxs.com/DIF/Home.aspx But depositors obviously have the ability to gauge risk, especially sophisticated depositors with millions of dollars of cash lying around. Otherwise people wouldn't be squawking right now about the risk of money being moved out of certain banks to certain other banks. Otherwise things like the DIF wouldn't exist. Otherwise treasury management wouldn't be a whole profession. The problem is that many depositors are not looking just for safety, they pick other things, sometimes over that. Which is their right! But sometimes when trade safety for other things, it turns out badly for them.