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Yellen says government will help SVB depositors but rules out bailout

• nntwozz 4y ago
  I like it, let capitalism work as intended by culling out the weak. They should have done the same with GM and Chrysler instead of bailing them out, we'd have a faster transition to electric today.
  • gonzo41 4y ago
    There's strategic reasons to have those companies beyond they employ a stack of people. The US sees the big auto makers through they eyes of a country that needed at one point to start manufacturing around 100,000 bombers to fight in a war. Government sees industry with a different lens to the markets.
    • randmeerkat 4y ago
      > The US sees the big auto makers through they eyes of a country that needed at one point to start manufacturing around 100,000 bombers to fight in a war. The same companies that said they couldn’t make ventilators at scale when asked to? Bailing those companies out based on an old reference to WW2 was just good marketing, not some deep insight only the government is capable of.
      • gonzo41 4y ago
        They did make ventilators at scale. Covid's a bad example IMO, mostly because there was and is so much politics around the issue that there wasn't really a concerted push from government at the time. From the outside the administrations looked like it had to be dragged kicking and screaming to solve that problem.
  • belter 4y ago
    Who do you think helped Tesla survive? "Taxpayer Subsidies Helped Tesla Motors, So Why Does Elon Musk Slam Them?" - https://www.motherjones.com/politics/2013/10/tesla-motors-free-ride-elon-musk-government-subsidies/ https://www.motherjones.com/politics/2013/10/tesla-motors-fr...
• Invictus0 4y ago
  Yellen doesn't have the ability to do a bailout even if she wanted to. https://threadreaderapp.com/thread/1634662851657728001.html https://threadreaderapp.com/thread/1634662851657728001.html
• guiambros 4y ago
  https://archive.is/Yyu4S https://archive.is/Yyu4S
• deleted 4y ago
  [deleted]
• dgacmu 4y ago
  Alternative non-paywalled source: https://apnews.com/article/silicon-valley-bank-bailout-yellen-deposits-failure-94f2185742981daf337c4691bbb9ec1e https://apnews.com/article/silicon-valley-bank-bailout-yelle... "WILMINGTON, Del. (AP) — Treasury Secretary Janet Yellen said Sunday that the federal government would not bail out Silicon Valley Bank, but is working to help depositors who are concerned about their money. ... "
  • amelius 4y ago
    > but is working to help depositors who are concerned about their money. Which is ... everybody?
    • ellisv 4y ago
      They should have used an em-dash. "working to help depositors--who are concerned about their money."
  • chewz 4y ago
    > but is working to help depositors who are concerned about their money. by providing emotional support, therapy, free adderall and opportunity to buy some long term government bonds at a discount...
• Lionga 4y ago
  [flagged]
  • KarlKemp 4y ago
    The difference is how the bank’s investors fare.
  • bastian 4y ago
    I am not sure why you are so bitter but it’s important do understand that all you do is create more hate with comments like this. The only thing anyone is asking for is to protect the deposits of the people who bank(ed) with SVB. That is it.
    • kreeben 4y ago
      Will that not cost anyone anything? If so then sure, let's do it! If it costs more than a dime, though, let's not.
      • matwood 4y ago
        Making depositors whole is important and should happen. Confidence in the banking system is important. A company that needs banking should not be subject to the same risk as a shareholder.
        • Ekaros 4y ago
          If depositors gained single penny of interest on their deposits. They should have been certain there is some risk. Including losing money above 250k. And they have less than zero right to cry when risk realises.
      • Eisenstein 4y ago
        Define 'cost'. If losing faith in the banking system gets people to disinvest and hoard under their mattress do you count that as 'no cost'?
      • 4y ago
• sithlord 4y ago
  This actually makes a ton of sense, lets not forget that a bailout in this term is really pointing towards saving the bank itself, and its shareholders. There is inherent risk in equity investments, and it likely should have to suffer for its poor decisions. But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enough assets to cover the liabilities (deposits), but its tied up in such long term investments that it could take a long time to get it out. But moreso, when we invest in companies, we deep down know there is a possibility of the investment going to 0. We often don't think when I put money in a bank it can go belly up, this would obviously hurt the trust in our banking environment if depositors not made whole.
  • NotACop182 4y ago
    Did they help depositors that lost money in the last 500+ bank collapses? Why do they get special treatment? The government has laws and rules the depositors are insured up to 250k. Either they liquidate and everyone takes a hair cut. Or they wait till the bonds mature and can pay them out. But the government should not relieve anyone past what is legally available.
    • sithlord 4y ago
      My guess ( I havn't looked at is the last ones ) is that the majority of deposits were well under 250k, and that hundreds of thousands of jobs weren't on the line. Also, you are talking about a major banking collapse if people start thinking that their deposits aren't safe. (a lot of people will start pulling money, even if under 250k). There are so many irrational people out there... edit: I guess somewhere in what I said was confusing, I was referring to past fails where most deposits were likely well under the 250k. NOT SVB where the vast majority were well above that threshold.
      • deleted 4y ago
        [deleted]
      • lkschubert8 4y ago
• rvz 4y ago
  Some people just want to see the (tech) world and the VC pyramid scheme collapse. This time, Silicon Valley has to help itself with this mess it created. Some startups like Circle with large backers will survive, but others on the other hand need more than a miracle or a hero. I would not want to see the chaos underneath in bookface right now and certainly the collapse with in less than 24 hours.
  • jszymborski 4y ago
    While I have no love for what has become "big tech", this really has nothing to do with their indiscretion or bad behaviour. SVB was a financial institution outside of that sector which catered to that class of customer and regrettably took on risks that made them exceptionally vulnerable to interest rate increases. Add that with their clients mostly having uninsured deposits and belonging to one industry, and we're in this mess. Im not sure how this is evidence of a tech or vc pyramid scheme, it's just a regrettable series of choices by a financial institution.
    • sambull 4y ago
      They also lobbied to become more vulnerable. Greg Becker the CEO worked to get regulations removed that helped them get in this position by removing public liquidity stress test reports and reduce the frequency of liquidity stress tests.
      • macintux 4y ago
        That's fine, punish the bank and change the regulations. Depositors had nothing to do with that.
        • deleted 4y ago
          [deleted]
        • Kephael 4y ago
          Depositors failed to do their due diligence, the bank offered 'sweet heart' deals to get customers. Depositors should lose their pants and have to wait for the FDIC to liquidate before getting any funds. No one deserves free, unlimited, zero risk access to depositors. If you want to do that, you should buy bonds, short eurodollars as hedge, and get loans against the bonds. None of this is free.
• marvin 4y ago
  This is exactly the statement that's required, given the confusion and irresponsible politicization of deposit insurance. Shareholders lose 100%, depositors get 100% of their deposits back. It's a simple situation, and the former point (as opposed to the solution during the GFC) counteracts moral hazard.
  • bradleyjg 4y ago
    What politicization of deposit insurance? The amount of deposits that are insured have been capped since the program was put in place 90 years ago. Making all depositors completely whole is not insurance. That was not a risk that premiums were paid for. It’s a government bailout.
    • marvin 4y ago
      The politicisation should be obvious from the "eat the rich" rhetoric currently floating everywhere on Twitter. The government is mostly concerned with the stability of the economy and preventing cascading bank runs, which this climate is less conductive to. That much should be obvious to a slightly keen observer. While it's well and good in theory that deposits are capped at $250k, adhering strictly to that rule right now will cause cascading consequences much more serious than the price of this guarantee. Sensible realpolitik right now is to guarantee the deposits to prevent cascading wealth destruction that will very much hit Joe Average, then adapt the system to prevent moral hazard and ensure that this insurance premium is collected in the future. There will probably be a way to recoup the cost of the guarantee from debt holders to SVB, but right now the real concern is putting out the burning crisis of confidence.
  • npalli 4y ago
    I don't think she is saying (as of the article) that depositors will get 100% back. They will get help but could be with a haircut.
    • jocro 4y ago
      And that haircut won't be fun for many but I think the balance sheet had them at around $200 billion in deposits with $175 billion in assets. Obviously the question now becomes liquidity but I think the sky is not yet falling (unless more dominos start to tumble)
• jmclnx 4y ago
  Says nothing real. For instance, will the rule for uninsured deposits be followed ? Or will there be a bailout for people with over $250,000 in deposits ? Seems all it says is "there will be no bailout but there will be a bailout". If people with over 250,000 in deposits are covered, the once again the the rich is allowed to avoid all risks for bad decisions.
  • marckhoury 4y ago
    > If people with over 250,000 in deposits are covered, the once again the the rich is allowed to avoid all risks for bad decisions. I feel like putting your money in a bank should not be considered an obviously bad decision. The risk profile your bank takes on with your deposits is largely opaque to you, and it’s not feasible to expect every depositor to do due diligence on it. Even if you understood their portfolio you might not be able to understand the implications as market conditions change. It’s also not feasible to expect people to split up their deposit into multiple 250k accounts.
    • UncleEntity 4y ago
      If you want the taxpayers to assume the risks maybe don’t allow the CEO to lobby to be excepted from the regulations which prevent this risk? This whole situation is dodgy and I’m the last person to be calling for government intervention.
    • jmclnx 4y ago
      If you can have more than 250,000 in a bank account, you are rich. You should know and accept the risks you are taking. If you do not like the FDIC insurance laws, get it changed. In 2008, people lost their houses and many their savings because they were not rich. And these people were not bailed out even though it was due to issues they had no control over. Most of these losses were a lot less than that 250,000 you have. But you are saying "because I have 250,000 I deserve a bailout, screw the people who are not rich because that is their fault."
    • nickthegreek 4y ago
      It is very feasibly for people to split their deposits into multiple accounts. My mother does it and her savings total are a fraction of $250k.
• mrcwinn 4y ago
  Good. Investors like Ackman and Cuban seem so concerned about payroll for tech workers. The truth is that the vast majority of this cash was dry powder for acquisitions, staying liquid for new new investments, fresh VC money for advertising. Isn’t it these same folks who remind us all the time that most startups fail? Why bail out an entire bank when 99% of its startup depositors wouldn’t have made it anyway? If anything, taxpayers should be able to sit at the front of a new cap table with preferred position, like any other entity providing a bridge. But at that idea, I am sure they’d warn of government interference.
  • mgfist 4y ago
    > Good. Investors like Ackman and Cuban seem so concerned about payroll for tech workers. ? The truth is that the vast majority of this cash was dry powder for acquisitions, staying liquid for new new investments, fresh VC money for advertising. You seem confused. The "cash" you're talking about here is the deposited cash, which Yellen is saying will get funded. I think you're confusing that with bank equity.
    • SkyPuncher 4y ago
      Cash flow is currently the issue for many businesses. They literally cannot afford to pay people on Monday if their deposits are not returned.
  • chipgap98 4y ago
    > The truth is that the vast majority of this cash was dry powder for acquisitions, staying liquid for new new investments, fresh VC money for advertising Any sources for this? This seems like an opinion with nothing backing it up. > Isn’t it these same folks who remind us all the time that most startups fail? There is a big difference between a single startup being able to fail at any time and many of them failing all at once.
    • colinmorelli 4y ago
      There's also a big difference between a startup failing because it doesn't deliver a product that people want and will pay for, and a startup failing because of "random chance" (in quotes because I can't prove that bank choice is a random distribution among startups, but it's not clear that it's a proxy for quality of founder or company)
• greatpostman 4y ago
  It’s still not clear to me, are they making the depositors whole?
  • deleted 4y ago
    [deleted]
  • gonzo41 4y ago
    Yes, it's share holders who will realize the loss. Anyone owed money by the bank, ie depositors is now in a line to be paid as the FDIC sells everything and pays out the obligations.
    • belter 4y ago
      Paid out to the limit set up by FDIC rules you mean?
      • gonzo41 4y ago
        Yes you're correct. Another poster has detailed the process, but most of the depositors monies will be paid back in due time.
        • belter 4y ago
          Just to be clear we are on the same page. The FDIC limit is 250K and most startups had more than that... "FDIC - Deposit Insurance FAQs" https://www.fdic.gov/resources/deposit-insurance/faq/ https://www.fdic.gov/resources/deposit-insurance/faq/
          • macintux 4y ago
            Right, but the bank still has substantial assets. The government is making sure the depositors get the bank's remaining money, not the shareholders.
          • grey-area 4y ago
            The 250k will happen Monday and is not in question, the rest will come in bits via special dividends as they sell assets, it may or may not reach 100% of deposits over time. If the fdic has any sense they’ll announce up front the exact figures though and announce it is close to 100% for depositors to make sure this is contained, ideally through a sale to another bank, if not they’ll have to run it. Bondholders and shareholders and svb employees get wiped out.
• remote_phone 4y ago
  The truth is VCs are terrified their investments in their startups are going to go to 0. That’s why the biggest most vocal people are VCs talking about this. So they are framing the “we need to make depositors whole” as if they care about small business when really they are just talking their own book. The real solution is that VCs should give a loan to all their startups so that they can make payroll. Isn’t that their value-add? They should be the backstop for their investments. But instead they want the government to step in. It’s another example of “socialize the losses but privatize the gains.”
  • gitfan86 4y ago
    Exactly, none of them are pointing out what percentage of the money that is currently tied up was going to be sent out as payroll for people making under 100k/year over the next 30 days. If the Fed came out and said "We have reviewed all the depositors and their situations and we are funding 100% of payroll and basic operating costs needs for the next 90 days" The VCs would immediately come up with another reason why ALL depositors need to be made whole immediately.
    • deleted 4y ago
      [deleted]
    • bob1029 4y ago
      > The VCs would immediately come up with another reason why ALL depositors need to be made whole immediately. What do we think the end-goal of these VCs is? Hypothetically, why would someone want to see a run on SVB? How could you benefit from all of this?
      • remote_phone 4y ago
        Their goal isn’t to see a run on SVB. But to save their investments they all told their startups to pull their money which cause svb to collapse. Now they want the rest of their money safe which is why they want a bailout.
  • logn 4y ago
• belter 4y ago
  The first step would be to stop calling them Depositors. They are not and were never Depositors. That is what you have deposit boxes for...You do not have money at the Bank. You loaned money to the Bank. That is why they pay you interest on it...
  • belter 4y ago
    For the downvoters... "International Monetary Fund - What Is a Bank?" - https://www.imf.org/external/pubs/ft/fandd/2012/03/basics.htm https://www.imf.org/external/pubs/ft/fandd/2012/03/basics.ht... ".... Banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money)..."
    • sebzim4500 4y ago
      Your citation for why they aren't depositors refers to them as depositors. I'm confused.
      • belter 4y ago
        And your confusion is completely normal. An insidious action expressly used by the interested, in manipulating language for it's purposes. It has already been nicely addressed by Weinberg in his books. That is why every dry desert urban development in the middle of nowhere, with hardly any water for hundreds of miles, is called... Watery Creek...That is why employees are sometimes called business partners, that is why private investments funds are in some countries called pensions, and finally the reason why creditors at banks are called depositors. To delude you into making you believe, you are or have more, than what you really are, or might have. "The Secrets of Consulting" - https://www.linkedin.com/pulse/secrets-consulting-guide-giving-getting-advice-book-summary-chabba https://www.linkedin.com/pulse/secrets-consulting-guide-givi...
      • cjbprime 4y ago
        Sounds like this commenter is not just arguing that language is being used incorrectly in this situation, but that the standard language and definitions are themselves propaganda terms. (Usually people are a little clearer about their intent to argue that.)
• bradleyjg 4y ago
  Bailing out the depositors is still a bailout.
  • remote_phone 4y ago
    The only depositors at risk at startups. All regular people are made whole. And they are getting ~50% of their holdings in the next week. Why are VCs clambering for a bailout? The system works as designed. No need to do anything else above and beyond.
  • chewbacha 4y ago
    It’s an insurance payout, not a bailout. If someone totals my car the insurance doesn’t say “well, that’s the risk of owning a car” and pay nothing. Insurance exists for these scenarios.
    • bradleyjg 4y ago
      The insurance had an explicit policy limit. That’s what the premiums were based on. Up to $250k per depositor isn’t a bailout. A penny above that is.
      • thehappypm 4y ago
        Depends where the money is coming from. SVB has lots of assets — clearly not enough cash on hand for a bank run but they have lots of assets. Once those are liquidized depositors should get as much of their fair share as possible.
      • 206lol 4y ago
        It's likely SVB has assets in excess of $250k per account. So if they are sold, I'd expect depositors to get at least $250k and possibly more, depending on how those assets are sold. It only becomes a bailout if the government pays beyond the sale of svb's assets.
        • bradleyjg 4y ago
• belter 4y ago
  “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said.
  • cpncrunch 4y ago
    Those reforms were rolled back for medium sized banks in 2018 after lobbying from svb and others. Im not quite sure what to make of all this, except to be glad I live in Canada.
• Overtonwindow 4y ago
  Silicon Valley is so connected politically, and many in the government are so dependent upon silicon valley campaign money, that I will be surprised if SOME kind of bailout does not happen. The people can rant about it all they want, but at the end of the day a politicians first job is survival, and bailing out the money folks is about survival. The rest of the country be damned.
• alecco 4y ago
  Yellen was the 11th President of the Federal Reserve Bank of San Francisco [1] Current president is her protégé [2] Greg Becker (SVB CEO & president) was in SF Fed board of directors [3] "It's a big club, and you ain't in it." [1] https://en.wikipedia.org/wiki/Janet_Yellen https://en.wikipedia.org/wiki/Janet_Yellen [1] https://en.wikipedia.org/wiki/Mary_C._Daly https://en.wikipedia.org/wiki/Mary_C._Daly [2] https://www.reuters.com/markets/us/ceo-failed-silicon-valley-bank-no-longer-director-sf-fed-2023-03-10/ https://www.reuters.com/markets/us/ceo-failed-silicon-valley...
• vishnugupta 4y ago
  “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said. “But we are concerned about depositors, and we’re focused on trying to meet their needs.”
• walnutclosefarm 4y ago
  I think Yellen is signalling the right approach, frankly. First, the balance between the bank's assets (its loans and the investments it made with depositors money, plus the bank's capital) and its liabilities, is such that SVB has enough holdings to cover nearly all of its deposits. The banks capital (that is its equity, and subordinated debt) should all go toward making depositors whole. That's what bank capital is for. The question then becomes how much of a hole is left in order to make depositors whole? It won't be that big a number, if you assume that the vast majority of the deposits will remain as deposits in whatever bank the Feds find to purchase the corpse of SVB - remember, that SVB failed not because it it had a huge mismatch between liabilities and assets, but because its depositors tried to withdraw all their money all at once - that is because SVB was put in a situation where it had to make good on all its liabilities in a 2 day period. It couldn't do that, because its assets were tied up in loans to other customers which couldn't be instantly recalled, and government bonds which couldn't be sold quickly enough without incurring substantial losses, and its own capital. It became illiquid overnight. But the actual delta between assets and liabilities may well be a few billion dollars, if the deposits are not all yanked out. For the Feds to put up that money as part of a deal to sell SVBs portfolio intact to another bank, makes good sense to me. The right people (investors in the bank) take the haircut, the depositors get their money.
  • paganel 4y ago
    > For the Feds to put up that money as part of a deal to sell SVBs portfolio intact to another bank, makes good sense to me Honest question: why? I.e. why can't the capitalists invested in this business absorb the reasonable haircut? (I assume it's "reasonable" based on the information we have been provided with until now). Depositors (especially those holding more than 250k) were also investors, they were getting back more money than they had put in.
    • 300bps 4y ago
      The “capitalists” invested in this business will get $0. Look at their stock chart. Heck, look at what their bonds are paying. There will very likely be nothing left for the “capitalists” after depositors are paid.
• api 4y ago
  I’m hopeful that a lesson was actually learned in 2008. The damage that did to our whole society was really dramatic.
  • walthamstow 4y ago
    I thought most of the issues in 2008 stemmed from lessons learnt in the aftermath of 1929 which were either forgotten or were forcibly unlearnt (repealed) after decades of lobbying. So, even if we do learn lessons, don't expect them to last very long.
• manuelabeledo 4y ago
  I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs.
  • Rapzid 4y ago
    I've coined a new term for this: "All ideology and no idea." It's a the perfect opportunity to be angry at a group; in this case "tech bros", VCs, and anyone attached to Silicon Valley. Hey, it is right there in the name of the bank!
  • lotsofpulp 4y ago
    > “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth. And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of their deposits back, because the remaining assets might not cover all of the deposits, or it might take a while to recover the deposits. And that is what people are against.
    • nightpool 4y ago
      Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds
• smrtinsert 4y ago
  These SVB threads really highlight how uninformed the SVB readership is lately. If you don't understand tech and finance why are you here?
  • popcalc 4y ago
    Because they heard about HN from 4chan's /g/ board. You can spot the language they use from a mile away.
    • mardifoufs 4y ago
      Most of the uninformed takes are from older accounts, and use talking points straight out of Twitter... and I don't think /g/ is particularly interested by VC startup banks lol.
  • deleted 4y ago
    [deleted]
  • yeahsure22 4y ago
    SVB readership? Are you still drunk or something?
• fwlr 4y ago
  Eh, the depositors aren’t totally blameless here. On Thursday they conspired to perform a huge bank run on SVB, on Friday they succeeded, and on Saturday they were demanding the government and taxpayers make them whole by Monday. They deserve to get their money back and they eventually will once SVB’s assets are liquidated. But that’s not good enough, they want it now, and they won’t hesitate to make you pay for the expedience. I don’t like that.
  • obventio56 4y ago
    I don't think it's fair to blame the SVB depositors for the bank run. Perhaps you can blame public figures (VCs etc) who catalyzed it. Once a run starts, though, it's in your interest to run too. If you had >250k in SVB and you managed to get it out before it was shut down, you'd be pretty happy with yourself right now. If you run a business and have an obligation to share-holders, it would be negligent not to try this at least.
    • fwlr 4y ago
      Yeah, I can’t blame them at all for joining an ongoing bank run. I can kinda blame them for starting one because they did it so aggressively, but only a bit, because that’s just how internet banking works these days. I can definitely blame them for demanding the taxpayers make them whole by 9am next business day.
      • jzb 4y ago
        Who’s demanding? Pleading might be more appropriate for many businesses.
        • fwlr 4y ago
          Hey, good news btw. Great, actually. FDIC just announced all depositors to be made whole on Monday morning - and at no cost to the taxpayers either! The lag between the immediate payout to depositors and the eventual recovery of value from SVB’s remains seems like it will be covered by the Deposit Insurance Fund, i.e. the cost will be spread out to all banks.
• collectedparts 4y ago
  The linked FT article is a quick writeup from her CBS interview. CBS also has a transcript of the interview itself: https://www.cbsnews.com/news/janet-yellen-face-the-nation-transcript-03-12-2023/ https://www.cbsnews.com/news/janet-yellen-face-the-nation-tr...
• deleted 4y ago
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• patientplatypus 4y ago
  Does anyone have any hard numbers on the risk of potential contagion in the banking sector? This is a rather large institution to go bust, and there is some discussion that a large percentage of their portfolio is composed of members that are over the FDIC limit. I also don't know how the Treasury mismatch can be solved - do you just tell creditors to wait for the maturity of the 10 year bonds to withdraw their funds and eat inflation when moving the assets to the Santa Clara bank? Ideally, if there is no risk of contagion to the larger financial system all of these firms can take a hike, but I don't know if that's known a priori. Yellen is just saying "we're not going to do that," but it would be helpful if there were some hard numbers or other reassurance that they know that the larger economy won't be affected (outside of these firms going bust for poor asset management). EDIT - From the WSJ (https://archive.ph/HZ29y https://archive.ph/HZ29y) " A plan that soothes nerves about access to uninsured deposits—most of the bank’s deposits are sizable enough that they don’t carry Federal Deposit Insurance Corp. protection—could tamp down the crisis and limit any impact on the economy as the Federal Reserve focuses on combating inflation by raising interest rates. But failing to swiftly clarify how SVB’s customers can access funds, make payroll and conduct business risks broader economic consequences and threatens to complicate the Fed’s monetary policy decisions. “We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Treasury Secretary Janet Yellen said in an interview on Face the Nation on CBS Sunday. “We are concerned about depositors and are focused on trying to meet their needs.” Ms. Yellen declined to provide details on what federal policymakers are considering. " In other words, it doesn't look like we know anything yet. This is the statement from the Financial Times article - “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said. “But we are concerned about depositors, and we’re focused on trying to meet their needs.” And from here - https://www.fastcompany.com/90864111/silicon-valley-bank-svb-assets-seized-fdic https://www.fastcompany.com/90864111/silicon-valley-bank-svb... " The FDIC ordered the closure of Silicon Valley Bank and immediately took position (sic - possession) of all deposits at the bank Friday. The bank had $209 billion in assets and $175.4 billion in deposits at the time of failure, the FDIC said in a statement. It was unclear how much of deposits was above the $250,000 insurance limit at the moment. " Unless SVB had over 700,000 customers, quite clearly there is a mismatch between insured and uninsured customers. So by Yellen saying “But we are concerned about depositors, and we’re focused on trying to meet their needs.” and at the same time saying there won't be a bailout she's effectively saying nothing. In this case those things are synonymous. Until there are hard numbers on possible contagion and the steps that the Federal government is going to take to prevent that we won't know anything for sure. FYI - Here's the transcript of the interview with Janet Yellen on Face the Nation - https://www.cbsnews.com/news/janet-yellen-face-the-nation-transcript-03-12-2023/ https://www.cbsnews.com/news/janet-yellen-face-the-nation-tr...
• londons_explore 4y ago
  I think the 'help' isn't financial help... It's technical help and the ability to temporarily ignore certain laws to expedite the process of migrating customers to a new banking platform. For example, KYC laws might require a signature from every director of a company to open a bank account... But when migrating an account from SVB to another bank, the government might allow that requirement be ignored for 30 days. Or the government might allow existing SVB computer software and technical systems to continue to operate in certain cases where migration to a new bank is technically a long process.
• version_five 4y ago
  As others have said, if depositors are bailed out, it's a bailout. Pretending that changing the definition makes a difference is childish. Whatever the government decides to do, this makes the VC and startup industry look really weak and entitled, and knocks them down from risk takers building the future to the same status as a bunch of bankers looking for a handout. There was an opportunity here for VCs with lots of clout, YC included, to come up with a private solution to backstop this. It would have shown independence, maturity, and that more government oversight and intervention is not needed. That adults can take care of themselves. Instead they went whining to the government, made a petition, tweeted sadly, and whatever else. It's unbecoming of an industry that's supposed to be scrappy and have an appetite for risk.
  • throwawaysleep 4y ago
    I’m not willing to lose a dime to avoid looking “unbecoming.” I doubt they are either. Dignity and an empty sack are worth the sack.
  • martythemaniak 4y ago
    Indeed. The bank was trying to raise money and recapitalize itself several days before this and instead of investing, VCs panicked, told their portcos to withdraw immediately, and started a bank run.
    • onlyrealcuzzo 4y ago
      Right, they told their clients to run for the exits, caused a collapse on their uninsured deposits - and now expect a handout (and will get it).
      • teawrecks 4y ago
        By and large, the ones who ran aren't the ones who were hurt.
    • cheeseblubber 4y ago
      The VC's who told their portfolio companies to withdraw will be fine. The ones who didn't cause the bank run will be hurt the most.
• empathy_m 4y ago
  I think a 100% depositor recovery rate seems very likely here. Interesting to think about future rules -- would they limit the 100% guarantee to banks who pass the >$250B protections thst SVB lobbied to remove for $50B-$250B banks?
• harles 4y ago
  > “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said. The headline is misleading and much of the discussion I’m seeing is based on that. Looking at the quote, there’s no mention of whether or not depositors will be bailed out.
• roland35 4y ago
  Whether or not depositors get their money back, or even have access to it in a timely manner, I think one lesson for me is how important it is to have a contingency plan for banking. It doesn't cost much to have a few month's (or even just a few weeks) worth of money at a second backup bank, but it could be a lifeline in the case of your primary bank going belly up.
  • deepsquirrelnet 4y ago
    Even as an individual with not a lot of money, I think this is prudent. When you give your money to a bank, they effectively give you back an IOU. And while most of the time they can make good on it, sometimes the investments they make with your money are risky, short sighted, or just unlucky. In any case, don’t put yourself into jeopardy by not having other options.
    • roland35 4y ago
      Exactly! My personal finances are nowhere near as sophisticated as even a small start-up, but I make sure I have multiple sources of cash and credit just in case I lose access to one for whatever reason temporary or permanent (bank failure, fraud, forget password, etc). It isn't too difficult: open up a second savings account, apply for an extra credit card, open a HELOC if available. I have to believe there is some similar basic things a business can do to be more resilient. Even waiting for guarantees insured FDIC funds can be a problem depending how long it takes. PS: not trying to victim blame for companies who trusted SVB. This is just a rough reminder to be prepared for contingencies.
      • manquer 4y ago
        It isn’t too difficult for you as individual to open an account anywhere . Startups don’t have that luxury it was and still pretty difficult to do banking as an early stage startup . There is a reason why there are only 2-3 banks specialized in this sector and everyone banked with them. If you were a small startup keeping your money in SVB was the safest thing you could have done till last week. They were the largest by far and all your VCs recommended them and probably introduced you to them so you could open an account .
• LatteLazy 4y ago
  I have no horse in this race but... The US has spent the last 15 years printing money to bailout mortgage holders. So no one who has had a mortgage or sold a house since 2008 can complain about a bailout, since they have received one...
  • Kephael 4y ago
    Funny thing is, part of why SVB blew themselves up was they bought a bunch of long term mortgage backed securities paying low rates so now those securities have lost a ton of value if they were to liquidate them (which the FDIC will be doing shortly). But I don't think the Fed engaging in QE constitutes a bailout.
    • LatteLazy 4y ago
      It will be interesting to see who else is struggling as I doubt svb are the only bank that went long duration to try and eek out some yield. Here in the UK there was a pretty explicit choice to watch medium sized (still huge for a mere human like me) banks fail but to bail out large ones. I guess that's fine from a short term, pragmatic sense. Not sure what it does for long term competition but c'est la vie. I believe bailouts are usually kept secret as telling anyone (a) makes banks less likely to ask for one and (b) then causes a run pushing up the cost of the bailout. The conspiracy theorist in me wonders who has been given a below-inflation "loan"...
• softwaredoug 4y ago
  There’s a theme of NEVER AGAIN comments in these SVB posts. Harkening back to 2008 financial crisis. Doing your best to make depositors whole (maybe not 100%, but as much as possible) is not a bailout ala 2008. It’s generally not very controversial financial policy that prevents a financial contagion like 1929. No 10 person company is going to split their 2.5 mil 10 ways to get insurance. And they’re not going to have the sophistication to manage that. Nor do we want to force small businesses to keep cash under mattresses or have to evaluate a banks balance sheet. If you want to think of a bank account in those terms, then you expect a radically different financial system. Which is fine, but don’t expect such a system to exist in our lifetimes, or during the current crisis.
  • baq 4y ago
    > No 10 person company is going to split their 2.5 mil 10 ways to get insurance. This is a service banks provide transparently. Not sure how much paperwork is required, probably could be optimized to a couple of clicks.
  • bradleyjg 4y ago
    It’s generally not very controversial financial policy that prevents a financial contagion like 1929. A law was put in place in 1933 with a limit. If it didn’t have a limit, we wouldn’t be having this discussion. Where were all these billionaires and VCs any time prior to this calling for uncapped FDIC insurance? This is special pleading.
    • softwaredoug 4y ago
      It’s not about “billionaires” (who don’t keep billions of cash sitting in one bank) but the company with a few million that needs to make payroll and pay vendors. SVB is in receivership where depositors place very highly. Banking policy is not just about insurance. That’s just one tool.
      • bradleyjg 4y ago
        Billionaires and VCs are going on Twitter and demanding a make whole government bailout. Is this the first time they are hearing about how the FDIC works? I don’t think anyone is opposed to the system playing out like it’s supposed to. The FDIC pays out $250k on Monday plus pro rata whatever cash is on hand. Then it starts selling assets. The treasuries and MBSs they can probably sell within days, those have very liquid markets. That will allow them to make another pro rata distribution. The loan book will take longer. But as long as public money isn’t used, no one will call it bailout.
• nemo44x 4y ago
  Good, they need to convince depositors at all the small and medium banks to not drain their account Monday morning. Many banks have mud and longer term treasuries in their book and they’d be well under water if they had to mark to market which they would if forced to sell. The Fed has had erratic policy for a few years now and combined with the Gov flooding the market with cash and stims, all these safe places to park cash have suddenly been made into speculative investments. We don’t need 1000 banks collapsing. Irresponsible fed and government need to own this and ensure deposits are safe. Selling everyone nearly 0 interest bonds and then jacking interest rates to the highest rates in 20 years over the course of 12 months is a scumbag move.
• skee8383 4y ago
  sounds like the same thing to me.
• christkv 4y ago
  Bail them out at the value of remaining assets in the bank basically buying back the bonds. Any left over losses distribute over the depositors .
• indymike 4y ago
  > “Depositors shouldn’t get anything beyond the insured $250,000”. This is just uneducated people sharing a knee-jerk reaction.
• texafornia 4y ago
  If the Feds make the depositors whole - it's a bailout.
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• bluecalm 4y ago
  I get bailing out depositors. It's not like you have that many options with our current system. You have to keep your liquid assets somewhere, banks are the only option and they are going to do risky business with your assets. Maybe you should be more prudent when choosing your bank but it's not like you can avoid the risk or that depositing with SVB was caused by greed (at least I think not, correct me if I am wrong). Long term solution is imo obvious as well: decouple deposits and lending business. You should pay for having your money in a bank and being able to conveniently operate it. The bank should not do any businesses with the money (maybe something like buying government T-bills should be permitted) and profit purely from providing services: safety, transfers, payments. Loan making should be a separate industry. Gather capital, fulfill regulation and do business as it is today but not with deposits but with stakeholders capital. In such a setup there is little systemic risk: bank goes bust? Shareholders lose the money. No moral hazard of "I will deposit in this risky bank and the government bails me out if things go sour". Want to keep liquid assets conveniently? Pay for it. Want to invest in a loan making operation? Buy shares in a bank and accept the risk. The current system forces depositors to accept risks of loan making business just because they need a place to keep liquid assets. It's not like they were asked a question: "hey, do you want us to risk your money or do you prefer to pay for operational costs of your account but we keep the money safe?". If the question was asked then it would be very easy to say no to any kind of bailout.
• tqi 4y ago
  If depositors take a haircut, what incentives could smaller banks offer in order to remain competitive with GSIBs for business deposits? Higher rates seem like it would just increase risk.
  • mark_l_watson 4y ago
    Smaller local banks and Credit Unions are great! Just don’t keep more than $250K in any one of them. The governance of Credit Unions tends to be very transparent, at least for the two that my family uses. Seriously, you are promoting giving business to the major Wall Street banks? I would argue this is against your personal long term interests.
    • tqi 4y ago
      Agree that for individuals they are great! But for companies with more than 250k in cash, I would think that the incentives to keep your treasury "safe" would drive you toward banks that you believe are too big to fail?
      • mark_l_watson 4y ago
        true enough!
• HoyaSaxa 4y ago
  The good news is that even in a worst case scenario of a fire sale, we are talking about a small percentage of uninsured deposits at risk (likely around 5% depending on how many deposits were successfully pulled over the last couple of weeks). However, a fire sale is definitely not needed for all assets, and it seems likely given Yellen's comments that the government will provide some short term liquidity so that the fire sale of illiquid assets is not necessary (e.g. portions of their loan portfolio; their $7bn municipal bond portfolio; their $3.5bn of unmarketable securities (largely affordable housing projects...). Honestly, in many ways the regulation worked. What our regulation didn't account for is that bank runs at the non-top 4 banks have become more likely in a interconnected world with "too big to fail" alternatives. The $120bn FDIC Insurance Fund (self-funded by the banks and not the government) will definitively not even take a penny loss from this failure. That to me is the actual problem. We are not protecting enough of the banking system with insurance. Should it be 100% of all deposits, probably not. Should it be up to $1mm or even $10mm per depositor, probably! Why should someone who sold their $750k family home yesterday be out any money just because they decided to deposit the money at their non systematically important bank? Or why should a non-profit that just completed their annual fundraising push for $1mm be out some of that money? SVB "Fire Sale" Scenario Napkin Math Note: Uses 12/31 numbers, but that should be largely inconsequential for determining the net liquidated cash value of a fire sale $209bn assets - $15.5bn HTM MTM + Slippage - $7.5bn Loan Impairment + Slippage - $2bn AFS Impairment + Slippage - $1.5bn Non-Marketable Securities Impairment + Slippage - $0.5bn Goodwill + Intangibles - $0.5bn Property, Equipment, Lease & Other Asset Write Downs - $0.5bn Wind Down Administration $181bn Liquidated Cash - $15bn FHLB "Super Lien" $166bn Liquidated Cash Available to Depositors - $7.6 Insured Domestic Deposits - $151.5 Uninsured Domestic Deposits - $13.9bn Foreign Deposits $7.5bn Liquidated Cash Shortfall
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• corette 4y ago
  I have a really dumb question. If my spouse and I have a checking account and a savings account at the same US Bank, does the 250K limit apply to the total of both accounts or each account separately? Say we have 200K in checking and 200K in savings. Would we get 400K from FIDC or just 250K total? Thanks
  • paxys 4y ago
    The limit applies to all your accounts at the bank combined. However you and your spouse each get $250K worth of insurance, so in this case it'll be $500K.
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• JumpinJack_Cash 4y ago
  In the aftermath of SilverGate and SVB demise people are rightfully (from their perspective) rooting for a shake-up at the top of the social pyramid. I don't know if people realize but living in San Francisco and being at the helm of your own company with millions in equity funding is an extreme privilege. Millions of things have to go right in order for that person to be in such position. That is the dream of many individuals who were not so lucky. Now one thing goes wrong for them and there could be a turnover at the top, at least a shake-up, meaning other people will get to be in such extreme privileged position and the formerly privileged have to back down and go do something else instead. Something a bit less privileged. Instead here comes daddy-government to ensure that everything is freezed in place with no shake up whatsoever.
  • TechBro8615 4y ago
    For every one privileged founder there are dozens of employees who won't get paid.
    • JumpinJack_Cash 4y ago
      And each and everyone of them has a slam-dunk case in a class action lawsuit against the board of the company they were employed. Not to mention employees didn't have their savings in SVB so their net worth is not at risk, whereas it's the 'net worth' of the company which is at risk because it was all stored in SVB accounts.
• ak_111 4y ago
  The only comic thing in this entire tragedy is watching the fanatics who have been relentlessly preaching to others such dictums as “move quick and break things” and “only the paranoid survive”, extolling the virtues of “creative destruction” and repeating ad infinitum the Reagan quote "The top 9 most terrifying words in the English Language are: I'm from the government, and I'm here to help" cry out for government intervention, with seemingly zero self awareness in how it basically contradicts their entire world view.
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  • christophilus 4y ago
    I tend to be libertarian, but there are reasonable roles for government, and regulating banks and life insurers by forcing them to contribute to something like the FDIC and the state insurance commission (or whatever that life insurance thing is called) is legitimate even to most conservatives. Stepping in to smooth out systemic problems is another valid function— like Reagan did with the air traffic controllers, like the FDIC does with bank failures, etc. Anyway, I don’t think folks are asking for a handout. They’re just asking the FDIC to do their jobs more quickly than usual because so many businesses are tied up here. This is the reason there is an FDIC in the first place. I don’t think it’s unreasonable to ask them to smooth the process out to help meet payroll. None of this requires handouts— just proper management and metering out of the assets under consideration.
    • pfannkuchen 4y ago
      One important aspect is that we may be embedded in a vicious circle of discontinuity events and smoothing. A broad expectation that smoothing will be applied after a discontinuity event will tend to make people more willing to accept the future risk of discontinuity events in their decision making. Less risk-avoiding behavior regarding discontinuity events makes discontinuity events more likely. Then, when the next discontinuity event happens, if smoothing is again applied, it reinforces this expectation, which reinforces the probability of future discontinuities, etc. For this reason, swearing off active smoothing could actually result in a smoother system, eventually (after the pain of transition, of course).
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• rahimnathwani 4y ago
  She ruled out a bailout of SVB's shareholders, but hasn't ruled out a bailout of SVB's depositors.
• tialaramex 4y ago
  Ordinarily in the UK, although the legal rule says £85 000 is protected per person per bank, in practice the government has typically paid all depositors in full up front even though it takes some time to recover the value of the bank's assets. Politically this is a good idea if it's affordable because even if many depositors are unsympathetic, it only takes a few good causes to make you look like heartless bastards. Of course, the UK banks are obeying Basel III, whereas SVB had fought hard not to be obliged to obey similar US rules because they're less risky (and thus, less profitable when things go well...). Obviously the liquidity protections in Basel III wouldn't be enough to prevent a run this huge from overwhelming the bank, but the capital requirements may well have meant depositors were less likely to begin such a run, and would also surely make it easier to successfully liquidate the bank if that became necessary. https://www.bis.org/bcbs/basel3.htm https://www.bis.org/bcbs/basel3.htm One reason to pay depositors (not shareholders, fuck 'em) is to shore up confidence in other banks. If I know I will get my money anyway, when I hear Local Bank might be fucked, there's less rush to withdraw my money, thus less risk of a run on Local Bank, thus they are less likely to actually fail. This is why FDIC exists, and why functionally similar (though very different mechanically) schemes exist in many developed countries. If the US feels obliged to give SVB depositors their money anyway, the lesson is that you can't afford to have banks which will be so vulnerable, they all need to obey Basel III or equivalent (perhaps even more stringent) rules locally.
• Eumenes 4y ago
  Bad business decisions have consequences I guess
• hermannj314 4y ago
  1. Executives of SVB receiving bonuses. 2. Depositors that withdrew their money 100%. 3. Depositors that will fall under FDIC and made whole by this. 4. Depositors that will receive X% of deposits (likely under 100%) 5. Debt and equity with SVB 6. American taxpayer. OK, I think every possible permutation of who owes who money has been explained in this thread. I personally would like to see a legal mechanism where group 2 owes group 4 money. Not sure how that would work, but it would definitely give no one an incentive to run on a bank ever again if we could figure it out.
  • initplus 4y ago
    The way to prevent bank runs is to prevent banks from becoming insolvent in the first place. Making it illegal to take funds out of an insolvent bank is not the answer.
    • hermannj314 4y ago
      I think you can do both. However, when/if a bank becomes insolvent, it seems archaic that one depositor should get 100 cents on the dollar and another 80 on the dollar instead of each 90 (assuming equal accounts, etc.) Your place in line shouldn't really matter, these aren't Taylor Swift tickets.
• softwaredoug 4y ago
  A lot of people (including me) talk past each other in SVB threads. I think it’s important to differentiate: - helping FDIC insured, helping businesses with a few million in deposits that want to hit payroll, VCs, and “billionaires” - rich people’s funds - a bailout (using taxpayer funds) vs receivership to make depositors whole as possible - a bailout of the bank itself (aka 2008). Bailout of the depositors. Just trying to prioritize business deposits over other depositors, etc I suspect a lot of emotional disagreement is really more about not understanding what each other is really saying than anything else.
• blobbers 4y ago
  This is on the CFO and CEO to evaluate counter party risk. If the founders had put all their money in FTX because they figured they could get a better FTX checking account than SVB was offering, nobody would bat an eye at their failure.
• raincom 4y ago
  She would have bailed out if there were a counter party risk. In this case, shareholders will be wiped out.
• muzz 4y ago
  "Help depositors" means a taxpayer bailout of uninsured deposits
• di456 4y ago
  This is the only way. The moment that the government guarantees or bails out deposits above the FDIC limit, taxpayers assume all risk over the entire banking sector and losses are socialized. That would be the official start of the end of free market economy. There's a well traveled process to winding down a bank and recovering what is left for depositors. Let's not try to fix what isn't broken.
• gigatexal 4y ago
  “ Janet Yellen said on Sunday that the US government was working closely with banking regulators to help depositors at Silicon Valley Bank but dismissed the idea of a bailout. Speaking with CBS on Sunday, the treasury secretary sought to assure US customers of the failed tech lender that policies were being discussed to stem the fallout from the sudden collapse this week. The Federal Deposit Insurance Corporate (FDIC) took control of the bank on Friday morning. “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said. “But we are concerned about depositors, and we’re focused on trying to meet their needs.”
• cjbgkagh 4y ago
  I think there is a lot of confusion around bail-out vs bail-in. The Dodd Frank act 2010 rules out bail-out but opens the door for bail-in. In a bail-in uninsured depositors are unsecured lenders. It gets a bit complicated as rules are different between countries and are open to both interpretation and case by case modification. AFAIK this isn’t a bail-in as there is no attempt to save the bank. As the bank is in receivership the depositors get a receivership certificate and by FDIC law depositors get paid first before lenders and equity. I think possibly before secured lenders but I’m not sure. In liquidation preference is everything. Given the assets, even at fire sale prices, depositors should get most and possibly all of their money back. That would mean any bail-out would be to help the banks other lenders. I don’t know for sure but I assume those would be other banks, so I guess it would be sold as an idea to limit contagion. I’m anti-bail-out. Depositors can borrow against receivership certificates to get some liquidity. Obviously they’d pay a time and risk premium for that but better than going insolvent. I don’t have cash in bank account above FDIC limits yet I still have multiple accounts in different countries. Basically applying backup rules to banking to avoid a single point of failure. If a bank freezes my funds for whatever reason I would need money to be able to pay a lawyer to get them unfrozen. I heard SVB would punish customers (with higher fees I guess) who banked with multiple banks so not only did SVB have a very high percentage of uninsured deposits the depositors they did tended not to spread the risk around. Now bail-ins are a totally different matter. Deposits above insurance unsecured liabilities and depending on the jurisdiction can be anywhere in the preference line from in the front to near the back (still in-front of equity which will always get hosed). This is very different to most people’s perceptions as they believe the bank is holding their money in trust which would put them first in line. Effectively (afaik) uninsured deposit amounts are insuring the insured deposit amounts as their deposits contributed to pool of assets that get paid out in liquidation. One of the reasons for a bail in is continuity of operation, new equity is issued (the old ones are deleted) and instead of receivership certificates which holders can use to get loans on a case by case basis the equity can be traded making it easier and cheaper to free up liquidity. Since the new bank will be solvent the assets won’t need to sold at fire sale prices. But the other aspect is the mingling of uninsured depositors with other lenders really has the potential to drastically increase the size of the haircut depositors can expect. While many of bail-in legislations seem to have loop-holes allowing this (some countries state it more explicitly) it seems unfathomable that such a thing would be done as that would destroy the false trust that people have in the financial system. Unless of course all off-ramps from banks are closed and people are stuck choosing between a bad deal from one bank and a bad deal from another bank.
• xoogler2004 4y ago
  The amount of speaking out of one’s own arse that’s happening in this thread is absolutely amazing.
• belter 4y ago
  https://twitter.com/i/status/1634927984799883265 https://twitter.com/i/status/1634927984799883265
• 323 4y ago
  In 2008, during the global financial crisis, the German government declared that all deposits in all German banks will be guaranteed by the state. No limits. The official limit before was 100k euros: > “The state guarantees private deposits in Germany,” Finance Ministry spokesman Torsten Albig said. A second ministry spokesman said the guarantee was unlimited. https://www.reuters.com/article/financial-germany-deposits-idUSL514023820081005 https://www.reuters.com/article/financial-germany-deposits-i...
• marcopicentini 4y ago
  If a company would have bought short term bond (6 months) does it would be safe, right? Even if these bonds are purchased using SVB brokerage account.
• cheeseblubber 4y ago
  First of all SVB should be left to fail. We should not privatize profits and socialize losses. We should have much more stringent regulation to prevent this from happening again. Secondly people are conflating bailing out depositors with bailing out SVB. The bank took all the risk and had all the gains. The depositors did not have anything to gain here besides keeping their money safe. The depositors picked a reputable bank that has been around for 40 years. Their business should not fail because the failure in the bank and the government regulation. Edit: The ones who are hurting the most are not the VC's startup who told their startups to take their money out. It is those who didn't contribute to this problem. The depositors that didn't want to cause a bank run is the ones that will be hurt most.
• peterbonney 4y ago
  At the risk of stating the obvious, she didn’t actually say anything that implies more than “the FDIC is doing its job” (helping depositors). There’s a lot being read into it that I don’t think is there.
• StopHammoTime 4y ago
  This is a simple liquidity problem. SVB had the treasury bills and loan book to cover all the deposits. They just couldn’t access any of that money. The FDIC should take on the bills and loans, and pay out the cash now. They will collect the entire balance eventually and they have the benefit of time and I imagine they’re authorised to hold assets like this long-term (or do a cash swap with the fed, they have plenty of long term bonds what’s another $100B). I have always assumed this is what the whole point of the FDIC and similar schemes in other countries. They foot the bill immediately and then spend time fixing up the mess but eventually reclaim it all back. It’s a bit like if you’re not at fault for an accident - the insurer pays you out now and then they deal with the at-fault driver and you’re not involved in that process afterwards in most cases. According to the press release, SVB had $206B in assets and $176B in deposits. The math is simple: everyone should get their money back. There may even be some money left over for investors.
  • berkle4455 4y ago
    $206B in assets that were being recognized for their original, not current, valuation. That’s the entire problem. HTM vs AFS.
  • loeg 4y ago
    > According to the press release, SVB had $206B in assets and $176B in deposits. Those numbers are from December 2022. They had $161B in deposits prior to Thursday's $42B in withdrawals. And that $206B figure is somewhat fictional hold-to-maturity accounting. The $80B in 1.5% bonds aren't actually worth $80B at market prices. They were shut down for being insolvent on Thursday ($950M in the hole). It's not just a liquidity problem.
  • shawabawa3 4y ago
    You need to look up time value of money https://en.m.wikipedia.org/wiki/Time_value_of_money https://en.m.wikipedia.org/wiki/Time_value_of_money Having $1M in 10 years is the same as having $680k today, as you could buy 10Y treasuries that will pay out $1M So saying "The FDIC should take on the bills and loans, and pay out the cash now. They will collect the entire balance eventually" is the same as saying "They have lost 30% of depositors money but FDIC should pay that 30% out of their own pocket"
• grej 4y ago
  Seeing all of the “screw them, they are VC’s & tech bros, they took a risk they own it” sentiment on Twitter makes me sad. It’s a hard realization of how little clue so many people have about so much of the way the financial system works, and who would actually be impacted by these losses. Also seeing finance bro hot takes like, oh those companies took the risk and should have done due diligence on the bank. SIVB was given an investment grade rating by both Moody’s and Standard and Poor. What due diligence are founders scrambling to find product market fit supposed to do in their spare time that is somehow beyond those organizations?
  • christophilus 4y ago
    I’ve noticed this tendency for at least a decade. People in general— even highly educated people in the media, government, and academia— are ignorant about economics and finance. There tends to be no nuance in much of the popular takes. I’m still quite ignorant, myself, but at least I can offer a bit more insight than: “capitalism: bad”. I am curious, though, as to whether or not this general ignorance is new, or if it’s just that I’ve become more aware of it over the years.
    • azinman2 4y ago
      Now people’s dumb opinions can be heard en masse. They can then even bubble up and get elected into congress. Before there was a muzzle by those who knew better who controlled the media and narrative. You can easily argue that gate kept all kinds of things that shouldn’t have been swept under the rug, but it turns out there’s a lot more dirt than coins under that rug.
  • rashkov 4y ago
    The great financial crash and the socialization of losses that followed it have a lot to do with this populist attitude
  • nemothekid 4y ago
    >It’s a hard realization of how little clue so many people have about so much of the way the financial system works, and who would actually be impacted by these losses. I think it's a little insulting to assume these people just don't understand the system. I think you have to nearly totally politically ignorant to not understand why people would feel this way. I don't know how you don't see the irony of complaining that ex-McKinsey founders shouldn't have to do due diligence on their bank, but that 18 year olds "know what they signed up for" and should have known that student loans were un-bankruptable. Many of the VCs who are now going hat in hand to Yellen are the same who opposed any sort of socialization. Why wouldn't that cause resentment?
• lordfrito 4y ago
  The lack of understanding here about how banks work is astounding. Are these the same people who feel it's their God given right to "move fast and break things"? Disruption is great. Too bad for the music industry. Too bad for journalism. Too bad for legacy taxi services, etc. Disruption is great, except when it happens to you? Aren't we all here in the business of managing risk? Or, after a decade of cheap money, has it just become all lip service? "It's not my fault!" [1] This recession is going to be brutal, but it's been a long time coming. Thank God money is going to start having value again. [1] https://y.yarn.co/9c4c1fa3-fb64-4132-b44f-7cde70eafd0f_text.gif https://y.yarn.co/9c4c1fa3-fb64-4132-b44f-7cde70eafd0f_text....
  • azinman2 4y ago
    Disruption in the definition of Clayton Christensen as you’re likely using doesn’t apply to the failing of banks. Disruption is a theory about innovation and entrepreneurship. SVB didn’t get disrupted by some new player who leapfrogged how banking works- they made poor choices for a world where interest rates went up. Having been a bank for 40 years with a great reputation, no one who held their money there expected a meaningful risk the bank would collapse. The same with AIG and any other major bank collapse for a long time player. Sure let those responsible have repercussions, but innocent account holders of America’s future trillions of GDP, investment funds holding onto the money of pension accounts, farmers and wineries shouldn’t bear the brunt of investments gone sour leading to a liquidity crunch. Note that 3 VCs taking out their cash quickly allowed the bottom to fall out.
    • lordfrito 4y ago
      Yeah not talking about bank "disruption" in the classic/rigid definition of the term. I'm more commenting on how the the general attitude of the tech entrepreneur (willing to take risks, to swing and miss, move fast and break things) has been cross pollinated over to the finance (DeFi, VC tech funds, crypto affiliated banks) to largely disastrous (but not wholly unexpected) results. What really bothers me is that these "financial geniuses" walk and talk (and in the case of SBF dress) like typical typical tech entrepreneurs, but when push comes to shove they are just the same old reckless wall street sociopaths trying to privatize profits and socialize the losses. Your classic tech entrepreneur had skin in the game, was willing to swing and miss, learn from their mistakes, and get up and try again. In a forum that claims to be full of "real" true-scotsman tech entrepreneurs, there seem to be a lot of people here that think/talk like wall street sociopaths. I feel like the last 5-10 years are full of more and more of these "jumped the shark" moments in the tech space (Theranos, WeWork etc). Innovation is dead. Low hanging fruit all picked. In it's place is a new priesthood, full of grifters who preach innovation while robbing us blind and getting bailed out. To your point about "40 year stable banks", yeah it really sucks that normal people are caught up in this mess. But something tells me that what happened at this bank is unique to the tech/disruption space/narrative I mention above. Personally I believe the contagion will be limited to poorly run banks making bad/reckless decisions. I guess the next few days/weeks we'll know for sure if this is a limited thing, or a widespread problem. I sure hope people go to jail over this.
• SeetheSVBcels 4y ago
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• sbaiddn 4y ago
  The irony as a fly-over-American is great. We are constantly and sanctimoniously told we have to move from our cities and towns to the Coastal regions. When toxic chemicals are spilled we're ignored, or worse - mocked. We're told we're financial burdens on the country. But what we see is both coasts gambling with low interest rate money, getting rich off of fee leaching, and, when the gravy train slows down, causing a financial meltdown within 15 years of each other. Don't kid yourselves. The tech boom was largely low interest rate fueled and, for many of your companies, a mirage.
  • pfannkuchen 4y ago
    I'm sympathetic to the tech mirage view generally. One piece I don't quite understand though, is why did tech so disproportionately gain from low interest rates when compared to other industries? Is it just because the friction of starting a non-physical business is so much lower? I'm not quite satisfied with that as an explanation, because that provides a competitive advantage to tech vs other industries regardless of interest rate levels.
    • sbaiddn 4y ago
      Tech is a very high risk-high reward; its not so much that low interest rates favor high tech, but rather that high interest rates decimate high tech.
• Fede_V 4y ago
  I absolutely think that depositors should be made whole - and - they will. At the same time, I think a lot of the VCs who systematically talked shit about government regulations while trying to shill crypto as a solution should very publicly eat crow. I won't lie: it will give me a great deal of personal satisfaction, but, it will also make any "bailout" (or, whatever you want to call it ) a much easier lift politically.
• readonthegoapp 4y ago
  i'm curious about two things: 1) why are the feds claiming they are going to 'help' depositors? isn't it more, like, no, you're just going to do what you're required to do by law? 2) shouldn't the FDIC deposit insurance limit be pegged to inflation? yeah, obvious, but. last raised in 2008 to $250k. seems like it'd be about $350k today.
• joering2 4y ago
  now there are lines withdrawing from First Republic. Question to those who know better... all my "digital" savings are with Bank of America and Chase (eight-digits) - these are biggest banks in the US. Should I be concerned?
  • gnicholas 4y ago
    These banks are too big to fail, so I would guess they will be net beneficiaries of the current panic. If you have 10x the FDIC limit, it's probably good to diversify, but it seems highly unlikely the govt would let either bank even come close to failing.
• gutdcnow 4y ago
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• dools 4y ago
  Good, but I expect to see much less techno-libertarianism on this forum as a result.
  • krapp 4y ago
    I know memes are verboten here but... https://www.youtube.com/watch?v=_n5E7feJHw0 https://www.youtube.com/watch?v=_n5E7feJHw0
• pr337h4m 4y ago
  They should just get out of the way: >The FDIC, which took over SVB on Friday, has sought bids from interested parties during the weekend. The regulator is looking for a bank that has the financial wherewithal and management expertise to handle Silicon Valley Bank’s assets and customers, but not one that is so large as to be considered “too big to fail,” these people said. >That means large lenders like JPMorgan Chase or Bank of America likely aren’t in the running, the people said. Even some large regional banks could find it difficult to absorb Silicon Valley Bank, which was the 16th-largest U.S. lender as of the end of last year. There are concerns that doing so could intensify regulatory scrutiny, even if a lender were to “rescue” SVB in an emergency sale, the people said. https://www.theinformation.com/articles/regional-banks-are-most-likely-to-prevail-in-svb-sale-process-sources-say https://www.theinformation.com/articles/regional-banks-are-m...
• NordSteve 4y ago
  It is shockingly easy for a company to mitigate the bank failure risk. 1. Open account at Fidelity 2. Purchase brokered CDs in denominations <$250K in a ladder matching your cash flow needs (you have a cash flow spreadsheet, don't you?) https://www.fidelity.com/fixed-income-bonds/cds https://www.fidelity.com/fixed-income-bonds/cds It's not like the risk of banks was a secret. Click on the "Risks" tab at the link above -- it's near the top of the list. This strategy works for raises of up to several million dollars. If you've raised more than that, spend a bit of money on someone to help you set up a treasury ladder, which scales to any size of raise.
  • cowsandmilk 4y ago
    > spend a bit of money on someone to help you set up a treasury ladder, which scales to any size of raise. This is effectively what you are hiring a bank to do for you, but with them determining over large sets of depositors what the cash flow needs are expected to be. The focus of your company isn’t building these investment instruments for your cash. Spending time on this is a distraction for most start ups.
• soheil 4y ago
  In additional to not getting any new VC money anytime soon startups now need to buy a pillow to hide their cash under.
• goldforever 4y ago
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• epvgwwqe 4y ago
  Positions that claim depositors in SVB should not be made whole must be missing a whole lot of context. There is a sequence of screwups here by the government and then by SVB which led to this, and it makes zero sense to have that impact depositors who manage the critical innovation infrastructure of the US. The backdrop that led to this includes the government printing way too much money, which induced a ridiculous bull run and coupled with supply chocks caused high inflation. The Fed failed to react quickly enough partly for political reasons, eventually leading to a jarring about-face with the sharpest interest rate increases in decades. Meanwhile the bull run led to an increase in deposits to SVB, which SVB needed to put to work and bought an outsized low yield 10 year bond which plummeted in value once interest rates spiked. This was indeed a poor decision by SVB and along with the drop in new deposits from the interest rate-induced VC slowdown pretty much sealed their fate. Once SVB share price dropped 50%, depositors acted rationally to pull their uninsured funds. It wouldn't have mattered whether VCs chimed in or not, the bank run would happen regardless in a matter of days (there were plenty of red flags that the price drop exposed widely). If experts in finance/banking didn't see this coming, why would small business depositors be expected to? If diversifying across regional and "too big to fail" banks were such an obvious issue it would have been baked into every VC funding agreement, but it wasn't (but I'm sure it will be from hereon). Which startups/VCs bank with SVB is basically an arbitrary choice (in fact the standard one), so what would be the point of punishing large swaths of the critical innovation industry that happened to do something considered as the industry standard? Making depositors whole is not a bailout, it's a backstop for the inevitable crack in the economy that the aggressive/clumsy Fed induced. If this doesn't get resolved immediately, the US can pretty much say goodbye to any form of long term dominance, economic, military or otherwise.
• smcnc 4y ago
  I’m personally fine with US gov backstopping depositors (but leaving equity unbacked) for the specific case of SVB, but the ultimate question remains: if the US government insures unsecured deposits over $250k (even if no practical risk with long term assets on balance sheet as collateral), doesn’t this in effect create a precedent of no upper limit to FDIC insurance moving forward? So now taxpayers are on the hook for all bank deposits (thus, creating potential for more reckless behavior by regional bank CEO/CFO/CIOs). Isn’t that somewhat dangerous?
• brutal_chaos_ 4y ago
  People may want to reconsider what a reputation actually is, because it seems SVB was not a good bank despite its reputation. I'm guessing they marketed to dumb money; people who won't look past some marketing and attached names (e.g. Peter Thiel) and assume all is good. In general, I think more due diligence is needed, even with a good reputation. (e.g. look into lobbying efforts. if they are lobbying for weakened rules, they may be violating/doing something illegitimate already a la FTX). Enron was reputable, for example. Different situation, i know, but the point is reputation is great, due diligence is better (i don't know what good DD would be in the Enron case, perhaps the fact they pushed a 100% buy in would be one of many red flags, for example). I do think workers should be paid, btw. However, the c-level team/s that made the choice to bank with SVB aught to lose out because it was their bet that tanked the company (or otherwise hurt it financially). Tis are my admittedly outside/naïve perspective.
• kragen 4y ago
  seems like she decided to do a bailout about 9 hours after this article was posted saying she wouldn't (https://news.ycombinator.com/item?id=35127063 https://news.ycombinator.com/item?id=35127063) life comes at you fast is a bailout that other banks pay for via a special fdic assessment not a bailout?
  • kragen 4y ago
    technically she was only saying she wouldn't bail out investors tho
• akrymski 4y ago
  The Deposit Insurance Fund had a balance of $128 billion at the end of 2022, a tiny fraction of the $9.9 trillion of insured bank deposits in the United States. Now, the FDIC is attempting to sell SVB in order to pay its uninsured depositors. At the end of 2022, more than 90 percent of SVB’s $175 billion in deposits were uninsured by the federal agency.