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I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as
by gerad 4y ago
I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that.
First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of a traditional bank it usually wouldn’t hit them hard since most funds are FDIC insured.
I can imagine being incensed about stockholders and debt holders being made whole, if that were to happen - since then people would learn the wrong lesson here. But nobody think that’s going to happen.
If depositors aren’t protected, then it’s going to have a lot of downstream impacts (people won’t make payroll, and employees who have no responsibility won’t get paid). And again, it’s not like folks who chose were gambling with a shady bank to get high interest rates, in many ways SVB was considered the least risky and most conservative bank to use as a startup. At least that’s why we chose it.
- rayiner 4y agoWhy shouldn’t depositors learn a lesson that they should get additional insurance beyond the $250,000?
- ouid 4y agoBeing at the top of the line in bankruptcy proceedings is the law. So they shouldn't be generally subject to lessons from the government that go beyond that...
- Denvercoder9 4y agoNobody is saying that depositors shouldn't be at the top of the line. They're saying that if there's not enough money to pay back even them, the goverment shouldn't jump in to make up the shortfall (beyond the $250K it has insured).
- ouid 4y agoparent comment is in response to OC laying out the standard payment schedule for bankruptcy proceedings...
- nasseri 4y agoIf the lesson you want corporate depositors to learn is that in the United States, any dollar beyond 250K in an account can evaporate overnight, than be prepared for a lot more bank runs in the immediate future.
- prepend 4y agoThe lesson is to mitigate this risk with insurance, account structures and other things. I think the lesson is also don’t bank with banks doing shady, dumb things. And that’s a valuable lesson that people with over $250k should already know and not need to be taught.
- JamesBarney 4y agoWhat did SVB do that was shady and dumb?
- deleted 4y ago[deleted]
- JamesBarney 4y agoLooked into it further, they didn't really do anything shady, but they did fail to hedge their interest rate risk with swaps, which is dumb.
- deleted 4y ago[deleted]
- shjake 4y agoBecause the bank has more than enough assets to payback at least 70-80%. Are you suggesting that money should be appropriated by someone just to teach them a lesson?
- rayiner 4y agoNo, but I understand the phrase “be made whole” to mean that depositors should not face the risk of losing that 20-30%. They should take some “hit” as OP put it above.
- shjake 4y agoAnd then other companies will start withdrawing their cash from a bunch of other regional banks crashing the whole banking system.. So no I don’t think they should take “some hit”.
- JumpinJack_Cash 4y ago> > I just don’t understand why folks on the internet are so passionate about the depositors being hit by this Well if you want to go down to the nitty gritty of it, depositors are competitors for stuff, especially in San Jose and San Francisco where every square inch of stuff (any stuff) is super-expensive. The ones complaining and taking time to argue against any involvement of govt. in SVB are people and institutions who didn't hold any funds in SVB but think or have reason to think that their competitors do
- bentlegen 4y agoThe C-suite paid themselves millions of dollars via bonuses and stock sales right before insolvency. Executives got paid. What’s to stop future bankers from running the same playbook? (We can debate that this the stock sale was premeditated/signaled months in advance, but the stock had already declined 80% from its 2021 peak and they surely knew about the tough liquidity position months ago — external observers drew attention to this back in January). Note, one of the SVB executives was the former Lehman Brothers CFO in 2007, just one year prior to that institution’s collapse in 2008. What did he learn, exactly, besides how to get out in time? https://www.foxbusiness.com/economy/silicon-valley-bank-exec-was-lehman-brothers-cfo-prior-to-2008-collapse.amp https://www.foxbusiness.com/economy/silicon-valley-bank-exec...
- fallingknife 4y agoFake news. The largest bonuses paid were $140,000 to managing directors, which is just bankerese for VP. Bonuses were already scheduled to be paid and earned for work done in 2022.
- bentlegen 4y agoAccording to Bloomberg, the CEO sold 3.6 million dollars worth of shares days before insolvency. The sale was scheduled back on January 26th. Around the same time, analysts were commenting negatively about SVB’s earnings and liquidity position. Please correct me if I’ve misinterpreted. https://www.bloomberg.com/news/articles/2023-03-10/svb-chief-sold-3-6-million-in-stock-days-before-bank-s-failure https://www.bloomberg.com/news/articles/2023-03-10/svb-chief... https://seekingalpha.com/article/4573087-svb-financial-30-percent-down-after-rally-that-makes-no-sense https://seekingalpha.com/article/4573087-svb-financial-30-pe...
- madamelic 4y agoThe very first line should tell you how little the article author knows how it works: > Greg Becker used prearranged stock-trade plan to sell shares He didn't "use a prearranged plan", a plan went into action and sold the shares. Becker had already filed paperwork to sell those shares at that specific time. To my recollection, that was 10% of his shares. Becker wasn't planning months in advance on the bank smashing into a wall precisely a few days after he sold a measly 10%.
- thesimon 4y ago> If depositors aren’t protected, then it’s going to have a lot of downstream impacts But doesn't that hold true for basically every situation where private companies lose money? If my employer goes bust, then there is also downstream impact. FAANG laying off workers also has a lot of downstream impact.
- yeahsure22 4y agoWhy do the rules keep changing after the game has been played? And why does it seem to always favor people who are already wealthy beyond imagination? The rules were 250k insured. If you had excess deposits, additional coverage could easily be purchased.
- ouid 4y agoDeposits in a bank are not assets that you can pay out to shareholders in bankruptcy. it doesnt matter how you've organized your balance sheet internally, those liabilities come first or you arent a bank.
- plonk 4y agoHow were these “the rules?” The FDIC’s job is to make the bank’s customers as close to whole as possible. Where would the bank’s assets go otherwise?
- lolinder 4y agoNo one who knows what they're talking about is objecting to the bank's remaining assets being distributed between depositors. But there's talk of taxpayer money being used to make depositors 100% whole regardless of how many assets remain, and I think that's where the controversy is. Everyone has always known that $250k is the max that's guaranteed to be given back to you, and the idea of the government paying back more out of taxpayer funds because a lot of VCs gave their startups bad advice rubs people wrong.
- junofan 4y agoWho’s talking about using taxpayer money?
- lolinder 4y agoY Combinator, in their petition, says that they want at least small business depositors to be made completely whole, without any caveats about how many assets are left. The only way this works is with taxpayer funds. > Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. https://www.ycombinator.com/blog/urgent-sign-the-petition-now-thousands-of-startups-and-hundreds-of-thousands-of-startup-jobs-are-at-risk https://www.ycombinator.com/blog/urgent-sign-the-petition-no...
- watwut 4y agoDepositors are protected exactly as any other depositors and there are solutions to the protection ceiling. Like insured cash sweep. That VCs forced the small companies to operate in less safe way and gave them bad advice is 100% fault of these. I do not know why it was so, but this really seems like the case of "we want benefits of minimal regulation and getting better protection then everyone else gets from the goverment". It does rubs people wrong when you are all about disruption and regulation bad, but first thing you do in case of failure is governmental bail out for large accounts.
- pcl 4y agoThe $250k is the protection floor, not the ceiling. The FDIC guarantees that $250k, but SVB has assets well beyond $250k per account. The FDIC is in the business of protecting depositors. So it will pay out the floor immediately as a matter of course, and then will continue to use the tools it has available and the remaining assets of SVB to pay out more — perhaps 100%, perhaps some amount less — to depositors.
- roganp 4y agoIt will be less than %100, because of the unrealized losses on SVB's bond portfolio. Regardless of the amount, there will be delays in returning those funds as FDIC liquidates.
- violenceislaw 4y ago[dead]
- HervalFreire 4y ago[dead]
- newaccount2023 4y ago> I just don’t understand why folks on the internet are so passionate about the depositors being hit by this The rest of America hates Silicon Valley like they hate Wall Street
- foobiekr 4y agoThis is true and basically deserved.
- violenceislaw 4y ago[dead]
- tsimionescu 4y ago> people won’t make payroll, and employees who have no responsibility won’t get paid This gets repeated over and over, but just like depositors have the highest priority to a failed bank's assets, so do employees of any failed company. So, if a company goes bankrupt because it can't access funds stored with a bank, first stockholders would get wiped out, then debt holders, and only then employees (when talking about salaries already owed - of course, the company can fire staff to try to avoid bankruptcy).
- gerad 4y agoIt gets repeated over and over again because if SVB money is locked up for weeks/months while they unwind positions startups won’t be able to make payroll.
- tsimionescu 4y agoSo they will use cash flow or sell assets. The biggest risk is large coordinated layoffs affecting the job market, but there are other ways the government can intervene to protect individuals if that gets too dire.
- baq 4y agoDepositors will get 50% this week, the bonds are already sold. The loan book is more… interesting.
- MrMan 4y agoI am very interested in how that toxic loan portfolio is valued.
- prepend 4y ago> just don’t understand why folks on the internet are so passionate about the depositors being hit by this. I think most of America can’t even imagine having over $250k in an account. So people with this much wealth asking for a bailout is literally rich people asking for coverage because they did something dumb (banked with a bad bank, didn’t account for risk, didn’t insure, didn’t manage funds). It’s not hate so much as it’s apathy and surprise as the ask for money. It’s like those millionaires who wept because they lost money with Madoff and they wanted the payout for all their earnings they had “made” over the years.
- shjake 4y agoIt seems to be only a question whether they will receive 80-90% or the full 100% though.
- ummonk 4y agoThat makes a big difference though. The risk of losing 10-20% (or even of getting back the full 100% but only after a few months) with no reward for the risk taken would be enough to drive depositors away from regional banks and into the mega-banks. If deposits aren't backstopped quickly, it won't be startups taking the main brunt of this - it will be other regional banks that see bank runs.
- kristjansson 4y agoThis cannot be said enough times. FDIC insurance is only the absolute floor on recovery. SVB depositors might (might!) face a haircut, but it’ll be one worth of the name.
- mym1990 4y agoPeople asking for money back from Madoff were investors, which is completely different from depositors asking for their deposits back.
- _hl_ 4y agoIt's mostly businesses though, not people. If you have >1 employee you def. should have at least 250K in the bank.
- WkndTriathlete 4y ago> If depositors aren’t protected, then it’s going to have a lot of downstream impacts If depositors with deposits above the FDIC insurance limit _are_ protected then there will be nothing stopping this from happening repeatedly in the future. Depositors that exceed the FDIC insurance limit should be taking a haircut so they learn to do better risk analysis of their bank or purchase auxiliary deposit insurance on their assets at a bank or both. VCs/investors in the companies whose deposits exceed the FDIC insurance limit should take a bath for pushing one specific bank with bad risk management. (How this fact escaped VCs/investors is beyond me. I'm not a risk manager or investment manager by any stretch of the imagination but even I would recognize that investment in long-term near-0% bonds would have nowhere to go but down.)
- KptMarchewa 4y ago>If depositors with deposits above the FDIC insurance limit _are_ protected then there will be nothing stopping this from happening repeatedly in the future. The fact that is stopping this - is the fact that only people who are earning money on risky strategies - shareholders - are being wiped the first. Depositors are NOT investors and do not earn a premium on successful risky bank strategies.
- ivalm 4y agoDepositors are (senior) creditors and take on credit risk. Similar to bond holders.
- dangero 4y agoThis bank run happened based on fear of the scenario we are now in. No bank can withstand a bank run due to fractional reserve ratios. If the depositors lose big then that will increase this fear going forward. In other words, if all depositors are covered there is no longer a substantial fear of a bank run elsewhere. That’s how it stops it from happening again.
- ivalm 4y agoRealistically, this bank run occurred because the depositors were highly correlated. Other banks do not have such a correlated depositor base.
- matheusmoreira 4y agoSimply because "depositing" money at a bank is not supposed to be a safe operation. You're lending money to the bank. There is risk involved. If the government made it look like there's no risk, then someone is paying to offset that risk. I don't want to be the one paying for it.
- ivalm 4y agoDepositors are senior creditors. Junior creditors should be wiped first, but if there isn’t enough money to pay senior creditors then it makes sense they will get back less than par.
- joe_the_user 4y agoI just don’t understand why folks on the internet are so passionate about the depositors being hit by this. I'm not at all passionate about the depositors. I dislike them but understand that screwing them would ripple across the entire world. I dislike banks and corporations but having many/most suddenly bankrupt would not serve me.
- rodgerd 4y ago> it’s going to have a lot of downstream impacts When Netflix started sacking animators and animation studios to use AI startups instead, there are downstream impacts. When bookstores shut up shop because of Amazon there were downstream impacts. When Dell and HP lay people off because it's hard to sell against Azure and AWS, there are downstream impacts. You're going to have a hard time arguing that the sector responsible for disrupting others' live deserves special consideration beyond what already exists - FDIC plus liquidated assets with a likely haircut - particularly when those companies appear to have been mismanaging their own money.