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It is completely insane to allow innocent depositors to lose their money especially when the government clearly would have no problem coming up with the funds t

It is completely insane to allow innocent depositors to lose their money especially when the government clearly would have no problem coming up with the funds to backstop depositors since this is an isolated incident. This bank being located in a tech hotspot is incidental and I am sure some non-techies are swept up in this as well. Imagine a 70 year old woman who just lost her husband and sold her house to downsize to an apartment. She has $1 million in her SVB account and plans to live off the interest in her retirement. Should this 70 year old widow take a $750k haircut because she hasn’t spent the last few years brushing up on SVB 10-k filings and calling up SVB’s board of directors to ask them how they plan to manage interest rate risk? FDIC limit should be way higher anyway (when was the last time it was raised?) but if we allow depositors to lose money it will quickly cause a stampede to the handful of huge banks and drive smaller regional banks out of business. That’s why other bank stocks are also plummeting right now. Is that what you want? If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild? For the record I believe SVB shareholders and debt holders will get wiped out, as they should.

koolba 4y ago
> Imagine a 70 year old woman who just lost her husband and sold her house to downsize to an apartment. She has $1 million in her SVB account and plans to live off the interest in her retirement. Should this 70 year old widow take a $750k haircut because she hasn’t spent the last few years brushing up on SBV 10-k filings and calling up SBV’s board of directors to ask them how they plan to manage interest rate risk? Making a sob story about a 70 year old granny doesn’t change the facts. And she wouldn’t take a $750K haircut. She’d get $250K guaranteed and her share of the remainder which is not going to be zero. Probably much closer to 80+% of the balance above $250K. > If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild? If it’s going to be done with funds not allocated or aligned with FEMA then damn straight I’ll complain. Society does not have infinite money. If they want to increase funding for something then we have a process for that.
- jliptzin 4y ago
  So you’re saying the government (taxpayer) will get back 80%+ of the funds it uses to backstop depositors. Isn’t that a small price to pay to avoid a total collapse of the local and regional banking system?
  - koolba 4y ago
    > So you’re saying the government (taxpayer) will get back 80%+ of the funds it uses to backstop depositors. The government should get 100% of the immediate cash it provides to cover the $250K per account. Hopefully with interest. > Isn’t that a small price to pay to avoid a total collapse of the local and regional banking system? No that’s the type of bankrupt logic (pun intended) that would create an even bigger financial crisis due to incentivizing bad risk taking by banks. And SVB paying out depositors $.80 on the dollar isn’t going to collapse the banking system.
    - jliptzin 4y ago
      Here's some smaller regional bank stocks over the last few days: https://finance.yahoo.com/quote/PACW https://finance.yahoo.com/quote/PACW - Down 60% https://finance.yahoo.com/quote/FRC https://finance.yahoo.com/quote/FRC - Down 30% https://finance.yahoo.com/quote/SBN https://finance.yahoo.com/quote/SBN - Down 40% Meanwhile huge bank stocks are up or unchanged https://finance.yahoo.com/quote/JPM https://finance.yahoo.com/quote/JPM https://finance.yahoo.com/quote/WFC https://finance.yahoo.com/quote/WFC Did these banks all make the same stupid decision as SVB? Unlikely but maybe. More likely though is the risk that people get spooked over SVB customers losing their deposits (even just 20%) and decide to move their money away from smaller banks like SVB to huge banks like Citi, Wells Fargo, etc. Personally if there were a chance I'd lose just 10% of my balance I'd make the switch, it's the only rational thing to do if other depositors are taking a haircut elsewhere. It's not going to collapse the entire banking system, just the local/regional one, which you see is already starting to happen. I fail to see how burning most of grandma's life savings (and other innocent people who probably never experienced a bank run before) and allowing the collapse of regional banks is somehow better than backstopping depositors now and making much tighter banking regulation for smaller banks going forward to prevent this from happening again. Do we want the nation's banking infrastructure to consist only of 3 or 4 enormous banks or do we want the options that a lot of smaller local banks who are able to cater to the specific needs of their communities provides?
rullelito 4y ago
It's 250,000 per institution. Just don't hold more than that much in a non-system critical bank, spread it out. If you do that you're 100% safe.
- koolba 4y ago
  Per account type, per person, per institution. So separate checking and savings are insured for $250K each.
  - auntienomen 4y ago
    NO! Checking and savings accounts are NOT separately insured! The FDIC is $250k per bank, per depositor and per ownership category. Ownership category = single account / joint account / trust account / mortgage escrow account/ (10 more obscure categories). As a regular person, you get $250k for your checking and savings together, and your spouse gets $250k for theirs, and then you get another $250k for jointly owned accounts.
    - koolba 4y ago
      Oh crap you’re right. I was mixing up tenancy and type.
Denvercoder9 4y ago
> FDIC limit should be way higher anyway (when was the last time it was raised?) In 2008 it was raised from $100K to $250K. The increase in the FDIC limit has actually outpaced inflation since its establishment in 1934, when it was $2500, which is $56K inflation-adjusted today.
Gwypaas 4y ago
> Imagine a 70 year old woman who just lost her husband and sold her house to downsize to an apartment. She has $1 million in her SVB account and plans to live off the interest in her retirement. Should this 70 year old widow take a $750k haircut because she hasn’t spent the last few years brushing up on SVB 10-k filings and calling up SVB’s board of directors to ask them how they plan to manage interest rate risk? That is simply awful financial management. You can be extremely unlucky and have it happen the day you get your deposit, but that seems like an annoying edge case which is unlikely to happen in the real world. In my jurisdiction across the pond, investment funds are the easiest method to manage the account insurance risk. They need to be legally and economically separated from the broker you are managing them through, so if whoever you are brokering with goes bankrupt, you still own them. You can access them with a new broker after a bit of hassle. If you want low-risk, pick funds investing in government-backed bonds. High-risk choose stock market-based index funds. Now the only thing counting towards the $250K limit is whatever you have in the brokerage account between transfers. Easy peasy, your risk of a bank collapse is zero and you have the money available within a couple of bank days notice.
tome 4y ago
> Imagine a 70 year old woman ... I think the idea is that millionaire grannies should be advised to split their cash across four accounts, or buy bonds, or some other sensible thing, rather than just keeping bank deposits.
graeme 4y ago
>the government clearly would have no problem coming up with the funds to backstop depositors since this is an isolated incident. If you start bailing out banks which take risks, then the incidents become less isolated Once you're handling millions of dollars you absolutely should be looking into counterparty risk when you deposit funds. Baffling that people are arguing business owners should do no due diligence on a bank or take no insurance. https://en.wikipedia.org/wiki/Moral_hazard https://en.wikipedia.org/wiki/Moral_hazard

koolba 4y ago

> Imagine a 70 year old woman who just lost her husband and sold her house to downsize to an apartment. She has $1 million in her SVB account and plans to live off the interest in her retirement. Should this 70 year old widow take a $750k haircut because she hasn’t spent the last few years brushing up on SBV 10-k filings and calling up SBV’s board of directors to ask them how they plan to manage interest rate risk? Making a sob story about a 70 year old granny doesn’t change the facts. And she wouldn’t take a $750K haircut. She’d get $250K guaranteed and her share of the remainder which is not going to be zero. Probably much closer to 80+% of the balance above $250K. > If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild? If it’s going to be done with funds not allocated or aligned with FEMA then damn straight I’ll complain. Society does not have infinite money. If they want to increase funding for something then we have a process for that.

jliptzin 4y ago
So you’re saying the government (taxpayer) will get back 80%+ of the funds it uses to backstop depositors. Isn’t that a small price to pay to avoid a total collapse of the local and regional banking system?
- koolba 4y ago
  > So you’re saying the government (taxpayer) will get back 80%+ of the funds it uses to backstop depositors. The government should get 100% of the immediate cash it provides to cover the $250K per account. Hopefully with interest. > Isn’t that a small price to pay to avoid a total collapse of the local and regional banking system? No that’s the type of bankrupt logic (pun intended) that would create an even bigger financial crisis due to incentivizing bad risk taking by banks. And SVB paying out depositors $.80 on the dollar isn’t going to collapse the banking system.
  - jliptzin 4y ago
    Here's some smaller regional bank stocks over the last few days: https://finance.yahoo.com/quote/PACW https://finance.yahoo.com/quote/PACW - Down 60% https://finance.yahoo.com/quote/FRC https://finance.yahoo.com/quote/FRC - Down 30% https://finance.yahoo.com/quote/SBN https://finance.yahoo.com/quote/SBN - Down 40% Meanwhile huge bank stocks are up or unchanged https://finance.yahoo.com/quote/JPM https://finance.yahoo.com/quote/JPM https://finance.yahoo.com/quote/WFC https://finance.yahoo.com/quote/WFC Did these banks all make the same stupid decision as SVB? Unlikely but maybe. More likely though is the risk that people get spooked over SVB customers losing their deposits (even just 20%) and decide to move their money away from smaller banks like SVB to huge banks like Citi, Wells Fargo, etc. Personally if there were a chance I'd lose just 10% of my balance I'd make the switch, it's the only rational thing to do if other depositors are taking a haircut elsewhere. It's not going to collapse the entire banking system, just the local/regional one, which you see is already starting to happen. I fail to see how burning most of grandma's life savings (and other innocent people who probably never experienced a bank run before) and allowing the collapse of regional banks is somehow better than backstopping depositors now and making much tighter banking regulation for smaller banks going forward to prevent this from happening again. Do we want the nation's banking infrastructure to consist only of 3 or 4 enormous banks or do we want the options that a lot of smaller local banks who are able to cater to the specific needs of their communities provides?

rullelito 4y ago

It's 250,000 per institution. Just don't hold more than that much in a non-system critical bank, spread it out. If you do that you're 100% safe.

koolba 4y ago
Per account type, per person, per institution. So separate checking and savings are insured for $250K each.
- auntienomen 4y ago
  NO! Checking and savings accounts are NOT separately insured! The FDIC is $250k per bank, per depositor and per ownership category. Ownership category = single account / joint account / trust account / mortgage escrow account/ (10 more obscure categories). As a regular person, you get $250k for your checking and savings together, and your spouse gets $250k for theirs, and then you get another $250k for jointly owned accounts.
  - koolba 4y ago
    Oh crap you’re right. I was mixing up tenancy and type.

Denvercoder9 4y ago

> FDIC limit should be way higher anyway (when was the last time it was raised?) In 2008 it was raised from $100K to $250K. The increase in the FDIC limit has actually outpaced inflation since its establishment in 1934, when it was $2500, which is $56K inflation-adjusted today.

Gwypaas 4y ago

> Imagine a 70 year old woman who just lost her husband and sold her house to downsize to an apartment. She has $1 million in her SVB account and plans to live off the interest in her retirement. Should this 70 year old widow take a $750k haircut because she hasn’t spent the last few years brushing up on SVB 10-k filings and calling up SVB’s board of directors to ask them how they plan to manage interest rate risk? That is simply awful financial management. You can be extremely unlucky and have it happen the day you get your deposit, but that seems like an annoying edge case which is unlikely to happen in the real world. In my jurisdiction across the pond, investment funds are the easiest method to manage the account insurance risk. They need to be legally and economically separated from the broker you are managing them through, so if whoever you are brokering with goes bankrupt, you still own them. You can access them with a new broker after a bit of hassle. If you want low-risk, pick funds investing in government-backed bonds. High-risk choose stock market-based index funds. Now the only thing counting towards the $250K limit is whatever you have in the brokerage account between transfers. Easy peasy, your risk of a bank collapse is zero and you have the money available within a couple of bank days notice.

tome 4y ago

> Imagine a 70 year old woman ... I think the idea is that millionaire grannies should be advised to split their cash across four accounts, or buy bonds, or some other sensible thing, rather than just keeping bank deposits.

graeme 4y ago

>the government clearly would have no problem coming up with the funds to backstop depositors since this is an isolated incident. If you start bailing out banks which take risks, then the incidents become less isolated Once you're handling millions of dollars you absolutely should be looking into counterparty risk when you deposit funds. Baffling that people are arguing business owners should do no due diligence on a bank or take no insurance. https://en.wikipedia.org/wiki/Moral_hazard https://en.wikipedia.org/wiki/Moral_hazard