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This is not risk management failure by depositors. Depositors can and should assume that regulations prevent banks from assuming outsize risk like this. This
by siftrics 4y ago
This is not risk management failure by depositors.
Depositors can and should assume that regulations prevent banks from assuming outsize risk like this.
This is a policy failure of the regulators that oversee banks. Banks should not be allowed to have so little cash on hand, especially when we knew with high likelihood the fed would raise rates.
- JumpCrisscross 4y ago> Depositors can and should assume that regulations prevent banks from assuming outsize risk like this Small depositors, yes. Institutional depositors, no. Not all banks are equal. SVB was borderline investment grade before it collapsed. Treasury advice strikes me as low-hanging fruit VCs could have guided their companies on. Instead, most universally recommended SVB because the priority was reducing friction, not risk.
- ericpauley 4y agoExactly. 250k to me seems like a very logical threshold to expect at least some sophistication. Deposit sweeps get you to 3M many places after which it seems perfectly reasonable to expect people to manage treasuries. If Bogleheads can do it VCs can. Then again, you have people like Mark Cuban who clearly don’t know about basic cash management (https://twitter.com/mcuban/status/1634413306948603905 https://twitter.com/mcuban/status/1634413306948603905), so maybe American lack of financial literacy has truly trickled all the way up.
- morelisp 4y agoThe alternative take would be that Cuban knows exactly how it works but sees a chance to push for what's essentially a federal startup subsidy because his fanboys don't know.
- ericpauley 4y agoFor sure, the assumption of ignorance definitely doesn’t apply here.
- tome 4y agoYes, my reading is that he knows well, he just wants to socialise his insurance costs (including self-insurance, by splitting deposits across several institutions).