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Would you suggest that every small business in the US with working capital over the FDIC limits do something like this? It would be a massive waste of resources

Would you suggest that every small business in the US with working capital over the FDIC limits do something like this? It would be a massive waste of resources. FDIC insurance exists to stabilize this part of the financial system.

FartyMcFarter 4y ago
Yes, I would definitely suggest and recommend for businesses to not have a single point of failure for something as important as their working capital.
rmilk 4y ago
There is a risk question that companies are responsible for that I see is glossed over. No, you shouldn’t have to spread your business accounts to limit them to 250k. But you must know it’s not insured above this, just like a money market account is not a guaranteed rate of return or even guaranteed against capital loss. Have lines of credit with alternate banks, or insurance on that additional money. Or, just like when the market tanks, you suck it up and get back 80% of your capital on deposit because you couldn’t foresee a money market checking account could lose capital even though it’s spelled out on EVERY SINGLE statement and offering letter from the bank.
lotsofpulp 4y ago
> FDIC insurance exists to stabilize this part of the financial system. Up to $250k per account holder per bank.
- pbourke 4y ago
  Yes, that is the letter of the law. The intent, given that the FDIC emerged from the Great Depression, is to prevent bank runs. Most banks with a large retail deposit base are immune from bank runs. SVB is unique in that it didn’t have a large retail deposit base yet also had a bimodal customer distribution (financially sophisticated VCs and later-stage startups/enterprises and early stage startups which have the financial sophistication of your local auto mechanic). No acquiring bank will want to touch SVB because of its lack of retail deposits - the risk of account holders fleeing at the earliest opportunity is very high. That forecloses one of the FDIC’s main tools for resolving a bank collapse - especially one of this magnitude. So we have a very unique situation here: a large mostly commercial bank that, unlike most large commercial banks, has a bunch of mom-and-pop level customers. I don’t know what the solution is, but hopefully it will go in the direction of minimizing impact on these small businesses.

FartyMcFarter 4y ago

Yes, I would definitely suggest and recommend for businesses to not have a single point of failure for something as important as their working capital.

rmilk 4y ago

There is a risk question that companies are responsible for that I see is glossed over. No, you shouldn’t have to spread your business accounts to limit them to 250k. But you must know it’s not insured above this, just like a money market account is not a guaranteed rate of return or even guaranteed against capital loss. Have lines of credit with alternate banks, or insurance on that additional money. Or, just like when the market tanks, you suck it up and get back 80% of your capital on deposit because you couldn’t foresee a money market checking account could lose capital even though it’s spelled out on EVERY SINGLE statement and offering letter from the bank.

lotsofpulp 4y ago

> FDIC insurance exists to stabilize this part of the financial system. Up to $250k per account holder per bank.

pbourke 4y ago
Yes, that is the letter of the law. The intent, given that the FDIC emerged from the Great Depression, is to prevent bank runs. Most banks with a large retail deposit base are immune from bank runs. SVB is unique in that it didn’t have a large retail deposit base yet also had a bimodal customer distribution (financially sophisticated VCs and later-stage startups/enterprises and early stage startups which have the financial sophistication of your local auto mechanic). No acquiring bank will want to touch SVB because of its lack of retail deposits - the risk of account holders fleeing at the earliest opportunity is very high. That forecloses one of the FDIC’s main tools for resolving a bank collapse - especially one of this magnitude. So we have a very unique situation here: a large mostly commercial bank that, unlike most large commercial banks, has a bunch of mom-and-pop level customers. I don’t know what the solution is, but hopefully it will go in the direction of minimizing impact on these small businesses.