4 ms·

If you're a small or medium sized business and you just saw SVB evaporate and depositors take a substantial haircut, why wouldn't you open up an account at JPM

If you're a small or medium sized business and you just saw SVB evaporate and depositors take a substantial haircut, why wouldn't you open up an account at JPM on Monday and never again bank at a regional bank of SVB's size? SVB was undone by a bank run, not because they were doing anything particularly risky. Something like 1/4 or 1/3 of all their deposits tried to exit on Thursday - no bank can survive that given how fractional reserve banking works.

wpietri 4y ago
If you are a small business who has way more than $250k but only has time to manage one bank account and lack the need for more sophisticated treasury management, then yes, I would absolutely say you should put it in the least risky bank. Or you could take the wild step of not putting all your eggs in one basket. The bank run was the proximate cause of the failure, but they also made some big bets and lost, making them vulnerable to the bank run in the first place.
- notfromhere 4y ago
  Yes and now think about the implication of all the SMBs flowing their cash out of their regional banks all at once. And if you have anything more than a few employees, you definitely have an account over $250k because that's still an incredibly small business. There's a serious risk of contagion here.
  - wpietri 4y ago
    I understand you have a fear of contagion risk, but I don't see many signs of it. I think this mainly happened because SVB had a depositor base where a big chunk was tightly knit and prone to herd-like behavior. Most companies just aren't a) in the red, b) letting millions in cash sit around, and c) lacking in treasuring management capacity. But if there are a ton of regional banks who took advantage of laxer regulation and had balance sheets in as poor a shape as SVB, then I am fine with some of them failing too. It won't be anywhere near the problem that 2008 or the S&L crisis was, and we'll end up with tighter regulation for those banks next time around.
    - danenania 4y ago
      You don’t see any risk of contagion? We have a fractional reserve banking system. If even a small percentage of depositors try to withdraw all at once, that can bring down any bank. Right now, everyone in the country with uninsured accounts is being incentivized to pull those deposits and pull them fast. We don’t know how things will turn out, but there is obviously a major risk of contagion.
      - wpietri 4y ago
        As with the other person, I understand that's a thing you're imagining. I'm just not seeing much evidence for it. It is a possibility? Sure. But not one I see as a major risk. And from what financial regulators are saying, I don't think they see it that way either.
        notfromhere 4y ago
        You're not seeing it because banks are generally closed over the weekend. This is like sitting in the eye of the hurricane and saying that everything is fine because it's not windy yet.
        wpietri 4y ago
        For the third time, I understand people have this belief. But restating a belief without adding evidence doesn't convince me you're right. If anything, it's the opposite. We could be in the eye of a hurricane. Or we could be in any of the non-hurricane locations on the planet. I think the latter is more likely.
        danenania 4y ago
        Fyi: https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... Seems like the verdict is in.
- danenania 4y ago
  The end point of every business doing “treasury management” to keep all their accounts under 250k is that the FDIC ends up insuring all the money anyway. The only difference is lot more of it goes to fees for money managers and banks, and starting/running a business is a lot more complicated. What’s the point? Either set a limit that can’t be skirted by maintaining multiple accounts or guarantee the same amount in a single account.
  - wpietri 4y ago
    Is that what you think large businesses do for treasury management? Just keep opening bank accounts until they've got one with every bank in the US?
    - danenania 4y ago
      It’s one component of it, clearly. That’s pretty much what IntraFi does—while they don’t open an account with every bank, they have thousands of banks in their network and claim to be able to maintain FDIC insurance for up to 160 million. If FDIC wants it to be possible to insure that much, they should cut out the middlemen and financial engineering requirements and just insure deposits of every business to that amount. If they don’t want to insure that much, then IntraFi and other similar services should be illegal.
      - wpietri 4y ago
        Nope. The FDIC's main concern is with individual bank failure. If people spread their money out among many banks, then they have lowered both their risk and the FDIC's risk. If you'd like to argue that the FDIC should go further so as not to subsidize people with shit-tons of cash, I'm certainly open to that. But the increased regulatory complexity might not be worth the total risk reduction, so I'd want to see some math. I suspect it's mainly a red herring, though, as I couldn't find any sign that Intrafi is a particularly large business.
        deleted 4y ago
        [deleted]
bugbuddy 4y ago
I would argue that holding long duration treasuries in a rising rate environment and capitalizing before marking to market are two very risky ways to run a bank.
- chimeracoder 4y ago
  > I would argue that holding long duration treasuries in a rising rate environment and capitalizing before marking to market are two very risky ways to run a bank. Not to mention doing so when you know that most of your customers' businesses are incredibly sensitive to interest rate hikes, in part because you have explicitly marketed to that market for years.

wpietri 4y ago

If you are a small business who has way more than $250k but only has time to manage one bank account and lack the need for more sophisticated treasury management, then yes, I would absolutely say you should put it in the least risky bank. Or you could take the wild step of not putting all your eggs in one basket. The bank run was the proximate cause of the failure, but they also made some big bets and lost, making them vulnerable to the bank run in the first place.

notfromhere 4y ago
Yes and now think about the implication of all the SMBs flowing their cash out of their regional banks all at once. And if you have anything more than a few employees, you definitely have an account over $250k because that's still an incredibly small business. There's a serious risk of contagion here.
- wpietri 4y ago
  I understand you have a fear of contagion risk, but I don't see many signs of it. I think this mainly happened because SVB had a depositor base where a big chunk was tightly knit and prone to herd-like behavior. Most companies just aren't a) in the red, b) letting millions in cash sit around, and c) lacking in treasuring management capacity. But if there are a ton of regional banks who took advantage of laxer regulation and had balance sheets in as poor a shape as SVB, then I am fine with some of them failing too. It won't be anywhere near the problem that 2008 or the S&L crisis was, and we'll end up with tighter regulation for those banks next time around.
  - danenania 4y ago
    You don’t see any risk of contagion? We have a fractional reserve banking system. If even a small percentage of depositors try to withdraw all at once, that can bring down any bank. Right now, everyone in the country with uninsured accounts is being incentivized to pull those deposits and pull them fast. We don’t know how things will turn out, but there is obviously a major risk of contagion.
    - wpietri 4y ago
      As with the other person, I understand that's a thing you're imagining. I'm just not seeing much evidence for it. It is a possibility? Sure. But not one I see as a major risk. And from what financial regulators are saying, I don't think they see it that way either.
      - notfromhere 4y ago
        You're not seeing it because banks are generally closed over the weekend. This is like sitting in the eye of the hurricane and saying that everything is fine because it's not windy yet.
        wpietri 4y ago
        For the third time, I understand people have this belief. But restating a belief without adding evidence doesn't convince me you're right. If anything, it's the opposite. We could be in the eye of a hurricane. Or we could be in any of the non-hurricane locations on the planet. I think the latter is more likely.
        danenania 4y ago
        Fyi: https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... Seems like the verdict is in.
danenania 4y ago
The end point of every business doing “treasury management” to keep all their accounts under 250k is that the FDIC ends up insuring all the money anyway. The only difference is lot more of it goes to fees for money managers and banks, and starting/running a business is a lot more complicated. What’s the point? Either set a limit that can’t be skirted by maintaining multiple accounts or guarantee the same amount in a single account.
- wpietri 4y ago
  Is that what you think large businesses do for treasury management? Just keep opening bank accounts until they've got one with every bank in the US?
  - danenania 4y ago
    It’s one component of it, clearly. That’s pretty much what IntraFi does—while they don’t open an account with every bank, they have thousands of banks in their network and claim to be able to maintain FDIC insurance for up to 160 million. If FDIC wants it to be possible to insure that much, they should cut out the middlemen and financial engineering requirements and just insure deposits of every business to that amount. If they don’t want to insure that much, then IntraFi and other similar services should be illegal.
    - wpietri 4y ago
      Nope. The FDIC's main concern is with individual bank failure. If people spread their money out among many banks, then they have lowered both their risk and the FDIC's risk. If you'd like to argue that the FDIC should go further so as not to subsidize people with shit-tons of cash, I'm certainly open to that. But the increased regulatory complexity might not be worth the total risk reduction, so I'd want to see some math. I suspect it's mainly a red herring, though, as I couldn't find any sign that Intrafi is a particularly large business.
      - deleted 4y ago
        [deleted]

bugbuddy 4y ago

I would argue that holding long duration treasuries in a rising rate environment and capitalizing before marking to market are two very risky ways to run a bank.

chimeracoder 4y ago
> I would argue that holding long duration treasuries in a rising rate environment and capitalizing before marking to market are two very risky ways to run a bank. Not to mention doing so when you know that most of your customers' businesses are incredibly sensitive to interest rate hikes, in part because you have explicitly marketed to that market for years.