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So depositors at banks taking on big risks get elevated interest rates or other perks for years, and when the shit hits the fan depositors that put their money
by bradleyjg 4y ago
So depositors at banks taking on big risks get elevated interest rates or other perks for years, and when the shit hits the fan depositors that put their money in prudent banks get to bail them out through higher fees.
And people wonder why turnout is low. There’s no way to vote for non captured politicians.
- deleted 4y ago[deleted]
- LatteLazy 4y agoWhich banks were offering elevated interest rates in the last decade?! I must have missed that memo...
- anonymous_sorry 4y agoSVB
- DubiousPusher 4y agoWell, wealthy people weren't dumping their money into these banks above the 250k FDIC limit for no reason.
- hizanberg 4y agoWe weren’t dumping money, SVB was our primary bank where sales we’re collected. It’s not hard to exceed 250k after 10 years of operations. We weren’t getting any interest % on our deposit balance, the only reason we chose SVB was because it was recommended for Startups.
- DubiousPusher 4y agoNo offense whatsoever intended but I think you were following some very poor financial advice.
- hizanberg 4y agoWhat financial advice was that? That SVB was a good bank for Startups to use? It was the recommended bank by our Merchant Provider Stripe. Sure it’s easy to identify poor choices after the fact.
- DubiousPusher 4y agoIt seems like a bad idea to have a large amount of static cash sitting in an account unbacked by any asset, regardless of who is your primary bank. It seems to me, your financial advisor should've had a plan for rolling this cash through CDs or short term bonds and distributing it across multiple institution to decrease your exposure or at the very least increase your FDIC insurability.
- hizanberg 4y agoAll our efforts are spent on improving our products, we've never sought any financial advisors and spent exactly zero time worrying about the liquidity of the bank we're with. Any funds left over from business operations are simply left in the bank they were collected in. But sure after knowing this event is possible and that effectively all small US Banks are at risk of a Bank run we'll be moving to a top 3 bank that's too big to fail, then go back to focusing all our efforts on improving our products as usual.
- dboreham 4y ago> we've never sought any financial advisors No accounting firm??
- hizanberg 4y agoOur accountant helps facilitate our tax obligations, they don't provide financial advice on our banking choices.
- DubiousPusher 4y ago
- moose_is_loose 4y agoYeah, shit is gonna hit the fan over this in terms of domestic turmoil. All those people who took PPP loans and Silicon Valley VCs getting bailed out who railed against student debt relief, it's just mind boggling. Just wait until student borrowers start getting squeezed and the Supreme Court nixes the debt relief. This is not good for long term political stability.
- bradleyjg 4y agoPPP loans and Silicon Valley VCs getting bailed out now railed against student debt relief Contemporary debates are over *who* gets free money from the government. I’m sure this is going to end well.
- nullc 4y ago/How did it end? With thunderous applause/ https://www.youtube.com/watch?v=Krq-GX1IhBc https://www.youtube.com/watch?v=Krq-GX1IhBc
- zamnos 4y agohttps://twitter.com/jason/status/1155224497714110464 https://twitter.com/jason/status/1155224497714110464 Jason Calacanis, specifically, was against help for anybody, especially banks (except his buddies's bank when it was their turn to be in trouble). If your position was that no one is to be helped out, asking then, for help when it's your turn is should cause some self-reflection, or as least a bit of cognitive dissonance. Whether he is capable of even that much remains to be seen.
- panarky 4y agoI lost money on treasury bonds when interest rates increased, where's my bailout?
- School-Cotton 4y agoThe bank, which is the entity that lost money on treasury bonds, is not getting bailed out. Its value is now probably zero.
- hypothesis 4y agoAre you saying that “no losses will be borne by the taxpayer” is worded specifically to avoid saying anything about costs to said taxpayers? /s
- AdamJacobMuller 4y agoOf course. If JPM and Citi et al receive a large special assessment as a result of this, where do you think the money comes from?
- Consultant32452 4y agoAlso, the deflationary impact of all that wealth evaporating would have made my dollars more valuable. I was denied that benefit of keeping my money in a safer location. Not to mention the investment opportunities that may have come from the chaos.
- JumpinJack_Cash 4y agoThe US is not the frontier anymore. The last 3 years have proven that people who still want a shot at winning in the roulette of wealth , they'd have to move to a developing country. The Western World obsession with prioritizing stability over everything else is just making sure that the rich will stay rich forever and every roulette spin which doesn't end up in double zero gets void in the name of stability.
- ProjectArcturis 4y agoIf the roulette spin hit double zero and the government didn't step in, it's not the bank CEOs who would be eating cat food.
- JumpinJack_Cash 4y agoSilicon Valley is the wealthiest area in the world. CEOs, founders, employees, janitors...etc. Nobody will feel sorry for them, the rank has no meaning whatsoever when you are aboard a golden ship. Everybody in the wooden and plastic fiber small boats around are cheering for the gold ship to go down with no particular attention given to the ranks. It's the same sentiment that has people cheering for the electric and fracking revolution to make countries like Qatar, UAE, Saudi irrelevant and poor.
- seizethecheese 4y agoEvidence that SVB paid higher interest than other banks? This doesn’t seem to be the root cause here. They had a huge volatility in deposit base.
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- lxm 4y agoYeah, ironically had SVB had a strong consumer brand, they probably could've boosted their cash reserves by offering higher-yelding CDs to general public.
- ahepp 4y agoMy understanding is their cash reserves were part of the problem. They had too much cash to lend it back out at variable interest rates, so they bought long term government bonds
- lxm 4y agoThey had too much cash in 2020 and 2021. They suddenly needed cash in 2023, but the deposit train had run dry due to the general slowdown among their customer base, at which point they were forced into selling the assets they acquired in 2020-2021 and locking those losses. Had they attracted enough new deposits, they could've let their long-dated portfolio run its course. Maybe even sell parts of it a few years from now if the rates went back to 0% territory, making those long-term bonds attractive again. They weren't buying toxic assets or anything. Chase, BofA and Wells Fargo own long-term debt as well, just not to the extent SVB did.
- bcrl 4y agoThe scheme of getting new depositors to pay out existing depositors is better known by another name: a Ponzi scheme.
- nafey 4y agoBut, crucially, the shareholders are wiped out. No CEO would be incentivized to repeat the SVB strategy if they stand to make no gains from it.
- bradleyjg 4y agoThat’s not true at all. The strategy is this: 1) form a bank 2) make imprudent investments, and offer better terms than other banks 3) watch the deposits roll in 4) collect fat bonuses every year 5) fifteen years later, get taken over by the FDIC 6) no need to return bonuses 7) other banks want to hire executives from failed banks, go do it again somewhere else
- vkou 4y agoThe CEO may have made out like a bandit, but the shareholders lost everything, and the next set of shareholders will think twice before retaining a CEO that engages in high-risk activities. > 7) other banks want to hire executives from failed banks, go do it again somewhere else As a shareholder of another bank, why the hell would you want to hire someone who took stupid risks, and lost everything owned by their previous set of shareholders?
- mlyle 4y ago> The CEO may have made out like a bandit, but the shareholders lost everything, and the next set of shareholders will think twice before retaining a CEO that engages in high-risk activities. OK, so you can only rip everyone else off massively once.
- hizanberg 4y agoWe banked at SVB and got 0% interest, it was just the bank recommended for Startup’s to use. It seems the risk was not choosing a top 3 bank since no one can survive a Bank Run and the largest banks are too big to fail. Which is terrible for competition if everyone’s essentially forced to use a top 3 bank just to have confidence for your money in a US Bank to be safe.
- Zetice 4y agoIt's not true that "no one can survive a bank run", though, and that's why SVB is at fault here, and not just a victim of circumstance.
- hellcow 4y agoWell, yeah, that’s why SVB no longer exists, all the execs are canned, and shareholders are losing their shirts. But depositors trusting a highly rated bank with a 40-year history shouldn’t be a “big bet” or gamble. For the risks startups take, this is about the lowest of the bunch.
- cma 4y agoThe risk is low because of the assumed bailouts.
- nostrebored 4y agoSVB collapsed with 3% of depositors asking for their money back?
- hizanberg 4y agoSVB failed after depositors tried to pull out 42B on Thursday, which small US bank has enough liquidity to satisfy 25%+ of all deposits in 1 day?
- nostrebored 4y ago
- urthor 4y agoThink of it a different way. Wells Fargo/BoA are "too big to fail" institutions in the United States. They got significant back hand, handshake deals, from Washington institutions to not only stay afloat, but for hundreds of little issues. In essence, the FDIC is a well crafted "redistribution," of all the under the table benefits Wells/BoA get from lobbying the Feds, to the smaller banks. The US has a deep interest in keeping its smaller banks alive. I can say, in Australia, the small business lending market is hugely overvalued due to monopolist price gouging by a handful of large institutions. In Canada, I'm told the situation is similar. Costs to small business are immensely higher than the United States. Banks similar to Silicon Valley Bank are essential because they undercut BoA, and prevent the "Canada" situation. Unfortunately, SVB blew its top off. But the system itself is good.
- jeremyjh 4y agoBoA was never at risk of failing. They stepped in to buy Merrill Lynch because basically the treasury ordered them to, but they didn't need TARP to absorb the continued losses in that unit, and paid it back with interest as soon as they were allowed to.
- ProjectArcturis 4y agoThey weren't at risk of failing when TARP passed. If TARP hadn't passed, and a few of their counterparties had gone bankrupt, they might have been next as the whole system went under.
- jeremyjh 4y agoYes and that is why they did what the Treasury told them to. It was directly in their shareholder's interests to support the recovery of the banking industry. Ken Lewis still lost his job for doing it.
- dragonwriter 4y ago> BoA was never at risk of failing. Yes, they were, that's why the systemic risk exception was invoked for them. > but they didn't need TARP They needed the systemic risk exception and their own specific, $20 billion capital injection and government loss protection bailout plan very similar to Citigroup's to be announced (the announcement itself stabilized things enough that they ended up not needing the bailout, which also happened with Wachovia’s before Citigroup.)
- gizmondo 4y agoActually a lot of depositors would be happy with a narrow bank that takes no risk, just holds the money at the Fed. But the Fed decided it's too safe so narrow banking is essentially banned. Seems fair if they ensure safety of deposits in return.
- kazen44 4y agobefore the 1980's, this was actually the case for a lot of countries. (the netherlands had the "spaarbank" for instance). This was a very boring system. You deposited your money, the bank held your money, you payed X for the account. You got some interested during the time this system was alive, but is far less then with other banks.
- bradleyjg 4y agoWe had a postal bank in the United States as well. https://en.m.wikipedia.org/wiki/United_States_Postal_Savings_System https://en.m.wikipedia.org/wiki/United_States_Postal_Savings...
- selimthegrim 4y agoIs this not “Sparkasse” in Germany as well
- beezle 4y agoAre you also willing to pay a fee for that when interest rates are so low the bank does not earn enough spread to cover the costs of maintaining those accounts?
- hypothesis 4y agoThat would a reasonable ask for such a “clean” bank, especially when the upside is that there is no “special assessment” being imposed due to recklessness of other “dirty” banks.
- bradleyjg 4y agoThere ain’t no such thing as a free lunch. You pay in fees, forgone interest, or risk.
- deleted 4y ago[deleted]
- hcknwscommenter 4y agoYour take does not seem to reflect reality to me. SVB did not offer particularly attractive interest rates to depositors. No one banked with SVB because of some extra APR on their savings/checking accounts. SVB mismatched interest rate risk and deposit flight risk, bungled a poorly timed asset sale and report thereof, and then compounded the problem with a few silly comments to the public at exactly the wrong time.
- moose_is_loose 4y agohttps://twitter.com/PeterContiBrown/status/1635063012775325697 https://twitter.com/PeterContiBrown/status/16350630127753256...
- bengamin56_ 4y ago[flagged]
- krsrhe 4y ago[dead]
- fasthands9 4y agoOn some level I don't get this. Ultimately a bank is providing depositors a service. Maybe their interests rates weren't the absolute highest, but they were still solid AND they were able to spend a ton on marketers, engineers, reps etc. to keep clients happy. Presumably there was a reason so many people choose them. They could have said "hey in order to make sure your money is safe we are actually going to offer a slate of services on par with our competitors" but instead they said "we are going to offer a slate of services equal or better than our competitors in every category"
- cavisne 4y agoNo, they banked there because SVB would throw money at VC's and founders (ski trips, free meals, lines of credit) who in turn would recommend/force their companies to use the bank. For all the talk of being "friendly" and "relationships" thats basically it. The average american now has to cover the loss, either through eventual taxes, or through passthrough costs from their bank (who will not give them a free meal or ski trip).