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It's a bailout. They're putting the cost, presently unknown and probably not huge, on the other banks. But the message to depositors everywhere, of every size

• modeless 4y ago
  Shareholders are wiped out, so there will still be quite a bit of market scrutiny on banks. Edit: just to point out that I'm not claiming this is "not a bailout because shareholders were wiped out". It's a bailout of course.
  • chernevik 4y ago
    As we've seen this week, the scrutiny of depositors is far more powerful than that of shareholders.
    • modeless 4y ago
      Shareholder scrutiny preceded and caused the depositor scrutiny. Edit: I guess the point is that without the threat of depositor scrutiny, shareholders would have no reason to care about SVB's poor investment decisions, since they were only a problem in a bank run scenario caused by depositors. Failing that, the only risk to shareholders would be regulators, and regulators weren't doing anything about this problem, they were enabling it. I think you're right about that.
    • andrewjl 4y ago
      We've seen the opposite since it started with a failed capital raise and double digit stock price declines.
    • opportune 4y ago
      Shareholders in SVB have already lost all their money, and approximately nobody is arguing for them to be made whole, so I’m not sure I understand this statement. The bailout is for depositors
  • dougmwne 4y ago
    What about the VCs? Why were they made whole? They are the ones that owned all these businesses.
    • modeless 4y ago
      Why not? They're depositors like any other. The bank is at fault for making risky investments. VCs didn't cause that any more than the other depositors did.
      • xdennis 4y ago
        > The bank is at fault for making risky investments. And the depositors (VC or not) are at fault for putting their money in a risky bank. The only people who are not at fault are the ones who are being forced to pay for the mistakes.
      • dougmwne 4y ago
        The VCs took a risk by choosing to use the same bank, not insuring the deposits beyond the FDIC minimum, then stamping toward the exit every man for themselves instead of looking after their own community. Privatized gains and socialized losses.
        • modeless 4y ago
          Blaming depositors for a bank run is stupid. The bad investments and the lack of diversity in depositors are squarely the bank's fault. The bank does not deserve charity from its depositors.
          • grahamstan 4y ago
            In this case, the 'depositors' are wealthy companies and individuals, by definition holding >$250k, who could afford to do due diligence. Obviously they were getting perks working with 'Silicon Valley Bank' that didn't exist at say, Wells Fargo. No farmer in America was banking there because, hey, that's obviously kind of a sketchy bank. There was a reward being given to the wealthy depositors, and none bothered to investigate the associated risk. Well, actually, Thiel did, noticed the risk, and pulled out his companies. Why should we bail out the people who missed this?
• realcul 4y ago
  Totally agreed.bailout anyway you want to cut and slice it! they should have put a cost on the depositors! Why do banks and depositors of other banks have to incur the additional cost coming from here!
• tome 4y ago
  Yup, I think this is the most accurate one-minute assessment of the whole debacle.
• seo-speedwagon 4y ago
  > If you had the wit to think "hey, maybe I should be careful with $5 million" and bothered to put it in T-bills or an insured sweep, you're just a nerd who should know the Government will take care of such things. It creates the precisely wrong incentives. If you run startup and spend any time, effort, or money to mitigate these risks, you're being irresponsible. The Fed will bail you out, stop wasting your precious runway on nonessential things.
  • eightysixfour 4y ago
    Counterpoint - this is the type of risk that should be abstracted in our system. Screwing around with cash management for risk avoidance is yet another layer of effort that shouldn’t be passed on to the consumer (business or individual) which is the result of an old system that doesn’t exist anymore where a community bank had a comprehensible level of risk and reach.
    • zainhoda 4y ago
      I think this is probably where we will end up: Deposits above the FDIC insured level have to automatically go into money market funds with a weighted average maturity of 5 days or less instead of the loan portfolio of the bank.
      • americafun 4y ago
        this. propbably the best comment on this thread
    • sneak 4y ago
      It seems like raising the FDIC insurance amount to, say, $10mm USD fixes this for the general case.
    • wharfjumper 4y ago
      What is the purpose of having non Government owned banks in this scenario?
  • 4y ago
• chernevik 4y ago
  I would add, it's just hilarious to see so many claim "it's not a bailout because shareholders were wiped out!" Everyone knows bailouts are bad, and that people shouldn't rely on them. But they want their money, so of course _their_ protection isn't a "bailout". It's just . . . depositors made whole! Yah. A "bailout" is any injection that makes whole any interested party facing losses. As in "The depositors were bailed out". The hypocrisy around this is really disappointing.
  • phailhaus 4y ago
    I don't understand. You think the depositors should be punished for...trusting SVB? Do you expect every startup to run their own little hedge fund to manage their cash?
    • xdennis 4y ago
      It's not punishment. You know that when you put your money in a bank there's a change you won't get it back. That's why you're supposed to pick a bank you're okay with. That's how it is with everything. If a farmer plants some crops but it drops in price to the point it's completely unprofitable, is he being punished for growing food? Does the government bail him out?
      • zamnos 4y ago
        Ah I mean if you really want to get into farming, farmers get paid by the US government and your taxes to not grow things.
      • phailhaus 4y ago
        That's not a great analogy. The farmer is the bank in our case, and yes, it is going under. It should. The question is, should all these local grocers go under too because they had exclusive relationships with that farmer? Some would say yes, they should have diversified their base of farmers. I've learned that "insured sweep accounts" are something that should be used by startups to insure them for more than 250k.
    • 4y ago
• jaxr 4y ago
  Who scrutinizes the banks they make business with? To me, that is exactly the role of the regulators. Make sure the banking system is sound, and if you get the license to run a bank, you do it under certain rules that will protect depositor's money. I don't see how depositors should be held responsible in this case. And worst of all, you are actually punishing depositors who trusted the bank and the banking system, versus the ones that caused the run. Which in my view are also not to judge, since they were only protecting their assets.
  • pclmulqdq 4y ago
    If you're depositing $10 million, you should be willing to spend $100k reading a few balance sheets. That's why the limit is $250k.
    • danielmarkbruce 4y ago
      The CFO at any reasonable company can read the balance sheets of a few banks in a few hours and will need to do it 4 times per year. It's days of work, not more. And if the company is big enough, this job will be in the treasury team and again, it's certainly less than $100k worth of work.
  • danielmarkbruce 4y ago
    People with money and a brain. Smart businesses have a treasury department, one job of which is to look at the risks of where their money is.
    • bpodgursky 4y ago
      It's an incredible waste of time and energy for every business to do this. Imagine if every company was responsible for making sure their catering services didn't poison their employees. Technically, every company could hire a food safety department to validate that every catered lunch wasn't toxic. It would be a stupid waste of resources! Businesses should be able to just buy food that isn't toxic! Likewise, they should be able to simply put their money somewhere that isn't dangerous! So they can focus on the solving new problems that every isn't solving pointlessly in parallel.
• twblalock 4y ago
  > But the message to depositors everywhere, of every size, is "don't worry about your bank's solvency, we'll protect you". Good, because that is the message the public needs to hear right now, if you don't want a domino effect to destroy the banking industry because customers freak out. Obviously some regulations need to change but it's not worth sacrificing the economy and hurting everyone to make that point.
  • loaph 4y ago
    I'm not saying you're right or wrong, but if this is true why have the $250k limit to begin with?
    • twblalock 4y ago
      Because most of the time when a bank fails it is obviously because of problems with only that bank (which is usually a small regional bank that just isn't managed very well), and it doesn't widen into a national banking crisis.
• leot 4y ago
  If you've been privy at all to the conversations founders etc. have been having for the last 48 hours, I don't think they're going to come away from this feeling like "don't worry". There was never a guarantee that the fed would step in, and there won't be a guarantee going forward. Treasury management will be a thing that all VCs worth their salt will insist on going forward.
  • kortilla 4y ago
    But the message in this announcement is pretty clear, the put is there and none of that turned out to be necessary and won’t be going forward. It will be financially worse for you to put your money into less liquid things.
• ip26 4y ago
  the message to depositors everywhere, of every size, is "don't worry about your bank's solvency, we'll protect you". So market scrutiny is removed as a discipline on bank asset strategy. Uhh.. isn’t that FDIC’s raison d’tere? (Aside from the ‘every size’ part) Bank runs are caused by low confidence. FDIC makes depositors confident. It’s also interesting that failure is socialized among banks- who are equipped to judge the risk their peers are taking.
  • chernevik 4y ago
    Actually no. The FDIC was created to protect small depositors without the knowledge to protect themselves against bank failure. Larger depositors were expected to assess their banks or find ways of safeguarding themselves. One argument against deposit insurance was that it would lead to complacency and businesses offloading their responsibility to the government. And, here we are. 100% deposit insurance sounds great until you realize it leads to government regulation of 100% of the lending. TANSTAAFL. That is a very very bad outcome, there's very little room in it for a model like the Silicon Valley Bank, but that's where we are headed.
• sudosysgen 4y ago
  I mean yes? Don't worry about your bank's solvency is the exact reason why we should have the FDIC. It fundamentally nips bank runs in the bud. Then it's the government's responsibility to call out banks which are acting recklessly.
• csomar 4y ago
  This. It makes sense that someone with $1.000 shouldn't have to worry about T-bills, interest rates or splitting his risk across multiple banks. The $250k more than covers that. But someone that has $250m should be able to understand that money is not really the same at such scale and that storing it is not possible without exposure) to interest rates. He can buy T-bills, sweep accounts, or take the risk. But when your wealth is a few millions or you are managing a few hundred millions, you should know (or your money managers) better. Welcome to the new old world. Crypto is pumping 10% this morning on this news.
• zfell 4y ago
  Another concerning factor is that many large VC firms sent emails to their portfolio companies (hundreds or more at a time) warning them to withdraw funds, triggering the run. An alternative could have been for this group of already closely connected individuals to call an emergency meeting and agreeing to send the opposite message to their portfolio companies to avoid the crisis. Given SVBs issue was really about profitability and not solvency without the bank run. I'm skeptical a real lesson will be learned here, and we lose the opportunity to build scar tissue. Instead, we wake up from a nightmare, brush it off, and move on.
  • throw123123123 4y ago
    If a VC firm tells you to keep your funds in a bank that gets a run, and you lose access to it, that VC firm destroys its reputation forever. Please think about the payoff matrix and the fiduciary responsibility of the actors.
    • zfell 4y ago
      News of which funds sent emails asking their portcos to withdraw funds from the bank that has supported this industry for 40 years is a reputation hit in my view. Although it may certainly not be a popular opinion.
    • standapart 4y ago
      This is a significant simplification of the matter. I doubt it works in reality. Replace the words "VC firm" with "Sequoia" in the previous statement and see if it rings true that Sequoia's reputation would be destroyed forever.
      • throw123123123 4y ago
        Would take a massive hit for sure.
  • srcreigh 4y ago
    It’s kinda like prisoners dilemma, except the prisoners can meet and discuss a cooperative strategy.
• vishnugupta 4y ago
  +1. To add, now banks will have no incentive to be careful about who they lend to. In fact they will in all probability begin making riskier and riskier loans knowing fully well that if they make enough loans to become a "systemic risk" they will be bailed out by future tax payers.
• sanderjd 4y ago
  Yeah unfortunately I think this is a good take, and it's a bummer. I'm glad for people getting their deposits made whole and happy everyone will be able to make payroll, but I would have really preferred a private sale, even with some amount of haircut, to further expanding the moral hazard in banking.
• jijji 4y ago
  It is wise for the FDIC, Fed and Treasury to make this joint announcement on the Sunday before banks/markets open on monday morning. The timing is crucial, because without such an announcement, there will likely be a run on all banks, not just SVB and Signature Bank liquidity problems. The liquidity problem would have a ripple effect to all banks. Why put money in banks, over $250k, if all the rest is going to disappear because of the ponzi scheme the bank is playing on the bank end. The banks don't have the money that the customers deposited, obviously.
• weixiyen 4y ago
  > the general presumption that Big Government will protect you from yourself is extended just another smidge What would be a better alternative? Asking a top 20 bank for their data room whenever I need to deposit something over $250k? At some point, there needs to be some level of trust with simply putting money in a place and not a single cent disappearing. That should be a reasonable expectation in any functional society. Anything otherwise would be highly inefficient, creating unnecessary work that produces little to no value.
• killerstorm 4y ago
  Modern civilized societies enable specialization. You don't have to study plumbing, electricity, medicine, etc - you can buy all this stuff as a service. If something breaks, a person comes and fixes it. This allows you to specialize on whatever you want to do - say, build a startup. Software. Painting. This is absolutely, definitely more efficient than forcing everyone to learn plumbing. Financial system is basically plumbing for money. It should be easier than plumbing, as in plumbing requires us to deal with unpredictable forces of nature. Money is completely in our minds, so controlling it should be trivial in comparison. But it's not as reliable as plumbing. Which means it's poorly designed. People intentionally made it convoluted to make it possibly to fish in troubled waters. If you claim that only people with "the wit" deserve their savings to be safe, you're disgusting. The government is responsible for fiat money, by definition. They should make it safe. SVB problems were caused by insane interest rate jerk by the Fed. They caused the problem, they should fix it. How it should work: government money is safe, but inflationary. If you have "the wit" you can escape from inflation. Last time I checked, the government does not prevent anyone from offering inflation-hedged products. Financial institutions can use the entirety of math to offer whatever they want.
  • vc8f6vVV 4y ago
    You realize that if there was such a model SVB wouldn't have existed and startup founders would have to turn to e.g. BoA, which ... would have turned them down? So those startups wouldn't have existed in the first place just as SV as a whole. Problem solved! Back to the USSR!