18 ms·

We deserve to see more useful top comments on this matter. The top ones in this and the main announcement thread [1] are just ad hominem complaining against so

• deleted 4y ago
  [deleted]
• boxed 4y ago
  > Explain to a peasant why he should have to share the risk you took with your money Well.. in this specific case I don't think tax payers (I assume this is what you mean by "peasant") actually do share any of the risk/cost. The bank failed due to a liquidity problem. It actually has a pretty solid financial situation except for that! This isn't a "bail out" per se.
  • dragontamer 4y ago
    > It actually has a pretty solid financial situation except for that! Then why couldn't they find a buyer in the auction today? If Silicon Valley Bank had positive equity, someone would have bought them out for an easy profit.
    • xapata 4y ago
      Solid except for the time-value of money.
    • camhart 4y ago
      Their bonds average 1.9% with a 10 year maturity. They pay out when they mature. But because rates are so much higher now, if they sold today they'd take a massive haircut. The bank made mistakes, and their startup assets are a big ? of unrealized losses. But they do have assets, just not liquid.
      • em500 4y ago
        But the reason why they'd take a massive haircut if sold today is that when they get the principal back in 10 years it will probably be worth a lot less. Their assets are completely liquid, they're just worth a lot less right now than what they're owed, and for good reason. That the assets might nominally cover the deposits in 10 years is besides the point, the depositors don't want to wait 10 years. Whoever pays to make depositors whole, be it FDIC, tax payers or other banks/bank customers, is transferring real value to the SVB depositors.
        • boxed 4y ago
          > That the assets might nominally cover the deposits in 10 years is besides the point, the depositors don't want to wait 10 years This would be a problem of liquidity though, which was my original statement.
          • xapata 4y ago
            Not just liquidity. A dollar 10 years from now is worth less than a dollar today. That means it's a solvency issue as well.
    • rvnx 4y ago
      Isn't it what happened with the UK branch of SVB ?
  • tigershark 4y ago
    No, it didn’t have a liquidity problem, it was insolvent. The value of all its assets marked to market are less than its liabilities.
    • Lionga 4y ago
      Not if you let them do their shenanigans to let the assets be on the balance sheet on "face" value because they are in a "HTM" portfolio and not on the real market value. Many of the other banks are silently insolvent too, just the simple little account trick keeping them afloat. That's whats need to be changed, not a bail out of which more will follow
    • boxed 4y ago
      Well... I guess. But the price of many of those assets were low because of the run right? So it's a self fulfilling prophecy. Banks that buy SVBs branches will be making money off that deal I think. Not short term obviously, but long term.
• mixologic 4y ago
  All banks take risks with the money that their customers deposit with them. Sometimes those risks are bad, and banks cannot fulfill their obligations to their customers, so the FDIC, which is funded by banks (its deposit insurance) steps in and fixes a bank so that customers of that bank do not get screwed by picking a bad bank. I dont see how any peasants are 'sharing any risk' here. Everybody who held stock in SVB, just lost literally all of that. They invested in a bank that failed. Just like if they invested in a company that failed. Nobody is bailing those people out.
  • noobermin 4y ago
    My understanding is the FDIC reimbursing up to 100K is fine and what you expect, it's just that many customers had balances exceeding that.
    • RayVR 4y ago
      Just note that the FDIC provides deposit insurance up to $250k per named individual on the account. So joint accounts with married couples would be $500k. You can add children to increase as well.
      • tetrahedr0n 4y ago
        Also, holding all of your fiat in a single bank or financial instrument is usually not a great idea. Diversification is important to any relatively stable financial position. E.g: Fiat over $500k in a single institution is likely not earning as much as it could and runs the risk of loss of access to funds for X amount of time if the bank fails, until reimbursement happens. But $100k each in 2 different banks leaves you with $300k to invest however you see fit and still have enough liquidity to move quickly on opportunities.
      • noobermin 4y ago
        Just shows how much I know...you can tell I'm not a rich man, I did not even realize it was increased to 250K in the wake of the financial crisis.
  • 4y ago
• noobermin 4y ago
  A charitable response I think is that depositors did not choose to make risky bets, the bank did. It's a shame really. So, you're blaming the wrong party. Somehow, the bank definitely needs to be punished, but I'm not sure how or if that can happen in this current system.
  • eru 4y ago
    Depositors aren't forced to bank with a specific institution. Just like shareholders aren't forced to hold specific shares. Depositors can pick the banks whose risk profile they prefer.
    • xapata 4y ago
      Yes, but depositors are generally not expected to be sophisticated investors in the context of bank liquidity abd solvency. You don't get a prospectus of the bank itself when you consider opening an account.
      • eru 4y ago
        The prospectus is easily available, for all the good it would do. In any case, you don't need to be a sophisticated investor as a depositor. Ordinary market participants manage 'flights to quality' just fine, even if they are not sophisticated investors. See https://en.wikipedia.org/wiki/Flight-to-quality https://en.wikipedia.org/wiki/Flight-to-quality If you want to have a stable financial system, you shouldn't suppress the incentives for people, including depositors, to look for safety. Just the opposite, you should have them sensitive so that they make moves (on the margin) long before danger is serious. Have people move their deposits _before_ it's too late.
      • Lionga 4y ago
        But someone that has over 250K in a bank can be expected to understand that FDIC insurance is (or better was, effective now it is unlimited) 250K, right?
        • 4y ago
• A4ET8a8uTh0 4y ago
  I disagree with this non-bailout bailout, but I can somewhat easily generate one such response without even engaging my brain. As a member of this society, you, by default, have skin in the game. If you do not want to see a run on more banks as a result of wide-spread panic that would effectively undermine the entire system and result in unpredictable chaos ( as opposed to predictable anger that can be managed ), then the choice seems relatively simple. Unless, naturally, one does not want to enjoy relative stability.
  • eru 4y ago
    It's not so simple. More bailouts now, lead to riskier behaviour in the future.
    • ok_dad 4y ago
      Those who took the risks are losing their shirts: the shareholders and debtors of SVB and its executive staff.
      • Lionga 4y ago
        Any accountholder at SVB is a debitor to SVB. They are getting the bailout, while they clearly took the risk for anything above 250K
        • sokoloff 4y ago
          > Any accountholder at SVB is a debitor to SVB. One with deposits in the bank is a creditor. One with a loan from the bank is a debtor/debitor.
      • justsayinstuff 4y ago
        Are the executives really losing their shirts? Their bonuses better be clawed back.
      • eru 4y ago
        It's a shame that we are trying to shield depositors from all risks. It's better to have more people watching out for danger.
• locallost 4y ago
  Does the peasant share the risk? From the article: > No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. > As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
  • Lionga 4y ago
    Anyone having a bank account will pay for it trough the banks fees/rates etc. Yellen avoided directly using tax money for the bail out, but it just is the next closest thing.
    • spullara 4y ago
      It is insurance that banks pay for, so yeah that is how it works. The issue is that if FDIC doesn't save this regional bank, all regional banks would probably fail in the next week and there would be 4 banks left that the government refuses to let fail.
    • n42 4y ago
      SVB's assets cover an overwhelming majority of the deposits, and other banks cover the rest through FDIC. the impact on the American citizen is negligible, bordering non-existent. yes, this money comes from customers of those banks, but again, the $ amount likely translates to pennies. when you compare it to the alternative people are proposing of doing nothing, that means thousands of layoffs and shuttered companies, and the American tax payer paying these people's salaries in the form of unemployment/welfare. this is a remarkably more expensive strain on the economy. there is a reasonable argument to be made about the precedent it sets for banks in the future with regard to their risk tolerance; I don't have an answer to that. anyone upset about this for any other reason just wants to be upset.
      • eshnil 4y ago
        Every bank account holder was made to pay insurance premium for those with more than $250K in a couple of banks. And this was done AFTER the risky event the insurance covers has already happened. This absolutely is socialization of losses, while privatization of profits goes on as usual. Good reason to be upset, IMHO.
• deleted 4y ago
  [deleted]
• epups 4y ago
  Companies making payroll or not is where the general public's skin in the game comes from. We can let them fail by crossing our arms, but this would lead to mass layoffs and financial turmoil as otherwise healthy companies have to shut doors due to this bank's mistakes. This would then also likely lead to a huge bank run, as most other companies realize they have to diversify their accounts and start scrambling to divert money at the same time. I would also like to add that the vast majority of people losing their money were not betting on a risky asset. They merely had bank accounts with an institution that was mismanaged. We are not bailing out risk-takers like we did in 2008.
  • thesimon 4y ago
    > I would also like to add that the vast majority of people losing their money were not betting on a risky asset But keeping all your money in one bank is surely a huge, obvious risk?
    • epups 4y ago
      I think you are referring to the $250k limit. It's not very practical for companies to diversify according to that limit. Apple has 50 billion in reserves, do you think they can find 200 thousand banks to spread that around?
      • tetrahedr0n 4y ago
        > Apple has 50 billion in reserves, do you think they can find 200 thousand banks to spread that around? Good question and of course, that's not likely. But then 50B in reserves isn't something you keep in a bank account, it's something you have rolled into several different financial instruments with varying levels of available liquidity.
        • creato 4y ago
          > it's something you have rolled into several different financial instruments with varying levels of available liquidity. Like… SVB
• bagels 4y ago
  It's sleight of hand. I'm guessing the solution is that the money comes from all of us, but just through bank fees, higher interest rates on loans, and lower interest rates on deposits because the banks are paying more to the FDIC, as opposed to the money coming directly from the treasury and thus our taxes.
  • nwiswell 4y ago
    That is a reasonable sacrifice in exchange for a functional financial system. For what it's worth, TARP ended up turning a profit for the government, so in my mind there's some track record of stiff-nosed decision making at Treasury. I'd feel differently if SVB stockholders were getting something out of this.
    • jonhohle 4y ago
      Why shouldn’t parts of a functional financial system be allowed to fail without massive contagion? Part of a healthy market economy is providing ways for weak businesses to fail and be replaced with new competitors. Why are some businesses more equal than others?
      • nwiswell 4y ago
        There is contagion: loss of confidence in banks. This is why FDIC exists in the first place.
        • jonhohle 4y ago
          I lose confidence in banks when their failure results in special treatment that no one else has access to, perpetuating the behavior that caused the failure.
          • worrycue 4y ago
            Your sort of loss in confidence don't lead to further bank runs and complete collapse of the financial system so I think it's a loss they are willing to suffer. > perpetuating the behavior that caused the failure. A detail post-mortem is going to be needed to be done to see what cause this whole mess. So far it seems their mistake is buying "risk free" bonds when they shouldn't have - but then again who could have expected interest rates to rise so quickly - and not having a diverse enough depositor base - SVB served mainly tech and Silvergate is heavily exposed to crypto; both sectors took hits recently resulting in people redrawing lots of money for a variety of reasons and it ultimately caused a run. That's what I figured out watching various YouTube videos anyway.
• epvgwwqe 4y ago
  Making depositors whole isn't coming from taxpayer money, it's coming from FDIC and potentially higher fees on banks if it's needed as a function of the end result of SVB liquidation. But even if the only option was to use taxpayer money, clearly it would be need to be done. If depositors weren't made whole, this week would've been a disaster with multiple bank runs that could cause a huge systemic issue. Eventually the fallout from such an event would bite the economy and the average taxpayer very badly. The amount of money required to make depositors in SVB whole is negligible compared to the potential damage not doing so would cause, so it doesn't really matter where that money comes from.
  • 317070 4y ago
    That sounds an awful lot like "too big to fail". Are we here again? Why do we still have companies that big? Why do we let companies grow that large then? Or maybe the FDIC protection should be increased for everyone? I don't disagree that what you say is right when the argument doesn't go beyond the short term. But I expect to see protest against this from tax payers whose wealth is lower than the FDIC limit. Again.
    • epvgwwqe 4y ago
      The 2008 financial disaster led to regulations on banks which largely seem to avoid the need for govt bailouts of the big banks, but these regulations only patched up the type of issue 2008 posed, in particular working for banks where the majority of holders have below $250K. In the cases of SVB you have a totally different kind of bank with 90%+ of the capital in accounts well above $250K. And the size of the bank was right below where regulations kick in, so the issue here is not that the bank in itself was too big, if anything it was too small, it's that if this previously top notch regional bank failed in a way that hurt depositors, a slew of other regional bank runs would follow. Not sure what the long term solution is, but there will probably be additional regulation to patch up this kind of issue and at the least any VC will ask startups to prove that their capital is diversified as a condition for investment.
      • gnz11 4y ago
• twblalock 4y ago
  You are better off because the government is helping, and so are all of the people in the country who need to work for a living and need companies to work for. You can't let the banking system collapse and expect it will only hurt the people you don't like. > If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden? "The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding. When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides." https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp... On top of that, SVB has the money to pay back almost all of the depositors. They just don't have it liquid right now because it's in bonds that won't mature for a while and would need to be sold for a loss. So the obvious and sensible thing to do is have the government lend money to cover the time until the bonds mature, in addition to using the FDIC's money which did not come from public funds. > And please inform him the recourse he has should he disagree with sharing your loss. You can vote for people who are dumb enough to let the entire banking system collapse because they want to hurt rich people. But of course that would probably put "peasants" out of work while the rich get slightly less rich.
  • unicornmama 4y ago
    > SVB has the money to pay back almost all of the depositors. There seems to be this myth floating around that bond losses aren’t real. They are very real. An 80 cent on the dollar (purchase price) bond is a loss of 20 cents. And it doesn’t matter if the holder holds to maturity. Welcome to interest rates. Edit: Fundamental fallacy here is not understanding the time value of money. Thinking of money without the time dimension is like thinking about space without time. See https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp Secondary fallacy here is equating value in the financial sense with gain/loss in the accounting sense.
    • twblalock 4y ago
      You don’t lose money on bonds you hold to maturity. 100% of the principal will become liquid upon maturity.
• chucklenorris 4y ago
  The taxpayer won't bear the burden, at least theoretically. The money still exist in the form of bonds which are not liquid right now. The FDIC will provide the liquidity so one of the most important sector of the us economy doesn't implode. This is not the same situation as FTX
• wheelerof4te 4y ago
  I'll just copy one of my previous comments on this, but this time I'll leave out the /s "Hey, the FDIC coould raise the limit to, say, 10 million, and just let the FED reserve print out the moneys to everyone. Not much different than what the US government is already doing. Reached the debt limit? Just raise it again, lol."
  • sebzim4500 4y ago
    This but unironically. In Germany the government guarantees every deposit in a regulated bank. The US should do the same, even if that means substantially tightening the regulations on banks.
• djhope99 4y ago
  Why does everybody think this is going to be a huge burden on the government, lots of sensationalism here. Just by saying “we will backstop depositors” the government will likely have calmed things down enough that that’s the end of the story. Nothing else needed. The bank has or can likely get the money to pay everyone back just not in 48 hours which is unnecessary anyway given normal outflows for the bank.
• Earw0rm 4y ago
  IDGAF about the morality of SVB's clients being able to make payroll or not. But it strikes me that there's a second-order "too big to fail" effect at work here. Not only bank runs. How many businesses who don't have any banking with SVB are operationally dependent on cloud services provided by SVB-banked companies? What's curious is that this wasn't a risk in the 2000-2001 crash, and barely an emerging one in 2008. Let's say 20% of cloud service providers can't make payroll and shut down. What does the disruption in the wider, real economy look like? Pretty messy, no?
• DebtDeflation 4y ago
  >If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden? The shareholders already lost everything and unsecured creditors are about to lose everything. That's still not enough to make all depositors whole though, which is why the statement said the FDIC will be paying for the rest and funding that payment by "a special assessment on banks". Therefore, the simple answer to your question is "all other FDIC insured banks, rather than the taxpayers, are picking up the tab here".
  • deleted 4y ago
    [deleted]
  • karmelapple 4y ago
    Do we know for sure that there’s not enough to make all depositors whole, all assets considered? Or is it just that they can’t quickly liquidate things to get to the total? I had read a summary of a Kleiner Perkins analysis recently that said the total assets they hold, some of which are those awful-yielding instruments they’re locked into for 10 years, covers their assets. But since some of those instruments cannot be liquidated anywhere close to quickly, the FDIC will just need to hold onto those for awhile and front money for the bank in the short term. Of course, who knows if that analysis or the summary of it is correct.
    • deleted 4y ago
      [deleted]
• pyinstallwoes 4y ago
  That’s inflation, the word you’re looking for right? It’s a form of tax that isn’t thought of as a tax through the act of printing more money. Or, some similar mechanism of that shape.
• doktrin 4y ago
  Unsurprisingly, the top comment complaining about top comment quality is the worst of them all. This is one of those cases where the most obvious and mundane answer happens to be correct. The government is attempting to nip an existential threat to the wider banking system in the bud. Everyone who uses said system (read: literally everyone) has an interest in seeing it survive.
• bhawks 4y ago
  Our society has created a complex set of rules and regulators to prevent bank runs. That system society created failed to detect a problem in one of the top 20 banks in our country. What other problems is it not detecting? The full backstop to the depositors is because this should have never happened - the system should have prevented it. An organization with over $250,000 in cash is not an outlandish amount. Employers (obviously), but also municipalities, schools, churches and heck even grocery stores can exceed that limit. While it is reasonable to expect some individuals to have some sense and monitoring of the financial well being of the organizations they are directly affiliated with it is extremely unreasonable to believe that those same individuals are going to be aware of the balance sheet risks of the transitive banking partners of those organizations. People expect that money in the bank today will be there tomorrow. Who wants to live in a world where everyone is keeping tabs on which organizations are banking where? It's a tremendous waste of time. People don't want bank failures to be a thing, and if/when they do happen they want the damage limited to the senior leadership and investors of the bank. If you were responsible for managing over 250,000$ of cash what is an acceptable Treasury operations strategy? Put it in a TBTF bank (still socializing losses). Split it into multiple banking partners - that creates operational risk in addition to extra complexity and overhead.
  • college_physics 4y ago
    people will once again try to defend the indefensible. antediluvian fractional reserve banking as it currently stands is not fit-for-purpose and the price paid by society is high and will keep growin. The other side of lazy private profits from "riding the yield curve" or which-ever else inane business model is recurrent crises and social costs, sometimes overt, sometimes obscure. Arbitrary and ad-hoc explicit or implicit insurance schemes and put options, obfuscation and complexity, moral hazards and perverse incentives under every carpet. A fair and democratic society, especially in the hyperconnected digital age must very seriously consider the wiring of the monetary/credit system. The rule should be simplicity, transparency and working hard for the money: return strictly coupled to risk. Core to a better design will almost certaintly have to be the concept of risk free deposits with the central bank that are not subject to runs. The rest needs to be worked out.
• op00to 4y ago
  > can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden Depositors are made whole. Shareholders are not. There were enough assets sold over the weekend to cover deposits.
• astrange 4y ago
  Does this comment really start by complaining the rest aren't "useful" and then immediately switched to assuming it knows better than Janet Yellen about whether something will cost taxpayers? Also, there isn't a bailout - protecting unnamed bank depositors is not a useful definition of a bailout. Also, you spelled "depositors" wrong.
• zopa 4y ago
  > If these statements are true, can someone explain how it's possible that despositors are fully protected, far beyond what FDIC insures, without the taxpayer bearing any of the burden? No one can tell you what will happen because to my knowledge the FDIC hasn’t told us yet. They may not have settled on a final outcome yet — there may be multiple options still live — finding a buyer for the assets of the bank, for instance. All this statement is saying is that they’ve verified that even in the worst case, the resources exist to make the depositors. whole. Meanwhile,’bullshit’ is a strong claim. And I’m not going to fight you on the trustworthiness of government officials in general. But someone who’s been at this as long as Yellen isn't going to blow the Treasury Department’s credibility on a dumb, easily-discovered, get-you-through-the-day-and-then-fall-to-pieces sort of lie.
• soheil 4y ago
  > Explain to a peasant why he should have to share the risk you took with your money. Dear Peasant, I empathize with your pain and suffering on a daily basis. I know life isn’t easy being a peasant, you perhaps work as hard as anyone in Silicon Valley. You pay taxes just like everyone else and expect your government to protect you and provide opportunities not just for you but for your children and their’s. Silicon Valley is a major growth engine of our economy, it means lots of jobs for your future grand grandchildren. It means better lives for all of us benefiting from innovations that happen there. You no longer need to farm in freezing weather when your John Deere tractor can drive itself or hail a ride on Uber and know exactly when to go outside on a snowy day. So hope you understand that when a place that people trust with keeping their money collapses it means major disruption to the economy. It means those tech companies have to fold not to a fault of their own, but because of a series of domino effects that would have been not easy to predict. It comes with the territory, not too dissimilar to a famine. We need to do something to save those companies and thousands of people who work there contributing to the prosperity of our country and the world. We need to do what is smart, socially and economically responsible and save those companies by providing the cash reserves they stored in the failed bank. We need to borrow money from the tax payers to do that, just like when we did that in the last couple of years to help another group of citizens. I know you understand this is good not just for our country but it’s good for you and your children. I know many will not understand why a large population of the medium class should benefit as if they live in a vacuum and anything that happens to them will have no effect on the rest of us. I know you will.
  • xdennis 4y ago
    > It means better lives for all of us benefiting from innovations that happen there. You no longer need to farm in freezing weather when your John Deere tractor can drive itself That's not done out of charity, it's done for profit. And when they're good enough they won't need the farmer. Forget about the grand grand children, what opportunities will the government provide for him when when he's no longer needed? It's all about solidarity when the VCs are hurting, but what about poorly educated in the middle of nowhere? It should be the same for everyone: you make your own choices, and if that has bad consequences you should suffer them alone. VCs don't share profits when things are good because stocks aren't taxed.