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Well, that's where the losses came in, but why were so many startups holding so much uninsured money at a medium sized (not systemically regulated) bank? I rea

by kurthr 4y ago

Well, that's where the losses came in, but why were so many startups holding so much uninsured money at a medium sized (not systemically regulated) bank? I really can't wrap my head around holding $500M earning almost no interest (>$10M annual) in an uninsured account. Why? It's not like they had that much in monthly expenses or income. Was it just more incompetence or as has been suggested in other posts were there "benefits" of doing this that may not have accrued to the corporation? Of course it was the run of those giant uninsured depositors that caused the immediate cash. Of course it's not clear (had all depositors not been bailed out) that anyone withdrawing within the last 90 days would have not had their withdrawals clawed back... we'll never know. If that had happened, I think we would see a lot fewer flash runs. edit: https://www.thestreet.com/banking/svb-collapse-roku-had-487-million-in-cash-at-failed-bank-rocket-lab-roblox-also-affected https://www.thestreet.com/banking/svb-collapse-roku-had-487-...

aeternum 4y ago
Bank failures is just not something that most startups think about. It's also weird that we expect large depositors to think about it. If we created the system today, we would never think it okay to just destroy people's money at scale. Large depositors get almost nothing (very low interest rate) in return for that immense risk.
- kurthr 4y ago
  Exactly, so why are they holding it there? It could have provided 5-10% of (their negative) net income.
  - aeternum 4y ago
    It takes time & effort to engage with one of the few fintech companies that ensures you store only 250k in each bank. That also opens you up to other types of risk as now you have some relatively new startup that has access to your company funds. Companies and individuals are not trying to invest in their bank when they open a checking account. Does it really make sense that they need to dive into their bank's financials?
    - kurthr 4y ago
      Ummm, if it nets you $10-20M a year in risk free income on a highly liquid asset it does! Pay someone to do it. It's not a full time job. We're not talking about a special fintech, we're talking about a MoneyMarket or Treasury account, which are higher interest and lower risk than a bank account, but you're limited to a withdrawal or two a week.

by kurthr 4y ago

aeternum 4y ago

Bank failures is just not something that most startups think about. It's also weird that we expect large depositors to think about it. If we created the system today, we would never think it okay to just destroy people's money at scale. Large depositors get almost nothing (very low interest rate) in return for that immense risk.

kurthr 4y ago
Exactly, so why are they holding it there? It could have provided 5-10% of (their negative) net income.
- aeternum 4y ago
  It takes time & effort to engage with one of the few fintech companies that ensures you store only 250k in each bank. That also opens you up to other types of risk as now you have some relatively new startup that has access to your company funds. Companies and individuals are not trying to invest in their bank when they open a checking account. Does it really make sense that they need to dive into their bank's financials?
  - kurthr 4y ago
    Ummm, if it nets you $10-20M a year in risk free income on a highly liquid asset it does! Pay someone to do it. It's not a full time job. We're not talking about a special fintech, we're talking about a MoneyMarket or Treasury account, which are higher interest and lower risk than a bank account, but you're limited to a withdrawal or two a week.