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AIUI if the loans and deposits had been with the same legal entity, any outstanding loan amount would be offset by the deposit balance. But in this case, SVB u

AIUI if the loans and deposits had been with the same legal entity, any outstanding loan amount would be offset by the deposit balance. But in this case, SVB used two different entities: one for loan accounts, and another for Cayman-based deposits. Whilst this seems correct, it's also unintuitive. I guess many people here have both a mortgage and a savings account that they got from the same bank. Imagine you just had some sort of windfall (bonus, bequest, whatever) and your checking account temporarily had more than the FDIC limit. But then the bank collapsed, and some of your deposit is uninsured. No problem, you think, because you owe the bank more than that on your mortgage. But then you find out that your mortgage loan was sold soon after the bank originated it, so you mortgage is with a different entity. Now, under FDIC rules, your uninsured deposits cannot be used to offset your outstanding mortgage.

HWR_14 3y ago
SVB had two entities (or more). A US one and a Cayman one. You could deposit money in the US one (and people did, those people are fine) but then you were subject to US rules and taxes. So some people borrowed money in the US, but kept their money in the Caymans. This was not some random happenstance where something outside their control caused cashflow issues causing them to lose money[0]. This was a conscious decision with risks. I hope these people are not made whole. [0] In practice, while not obligated to do so, the FDIC has always repaid people 100% in the situation you described.