The days of keeping you money under your mattress are long gone. The vast majority of modern day economic activity takes place electronically, and as such requires partnering with a number of different financial organizations to make that happen.

The government created this mess by lowering the regulations on community banks[1]. They should be the ones to clean it up. There are literally zero reasons why we can't have fully insured deposits. Even better, there are literally zero reasons why we can't have zero risk deposit accounts (hello fed), but they choose not to give it to us so that the bankers can make a profit on our money.

Small and medium size businesses are the life blood of our economy. And modern economies work on trust and specialization. You shouldn't need an advanced degree in financial engineering just to run a small cat sweater shop on etsy.

[1] https://www.cnbc.com/2018/05/24/trump-signs-bank-bill-rollin...

> The vast majority of modern day economic activity takes place electronically, and as such requires partnering with a number of different financial organizations to make that happen.

Ideally though that number isn't 1. All they're saying is they should have multiple banks.

How many FDIC insured bank accounts would the cat sweater business need to protect them from Etsy withholding their money? I am pretty sure more bank accounts isn't really going to help with that.

Right, the implication is that they shouldn't have started their business at all because there was a risk that Etsy would use a bank that might fail.

>the implication is that they shouldn't have started their business at all

Instead of passing the buck, the takeaway is that Etsy could be punished for inappropriately managing customer funds held on behalf of sellers. I expect US law has avenues for sellers to seek adequate compensation for damages Etsy has caused, especially if the TOS didnt cover this outcome.

Obviously the problem is not that the cat sweater business needed more bank accounts. It's that Etsy needed more bank accounts. Etsy is the one that cannot get its own money.

The cat sweater business probably wasn't banking with SVB to begin with.

And now the cat sweater people know they have to diversify where they sell their product. I've seen people sell the same stuff on multiple storefronts. (easy, Amazon, ebay) This wasn't even the #1 reason to do that anyways, so they should have already been doing so.

Sucks for them, but it's a life lesson in starting a business.

> The government created this mess by lowering the regulations on community banks[1]. They should be the ones to clean it up.

When the bank that just failed was one of the groups lobbying for that lowering of regulations, I’m kinda all for the government telling them “You got what you asked for.”

https://www.theguardian.com/business/2023/mar/11/silicon-val...

I feel a lot of sympathy for customers of SVB who’re wondering how the fuck they’re gonna make payroll next week, or even if they’re going to survive this at all. But I have zero sympathy for SVB and it’s leaders - I’d like to see them be required to pay out every account holder in full from whatever “protected” wealth or assets they have. If any single customer is not fully made right, and the company leaders and directors are not all destitute homeless, they should go to jail.

I doubt any company will miss payroll this week

FDIC Races to Return Some Uninsured SVB Deposits Monday https://www.bloomberg.com/news/articles/2023-03-11/fdic-race...

Many companies missed payroll this week. But they'll likely all make up for it next week.

Many companies tried to do payroll on Friday though?

How many?

SVB did a poor job managing risk with its overweight long term bond investments. That doesn't seem to merit personal property seizure and jail time to me, especially considering how much innovation they've helped create in the past few decades. But maybe I've just gone soft.

Zero risk accounts already exist in the form of T-bill money market funds.

There are many reasons why we should not have zero risk bank deposit accounts.

> There’s an inevitable operational issue when a bank fails and this causes delays in normal process as funds, accounts, data, and workflows need to be shuffled around.

Yup. But if the FDIC is reasonably sure that they'll get many cents on the dollar for depositors, they should free up more than the FDIC insurance limit for large depositors quickly (e.g. Monday). It's in everyone's interest to limit the amount of chaos, and acting relatively quickly and incurring some small amount of risk isn't exactly inviting moral hazard.

Your tone insinuates that you're a genius and everyone else is dumb. Hindsight is 20/20.

'Hindsight is 20/20' is an odd way to respond to a regular financial occurrence since the ledger was invented. This stuff is in no sense outside the realm of a responsible CFO's imagination

You're simplifying the issue down to a CFO looking at a ledger?

Given that it’s literally as simple and inconvenient as using various financial tools to avail oneself of FDIC insurance for one’s entire portfolio, what even is the difference?

This is a pure panic run on the bank though, irrational and counter-productive. The bank was not insolvent and could have been fine if everyone didn't withdraw all at once. The issue I have is that this was started by a group of VCs who told their startups to withdraw, that caused others to withdraw and the slowest are the losers. But they didn't have to be. It's a shame that the VCs that caused this will think they were forward thinking enough that they prevented a problem, when they actually caused it. It seems like the best thing SVB could have done was not sell their assets at a loss to make cash available, if everything went into the receivers then eventually everyone would have been made while. Right now there is at a minimum a $2.1bn loss that all remaining depositors will have to eat.

It wasn't pure panic. The withdrawals started because it was announced that SVB was liquidating some of its assets at a loss despite SVB having recently announced that they had no need for such actions and were perfectly fine liquidity wise.

Your bank is supposed to be zero risk, so it's is not irrational when your bank even hints at liquidity issues that you get out.

Prisoners dilemma. Do you wait until it is too late or do you cash out early to avoid being caught in a bank run, thereby making the bank run more of a reality?

There is no penalty for cashing out early and being wrong about the bank run but there is a huge penalty otherwise.

> This is a pure panic run on the bank though, irrational and counter-productive. The bank was not insolvent and could have been fine if everyone didn't withdraw all at once.

This is incorrect. SVB converted deposits to risky paper that lost value. They were insolvent.

The fact that the risky paper would return its promised 1%/yr, if everyone just waited 10 years, is a canard. SVB's depositors could get 4% elsewhere, today. Asking them to sit tight at 1% is the same haircut as liquidating that paper at a loss today (which is what happened).