Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe. If this is not true, then most people will only bank with the largest banks. That's not a good situation.
We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.
I don't disagree that something should be done in the future to prevent this, but when you gamble, sometime you lose.
If they had deposited that 3B in, say two banks rather than one, they'd have 1.5B in that other bank
Use treasures bills if you’re that concerned.
-Purchase high-limit cash insurance from a Reinsurer like Lloyds of London or Berkshire Hathaway up to their underwriting limit, perhaps $100M. Do this across 4-5 different banks with 4-5 different reinsurers.
-Put the remaining $2-2.5B into mixed US Treasuries of varying maturities
If your entire business model revolves around moving multiple billions of dollars via an asset-backed stablecoin model, it's reasonable to expect you to have dozens of bank accounts, in at least 3 time zones, and likely more.
I don't know why people (not saying you specifically) seem to have this expectation any entity should be able to deposit billions of dollars risk-free at a single institution. The same people who intuitively grasp the value of having crypto distributed amongst multiple wallets rather than all in one, somehow can't grasp infinite $ cannot be deposited at a bank without risk.
If you're leaving 7 to 9+ figures in a single account, then either buy insurance, or only do business with banks which offer excess insurance.
People here simply decided to not inform themselves or seek appropriate assistance and therefore got bitten
How do you even run a payroll system if your money is spread out between a dozen banks?
[1] https://www.theguardian.com/business/2023/mar/11/silicon-val...
And it's a lot of money (e.g. 30% loss on $200bn is about $600 per US resident household).
But I'm conflicted, because:
- the federal administration doesn't seem to care about moral hazard or changing the rules of the game retroactively (e.g. handouts to people who borrowed lots of money whilst they were enrolled in college)
- banking is necessary for companies to operate, and it doesn't seem reasonable for every business to become expert in managing counterparty risk
- bank regulation seems to have failed, and that's a responsibility of govt
- it's almost impossible to be neutral about this; if you're a founder/CEO you aren't going to feel you did anything wrong by choosing SVB; if you're a random taxpayer you are going to feel any obligation to pay some west coast companies because their bank failed.
This calculation really put it in perspective.
CEO of HN asks that every family in America send his friends $500.
"Regulatory backstop" sounds a lot better than "tax grandma to make sure out portfolio companies don't lose a penny of their deposits on this"
Cocaine, mostly :P
Sounds like YC should invest more in mentoring their portfolio companies to manage their treasury correctly.
(And obviously actual losses are gonna be like 20% here, not 100%, but you get the picture).
Of course I don’t have all my positions in cash and I take into account the necessary risk/reward equation into account.
But then again, I would never work for a non public company where part of my compensation comes from “equity” and I sell/diversify all my after tax RSUs within 6 months after that vest. So I’m very risk averse about holding positions in any company I work for
I'm not sure where you got this number, but it's different than what I've seen. Yes, SVB had $200B in deposits, but it had $15B in unrealized losses. The FDIC is probably contributing $12B as roughly 6% of deposits were insured. That means the gap is probably $3B, which is very different than the $60B you're suggesting. A lot of the issue may end up being the timeframe in which depositors receive back their funds rather than the amount of the shortfall.
I did a quick calculation based on:
- $200bn deposits (on which we agree)
- press reports that Jefferies and hedge funds are offering to buy claims at up to 70c on the dollar (suggesting 30% loss)
I imagined they would sell assets for the insured. And then sell more for the uninsured. If that process didn't cover the insured, they would bring money.
In this case, the insured are well covered by the assets, so the FDIC won't bring money.
We have a $12B difference of opinion here. Although, more generally, I agree from initial reports the assets - deposits gap does not seem to reach 30%. We should know more tonight and Monday morning.
Those deposits get first call on the assets. The FDIC only chips in if those assets aren't enough.
Those who led all these entities from the same industry to bank at the same place must be held accountable too.
To my knowledge SVB was never required, and startups always had choice.
But I think this is worse. Bailing out individuals is one level, bailing out massive banks is pure corruption.
Nor does the lack of a requirement indemnify someone from responsibility.
Could be a selling point for alternative incubators in the future.
Perhaps being a part of YC puts you at greater risk from these events. Draw your own conclusion about the reason why.
If bank regulators move swiftly and ensure orderly withdrawals, his comments will go down in history as crying wolf, and that's putting it lightly
Exactly. And "don't put all your eggs in one uninsured basket" is the exact sort of 101-level business advice I'd expect the experienced hands at YC or any Angel investor to provide pretty routinely.
Most people - people - have far, far less than this. And it's fundamentally about protecting people - institutions, like we're discussing here, are supposed to be considerably more risk-aware.
> Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.
https://www.fdic.gov/resources/deposit-insurance/faq/index.h...
> Coverage Limit: All deposits owned by a corporation, partnership, or unincorporated association at the same bank are added together and insured up to $250,000, separately from the personal accounts of the owners or members.
> The corporation, partnership, or unincorporated association must be separately organized under state law and operate primarily for some purpose other than to increase deposit insurance coverage.~
https://www.fdic.gov/resources/deposit-insurance/financial-p...
Not if they know how banks work, and plenty of those depositors do. They know that there’s a risk to their uninsured deposits (that’s why the insurance exists!) and so they either account for that risk or play dirty and pretend, after the fact, that they didn’t know better and that the government should pretty please make them whole.
> If this is not true, then most people will only bank with the largest banks. That's not a good situation.
No. They’ll do what they’ve doing for a century: diversify banks and asset classes, sweep accounts, buy private insurance, etc.
Deposits are a loan to the bank. If the bank doesn’t have any risk of default on those loans, that’s no free and efficient market. That’s the government giving bankers free money to play with. We already do that for small accounts held by naive investors because the stability is worth it and they can’t be expected to afford the inherent risk themselves, but that can’t extend to all accounts.
Maybe the VCs should step in and make bridge loans available if they want to keep their investments? If you believe in your portfolio, why not help them weather the storm? Or are you afraid to be exposed to additional risk? Should the taxpayers take on that risk instead?
This is actually the right answer. Something something founders deserve their money because they take on all the risk.
Well, since we all love capitalism and meritocracy so damn much, let's see those at play for once, shall we?
[1] https://news.ycombinator.com/item?id=27468549 [2] https://news.ycombinator.com/item?id=27654940
1) Skin in the game - GPs of YC / a16z / Sequoia / Founders Fund / etc put in some equity in to a joint venture to acquire SVB's assets and make depositors whole. Government will backstop some portion of it.
2) YC / a16z / Sequoia / Founders Fund / etc agree to support ending the carried interest tax exemption
If you have >$5m and you haven't done due diligence on this, I'd call that a failure on the part of the company (or its advisors, like the accelerator they're a part of).
The benefit to the larger bank is that SVB’s customer base represents a large chunk of the most innovative sector of the US economy and beyond. And scientific and technological innovation is going to have be one of the main drivers of economic growth in the world as the developing world becomes developed and their growth rates inevitably slow. Acquiring SVB at cost seems like a great deal in that regard, and stops a panic as nice side effect.
One one hand, end of December, they self-assessed that they had $209.0B in assets and $175.4B in deposits. Enough to pay everyone. [1]
On the other hand, they've suffered some losses. The regulator that closed them explicitly called them out as insolvent. [2] Possibly sloppy language, possibly they have relevant recent information.
I expect we know by Sunday night.
[1] https://www.fdic.gov/news/press-releases/2023/pr23016.html [2] https://www.cbsnews.com/news/silicon-valley-bank-sivb-stock-...
sounds kinda rich tbh
In which law does the US say that your deposits are safe? You get insurance up to 250K. That’s it.
Why didn’t you mitigate risk by using a few banks? Even 4 would’ve meant only a 25% loss.
@garry, while it may be a reasonable expectation, it's always been very clear and _explicit_ that it's not a guarantee beyond $250k (or $500k).
What's more troublesome is that VCs and Y! have portfolio companies that either didn't understand this and/or didn't take the time to shore up their exposure to this otherwise very easily, manageable risk.
Open additional accounts, utilize CDARS, etc. -- there are so, so, so many incredibly simple, straightforward ways your portfolio companies could've mitigated this.
And yes, I agree with you -- the risk _was_ negligible. But it was risk nonetheless. And the fact that the mitigation options are _so_ simple but that your portfolio companies didn't do this really brings into question their ability to manage cash / risk management in general.
So then to ask for taxpayer money to bail out companies who didn't take the time, thought or energy to minimize exposure to this is what I think most people on this thread are pushing back on.
> We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.
In fact, depositors can _already_ prevent this from happening from themselves.
And frankly, if you say, "We're not a VC firm, we're an accelerator", that is a distinction without a difference. You give money to companies that need it. So do that and do not use mine or my family's money. End of discussion.
The limits to FDIC have been on physical stickers legibly and purposefully placed all over every bank for decades, and define reasonable expectation clearly, for decades, to all customers.
That reasonable expectation states insurance limits are not unbounded.
Was there any level of due diligence that could have warned people off of SVB?
> Was there any level of due diligence that could have warned people off of SVB?
Really no. A small business manager doesn't have time or expertise to read a bank's financial statements. SVB's did show serious problems but most businesses don't have the capacity to spot this.
But the answer to that is to not trust any bank for any long period when zero-risk options are available.
But surely smart VCs with millions / billions invested are capable and have capacity to do this?
It's bad enough to be asking for a bailout, at least be upfront that you're asking for a bailout.
Depositors do have a reasonable expectation that their deposits are safe. That's what the FDIC does: makes sure that 99% of people never have to worry about bank failures. For the 1%, well, it's time to put the big-boy pants on and accept sometimes in market economies there are disruptions. Something startup CEOs were perfectly happy to accept as long as it was other people experiencing the disruption.
No regulation can totally prevent this from happening to rich depositors in the future as long as the banks are capitalist institutions trying to turn a profit. There is no reward without risk. Arguing for zero risk is basically arguing for nationalizing the banks and creating a federal Boring Depository Bank whose job it is to just hold cash and that takes no risks with it.
Which honestly, it would be great to see the CEO of YC arguing for reducing the role of capitalism in key parts of the economy. But I'm guessing that the VC class's interest in tighter regulation is going to last exactly as long as it takes to get government subsidies, and then will go back to its previous extremely negative levels.
Respectfully, no sophisticated entity should ever expect their deposits to be safe beyond their insured limits. That is why businesses purchase insurance on their excess deposits, and/or use other financial products to ensure they have no excess deposits.
Frankly, YC failed to advise its companies in rudimentary financial risk management. Holding millions of dollars in a single bank account and taking no measures to mitigate the obvious, enormous risk of bank failure is mind-boggling.
It is an elite class of people who banked at SVB. Most people bank with less risk-taking community banks or the very large ones.
Casting SVB as an underdog and the people who bank with them as helpless is upside down.
Many startups can survive taking the 30-40% haircut on their bank balances. Very few can survive their cash being locked up for many months (especially when there are many startups in the same boat.
These "movements" are folks asking for normal processes to be suspended for the sake of that 5% or whatever and it's going to muddy the waters vs asking for the obvious "give us some liquidity now since you can immediately secure a huge chunk of it and businesses need it"
The big question is how much of the "run" has been paid, or will have to be paid at 100% because of transactions initiated before receivership. I also think 95% is a little bit optimistic from the get-go.
> They have been pretty clear that they want to do this.
An unspecified dividend at an unspecified time sometime next week is better than nothing, but it's still pretty toxic.
The FDIC is planning to pay an advance dividend of uninsured deposits next week, per their press release: https://www.fdic.gov/news/press-releases/2023/pr23016.html
Market corrections are normal, they need to happen otherwise we just end up with a tiny group of ololigopolies with a free reign from consequences. Bad actors need to be punished.
The only way this sort of hand ours from startups needs to be just like the reaction to 2008 should have been: not punishing small/medium companies for the actions of a $200B bank and their like. YC has a reputation of being wealthy VCs so it does nothing to help this point.
Why does size matter? These VC funded "small companies" are so sketchy that they needed their own special bank to manage the risk, and now their special bank just failed.
It's not the government's job to protect the weird VC funded moonshot "business model."
Nothing about SVB's failure had to do with tech startups. It's entirely because their executives gambled on a giant ball of mortgage debt with the worst timing. And now tech companies are paying the consequence. Much like how everyone else did in 2008.
It's trendy to blame VCs and the tech 'bubble' but this isn't the time. And I should reiterate I don't agree gov should be excusing the bankers behavior to save tech startups.
Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
There's also a real risk of bank contagion if it is only safe to deposit in the largest banks.
No one was chasing any yield. No one was taking any risks. It's a bank account.
Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
And what about all the other regional banks? Based on your comment, do you think the prudent thing would be for every single small business in America to transfer their funds out of regional banks into a large bank?
> ## Up to 4.50% annual percentage yield
> Help make your money last longer with our Startup Money Market Account. Like with a savings account, you’ll earn up to 4.50% APY on deposits — so you gain a longer runway. Certain restrictions apply.
So I wouldn't say that you could get 4.5% from a reputable bank at the moment.
100% yes.
Yes? I do it with my personal after 2008
When a bank promises to keep your money, then converts it for their own use and purchases investments and lends it to others… that’s fraud.
Golly, some of us even chose non-banks, and use local credit unions. There are millions of us!
Honestly yes. All it takes is one financial analyst's time. I do it with my retirement plan for example, and I'm only a "small business" of one family. If there was demand for such info, I'm sure there would be a small community/industry for evaluating bank books like there is for financial planners (if that might not even be something a financial planner could already do).
And particularly with Y Combinator advising so many companies, I think it's on the side of negligence that they didn't evaluate the bank they were steering their companies towards. They were steering them there because they knew that tended to be the only bank that would deal with their high-risk companies - and it's too hard to believe that professional VCs didn't recognize that such a bank could have a lot of risk in some dark corner to compensate.
It is by definition a risk for a corporation (or individual) to keep over $250k at a single institution ($750k if including SIPC-protected accounts). Reports are stating 97% of SVB's customers kept more than FDIC guaranteed limits. How can you claim this is not risky?
There is also additional insurance clients can purchase or the financial institution can themselves provide a statement they've purchased excess insurance for their clients.
>Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
If they're keeping more than $250k in a single account, absolutely, yes, I cannot be sure this is even a serious question.
Yes, this exactly why millions of people, not just businesses, avoid banks like Bank of America and Wells Fargo. They review how they have historically operated and what risks they passed on to their customers.
I remember going to a branch of Bank of America to open a bank account for Posterous and not being able to.
I mean, given the epic scale, herd-mentality of tech startup types to cause a $46 Billion bank run in a singular day (March 9th), can you blame them?
Its clear that other banks have seen systemic risk in focusing on this sector, and are pickier about choosing their customers.
-------
I get that this is a problem in any case. But the systemic risk / scale associated with the tech startup scene has just been proven to the world. "Other banks didn't want to take $100+ Billions in startup deposits" is beginning to look like the smarter move, given the circumstances.
(understanding it may have had little to do with why they tanked)
Would BoA have been more willing to open an account for you if your business already had one?
Are you really saying BofA would not take deposits for you?
You want your flock made whole. I get that. But are you also asking for regulators to kill the startup economy by shutting it out of banking?
I believe you, but this doesn’t make any sense to me. I have opened multiple business accounts at Bank of America. It’s just paperwork. If you have a dollar and a legal entity, you can open a bank account for that entity.
What was the issue?
Silicon Valley Bank had nothing wrong with it's business practices other than they were concentrated in one particular industry, and a slowdown in VCs pumping money resulted in them shrinking deposits suddenly. They asked their investors for money, some VCs basically yelled fire in a crowded theatre and boom a 40 year old institution was wiped out in 24 hours.
America has thousands of banks, and the way you would have this work would shrink that to 5. This way of operation would also wipe out every single credit union. Literally none of them have the insane levels of stability necessary to trust with money, if larger accounts are going to be at risk of a bank run.
That 250,000 number hasnt changed in nearly a 100 years. Maybe it isn't what we should be going off of?
For what it's worth, it used to be $100K and was increased to $250K in 2008.
Here's a timeline:
https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
No, if you're not keeping more than $250k in the account, you don't have to do the homework. If you're keeping more than $250k in the account, you can afford to pay someone $1k to do a bit of due diligence.
Just my 2 cents on this strawman part of discussion.
$1k gets you several hours of an accountant's time to go through the bank's balance sheet and tell you if their interest rates and other perks are, in fact, too good to be true.
If you want to go the extra mile and try to move money around to keep under the limits, more power to you, but paying someone to occasionally keep an eye on your bank's balance sheet and make sure it's not going to collapse under you is totally within the capabilities of pretty much any company.
I.e. having a CFO who's on top of things might mean I'm first in line to get out once there are public red flags, but not everyone can exit an insolvent bank, so the macro result seems similar.
"SVB collapse highlights $620 billion hole lurking in banks’ balance sheets" -https://archive.is/qnwYh
Also short sellers worked it out a while back
"A Silicon Valley Bank short seller explains how he knew the bank was in trouble months ago" - https://archive.is/XaKkt
True, we’d need to look at previous filings to understand when it could have first been worked out
VCs should have kept a closer eye on where their cash was, but perhaps they were too enamoured with the benefits they were getting from SVB
To be fair though, in the US we've long established an expectation that if you have funds in a bank account at a registered bank, the government would back those funds
It's stupid to have set that expectation, but it seems very destructive to suddenly remove that expectation
Not since around 2010. The ~2007 crash was not without consequence.
There will be a cost to suddenly altering expectations, I guess there's a chance we might see what that cost is now (but probably they will just get a boring bailout)
I've known this since I opened my first bank account.
Why should a company, perhaps a slower and more risk-averse company who intentionally chose a different, safer banking institution to do business with, do they not get to benefit from their discretion in choosing that banking partner? One could argue that choice put them at a disadvantage against their fast-moving competitors, who chose fast-moving “corporate infrastructure” like SVB.
If bailouts like this take place, how do those companies ever benefit from being prudent? Should nobody bother?
(FWIW, this is just a thought exercise, I am not opposed to the petition.)
If your personal bank went out of business through no fault or gain of your own, most individuals would feel that it would be fair for you as the depositor should be made whole. That's the same with a business, and as important since this represents the payrolls of thousands of people.
Am I smart for doing that? Or am I dumb for doing that, since it sounds like I should expect to be made whole regardless? Should individuals not benefit similarly? What dollar limit would you recommend the FDIC or CDIC (Canada) insure?
But at the same time, you are also aware of the limits of your protection. If you leave all but $250k uncovered, you're willingly and knowingly taking a risk.
How is it fair to ask a bunch of people who had nothing to do with any of this to make the depositors whole from a risk those depositors willingly took? I really don't understand the ethical stance here.
There's the problem: startups are doing an inadequate job of managing the risk around their treasury operations. That sucks, but that's on them.
I as a taxpayer do not care to bail out -- yes, that is what that is -- these startups, when they could have done a better job at risk management. I know some smaller startups that do have their cash at multiple banks (SVB one of them). While this is still a headache for them to deal with, it's not an existential threat. Perhaps more startups should be like that.
If you take a risk, you have to be prepared to accept the consequences of what might happen.
> Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
False. Companies live or die because of every business-related decision they make. Choosing a particular bank, and choosing not to diversify where they keep their cash, is one of those decisions.
> In the Y Combinator community, one-third of startups with exposure to SVB used SVB as their sole bank account.
So apparently two-thirds of startups in YC with SVB have at least one other bank. That might not be representative of startups as a whole, but is at least a good data point.
If you choose a bank because they were offering better products because they were taking more risks, why I should bare the cost?
Most companies live and die by what most people would call arbitrary choices in things they wouldn't think of. I use more than one bank account for my personal finances and I don't even have 250k cash. Begging for tax payer money after the 10 year tech bull run we've seen, shame.
How true. You can imagine that most people have only a vague idea of what is supposed to happen and why. There are entire professions devoted to many aspects of life (eg Healthcare, law, education, finance, politics, software). Even if you are such a professional, you probably have a mere specialty within the breadth of a vertical. The vast majority of choices people make are gambles based on intuition, localized/anecdotal deduction, and the type of education someone has been exposed to.
Taking stock of what everything anyone knows is true and why, will take longer to explore than a lifetime. A company, as an entity, is worse off.
SVB had $20 billion in unrealized losses. There's estimated to be $600 billion more in the banking system.
What happens if the startup you're referring to is a bank itself?
Before the crash, YC, Founders fund and others could have raised money to stop the collapse but it seems the VCs just let the bank fail and now are begging to the US government for a bailout put on the taxpayer to foot the bill?
Absolutely NOT this time.
If the choice was "arbitrary" then you'd expect startup banking to be distributed arbitrarily among the various banking choices in the market. Clearly that's not the case.
No, this was "the startup bank". It was the startup bank because it operated in tandem with the startup funding ecosystem (an entity of which the startups themselves are really just a small part). That's not an efficient market. That's more or less a cartel.
The VC world, YC included, is a toxic mess at this point. I don't see why a bailout is a bad idea, but... yeah, the startup ecosystem needs a reboot. Bail out the startups if we must, but nothing for the dealmakers.
It is not an arbitrary choice, svb was known for their risk taking behavior which is why so many risky small businesses landed on their lap
Rather than taking standard loans designed to reduce systemic risk, startups chose to use this bank because it allowed them to access capital more rapidly or in exchange for their own pennystocks, which ofc leads to increasing systemic risk and leads to the situation today
Sow winds and reap whirlwind
“Should”. You say that like we’re just choosing between making it work that way or not, but reality is it doesn’t work that way, and they’re asking others to give them a ton of money to make it work that way for them, while at the same time refusing to contribute to make it work that way for anybody else.
If you really believed that line, then you’d think the government should seize lucky profits, too.
What on earth are you talking about? SVB had so many startup companies because they offered perks like mortgages for illiquid founders and high yield savings accounts funded by their poorly thought bond strategy, and, allegedly, because they were recommended to them by various VCs.
It’s not arbitrary, all these startups specifically chose to use SVB and chose to not hire a competent CFO or accountant who could tell them “lol no, bank account insurance isn’t free or infinite”.
This is one of the most pathetic pro-YC-startup-culture-nonsense posts I’ve ever seen on HN and that is saying something.
Why aren't these companies, and the VCs advising them, responsible for neglecting Cash Management 101?
People who invested in SVB should be wiped out, probably.
People who deposited in SVB should not be wiped out.
Depositors in banks aren't expected to do due diligence on the financial statements of the bank they're depositing in. Have you read the 10-K filings of your bank in detail?
If you have less than the insured amount you are not expected to do anything.
If you have significantly more than the insured amount you should do your homework and manage your risk. Anyone who was alive during the 2008 crisis should be aware of the problem.
You are a student, life is the teacher.
In this case, the students get a failing grade.
smaller depositors should be ensured by the FDIC
you can, and should, have accounts in different banks if you have over a quarter million in US$
If you're depositing more than the FDIC insurance limit, you should probably do some due diligence and/or get private insurance for the risk.
It is expected that you manage your risks if you have significantly more than the insured amount.
>The FDIC should require deposits to be insured, no matter the amount. This exacerbates the moral hazard problem [1]. Basically, if all deposits were insured, then bank executives would have no restraint on risk taking. If you think things are bad now, imagine a situation where bank executives know depositors would always be made whole no matter what they did. An unlimited deposit guarantee is a recipe for disaster. [0] https://www.fdic.gov/resources/deposit-insurance/deposit-ins... [1] https://dailyreckoning.com/fdic-fosters-moral-hazard-among-b...
*Unless it's to bail me out.
The problem is many of your peers in your space actively advocate, lobby, and spend lots of $$$ to reduce regulations whose aim is to try to prevent this sort of stuff. SVB themselves were pushing to be exempt from stress tests in Dodd-Frank, which they were successful at achieving back in 2018. If regulation is really a concern, why continue banking at a company that was actively lobbying to be exempt from regulations that already existed?
Anyways, I'm not gonna pass judgement either way. People make mistakes. However, it's a constant battle, and when ground is gained its easily lost. It's a tireless fight against monied interests trying to make more money in any way possible. People are going to understandably be frustrated at petitions like this.
if anybody holds the perspective that the govt should use public funds to save a set of companies because ma jobs, ma innovations, etc. in the venture capital sector it would seem that person does hold that perspective, at least enough to joke about it.
Unless you're making a more unlikely point that the government should be intervening all the time?
Those single moms living paycheck to paycheck, who you want to fund your bailout, would become part owners of YC
https://www.theguardian.com/business/2023/mar/11/silicon-val...
> Eight years before the second-largest bank failure in American history occurred this week, the bank’s president personally pressed Congress to reduce scrutiny of his financial institution, citing the “low risk profile of our activities and business model”, according to federal records reviewed by the Lever.
> Three years later – after the bank spent more than half a million dollars on federal lobbying – lawmakers obliged.
Not those who had bank accounts there and literally did nothing wrong to cause this or even contribute to it.
Surely you don’t expect everyone to agree with what everyone else has said just because it’s on the same site!
Maybe, just maybe, instead of us collectively trying to manage the latest collapse, perhaps we could impose actual requirements (not regulations) on banks. There have been 562 bank collapses since 2001. I doubt that many people who work outside of finance would think the balance sheets of those banks look like anything like what people would expect in a stable "bank".
It's insane that very few banks in the country can reasonably withstand bank runs. The reason? They have no money on hand, because they are gambling. Sure, the ecosystem would change, but that's not a bad thing.
Don't ask taxpayers to fix your mistakes for you.
Trainer Garry now: OMG my grass Pokémon are all dying please help!!! Who could have known that allowing fire Pokémon into an all grass gym makes my team weak?!?!?!!!
Texting all your replies to my friends, doctor will be mad I’m laughing so much that I’ll never go back.
Here's the explainer for everyone else: https://archive.is/gmJxU
https://www.levernews.com/svb-chief-pressed-lawmakers-to-wea...
Might help if you are paywall-blocked.
Yes, because that is how risk works.
> And that my deposit should vanish into thin air?
No, you should insulate yourself from that risk, either by spreading out your cash between multiple institutions, or obtaining deposit insurance beyond the government's, or (most likely) both.
Why would I do that when I can bank with a too-big-to-fail bank like JP Morgan Chase, Citibank, Wells Fargo, or Bank of America?
Unfortunately, many small companies and first-time founders can't get a business account at one of the big banks. Hence: SVB. I don't think this means we should automatically bail them out, though.
Why? I opened my first business account at Bank of America moments after I created the legal entity.
Opening a business bank account is straightforward. Unless there is a KYC issue, you can do it all online in minutes.
Sure, there's nothing wrong with that. It's still a nonzero risk, of course.
But it's also not necessary. You don't have to assess the soundness of the bank yourself, really. You can bank with pretty much any random bank and get the same level of safety. You just have to actively manage your risk, is all.
And - yes.
It hasn’t to be this situation, but if your accounts are flagged for fraud or someone hacks an account, aren’t you safer by distributing cash in multiple banks?
On the topic of FDIC insurance and startups... I'll put in a shameless plug for a startup I helped launch 20yrs ago: *Promontory Interfinancial Network" https://www.intrafi.com/solutions/depositors/
It was a startup them (now acquired), and created a bank deposit product "CDARS" which took customer deposits and distributed it across (k = N/<FDIC Limit) banks and kept the relationship as a single bank with a single account.
Even cooler, as k other people did it at k other banks, the service would just swap deposits across all the banks. It was a super-cool and valuable product, and i'm proud to say I helped write the matching engine for it back in 2002.
I realize this doesnt help startups with locked funds at SVB, but I'm pointing out -- there are options out there to have 100% FDIC insured safety for both individuals and startups.
This is a rather specialized and technical area of finance, and like most technical areas, I imagine it's hard to search for unless you know the magic terms and jargon to search for.
Lloyds and AIG will insure just about anything, they'll happily protect $x million or billion for a nominal fee.
Yes. That's the way this works. Or you can choose whatever risk mitigation strategy you're comfortable with: spread your deposits across multiple institutions, buy Krugerrands and bury them in the backyard, purchase 3rd party insurance whatever.
Take a look at https://www.forbes.com/advisor/banking/ways-to-insure-excess.... It explains several methods, including extra deposit insurance from CDARS, MaxSafe, Depositors Insurance Fund, etc. It also explains cash management accounts, credit union overflow, using multiple banks, and so forth. I can't help but think a good CFO or comptroller would be well aware of these.
(And as someone who's worked as the first employee of a startup, I can tell you it was while before we were able to get a CFO.)
Ultimately, people will have to accept that SVB wasn't as trustworthy of a guardian as some other banks. It appears that people were pushed into using SVB, because it was part of the VC ecosystem.
It's an individual CFO or Founder's decision as to whether to insure deposits or not, but claiming ignorance of the possibility is going to be ignored by a lot of others.
[1] fdic.gov/resources/regulations/federal-register-publications/2010/10c20ad66rates.pdf
Here is the complete list of DIF-covered banks: https://www.difxs.com/DIF/DIFmemberbanks.aspx
It's a short list, they're small banks, and they all have addresses in Massachusetts. Wells Fargo and Bank of America, for example, are not on the list.
The normal method for this insurance is to call an insurance company and ask for excess deposit insurance. This should be your first step. But, it seems very strange to me that you are beligerently asking people on the internet for financial information that you don't appear to need.
1. Understand How a Depositor Bond Works [1]
2. Depositor bonds for FDIC-insured deposit accounts [2]
3. Excess Deposit Guarantee Surety Bond [3]
4. Bond Penalty: Based on Coverage Requested Excess FDIC Limits [4]
5. Hello old friend – The reappearance of excess deposit bonds [5]
In summary, the Depositor Bond provides a third
party guarantee (from the insurance company who
is called the Surety) that deposits will in fact
be returned to the depositor. Depositor bonds
are designed to be “Excess FDIC Insurance
Coverage” and coverage begins at the point where
the $250,000 FDIC insurance obligation ends. [1]
[2] https://www.travelers.com/iw-documents/surety-bond/59375-dep...
[3] https://surety1.com/bond_info/excess-deposit-guarantee-suret...
[4] https://suretyone.com/bank-depository-bond
[5] https://www.cuinsight.com/hello-old-friend-the-reappearance-...
The other links say similar things. This is something banks can buy, to provide extra coverage for their customers.
People here have been arguing that SVB's customers were negligent by not purchasing their own third-party insurance. I think it's reasonable to ask them to support that argument, even if I'm not personally in the market. Supplemental insurance like that still does not appear to be available.
You chose that bank and you chose to deposit more than $250,000. Are you saying the limit should be higher?
But to answer your question, yeah, I think the equity in a for-profit business takes the risks and rewards of capitalism as they come.
If the owners didn’t want to lose the basis points by holding cash in CDARS or liked the interest paid by SVB (approximately twice the median of other financial institutions), they probably shouldn’t have been trying to pick up pennies in front of steamrollers or expecting taxpayers to save them from the consequences of that freely made decision. Capitalism, baby.
VOLUMES.
> I should just accept the impact of the bank shutting down due to events unrelated to my actions and choices?
You should hedge against potential losses, yes, absolutely. You're knowingly taking a risk. Just like every other risk in business, you determine if you can take the hit if things fail, and if you can't you arrange a mechanism that will reduce the damage to a level where you can.
It's just basic business management.
If the real problem is the quality of the loan book, however, it calls the startup and VC economy into question.
We'll learn a lot more about this in the next few weeks.
Often when a bank fails they change the sign at the branch to some other name otherwise you wouldn't know what happened. In the 1980s there was a lot of bank instability in New Hampshire, my mom kept all the statements going back to 1971, the name of the bank changed numerous times and she was not inconvenience except when the mortgage was about to come due the bank said the original payment was miscalculated and she'd owe more payments. I told her to go tell the bank regulator about it and the bank came back with their tail between their legs and forgave her the last 6 months of mortgage payments.
When I was a student I was banking with an S&L in New Mexico that went under as part of the S&L crisis, they just moved me to a different S&L, it was no skin off my back.
So there's a good chance that the FDIC will manage this with a minimum amount of disruption... Bank routines are handled routinely.
There was a false choice there because there are multiple options that were strategically ignored by the people who own the banking system. The financial system can be replaced. The crypto people haven't been getting bailouts AFAIK and it doesn't seem to be hurting the ecosystem; we're running side by side experiments despite the best efforts of the powers that be and it is showing that in low-trust environments the system is actually pretty robust. The response should have been to get rid of the systemic inflation that incentivises people to give their money to untrustworthy institutions.
> Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round.
I personally feel this way. But as a matter of fairness, if banks get bailouts why shouldn't YC get bailouts? YC is a more deserving cause than the banks. This was always the problem with bailouts; it is grossly unfair that incompetent banks get a handout but potentially competent companies do not.
SVB's stockholders, on the other hand . . .
FDIC promises for the ordinary-people, everything will be uninterrupted. Checks from the older SVB accounts will clear, debit cards will work, money will be available.
This is exactly the same issue FDIC was meant to prevent, though most of SVB's funds weren't protected by it. FDIC isn't a capitalist fever dream: it's excellent regulation that helps protect the little guy, while the bank can be allowed to fail. Great policy.
What you're advocating for is the capitalist fever dream, since it pretends externalities don't exist. Letting depositors fail to spite 'big banks' is the most ill-advised crap I ever heard.
So no. If your bank can't make payments? Tough, it should close down and go into administration or whatever. Maybe the government can bail out individuals, but companies relying on said banks can deal with bankruptcy or closure like it was any other sort of business risk. Company can't pay a higher minimum wage (or a livable one)? Then deal with less staff, or shut down, your business model simply doesn't work and isn't profitable.
And if your industry is dying because of technology (like say, Australian media outlets with Google and the internet), then tough. Accept it's probably dead and either downsize, come up with a new business strategy or close down.
So many seem to want a dog eat dog system when they're winning, but beg for mercy when it goes wrong.
Now, if these companies are willing to sign over warrants for 79.99% of the equity (like the banks did)… well, maybe there’s something to discuss. But otherwise reaping the rewards of capitalism while declining to take its risks - nah, I don’t think so.
To be totally factual, while the public did get paid back, part of the reason is that the Fed started printing money and buying bonds way above asking price to move the market. If you do this enough, prices naturally correct because everyone knows there is a buyer at a certain price and a floor price.
The downside is, well, all the printed money.
In the 2009 crisis the banks got bailed out because we were in the position of very nearly breaking the buck on money market funds. The interconnectedness of the entire financial system meant that we were plausibly looking at a situation where most businesses wouldn't be able to make payroll soon. ATMs could start to not give out cash. The whole short-term lending market was in danger of freezing up solid.
The lesson from that seems to not have been "we need to regulate things better up front so companies cannot make bets that place the system at risk and imperil everyone" but "fuck it, let it all burn down".
And we've got Republicans controlling the House that will drive the financial system into a brick wall hoping that they can blame it all on Biden and take over in the next election.
Honestly starting to think the right idea might be to stock up on food, water, gas and toilet paper like I'm worried about another pandemic and go bury $10k in the backyard. People have gotten fucking insane.
In 2014, international finance authorities announced that there'd be no more bailouts. The future template is "bail-ins", where depositors' (yours and my) funds are used to make creditors (investors) whole. Bail-outs, the old template, required other banks (or governments) to dump money into distressed banks, and they decided they don't want to do that anymore. Now, failed banks will just take our money directly. That old TV slogan's been outdated for a decade.
People are their own worst enemies. They see governments and banks do bad things, but instead of educating themselves in technical policy details, they react emotionally and fall for slogans. How do these people think they'll "defeat" banks without understanding how banking works? Why in the hell do so many people confuse slogans for knowledge?
If you are saying that you should take additional personal steps to protect yourself from downside risks, the answer is yes. It's not a foolish way to live and in the long term, the benefits outweigh the costs, similar to being adequately insured.
If this very costly government is not able to guarantee the integrity of its federal reserve notes deposits, then what is its purpose? What makes it legitimate?
But, I am sympathetic to the employees and even the owners of the startups. They didn’t take risky bets. I couldn’t imagine spreading my business as a startup (if I had one) to 10 different banks and trying to manage all of the obligations.
It's essentially a business choosing to underinsure themselves.
Various organs of the government are claiming the authority to create and enforce financial regulations. And yet, cash deposits in government-backed currency at a 100% government-regulated bank can still vanish overnight.
Given the huge costs of maintaining this government, and given the similar benefits it provides to others (Wall Street bailouts, stimulus checks, student debt forgiveness, etc.), is it that unreasonable to ask what YC is asking?
Up to $250,000, which covers almost every individual and most businesses in the country.
You want to be bigger, you should be coming correct.
literally all the time, the entire country is shaped around the benefit of corporate interests and capitalism
The consequence is, cash deposits for thousands of small businesses, are unavailable. The direct consequence is these businesses can't pay payroll, and can't pay vendors.
This isn't about socializing investor's losses. It's about making sure employees, contractors, and vendors get paid by fully backing cash deposits.
> Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout.
> Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round
Where are they asking for that?
Edit: And of course, downvoted. Lol.
I’m the last person to feel sorry for BigTech employees (I am one) making $300K+ a year (I don’t. I’m not complaining) who got laid off and didn’t save during the good times (I have used almost every penny of my after tax signing bonus/RSUs toward “increasing my net worth”). But most of the people working at startups aren’t making nearly that much (?). Why should they suffer harm?
Could the CFOs at these companies known they were making risky bets (serious question)
Banks fail. That's part of life.
Every decade or two there is a wave of bank failures. It's a risk that should be managed.
No, but you should be aware that if you put money into a deposit account, and the bank fails, you are only guaranteed (by the FDIC) to get $250k of that money back. This is usually not a problem, as most individuals don't have that much cash, period, let alone in a single bank account.
But it's a problem for businesses, obviously. And yes:
> Could the CFOs at these companies known they were making risky bets
Absolutely! Putting more than the FDIC-insured max into a deposit account is an obvious risk that any CFO (or corporate finance person in general) will absolutely know about.
According to Brookings, “Annually, venture investment makes up only 0.2% of GDP, but delivers an astonishing 21% of U.S. GDP in the form of VC-backed business revenues.”
https://www.brookings.edu/research/as-the-venture-capital-ga...
Your suggestion is equivalent to saying that if I were to support hundreds of kickstarters for various board games and resell them for a profit to collectors over the years and then kickstarter imploded after taking on extreme financial risks, then I should bail out all the new customers of kickstarter who paid and didn’t get their games. It makes no sense. The people running kickstarter should take the hit, not someone random other party working in their ecosystem.
SVB owners should get wiped out, not the people or companies who opened bank accounts.
But, much of the profits they made, and losses they are now incurring are both a consequence of the zero interest rate environment and it's current unwinding.
If the goverment bails out YC's companies, when they are successful later, who is going to benefit the most from that?
There are thousands of businesses using SVB. If they only know they have 250k coming in the near future, and can’t be sure they’ll make payroll, what do you think happens to all of their employees? Or the other businesses relying on their products? Or anyone they owe?
This is the second largest bank failure in US history, and for now it’s confined to a single bank and the cost to stop the fallout is relatively low.
If decisive action is not taken by the end of this weekend, it’s going to get much, much worse.
But what you're saying is the same thing: that taxpayers (random third parties who weren't even working in their ecosystem) should take the hit instead.
Spending taxes on preventing financial meltdowns from cascading actually makes the government and its citizens wealthier than not doing so.
What was your cash management strategy with your startup (assuming you have relevant experience)?
Honestly, if AirBnb is the poster child of tech startups, the only sensible thing to do is let this whole tech scene burn to the ground and salt the earth afterwards.
SV-style tech startups distribute more equity to employees than any other sector of business I know of and the average VC’s returns are worse than private equity, worse than the stock market and worse than real estate. You only hear about the biggest winners, but venture capitalists are taking on very long odds and the vast majority lose. More importantly, we all benefit from the advances the industry leads to—such as this wonderful phone I’m typing this comment into that can access and search nearly any encyclopedia, map or song in the world in seconds, from almost anywhere.
You might as well say Hasbro distributes more money than most companies because of all of the Monopoly games they sell.
If VCs make no return on their investment then they have just dumped millions of dollars into the pockets of startup employees and vendors.
I can trade my RSUs for real cash every six months after they are deposited in my account. I know the potential value of my next RSU grant every 15 minutes as it is updated on my Google Sheets.
The VCs make a return by diversifying their bets. But as an employee for a startup, you are not well diversified.
On a related note, Warren Buffett made a bet with hedge funds that he could have better returns just by investing money in an index fund over 10 years - he won
Cell phones were not created by tech startups.
They could easily have jailed a lot of bankers, and saved the banks.
They didn't.
HSBC alone pleaded guilty to over 1000 counts of money laundering, each one of which should have gotten someone 7-14 years in jail.
The government bailing out private industry seems counter to the maturation of private industry.
It sucks that the ones will who suffer the most have the least culpability in this situation.
The banks had to be saved in 2008 because they were, like, the financial system. I don’t see why private companies and funds that are much less integral to the functioning of the economy as a whole should be saved by the public fisc.
Sorry about your disruption.