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.