Note, one of the SVB executives was the former Lehman Brothers CFO in 2007, just one year prior to that institution’s collapse in 2008. What did he learn, exactly, besides how to get out in time?
https://www.foxbusiness.com/economy/silicon-valley-bank-exec...
I would hope these execs are prosecuted and any bonuses clawed back but that would be under the purview of a different agency (sec) not fdic, and is not an immediate concern, whereas a massive financial shock and 100s of companies closing due to lack of funds is.
> “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said on Face the Nation.
> “But we are concerned about depositors, and we’re focused on trying to meet their needs.”
I also don't know how refusing to make depositors whole would disincentivize bas behavior by execs, anyway? Seems like two unrelated issues.
It’s not that we punish the depositors but the scheme is set up that depositors suffer.
Imagine the mob stole all that money. It’s not punishing the depositors to not pay them back. The mob punished the depositors by stealing.
If I don’t buy homeowners insurance and some arsonist burns down my house, I’m out $100k to rebuild. Is it punishing me if the government doesn’t bail me out? The government isn’t punishing me, the arsonist punished me.
If we want government coverage then we should enact laws to cover this kind of thing and raise taxes and fees accordingly. We can’t enjoy the benefits of low regulation when it makes us money and then ask for coverage after the fact. After we’ve reaped the benefits of no regulation.
If you want to stop mismanagement like this don’t repeal banking regulations and instead regulate banks properly, that has nothing to do with that the fed decides to do for depositors to stop contagion and ripple effects in other industries.
The government has fdic and insures up to $250k. That’s what our taxes paid for. If we wanted to insure depositors for greater amounts, we would have paid more taxes.
This was an eyes wide open situation. Depositors could have managed their large sums of cash better. They didn’t, choosing to save money. Now it sucks.
Another analogy would be that if a couple skipped life insurance and leased a Porsche. And now the wage earner has been murdered and the remaining spouse is asking the government to pay for their dead spouses wages, while still driving the Porsche.
FYI, FDIC insurance coverage is funded by premium payments from covered banks, not from "our taxes".
The distinction here is that in this metaphor, the bank managers are both the homeowner and the arsonist.
> If we want government coverage then we should enact laws to cover this kind of thing
We already have. The uninsured depositors will be repaid from premiums paid to the FDIC by the rest of the banking industry.
How many global economic meltdowns do we have to go through before people learn that banks are literally the root cause of so many of society's problems? Depositors aren't being punished enough if they're still buying into this system. They keep feeding the beast and complaining when it eats them.
They're already required to do KYC/AML due dilligence on normal human beings. Why shouldn't they be required to do the same for the banks they trust their fortunes with?
Around the same time, analysts were commenting negatively about SVB’s earnings and liquidity position.
Please correct me if I’ve misinterpreted.
https://www.bloomberg.com/news/articles/2023-03-10/svb-chief...
https://seekingalpha.com/article/4573087-svb-financial-30-pe...
> Greg Becker used prearranged stock-trade plan to sell shares
He didn't "use a prearranged plan", a plan went into action and sold the shares. Becker had already filed paperwork to sell those shares at that specific time.
To my recollection, that was 10% of his shares. Becker wasn't planning months in advance on the bank smashing into a wall precisely a few days after he sold a measly 10%.
Even if both the CEO and CFO conspired to hide this, more than just them would know about the trouble and them conspiring to do this. Those individuals would now have no reason not to whisteblow immediately.
I find conspiracies, especially non-governmental, about large organizations incredibly hard to believe because of how difficult they would be to pull off.
It doesn’t have to be that complicated. Perhaps he saw that the bank was in trouble and made a decision to sell shares when the company was at a 52 week low. His calculus could just be: “with the information I possess, this price could go a lot lower.” He may not have foreseen an insolvency event, or perhaps he knew it was a risk that could occur sometime in 2023 and he should hedge it. Or maybe he just sold it randomly at a low price … because.
This is highly misleading. The bonuses were calculated/awarded from last year. The stock sales were pre-scheduled.
Everyone has always known that $250k is the max that's guaranteed to be given back to you, and the idea of the government paying back more out of taxpayer funds because a lot of VCs gave their startups bad advice rubs people wrong.
> Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors.
https://www.ycombinator.com/blog/urgent-sign-the-petition-no...
In SVBs case the 250k payouts will only account for 5% of the deposits. SVBs assets, while hampered, are still substantial. What do you propose is done with those assets?
“The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
But doesn't that hold true for basically every situation where private companies lose money?
If my employer goes bust, then there is also downstream impact. FAANG laying off workers also has a lot of downstream impact.
I think the lesson is also don’t bank with banks doing shady, dumb things. And that’s a valuable lesson that people with over $250k should already know and not need to be taught.
Yes. A decade and a half from a once-in-a-century financial crisis and we’ve already forgotten this. Corporate treasury best practices aren’t done for fun, they’re done because these are real risks.
So no I don’t think they should take “some hit”.
That VCs forced the small companies to operate in less safe way and gave them bad advice is 100% fault of these. I do not know why it was so, but this really seems like the case of "we want benefits of minimal regulation and getting better protection then everyone else gets from the goverment".
It does rubs people wrong when you are all about disruption and regulation bad, but first thing you do in case of failure is governmental bail out for large accounts.
The FDIC is in the business of protecting depositors. So it will pay out the floor immediately as a matter of course, and then will continue to use the tools it has available and the remaining assets of SVB to pay out more — perhaps 100%, perhaps some amount less — to depositors.
It’s not yet clear that won’t happen.
The rest of America hates Silicon Valley like they hate Wall Street
Well if you want to go down to the nitty gritty of it, depositors are competitors for stuff, especially in San Jose and San Francisco where every square inch of stuff (any stuff) is super-expensive.
The ones complaining and taking time to argue against any involvement of govt. in SVB are people and institutions who didn't hold any funds in SVB but think or have reason to think that their competitors do
This gets repeated over and over, but just like depositors have the highest priority to a failed bank's assets, so do employees of any failed company.
So, if a company goes bankrupt because it can't access funds stored with a bank, first stockholders would get wiped out, then debt holders, and only then employees (when talking about salaries already owed - of course, the company can fire staff to try to avoid bankruptcy).
I think most of America can’t even imagine having over $250k in an account. So people with this much wealth asking for a bailout is literally rich people asking for coverage because they did something dumb (banked with a bad bank, didn’t account for risk, didn’t insure, didn’t manage funds).
It’s not hate so much as it’s apathy and surprise as the ask for money. It’s like those millionaires who wept because they lost money with Madoff and they wanted the payout for all their earnings they had “made” over the years.
Not people. Businesses.
SVB, to my knowledge, mostly consisted of businesses with some well-off individuals mixed in.
If we want to punish rich people for the crime of being rich, SVB is likely a bad battlefield because zero-ing out its customers will almost entirely hurt employees who are generally not wealthy.
I don’t think we should punish the rich for being rich. But we should reward the rich for being stupid (ie, not managing cash risk).
These companies with cash flow issues have rich investors. YC and other VCs. They have ways to deal with this loss in the private sector. Or they can go out of business.
You would cover this through rotating receivables through accounts. And you’d likely have multiple accounts to avoid the $250k threshold.
My local bagel store owner talks about this and has different accounts for different purposes. And he banks with some national level bank and still splits money across accounts.
It’s not a good idea to have large amounts of cash sitting in single accounts.
If you have two employees then you don’t need much cash in an account at all.
If deposits aren't backstopped quickly, it won't be startups taking the main brunt of this - it will be other regional banks that see bank runs.
Are you genuinely making this comparison or projecting what this looks like to the average American?
The people who will be hit hardest by this aren't "dumb" depositors of SVB, they're employees and businesses that "banked with a bad bank".
Blame the cowardice of the VCs that triggered the bank run and the arrogance of the bankers at SVB, blame to a lesser extent the businesses that banked with SVB maybe, but don't tell me "serve's 'em right" for the employees who face furlough or layoffs.
If depositors with deposits above the FDIC insurance limit _are_ protected then there will be nothing stopping this from happening repeatedly in the future. Depositors that exceed the FDIC insurance limit should be taking a haircut so they learn to do better risk analysis of their bank or purchase auxiliary deposit insurance on their assets at a bank or both. VCs/investors in the companies whose deposits exceed the FDIC insurance limit should take a bath for pushing one specific bank with bad risk management. (How this fact escaped VCs/investors is beyond me. I'm not a risk manager or investment manager by any stretch of the imagination but even I would recognize that investment in long-term near-0% bonds would have nowhere to go but down.)
The fact that is stopping this - is the fact that only people who are earning money on risky strategies - shareholders - are being wiped the first.
Depositors are NOT investors and do not earn a premium on successful risky bank strategies.
If the depositors lose big then that will increase this fear going forward.
In other words, if all depositors are covered there is no longer a substantial fear of a bank run elsewhere. That’s how it stops it from happening again.
I'm not at all passionate about the depositors. I dislike them but understand that screwing them would ripple across the entire world. I dislike banks and corporations but having many/most suddenly bankrupt would not serve me.
When Netflix started sacking animators and animation studios to use AI startups instead, there are downstream impacts.
When bookstores shut up shop because of Amazon there were downstream impacts.
When Dell and HP lay people off because it's hard to sell against Azure and AWS, there are downstream impacts.
You're going to have a hard time arguing that the sector responsible for disrupting others' live deserves special consideration beyond what already exists - FDIC plus liquidated assets with a likely haircut - particularly when those companies appear to have been mismanaging their own money.
First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of a traditional bank it usually wouldn’t hit them hard since most funds are FDIC insured.
I can imagine being incensed about stockholders and debt holders being made whole, if that were to happen - since then people would learn the wrong lesson here. But nobody think that’s going to happen.
If depositors aren’t protected, then it’s going to have a lot of downstream impacts (people won’t make payroll, and employees who have no responsibility won’t get paid). And again, it’s not like folks who chose were gambling with a shady bank to get high interest rates, in many ways SVB was considered the least risky and most conservative bank to use as a startup. At least that’s why we chose it.