If this were 2015 I would agree. But it's 2023 and thousands of software engineers are already struggling to find work after layoffs. Companies shutting down en masse because of SVB will soften what is already an employer's market for talent.

This may hurt specific founders and VCs a lot, but total damages (in the form of a softer market for engineers) may hurt the average employee more, even if they aren't directly affected.

It's even more of a threat if the whole sector you're employed in suffers simultaneously, as it becomes difficult to continue to be employed in that sector.

Why should you get my money?

(In the case of the company I worked for which went bankrupt — we were a fintech startup with a truly innovative and fantastic product. Our management made three bad decisions which led to our demise. Two were technical and would have been recoverable, the last was a strategic move which ultimately proved disastrous.)

Are you truly proposing that every time a bank fails we make everyone who kept money there take the hit?

A return to the 1920s, eh?

Why is the government involved beyond that limit in this case? Could it be they want to give the average person peace of mind while retaining the flexibility to handle a restructuring however they deem best?

I also think that similar to "FDIC insured" labels in bank branches, FDIC should require posting "13% of deposits are FDIC insured" to help assess risk for those clients that have uninsured funds.

This is no different. For example, how many business checking accounts are backed by money market funds to get a little interest on them? Clearly states in offerings that rates aren’t guaranteed and you could even lose capital. Same with the $250k FDIC limit - clear risk with zero forethought from these employers of hedging it with lines of credit, payroll/business continuity insurance, etc.

Those are things “slow” companies do, not move fast and break things companies do (sarcasm intended - I have worked in R&D in both types multiple times).

No need to prop up the middlemen with free insurance.

Taxpayer funded insurance.

What I wonder here is how many SV CEOs and VC partners are down with Biden's proposed hike on the capital gains tax rate.

> The DIF is funded mainly through quarterly assessments on insured banks. A bank's assessment is calculated by multiplying its assessment rate by its assessment base. A bank's assessment base and assessment rate are determined and paid each quarter.

I don't really see the big problem here.

Svb still has substantial assets. In the coming weeks, they will be sold and solid portions of the money returned. If companies have to temporarily furlough people, they will still get a reasonable wage that most Americans live on.

Subsidize my class on the backs of the underclass.

Let's solve the wealth inequality gap with more wealth inequality.

The owners of the bank aren’t being bailed out. The FDIC is only paying back depositors. That is the working class. This bank doesn’t just cater to big bad VCs.

When depositors lose their savings through no fault of their own the whole system comes crashing down. That won’t help blue collar workers.

Corporations have always split their cash into cash and "almost-cash-equivalent" liquid assets (like Treasury Bills). E.g. one can read any random 10-k corporate filing and there will be a line item for short term assets like "T-bills" because companies like to earn interest on their excess cash. The corporate treasurer is responsible for managing that mix.

But a company still needs working cash in the bank account for payroll and to pay vendors. The smaller startups may have not have enough excess cash to with bother with splitting some of it into T-bills.

I owe vendor $100k. I transfer $100k of T-bills. They are paid cash equivalent, no?

The obvious thing that comes to mind is I am guessing there is some lockup of those t-bills maturing? Wouldn't this make sense for the Fed (Or some government entity) to be the broker+last resort to allow conversion of t-bill to someone else at a cost of breaking the term?

Even though the t-bill itself would still exist until maturity on the Fed's side and now company A is able to always guarantee payment transfer.

I also don't understand this. Why can't the working cash be a loan from the bank secured on the T-Bills? Then the depositor bears essentially no risk because they have no net balance with the bank. Essentially, why can't companies' working cash be overdraft? That way it's the bank that bears the risk rather than the companies. That's the whole point of the bank!

I guess one downside is that the bank will apply higher funding charges for that kind of arrangement. Well, the depositors should suck it up. You have to pay a price for resilience.

I guess there are other fine points of corporate finance that I have yet to grasp, but I'm learning a lot from the comments on HN. Thanks for your reply.

Loans create deposits, not the other way.

In fact the problem of the US banking system in the last years has been that deposits have been increasing much faster than loans.

In relative terms yes, in absolute terms, they'd be lower.

> the problem of the US banking system in the last years has been that deposits have been increasing much faster than loans

Yes, it seems to be. "Too much money chasing too few returns", as they say.

Not really. The Loan-to-Deposit ratio is usually lower than one so if both double that means that deposits grow more than loans in absolute terms.

But banks have more deposits than loans even now. Because they need to get money from somewhere.

(Honest question, I'm curious.)

As far as I can see the banking system in aggregate has more deposits than loans:

https://www.federalreserve.gov/releases/h8/current/default.h...

The original question I was trying to answer was "If everyone gets cash from loans, who'll be the depositors putting cash in the bank to be loaned?". I just don't think that question is well-posed. A bank creating a loan requires new cash deposits of only R x loan_amount, where R is the reserve requirement. For making payroll this ought to be almost nothing.

Ok. That would be reserves. But it's not like some deposits are backed and others are not (leaving aside the existence of different kinds of deposits) - what you have is a total amount of deposits and a total amount of reserves.

But notice that it's not in the bank's interest to provide them or push them if they do. They would rather you trust them and provide them the cheap float.

Perhaps some near-fraudulent collusion between SVB, VCs and the executives of the banked startups then ...

Less so the executives, who probably did largely as their investors advise. Their individual business probably isn't that important on its own.

It's the VC partner who sees to it that 10 portfolio companies a year drop their capital raise into cheap deposits who really mattered.

the issue is that startup founders might have a lot of implied wealth based on the equity they hold and money raised but a "mainstream" bank is going to look at that equity, assess it as non-liquid and highly speculative and reject any loan applications

svb was more likely to extend personal loans to startup founders because -- in theory at least -- they better understood startup finance and they were incentivized to provide good service to prospective customers of their more business focused activities

In all seriousness, you don't want small and mid-sized companies having to think about managing their cash. They have better things to be doing.

I managed cash flow of my business through 2008. I worked through the recessions in the 90s and 2000s. When I was young, I worked for an employer who had seen banks fail in the Great Depression. He taught me not to trust a single bank. Nobody should.

Yeah, it would be nice if we had a well regulated financial system.

T-Bills are different than T-Bonds. T-Bills mature in weeks up to 1 year (4, 8, 13, 26, 52 week terms). They're a good way to assign your money you can't risk (like next month's payroll) while still earning interest on it and having access to it when you need it.

Anybody with more than $5 million in the bank should have someone dedicated to managing that money. If you don’t, then you’re not running a business properly. Startups like to skimp on important things like that and they shouldn’t. Any CFO with basic skills should be doing or arranging this depending on the size of the company. That’s literally their job.

It’s simply poor money management by the employer to assume you can toss $1M-$5M in a business checking account and have zero risk. It’s not a personal account and it is clearly over the FDIC limits.

Anyone with $250K net worth knows there is risk here. Even my 80+ mother who is NOT finance savvy knows about this $250k limit and manages her life savings in different money market accounts to limit her exposure.

Every payday I come down and they shell it out and put it in my hand.

Then a disgruntled but genius employee comes up with a crazy heist scheme and I get caught in the middle of it getting my pay one payday.

No idea what's going to happen with insurance since some people were expecting

I'm generally treating it as being laid off with no severance and looking elsewhere

Plenty of firms will buy the uninsured deposit claims at a discount. Taking the haircut to make essential payments is worth avoiding disruption.

> Perhaps they shouldn't keep money in the bank in the first place, but find other uses for them.

I work at a small startup that's raised five million dollars. Not a huge amount of money, but obviously losing all but 250k would be extremely damaging. You're talking about concepts of fiscal responsibility here, but then you're suggesting that businesses should deploy virtually all of their cash and keeping close to nothing in reserve. Our founders are extremely fiscally prudent and purposely keep a very low burn rate, which is exactly why that money is in the bank instead of being used elsewhere.

But there is also a risk question that companies are responsible for that I see is glossed over. No, you shouldn’t have to spread your business accounts to limit them to 250k. But you must know it’s not insured above this, just like a money market account is not a guaranteed rate of return or even guaranteed against capital loss.

I’m just spitballing, but for example what was the rate on a “money market” checking at SVB versus other larger national banks? If it was much higher, it immediately indicates higher risk in a business checking account at SVB to get those rates. You can see this way back with the old junk bond / Lincoln Savings fiasco of the 1980s, or with 2008 MBS, or CD accounts in early 2000s.

Investor not founder.

Id rather be in a world where businesses don’t have to spend so much time playing games with their bank accounts and just trust that their money is safe, which is why the fdic needs to guarantee the deposits.

Companies RAID-stripe the data on their hard drives, they can pay somebody to spread the risk in their finances.

(At a certain scale this eventually becomes inevitable. Google actually has a huge real estate and finances arm precisely because they have the kind of money pool that is impacted by things like nation-state failure and changes to the tax code in 50 states).

Well no, if all your deposits are below the 250k fully insured limit, then you don't have to worry about the banks collapsing.

No. I said that putting all the money in one bank account is not extremely prudent, which seems obvious given the circumstances.

I'm pretty sure that there are individuals paying attention to this, so I don't think it's too weird to ask businesses to do so as well.

There are many many banks that offer this . It doesn't even have to be a TBTF Bank

Infact, SVB itself offered and those funds are protected

https://pilot.com/blog/svb-faq

What about my cash sweep account? So, here’s the good thing about the cash sweep account: the assets held in the cash sweep account aren’t bank deposits or on SVB’s balance sheet—they’re held by a third-party custodian. So our understanding is you should be able to recover 100% of the funds there, regardless of what happens to the uninsured deposits at SVB.

I just think that if we look at it from the big picture - what's best for the country/society/etc. - that we're collectively much better off if a business that puts its money into a decades-old, reputable financial institution can count on it being there the next week.

(Also I do feel like I should clarify that I'm using my company as a kind of general example... I have no idea where our money is stored and I'm on paternity leave at the moment so just going to hang out with my new kid and hope this all works out).

From https://www.thehindubusinessline.com/companies/indian-saas-a...

SVB is no doubt popular, but YC makes no recommendations on any banks whatsoever in my experience

Lets take it another way. Why not limit FDIC insurance such that its harder to stack them and derive more benefit?

But that's not what people here are suggesting. People are suggesting to divide the funds so that it's all covered. That it was irresponsible of companies NOT to do that and hence they deserve not to get the full deposit amount back.

EDIT: yes it'll cost more money to split today. But it's a waste. The extra cost doesn't go to the FDIC or tax payers, it just goes to a middleman. So then why not just raise the FDIC limit? (or change the rules so you can't split it)

Instead of 3 people holding 1 account each at 1 bank with 750k, now I have 3 people holding 250k at 3 banks. Per bank it’s still 750k.

No, that's silly, and it's not standard practice for a business to have more than 1-2 accounts per country. Anyone here claiming their companies actually did that is just trying to earn internet points for something they didn't actually do.

It's absolutely not believable that guys on here are claiming that they founded "multiple startups" and had 10-20 bank accounts (or more) because they were hedging the risk of bank failure. It would be like someone saying they had 10-20 computers at home because they were worried about their CPU failing. It's so remote a risk that it's not something you fuck up your finances to hedge.

A finance dept is absolutely not going to put up with the BS and hassle associated with maintaining more than 3-4 active bank accounts (checkings, savings, and one or two interest-earning accounts such as a cash sweep that might not be covered by FDIC insurance), because there is a large time and financial cost to constantly moving money around to pay the bills. This practice also replaces the extremely small risk of bank failure with the much greater risk of embezzlement, misplaced funds, delinquent payables, and lost receivables.

The only way to safely store money in excess of the $250k threshold is through government bonds, with the selection of terms based on the forecasted liquidity needs of the business. The other options suggested here (like sweep accounts) aren't any better than FDIC-insured accounts, because in most cases the alternatives aren't insured at all.

Or, just like when the market tanks, you suck it up and get back 80% of your capital on deposit because you couldn’t foresee a money market checking account could lose capital even though it’s spelled out on EVERY SINGLE statement and offering letter from the bank.

Up to $250k per account holder per bank.

Most banks with a large retail deposit base are immune from bank runs. SVB is unique in that it didn’t have a large retail deposit base yet also had a bimodal customer distribution (financially sophisticated VCs and later-stage startups/enterprises and early stage startups which have the financial sophistication of your local auto mechanic).

No acquiring bank will want to touch SVB because of its lack of retail deposits - the risk of account holders fleeing at the earliest opportunity is very high. That forecloses one of the FDIC’s main tools for resolving a bank collapse - especially one of this magnitude.

So we have a very unique situation here: a large mostly commercial bank that, unlike most large commercial banks, has a bunch of mom-and-pop level customers.

I don’t know what the solution is, but hopefully it will go in the direction of minimizing impact on these small businesses.

You should question why $5mn was kept in a normal bank (with an unusual customer profile) rather than being placed in money market funds etc., or why the company didn’t insure the funds above $250,000

If you were to lose your job, there is a standardized insurance that kicks in that all Americans get.

You are demanding special, better treatment at the tax payers expense.

Look, everyone on this forum is going to be affected by this. I myself was laid off a few weeks ago due to the tech bubble.

It's still not right to demand other people's money and act entitled. We all get it's hard out there right now.

Ignoring the fact that millions of Americans literally have this, the taxpayers are on the hook for zero percent of the depositor restorations in SVB.

The actual question is should tax payers give a company that has ~4.5 million in cash and is worth some multiple of that some free money? And that should be an emphatic no.

Spoken like someone who has no experience with bankruptcy. The rule of thumb used to explain this to an unsecured creditors, before this happens, is -- dude, you might get 10 cents on the dollar. Employees are rarely made completely whole.

> as debts to workers are the highest priority in any bankruptcy case

Secured creditors have to get paid first. Then after quite a few other priority claims (attorneys, trustees must be paid, domestic support, etc.) employees are paid.

If this is the position you want to take, that's fine, but you need to own the consequences of that position. The point of the FDIC is that you don't have to worry about the credit-worthiness of your bank before deciding to do business with them. If that's not true anymore, then I'm pulling every dollar out of my local bank and giving it all to Goldman Sachs. Everyone else will do the same, and now you've destroyed small regional banks and make the biggest ones even bigger and more powerful. Was that worth it to "own the techbros"?

Banks are inherently vulnerable to bank runs, because they work with money across different time intervals. For example, a hypothetical small town bank might turn checking and savings accounts into mortgages. If everyone decides to withdraw their savings all at once, the bank can't call all the mortgages due. So if everyone panics all at once, banks will fail. So we try to regulate the risks taken by banks, and we provide government-backed insurance. To be honest, the last-ditch "insurance" behind most banks is sovereign power.

It has been a long time since companies have lost money in bank failures. Everyone has gotten complacent.

The failure of SVB means that a great many people are suddenly seeing new risks. Come Monday, I expect to see lots of companies moving funds. And lots of banks hold government bonds that have fallen substantially in value because of the rapid changes in interest rates.

I will be very happy if we get out of this with few bank failures.

If the company you work for suddenly goes bankrupt, you're much more concerned about finding yourself unemployed in a not-great tech job market than collecting your last paycheck.

Don't forget how systemic this is. If your company goes bankrupt, it's likely a lot of similar tech companies also went bankrupt.