The decisions about "is this bank adequately capitalized to serve its depositors" should be made by the regulators, not by the market. We know what it takes to run a bank safely, and its really easy to both quantify and test. This is how the "too big to fail" banks are run today. No one talks about the moral hazard of elevators (make sure you inspect it before you get on) or airplanes (make sure you do your own pre flight check) we trust that the regulators have set up processes that make this infrastructure safe for the public to use. Even with a deposit guarantee, a poorly run bank can still be closed by regulators, a bank run doesn't need to happen for a bank to be shut down, just like an elevator accident doesn't need to happen to decertify an elevator in a building.

It doesn't take a CPA to know that depositing above 250k comes with increased risk. And I think you're kind of conflating types of consumers here. People depositing above that limit are generally not working from the same limitations and lack of information that regular people are.

Exactly. Circle and USDC are essentially a bank themselves, and those deposits were just guaranteed. Risk free return.

> People depositing above that limit are generally not working from the same limitations and lack of information that regular people are.

250k is not that much money. What a weird statement.

Feels like a lot to me. That's more than a year's wages.

Companies need to run payroll twice a month. $250k is about one months payroll to 25 people. Many companies are a lot larger than that. You also have planned and unexpected expenses and other payments. Many payroll and providers also require you to set up one account where the funds are pulled. You don’t want to move money around every week, so you keep heathy balance.

I don't disagree, but fwiw it's only about one month's payroll for 25 people if each employee makes around $200k per year.

Obviously people have different salaries but also are payroll taxes and other taxes or fees that also need to be paid like unemployment insurance and whatever else the local government has decided. Sometimes these are collected city/county as well as at state level.

Benefits also cost $500-2500/mo (if you cover 100% employee and 70% dependents).

Not complaining but just saying there are costs that are not always apparent to employees.

also rent, servers, the cost of anything else you have to run your businesses. For broadly generic tech companies, take everyones top line salaries, double them, that is your rule of thumb monthly expense line item that wraps everything up (rent, taxes, the cost of doing business, marketing spend, etc)

It’s also never adjusted for inflation, despite this mess in theory being triggered by raising of interest rates due to super high inflation. 250K when it was set in 2010 is the equivalent of almost $350K now. If we ignore that, then we’re just admitting the number is totally arbitrary and we shouldn’t even bother arguing whether it’s a lot or a little.

Separately, it’s weird that a joint account is insured to 500K but a business account stays at 250K. It actually does weirdly favor wealthy individuals vs. working capital accounts for businesses that might represent many employees.

It was set to 250k from 100k… That’s quite far from ‘never adjusted’ and quite a bit more than ‘for inflation’.

The sentence clearly means that it was never adjusted from inflation from when it was adjusted to 250K, 12 years ago. You can tell that this is far from being adjusted for inflation since it is now 100K off from what it was in 2010, or 40%. This should be a "neutral" issue with respect to the SVB thing, pegging it to inflation helps everyone in the system.

Yes, that is a lot of cash for an individual. I don't really know why anyone would sit on a lot more cash than that without at least putting a healthy portion into Treasuries or other durable assets.

For businesses, it is a trickier proposition but there are reasons that companies roll cash into assets and operate largely from credit.

That's more than most American will ever have in savings, no less

Consider financially responsible people in their 50’s and 60’s that have had decades to save. There are plenty of “regular”, middle class people with this type of savings in their account.

If you have that much in liquid cash, you meet virtually no definition of the term "middle class". You are upper middle class at leadt and you probably have a financial advisor who is telling you that you shouldn't locate all your money in one account unless it is yielding in a way that justifies such a risk. At least I hope you do.

Or you're just old and you don't believe in investing. Lots of people are like this.

I concede that edge case.

That’s a senior software Eng in LA’s annual salary. With five years of experience.

Yeah, that's actually about what I make but let's be real, this is a very small number of people. I have a financial planner.

Are there people in this asset class who aren't getting financial advice? Yes. But it's not like ma and pa kettle are getting wrung out by the savings and loan here.

It is more than the average lifetime peak retirement savings in the US (which will be in multiple accounts, generally).

And so the regulators are empowered to make a whole bunch of other decisions, such as asset and lending strategy.

I prefer to minimize regulators' control over decisions.

Perhaps you have noticed that regulators are at bottom politicians?

at the end of the day, everything in life is political.

Did you also consider that the political incentive for a regulator are at odds with the ones running the bussiness. (mainly, not getting people killed).

I prefer to minimise banking's influence over everything, because banking is itself a form of political regulation - but not a democratically accountable one.

Consider: “Reserve requirements are a tool used by the central bank to increase or decrease the money supply in the economy and influence interest rates. Reserve requirements are currently set at ZERO as a response to the COVID-19 pandemic.” ref: https://www.investopedia.com/terms/r/requiredreserves.asp

A mean reserve requirements are stupid and have no place in real risk assessment so that's a good thing.

How so?

I don't think it necessarily is adjusted for risk that specific banks take on as operators. It's likely set at some requirement to help the fed achieve its goal while also adjusting for median or 2 std dev risk.

At this point we should just nationalize the whole banking system. Currently we have the worst of both worlds: privatised profits and socialised losses; strict regulations but limited oversight or appeal; no real market competition but no real voter influence either.

we don't have "socialized losses". Tax payers aren't paying for anything here. The FDIC is run an funded by an interbank consortium. Its essential a union of banks that run a collective risk pool and decide the rules of the risk pool. It works and has worked for nearly 100 years.

> we don't have "socialized losses". Tax payers aren't paying for anything here. The FDIC is run an funded by an interbank consortium. Its essential a union of banks that run a collective risk pool and decide the rules of the risk pool.

What meaningful distinction are you drawing here? It's not practical to opt out of banking, and FDIC has no real competition (the NCUA offers exactly the same terms, and in the credit union thread fans were at pains to emphasise how equivalent to the FDIC it is). Not all taxes are collected by governments from individuals.

Cryptos?

People will be taxed for this through inflation. Where else does the money come from during a QT cycle?

I haven't looked into the details for how this will be paid, but that would be my initial guess.

Why isn't it. Pragmatically it's pretty silly to insure the first 250k and then expect people to go through the trouble of spreading their cash over a multitude of accounts. Punishing people for not having accounted for black swan events in their risk assessment is also not scalable. Do we want people to do useful stuff, or to spend their time digging the rule book to ensure they've accounted for every eventuality?

Also it's not like once you have 250k in the bank, you're suddenly a finance wizz, omniscient of all the tricks and tips with regard to treasury management. Even as you get into the low millions of net worth, it's not like you suddenly became a HBS graduate. A lot of regular hard working people end up hitting those limits and wouldn't reasonably be expected to learn about treasury-foo. A lot of young or small businesses are in the same lot. Being somewhat wealthy doesn't turn you into a fine financier. And even if you think those folks should hire advisors, it's not like they can afford to hire the right ones with this relatively small amount of wealth.

I think resentment of having gone through the pain of spreading your cash, in vein, isn't a good reason to screw up hundreds of thousands of salaried employees, and a bunch of regional banks.

>punishing people for not having accounted for black swan events in their risk assessment is also not scalable

For a country that seems hellbent on abandoning individuals of lesser means to the vagaries of fate, to frequently swoop in to save those already of better standing when misfortune strikes seems pretty hypocritical.

Sickness is still the most frequent cause of bankruptcy in our country. What social programs we have prickle with difficulties in gaining or maintaining access, seemingly designed to make life harder for those already forced through misfortune to require them.

Half our political establishment regularly suggests the destruction of even these, intending to leave individuals with nowhere to turn at all.

If you have more than 250k in the bank you should be smart enough to split it into multiple accounts or hire someone to do treasury management.

I've never run a large company but I feel like it wouldn't be feasible when you have transactions routinely over 250k, like how I'd imagine most of these companies would be with their payroll.

I think the solution to that is placing predence on the bank selection mechanism. You could audit banks' lending positions and make risk adjusted based decisions.

Lots of people have way more than that due to retirement accounts (which sometimes need more liquidity or people want to get out of the market so they have more cash on hand). Or even if you have a down payment on a house in most of the coastal states. 250k in the bank is not much money these days.

I just don’t understand this attitude. It’s 250k. We’re not talking about all that much money. Why do you think people with 250k should have extra knowledge or access to special advisers?

I think you're out of touch with how much money Americans have in savings

Vs say, 1k in savings or 10k in savings, somebody with >250k in savings certainly can pay some form of fiduciary

Well, it's not just individuals with their savings. It's businesses, too.

> Punishing people for not having accounted for black swan events in their risk assessment is also not scalable. Do we want people to do useful stuff, or to spend their time digging the rule book to ensure they've accounted for every eventuality?

So you want government to provide complete health insurance, after all. we want people to spend their time doing usefull stuff not studying the very complex intersection of all known diseases and medical beurocracy?

I do, in fact.

>So you want government to provide complete health insurance, after all. we want people to spend their time doing usefull stuff not studying the very complex intersection of all known diseases and medical beurocracy?

Yes, obviously. That we have the bulk of our population in precarious wage slavery under threat of medical bankruptcy at best, and a slow painful agonizing death of preventable causes at worse, is a crime against humanity given this is the richest country in human history.

But would the government run solution sacrifice personal freedom? After all, when you socialize costs, you get free rider problems.

Will I have to pay more if I'm obese? Can I get cut off the system for not taking a vaccine?

I'm hesitant to make the government a partner in my personal choices regarding diet, recreational fun like hang gliding, lifestyle choices, etc.

> So you want government to provide complete health insurance, after all.

Yes. This would be the single biggest boon to small business the US had ever enacted.

Yes, exactly.

>Why isn't it. Pragmatically it's pretty silly to insure the first 250k and then expect people to go through the trouble of spreading their cash over a multitude of accounts

How is it silly? From the perspective of the FDIC, if you have two seperate accounts (at 2 seperate banks) that represents a drop in risk. It's unlikely 2 banks with fail and now FDIC only has to replenish 250K instead of 500k.

I'm not following your logic here. If there's 10 people each with a $2.5m deposit at a separate bank each and they all spread their accounts to $250k in each of the 10 banks, the FDIC still has a risk of $2.5m per bank right?

How likely is it that all 10 banks fail at once?

Well, my example is for 1 of 10 banks failing but probably somewhat likely without regulations if people panic and start bank runs.

Think about this with some numbers: if there are 100 banks, and every business puts 1% of their cash into each bank, the overall risk is the same as if 1% of businesses put 100% of their cash into a random bank out of the 100.

The cost to FDIC if an individual bank fails is the same in both the above scenarios, even though in the first businesses put a lot more effort into spreading out their funds. It looks less like it could have less risk to the FDIC, but really isn’t making any difference.

The odds that 100% of businesses each decide to pull their money out of the same bank at the same time is less than 1% of businesses who invested at the same bank pulling out their money. Especially if they are in the same industry and know the same people urging a sudden withdrawal. Maybe even mostly located in the same geographic region.

But if the FDIC insures all deposits anyway, then there would never be a bank run to begin with because nobody would panic that they wouldn't get their money out, so spreading risk among multiple banks is a "solution" to an artificial problem.

It's a solution to a bank run because of fear of the banks going under. It's not a solution to a bank run because an industry needs cash quickly. For instance, Silvergate had a lot of crypto firms as clients, and in late 2022/early 2023 all those clients needed cash. You can imagine something similar happening in other industries.

I don't see a problem with a rule or regulation that limits individual daily withdrawal limits. That would solve that specific issue as well, and anybody who needs to withdraw more than that per day clearly has enough funds to have accountants that can coordinate across multiple banks.

10 people can go a few days without access to 10% of their money much easier than 1 person can go a few days without access to 100% of their money. And hopefully more customers means more scrutiny for each bank.

>How can you expect startup companies to spread their deposits across multiple banks?

But one year CDs from many banks and T-bills.

I've been a student of housing bubbles for a long time. I remember back in 2003 I was participating in an online forum covering the bubble. The conventional wisdom back then was that when the bubble popped not even the Fed or Alan Greenspan and his helicopters could cover the losses. The hundreds of billions if not trillions of dollars that would be needed would cause runaway inflation.

Then, they did it. The bastards managed to somehow buy tens of billions of mortgage backed securities every month for years. They bailed out automakers and banks with backdoor 0% loans while claiming the "investments" were profitable for the average citizen. Zombie Fannie and Freddie are still out there gobbling up mortgages. It's insane.

Money printer go brrrrrrrr.

None of this is surprising to people who know how bank money actually works. The US congress literally has unlimited nominal credit and practically unlimited useful credit, and it can grant same to any of its creatures.

Of course they could, money is a fiction after all. As long as we all keep walking around believing that fiction, there's no real problem with just inventing more money out of thin air.

The fiction has certain properties when it encounters the real world though, so there are sometimes downstream consequences, but none that could ever totally dissolve the fiction. Only enough people starting to disbelieve in the fiction itself could do that, and people mostly won't do that because money is too useful.

Well if I don't produce that fiction on demand for something called "taxes" I get put in a cage or even killed by men with guns. So I'm pretty motivated to go along with the fiction until the men with guns stop making me.

Indeed, we make sure the fiction is very convincing:

https://www.youtube.com/watch?v=PHnRXST5FUw

Sorry you had to spend like an hour opening a second account. But yes, not wasting people's time (not requiring small and medium businesses to hire CPAs to evaluate banks' books) is exactly the outcome the feds want.

I think you are wrong to not keep doing this (and I also don’t believe you’ll stop doing it unless it’s actually hard to continue doing, vs. the initial setup being difficult). I can tell you that after this I will start doing it. I don’t see these events as proving anything for the future. I have no idea what the political climate will be next time around, or any other factors. It’s like being down 9-0 in a soccer game and saying “hey, remember that one epic game we were also down 9-0 but then came back 9-10? Everything is fine.” What? No way. I don’t want my team down 9-0 at the half, ever.

BTW, in my experience many many people are risk averse in specific things they see that others don’t. It’s super hard to be an expert on everything. Talk to someone that knows about construction and they’ll have similar laments about home maintenance. Is it bad to “bail out” people that have their homes washed away in a hurricane? I honestly don’t know. But what I do know is that I’m definitely not jealous of them for making a silly location choice and “not paying the price”. That experience is not fun. I promise this episode was fairly disruptive even with this outcome. It is much better to look on from the outside than wonder whether a bunch of people you don’t know will save you. You’ll feel really bad if the next one isn’t bailed out because something is different and it gets you because you stopped doing something that aligned with your values just because of this thing this time.

The Greenspan Put was 37 years ago.

you should have just went to a private elite school instead of working hard your while life too. /s