Perhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?
It is indeed quite common to hear aphorisms like "live every day like it's your last" which make the same point as your analogy, but remove the suggestion that the speaker could be a murderer and are thus much more analogous to the bank CEO's statement.
Obviously there are important differences between the scenarios, but that critical aspect is what‘a relevant in this context.
SVB's customers are weighted significantly more towards businesses who will have more than $250k in the bank. So, they have to be ready to take action fast, so a bank run on SVB is much more likely.
However, the FDIC covers all banks, and is generally involved with smaller banks fail and they are they to insure whatever balance the bank could not cover with its remaining assets when it failed.
I’m not actually aware though what the last incident they actually had to pay out was though. Looking through their historical data on bank failures every one I’ve seen says the insured accounts were assumed by another bank purchasing up the failing bank.
But worse, thousands of the individual depositors and businesses who banked at IndyMac were over the FDIC limits and they lost, collectively, hundreds of millions of dollars. The FDIC insurance limit at that time was $100k per separately-named account per bank; it is now $250k. And the $250k raise was, in a surprisingly kind move, purposely made retroactive to help cover some of the losses that people had suffered during the GFC under the previous lower limit.
And still, despite all that, lots of people lost lots of money when the bank went under:
https://www.latimes.com/archives/la-xpm-2010-may-31-la-fi-in...
If you have that much money, FDIC is not adequate for you (and isn't intended to be). There are other mechanisms for those sorts of depositors. Surely, those businesses got solid financial advice and are using them, right?
So, let's say you are a company with 4 banks accounts. Each has $500k in it. One of them is SVB. You probably just move the $500k into one of the other bank accounts. It's no big deal per se, but you do it. That's a run on the bank if lots of companies do the same thing.
JPM has assets of ~15% of GDP and has 66 million household clients.
I'll take the odds that it's too big to fail.
There are better options than playing these odds. Spread across banks, hold short term treasuries etc. Treasury functions at a company exist for a reason.
This is a chicken and egg situation.
Per depositor, per insured bank, per account category.
It’s not that difficult to keep significant excess deposits insured.
That's akin to saying my house won't burn down because I have insurance. Don't underestimate the stupidity of large crowds of people.
I still have cheques that say Washington Mutual on them; literally no disruption to my life when they started floating upside down.
This "don't underestimate the stupidity..." might feel like a clever or wise speech to give, but history suggests the FDIC has been incredibly successful at reducing bank runs. Insert "those who don't learn history...." speech here.
FDIC was invented for the great depression when banks were not as large or concentrated, nor were they as globally connected and intertwined with day to day business. The reality is that FDIC is far from being sufficient insurance to calm down a collapsing market, that's why we had to do bailouts in 2008, because of what was coming down the road in that regard if the contagion were to spread further.
I'm going to go out on a limb and say that that might not be common knowledge.
A run might be more likely for investment funds like Questrade and Fidelity if their customers liquidate their holdings en mmasse and move to cash deposits and CDs, which would be covered by depositor insurance.
Although the Assets, Liabilities, and Capital reporting available if you click "create financial reports for this institution" estimates 5.69% of deposits are insured. Is a corporate account limited to $250K of deposit insurance? If so, I imagine many of them may have much more than that, and the reporting does show almost 75% of the deposits are in accounts with greater than $250K, assuming I'm reading the report correctly.
yes
> The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. [1]
1: https://www.fdic.gov/resources/deposit-insurance/brochures/d...
An individual could easily have that much let alone a startup with millions.
and not that it matters but this is specifically about a startup or business not talking about personal finances of an individual
I'd much rather lose 0.4% of my money than lend it out at +0.01% to whatever checking accounts pay nowadays while they lend out to some asshole that does business with the bank.
Edit: It seems I am incorrect.
> The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank.
Per account "type" and structure. For DDAs if you are married it will be:
You: $250k
Your+your wife: $250k
You POD your wife : $250k
Your wife: $250k
Your wife POD you: $250k
My understanding is that this might cause an unwelcome surprise to (for example) someone with a personal account at Bank A, and a sweep account at Brokerage P that sends its funds into accounts at Banks A, B, and C.