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Comment by hnfong | Hacker News Reader

> That's a lot but also means depositors get 80-85% of their money back

That's not what happens. Let's say 100 clients each deposited $1 in the bank, and the bank loses $20, so only has $80 to pay out when liquidated.

Let's say half (50) depositors withdraw their funds early, they each get $1 back. So now the bank has $30 in assets and has to pay 50 people. Suppose 20 people demand withdrawals, and the bank pays $20 to them. Now the bank has $10 and has to pay 30 people.

I admit that I don't know when/whether a bank can actually refuse withdrawals in such situations, or when bankruptcy proceedings are triggered, but the earlier you withdraw the less likely you're going to lose money, and the later you withdraw the more likely you'll lose a significant part of your deposits.

Sure your calculus still works out on average, but I'm not sure that means anything and it's no consolation for the ones that reacted last.

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You're also forgetting about clawbacks of preferential transfers that happened less than 90 days before bankruptcy. 11 U.S.C. 547.

I don't believe the bankruptcy clawback provisions you're referring to apply here, because this is an FDIC conservatorship/receivership, not a bankruptcy proceeding. I don't fully understand why this particular part of the processes differs, but I'd argue it's that it does unfortunate, as it incentivizes bank runs like this.

There is an extensive comparison of the two processes in [1]. Specifically:

> the Bankruptcy Code provides trustees the authority to avoid, that is, claw-back or reverse, certain transfers (subject to certain limitations52) made by debtors

> the FDIC as conservator or receiver may not avoid (i.e., reverse or claw-back) any property transfer pursuant to a qualified financial contract unless the transfer was performed with the "actual intent to hinder, delay, or defraud."

[1]: https://www.everycrsreport.com/reports/R40530.html

I do love a CRS report, but that was written before Dodd–Frank imported the bankruptcy code rules for preferential transfers into FDIC receivership.

> The Corporation as receiver for any covered financial company may avoid a transfer of an interest of the covered financial company in property [...] that enables the creditor to receive more than the creditor would receive if [...] the covered financial company had been liquidated under chapter 7 of the Bankruptcy Code... (12 U.S.C. 5390(a)(11)(b))

It also calls the 90-day clawback period out explicitly.

I learned something. Thanks!

This is precisely why we have the FDIC -- if deposits are federally insured, there is much smaller incentive for depositors to withdraw their money out of fear of a bank run.

250k per account.

Imagine all the big businesses with millions in the bank. FDIC will not help them.

"As of December 31, 2022, the amount of estimated uninsured deposits in [SVB] U.S. offices that exceed the FDIC insurance limit was $151.5 billion. [from total deposits of $173,11B]." [0]

[0] https://ir.svb.com/financials/sec-filings/sec-filings-detail...

2.7% of SVB deposits were FDIC insured

That's true, but it doesn't take that many leaving to fail the bank, so usually not many are able to leave.

We'll see what happens, but I would be surprised if more than 20% of deposits were withdrawn.

There are certain clawback provisions in such cases, however I don't know extend of them.

This isn't bitcoin world though, deposits are FDIC insured to stop this

Insured up to $250k. No guarantee there won't be a delay in withdrawing your funds once the Fed takes over.

After FDIC seizes the bank your funds are available the next business day up to the insured amount. Above the insured amount you have to wait a while longer.

Not to the amount that most startups would have in their account

The startup I worked for used SVB. While I am unsure if all of their money was with SVB, it was company that had raised over 100m. I wonder if there will be issues with paychecks going out. Surely they diversified their accounts, but who knows.

Deposits ate FDIC insured up to 250k per depositor per bank. Companies with > $250k in the bank need to take the risk that they really can lose that money into account.

Per bank and per account with different ownership categories, so if a company had multiple accounts in different ownership categories those would each be insured up to $250,000

Why would a company have different ownership categories for their accounts? Wouldn't all of their accounts be wholly owned by the company and no one else?

FDIC limits are low. Socialized losses can definitely happen past those limits.

A document I saw yesterday claimed that SVB had ~$160B in uninsured deposits.

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