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Comment by rickreynoldssf | Hacker News Reader

This is bad. This is real bad. ...and I don't think we're going to know the depth of the badness for a while. Think the credit crunch that precipitated the 2008 crash. Though this will be localized to tech startups and it's only the kinds of people who read Hacker News who are going to be affected. A massive wrench has been tossed into the economic machinery of Silicon Valley and other tech hubs.

A bunch of companies now have no or little operating cash and all they're going to have on Monday is $250k each.

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That’s not true. The FDIC will be disbursing money above and beyond the $250k to account holders. It won’t be the balance of their account but they’ll also get a piece of paper laying out how much more they’re potentially owed. As the FDIC winds the bank down, it will use that money to make account-holders whole. The big losers are SVB shareholders and bond holders, as they’re going to get the biggest haircut.

ADP isn't going to take that paper to cut paychecks. AWS isn't going to want that paper either. The best you can do is take that paper and get a loan with a stupid high interest rate and that's not going to happen quickly.

I may be wrong but...

ADP could always take it at 90%, figure out the expected return and everybody wins

AWS could take it plus some equity for credits? I imagine the incremental cost of providing the compute is worth the risk

No one forces the economy to operate on dollars - and both traditionally and currently a whole lot of it doesn't.

ADP wont' take the paper but the cash advance sharks will and they're circling now.

Any private entity's risk assessors would place a massive haircut on those pieces of paper, if they would even allow them to be purchased.

The Fed is having an emergency meeting Monday. My guess is they loan the bank-formerly-known-as-SVB as much as necessary to cover depositors needs for the next year, and get paid back as the banks assets are sold off.

https://www.federalreserve.gov/aboutthefed/boardmeetings/202...

The FDIC will pay an advanced dividend next week. We have no idea how much that will be but it is probably conservative. Some companies may not be able to make payroll today or early next week. Some may not be able to pay their vendors for the things that allow their businesses to run.

It may only be a couple day disruption but what if your employees quit? What if your vendors cut your access and your customers leave?

What if you don't get made whole but get back 80% of your cash? Now your runway is 20% shorter in a climate where investors aren't around.

This could be very bad.

> It may only be a couple day disruption but what if your employees quit?

Even if they don’t, in California there is a statutory penalty payable to the employee of $100 to each affected employee for a first, non-willful late payment of wages (second or subsequent violations, or any willful or intentional violations, have a much greater penalty – $200 plus 25% of the wages not paid); that’s not a lot (if you didn’t happen to have a prior payroll hiccup bumping this into the “second or subsequent” category), but its still a hit.

> It may only be a couple day disruption but what if your employees quit?

I guess they don't have to worry so much about that what with all the tech layoffs over the last 6 months and with a lot of other statups in the SVB boat, who's going to be hiring?

Top people are always in demand - that's who you'll lose. The average performers you might keep if you get things sorted quickly enough...

> they’ll also get a piece of paper laying out how much more they’re potentially owed. As the FDIC winds the bank down

That will take months at least. In the meantime they'll have this non-liquid piece of paper. I suppose they could try to pay employees with IOUs, but I don't think that many employees would be able to afford to stick around for very long.

> It won’t be the balance of their account but they’ll also get a piece of paper laying out how much more they’re potentially owed.

Yes, they’ll get an “advance dividend” based on whatever surplus cash is available beyond what is necessary to cover the insured balances, plus a “receivership certificate” accounting for the rest, and, to quote the FDIC press release [0], “As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.” [emphasis added].

[0] https://www.fdic.gov/news/press-releases/2023/pr23016.html

Shareholders and bondholders will be zeroed out, that's not a haircut its a decapitation!

Sounds like an opportunity to provide bridge financing to these startups on the basis of their potential FDIC deposits claim?

Very high risk.

For sure, but that’s where the high reward is. Scared money don’t make money.

Is there even time for some lending entity to do enough due diligence to figure out which of the startups are even worth gambling on? That could take weeks or months. In the meantime payrolls have to be met, leases and light bills paid.

You aren't gambling on the startup if the collateral is the receivership certificate / advance dividend. Those should be quick to verify. Any loans up to $250k would be even easier.

Yes? https://news.ycombinator.com/item?id=35102196

https://news.ycombinator.com/item?id=35112410

Scared money also doesn’t lose money.

Inflation is always eating away at scared money. You can’t sit on cash forever

You could invest it in non-scary assets.

No one is going to make these loans until they have some idea what the underlying assets might be worth.

Some firms will make extremely low buyout offers knowing that at least a few businesses will have no choice but to take a massive unknown haircut or go bankrupt.

Nope, this is why we have the FDIC, most americans wont even notice

Did you even read the comment you replied to?

the FDIC does more than hand out 250k checks. They will find a buyer for this bank who can successfully manage its assets. and most likely will payout uninsured account holders at least 90 cents on the dollar. Probably even all 100 cents. Remember the bailouts the goverments made to banks on 08, we didnt lose a cent on those. the govt made money. We are gonna be ok

This isn't going to happen before Monday. Or before the AWS bill is due. $250k isn't going to cover most company's operating cash needs.

fair point. we'll see how it goes though, i dont expect it to be a banking collapse thougu

If the Twitter saga has shown anything, it’s that companies can afford not to pay on their contracts, at least in the short term. Amazon will give them a grace period because a customer paying a few weeks late is better than the customer going belly-up.

If your company's next payroll is more than $250k you're going to notice. Not even getting into accounts payable for various other suppliers etc.

I do thin Xe's right in saying "Most Americans wont notice"

How many of you are directly paid by the Valley tech sector?

It's the indirect effects that'll get you though. Consider my company has nothing at SVB, but 50% of their customers do. Still gonna be pretty bad when half your clients can't pay you.

Hadn't considered this. I work for a consultancy...

Yeah, but you're pulling that 50% number from thin air. How many companies do you think actually have 50% of their customers banked by SVB?

SVB had ~$200b in total assets, less than 1% of the total assets in banks across the U.S. alone.

There are definitely going to be indirect effects, but HN and other voices in early-stage tech are predisposed to overestimate the impact on the broader economy.

The article gave two numbers I didn't know about, and both came as a surprise:

> As at the end of 2022, it had 37,466 deposit customers, each holding in excess of $250,000 per account -- and -- The bank does have another 106,420 customers whose accounts are fully insured but they only control $4.8 billion of deposits

So SVB had only about ~150k banking customers. And of those, less than 40k are actually affected by this debacle. But those were concentrated enough to make SVB the 20th largest bank in the US.

Puts things in perspective.

Yeah. We're not an SVB client nor are we in Silicon Valley, but we're already auditing our accounts payable and client lists. It's likely we aren't screwed, but our contract accountant who told us to start doing this kind of bookkeeping said some of his other clients have massive counterparty exposure to this bank failure.

FDIC is only good for $250k per account...

The fdic is much more than just 250k per account

Can you expand on that? The FDIC per account insurance limit is definitely $250k. Are you saying that the FDIC has other protections in place, or something else?

Per account type per bank per depositor isn't it?

Is that different than "per account"?

Yeah, you can't just open multiple checking accounts at the same place.

Why not? I have 3 checking accounts at my primary bank.

And you get one account's worth of deposit insurance for them.

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