Hacker News Reader

Comment by panarky | Hacker News Reader

SVB is not a typical regional bank taking deposits from middle-class workers, where most accounts are under the 250k insurance limit.

Banks that primarily serve ordinary workers typically have over 50% of total deposits in accounts that are under the limit, and are fully insured.

But for SVB, less than 3% of deposits are in accounts with less than $250k.

The cold, hard fact is that if the bank doesn't have sufficient assets to pay back depositors, no regulatory sleight of hand changes that fact.

There's a reason why large deposits aren't insured, and that's because the rich have the knowledge and resources to take care of themselves, and shouldn't co-opt the power of the state to force ordinary people to subsidize them when their bets go bad.

It would be hideously immoral to bail out fabulously wealthy VCs with funds from taxpayers and small depositors.

View on HN

> The cold, hard fact is that the bank doesn't have sufficient assets to pay back depositors

This is not obvious at this time. This is not a cold hard fact. They absolutely, undeniably had assets in excess of depositor liabilities at the end of Dec 2022. They incurred losses since then. The accountants are still accounting.

> and no regulatory sleight of hand changes that fact.

There literally is regulatory "sleight of hand" to do this, and the FDIC has a demonstrated history of doing it, many times. When banks like this fail, they shop the assets and existing customers around to other banks, and critically: will pay the acquiring bank to close the gap between assets and liabilities + provide liquidity while assets mature.

> There's a reason why large deposits aren't insured, and that's because the rich have the knowledge and resources to take care of themselves, and shouldn't force ordinary people to subsidize them when their bets go bad.

The FDIC is entirely funded by insurance premiums paid for by the banks themselves. They are not tax payer funded.

Your fear is causing you to spread misinformation and scare people more than necessary.

> ... absolutely, undeniably ...

Were these assets marked to market, or were there billions in unrealized losses even then?

> regulatory "sleight of hand"

When claims on the FDIC exceed premiums paid, they are absolutely backed up by taxpayers.

There's a cap on what deposits are insured, it's not a secret. Large depositors knew their funds were not insured.

It's not "sleight of hand" to shop the assets in the market, maximize recovery, and make all depositors whole if possible. By all means do this!

But using FDIC funds to bail out uninsured depositors, or monkey business with quasi-government agencies backed by taxpayers paying above-market prices for securities, or agreeing to accept below-market interest rates on loans is definitely "sleight of hand" to obscure a direct subsidy to extraordinarily wealthy people.

By no means should insurance premiums paid on insured deposits be misappropriated to bail out uninsured depositors.

Being able to trust in the stability of banks is subsidizing the economy, not just wealthy individuals. It isn't CEOs who got tossed out of work in 2008, it was't wealthy individuals who had a 27% unemployment rate.

Wealthy individuals constantly try to game the system. Not letting the games they play hurt the rest of us is an entirely proper role for the government to take on.

I think the problem is when those games don't hurt the individuals playing them. After 2008, most of those banking executives who screwed things up saw few consequences.

I agree that it's a good move for the government to use taxpayer money to prevent an economic collapse. But that's still the lesser of two evils: the government should be working harder to disincentivize the kind of behaviors that make wealthy individuals think that playing these sorts of games is worth the risk.

I'm not sure what "working harder" should entail (I'm no expert on this sort of thing; others are), but I think it's pretty clear they're falling short.

> The cold, hard fact is that the bank doesn't have sufficient assets to pay back depositors.

That's not true. As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. Even if liquidating assets forced a 15% haircut, depositors will be made whole.

If a bail out is necessary, it's likely in the form of a short-term loan to make depositors whole sooner rather than later. And, such a bail out can/should be structured as a loan with significant interest in which case it's not really a cost to taxpayers.

That $209 billion number was not marked to market. Their assets weren't worth that much then, and they're worth less now.

The cold, hard fact is that if the bank had sufficient assets to let depositors withdraw their cash, then they wouldn't be in receivership now.

You can argue that they actually do have sufficient assets, but they just can't access them right now, and we just need to wait ten years for bonds to mature.

But that argument only makes sense if you also say that large depositors should wait ten years to get their money out.

Naturally, a dollar that you might receive ten years from now is worth a lot less than a dollar you can actually spend today, and if regulatory sleight of hand obscures that essential fact to bail out the 1% of the 1%, that would be extraordinarily unjust.

Once again, my point is that your following statement is untrue: The cold, hard fact is that the bank doesn't have sufficient assets to pay back depositors.

It is not a cold, hard fact that they don't have sufficient assets. It's entirely possible that after liquidating their assets (on the time scale of months), they can make depositors whole even after factoring in the time cost of money.

Of course you're correct, nobody knows the future.

It's possible the $80 billion in mortgage-backed securities they bought yielding 1% and maturing in 10 years might be salvaged. They're now worth far less than they paid because interest rates are up to 5% and nobody wants to buy bonds that yield 1%.

Maybe this receivership will bork a thousand startups, throw a bunch more people out of work, and cascade into a larger recession, driving interest rates back down to 1%, and restoring the value of the mortgage-backed securities, and making the bank solvent again!

Or maybe a recession severe enough to drive interest rates back to 1% would also be severe enough to prevent homeowners from paying their mortgages, which wouldn't be great for the valuation of mortgage-backed securities.

Not unless interest rates plummet, no. The bulk of portfolio losses is from long term bonds losing value with the increase in interest rates. Allowing more time to sell doesn’t help you there, especially if you have to pay prevailing interest rates on any delay.

You’re basically saying the employees at a non-tribal number of startups should not be paid payroll because “fat cat VCs”.

No, I'm saying let the fat cat VCs fund the payroll, not a quasi-governmental fund backed by taxpayers that explicitly said uninsured deposits are not insured.

Reply on news.ycombinator.com