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Comment by ummonk | Hacker News Reader

The tech sector has been withdrawing money in aggregate (because they continue paying payroll and rent but haven't been raising as much money recently) which increases liquidity pressure, and furthermore tech depositors are more skittish due to experience with FTX and thus prone to panic bank runs. They also have larger average account sizes, way beyond FDIC limits, which makes them more likely to need to withdraw money to protect their cash.

SVB did have some issues with losses but they likely were still solvent; the bigger issue was just a lack of liquidity and a sudden bank run - 45 billion (out of ~175 billion in deposits) was withdrawn in a single day before they ran out of liquidity.

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Huh, so at least one quarter of depositors will get 100% on the dollar.

Probably not if the assets are short. The FDIC can claw back withdrawals from what I understand.

How can they claw back withdrawals?

The bankruptcy code provides guidance for a 90 day look back period from the date of insolvency where transactions can be clawed back or must be repaid. The FDIC will talk to the recipient bank and get a court order to deposit the funds in to a trustee account so that all available assets can be distributed evenly and fairly.

They are very unlikely to do that to normal individual account holders. It would undermine the purpose of providing the deposit insurance in the first place.

I would bet many accounts had balances well over the $250k cap and had larger withdrawals that, if left completed, would reward the first movers in the run on SVB to benefit to a greater extent than account holders that waited.

I agree that people below the threshold won’t see claw backs.

If this happens then those who took their money out not only caused the bank run but didn't benefit having taken it out anyway!

That's probably the exact reason for the clawbacks.

Source? That's wild if true.

I might be wrong here. I think I'm confusing it with their ability to claw back executive pay. Under bankruptcy the court can absolutely claw back withdrawals, but an FDIC takeover isn't exactly a bankruptcy.

Replies by glasshug on a previous comment on mine might be worth reading.

https://news.ycombinator.com/item?id=35096418

I admit that I don't know enough to vouch for the validity of those comments though.

It’s possible to void past transactions, but usually due to fraud, favorable preference, or insiders. I think the preference rule only applies if it is the borrower (the bank) who decides who is getting paid. Making good on transaction obligations in the order they occur doesn’t seem like a decision of the bank.

Having a 90 day window before insolvency to void transactions would probably smooth out the insensitive to make a run on the bank and give the bank time to find funding. More people would keep money in on the belief they already missed the window, perhaps enough for the bank to to stay solvent. But if that money was used to pay salaries you’re now forced to extract it from people living paycheck to paycheck. Incurring an instant debt for the depositing company would be worse than losing access to cash and even more companies will be sent insolvent.

Instead I think banks should have to get full deposit insurance, if the risk premium is too high then maybe they should consider restructuring to be less risky. Instead they get a free ride by shunting risk to depositors which incentivize the banks to leverage up to the max risk they can get away with.

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