Urgent: Sign the petition now
ycombinator.com
ycombinator.com
The banks had to be saved in 2008 because they were, like, the financial system. I don’t see why private companies and funds that are much less integral to the functioning of the economy as a whole should be saved by the public fisc.
Sorry about your disruption.
https://www.theguardian.com/business/2023/mar/11/silicon-val...
Edit: https://www.levernews.com/svb-chief-pressed-lawmakers-to-wea...
> Eight years before the second-largest bank failure in American history occurred this week, the bank’s president personally pressed Congress to reduce scrutiny of his financial institution, citing the “low risk profile of our activities and business model”, according to federal records reviewed by the Lever.
> Three years later – after the bank spent more than half a million dollars on federal lobbying – lawmakers obliged.
Don't ask taxpayers to fix your mistakes for you.
Here's the explainer for everyone else: https://archive.is/gmJxU
Not those who had bank accounts there and literally did nothing wrong to cause this or even contribute to it.
Surely you don’t expect everyone to agree with what everyone else has said just because it’s on the same site!
I don’t want to see this spin out of control on Monday when all those companies can’t make payroll and even more carnage ensues. This could blow up into a much much bigger panic contagion.
Maybe, just maybe, instead of us collectively trying to manage the latest collapse, perhaps we could impose actual requirements (not regulations) on banks. There have been 562 bank collapses since 2001. I doubt that many people who work outside of finance would think the balance sheets of those banks look like anything like what people would expect in a stable "bank".
It's insane that very few banks in the country can reasonably withstand bank runs. The reason? They have no money on hand, because they are gambling. Sure, the ecosystem would change, but that's not a bad thing.
https://www.levernews.com/svb-chief-pressed-lawmakers-to-wea...
Might help if you are paywall-blocked.
Yes, because that is how risk works.
> And that my deposit should vanish into thin air?
No, you should insulate yourself from that risk, either by spreading out your cash between multiple institutions, or obtaining deposit insurance beyond the government's, or (most likely) both.
Why would I do that when I can bank with a too-big-to-fail bank like JP Morgan Chase, Citibank, Wells Fargo, or Bank of America?
Unfortunately, many small companies and first-time founders can't get a business account at one of the big banks. Hence: SVB. I don't think this means we should automatically bail them out, though.
Why? I opened my first business account at Bank of America moments after I created the legal entity.
Opening a business bank account is straightforward. Unless there is a KYC issue, you can do it all online in minutes.
Sure, there's nothing wrong with that. It's still a nonzero risk, of course.
But it's also not necessary. You don't have to assess the soundness of the bank yourself, really. You can bank with pretty much any random bank and get the same level of safety. You just have to actively manage your risk, is all.
And - yes.
You chose that bank and you chose to deposit more than $250,000. Are you saying the limit should be higher?
It hasn’t to be this situation, but if your accounts are flagged for fraud or someone hacks an account, aren’t you safer by distributing cash in multiple banks?
On the topic of FDIC insurance and startups... I'll put in a shameless plug for a startup I helped launch 20yrs ago: *Promontory Interfinancial Network" https://www.intrafi.com/solutions/depositors/
It was a startup them (now acquired), and created a bank deposit product "CDARS" which took customer deposits and distributed it across (k = N/<FDIC Limit) banks and kept the relationship as a single bank with a single account.
Even cooler, as k other people did it at k other banks, the service would just swap deposits across all the banks. It was a super-cool and valuable product, and i'm proud to say I helped write the matching engine for it back in 2002.
I realize this doesnt help startups with locked funds at SVB, but I'm pointing out -- there are options out there to have 100% FDIC insured safety for both individuals and startups.
This is a rather specialized and technical area of finance, and like most technical areas, I imagine it's hard to search for unless you know the magic terms and jargon to search for.
Lloyds and AIG will insure just about anything, they'll happily protect $x million or billion for a nominal fee.
But to answer your question, yeah, I think the equity in a for-profit business takes the risks and rewards of capitalism as they come.
If the owners didn’t want to lose the basis points by holding cash in CDARS or liked the interest paid by SVB (approximately twice the median of other financial institutions), they probably shouldn’t have been trying to pick up pennies in front of steamrollers or expecting taxpayers to save them from the consequences of that freely made decision. Capitalism, baby.
Yes. That's the way this works. Or you can choose whatever risk mitigation strategy you're comfortable with: spread your deposits across multiple institutions, buy Krugerrands and bury them in the backyard, purchase 3rd party insurance whatever.
Take a look at https://www.forbes.com/advisor/banking/ways-to-insure-excess.... It explains several methods, including extra deposit insurance from CDARS, MaxSafe, Depositors Insurance Fund, etc. It also explains cash management accounts, credit union overflow, using multiple banks, and so forth. I can't help but think a good CFO or comptroller would be well aware of these.
(And as someone who's worked as the first employee of a startup, I can tell you it was while before we were able to get a CFO.)
Ultimately, people will have to accept that SVB wasn't as trustworthy of a guardian as some other banks. It appears that people were pushed into using SVB, because it was part of the VC ecosystem.
It's an individual CFO or Founder's decision as to whether to insure deposits or not, but claiming ignorance of the possibility is going to be ignored by a lot of others.
[1] fdic.gov/resources/regulations/federal-register-publications/2010/10c20ad66rates.pdf
Here is the complete list of DIF-covered banks: https://www.difxs.com/DIF/DIFmemberbanks.aspx
It's a short list, they're small banks, and they all have addresses in Massachusetts. Wells Fargo and Bank of America, for example, are not on the list.
The normal method for this insurance is to call an insurance company and ask for excess deposit insurance. This should be your first step. But, it seems very strange to me that you are beligerently asking people on the internet for financial information that you don't appear to need.
1. Understand How a Depositor Bond Works [1]
2. Depositor bonds for FDIC-insured deposit accounts [2]
3. Excess Deposit Guarantee Surety Bond [3]
4. Bond Penalty: Based on Coverage Requested Excess FDIC Limits [4]
5. Hello old friend – The reappearance of excess deposit bonds [5]
In summary, the Depositor Bond provides a third
party guarantee (from the insurance company who
is called the Surety) that deposits will in fact
be returned to the depositor. Depositor bonds
are designed to be “Excess FDIC Insurance
Coverage” and coverage begins at the point where
the $250,000 FDIC insurance obligation ends. [1]
[2] https://www.travelers.com/iw-documents/surety-bond/59375-dep...
[3] https://surety1.com/bond_info/excess-deposit-guarantee-suret...
[4] https://suretyone.com/bank-depository-bond
[5] https://www.cuinsight.com/hello-old-friend-the-reappearance-...
The other links say similar things. This is something banks can buy, to provide extra coverage for their customers.
People here have been arguing that SVB's customers were negligent by not purchasing their own third-party insurance. I think it's reasonable to ask them to support that argument, even if I'm not personally in the market. Supplemental insurance like that still does not appear to be available.
> I should just accept the impact of the bank shutting down due to events unrelated to my actions and choices?
You should hedge against potential losses, yes, absolutely. You're knowingly taking a risk. Just like every other risk in business, you determine if you can take the hit if things fail, and if you can't you arrange a mechanism that will reduce the damage to a level where you can.
It's just basic business management.
*Unless it's to bail me out.
if anybody holds the perspective that the govt should use public funds to save a set of companies because ma jobs, ma innovations, etc. in the venture capital sector it would seem that person does hold that perspective, at least enough to joke about it.
Unless you're making a more unlikely point that the government should be intervening all the time?
Those single moms living paycheck to paycheck, who you want to fund your bailout, would become part owners of YC
The problem is many of your peers in your space actively advocate, lobby, and spend lots of $$$ to reduce regulations whose aim is to try to prevent this sort of stuff. SVB themselves were pushing to be exempt from stress tests in Dodd-Frank, which they were successful at achieving back in 2018. If regulation is really a concern, why continue banking at a company that was actively lobbying to be exempt from regulations that already existed?
Anyways, I'm not gonna pass judgement either way. People make mistakes. However, it's a constant battle, and when ground is gained its easily lost. It's a tireless fight against monied interests trying to make more money in any way possible. People are going to understandably be frustrated at petitions like this.
Now, if these companies are willing to sign over warrants for 79.99% of the equity (like the banks did)… well, maybe there’s something to discuss. But otherwise reaping the rewards of capitalism while declining to take its risks - nah, I don’t think so.
If the real problem is the quality of the loan book, however, it calls the startup and VC economy into question.
We'll learn a lot more about this in the next few weeks.
Often when a bank fails they change the sign at the branch to some other name otherwise you wouldn't know what happened. In the 1980s there was a lot of bank instability in New Hampshire, my mom kept all the statements going back to 1971, the name of the bank changed numerous times and she was not inconvenience except when the mortgage was about to come due the bank said the original payment was miscalculated and she'd owe more payments. I told her to go tell the bank regulator about it and the bank came back with their tail between their legs and forgave her the last 6 months of mortgage payments.
When I was a student I was banking with an S&L in New Mexico that went under as part of the S&L crisis, they just moved me to a different S&L, it was no skin off my back.
So there's a good chance that the FDIC will manage this with a minimum amount of disruption... Bank routines are handled routinely.
To be totally factual, while the public did get paid back, part of the reason is that the Fed started printing money and buying bonds way above asking price to move the market. If you do this enough, prices naturally correct because everyone knows there is a buyer at a certain price and a floor price.
The downside is, well, all the printed money.
Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
There's also a real risk of bank contagion if it is only safe to deposit in the largest banks.
No one was chasing any yield. No one was taking any risks. It's a bank account.
Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
And what about all the other regional banks? Based on your comment, do you think the prudent thing would be for every single small business in America to transfer their funds out of regional banks into a large bank?
100% yes.
> ## Up to 4.50% annual percentage yield
> Help make your money last longer with our Startup Money Market Account. Like with a savings account, you’ll earn up to 4.50% APY on deposits — so you gain a longer runway. Certain restrictions apply.
So I wouldn't say that you could get 4.5% from a reputable bank at the moment.
When a bank promises to keep your money, then converts it for their own use and purchases investments and lends it to others… that’s fraud.
Yes? I do it with my personal after 2008
Golly, some of us even chose non-banks, and use local credit unions. There are millions of us!
Honestly yes. All it takes is one financial analyst's time. I do it with my retirement plan for example, and I'm only a "small business" of one family. If there was demand for such info, I'm sure there would be a small community/industry for evaluating bank books like there is for financial planners (if that might not even be something a financial planner could already do).
And particularly with Y Combinator advising so many companies, I think it's on the side of negligence that they didn't evaluate the bank they were steering their companies towards. They were steering them there because they knew that tended to be the only bank that would deal with their high-risk companies - and it's too hard to believe that professional VCs didn't recognize that such a bank could have a lot of risk in some dark corner to compensate.
It is by definition a risk for a corporation (or individual) to keep over $250k at a single institution ($750k if including SIPC-protected accounts). Reports are stating 97% of SVB's customers kept more than FDIC guaranteed limits. How can you claim this is not risky?
There is also additional insurance clients can purchase or the financial institution can themselves provide a statement they've purchased excess insurance for their clients.
>Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
If they're keeping more than $250k in a single account, absolutely, yes, I cannot be sure this is even a serious question.
Yes, this exactly why millions of people, not just businesses, avoid banks like Bank of America and Wells Fargo. They review how they have historically operated and what risks they passed on to their customers.
I remember going to a branch of Bank of America to open a bank account for Posterous and not being able to.
I mean, given the epic scale, herd-mentality of tech startup types to cause a $46 Billion bank run in a singular day (March 9th), can you blame them?
Its clear that other banks have seen systemic risk in focusing on this sector, and are pickier about choosing their customers.
-------
I get that this is a problem in any case. But the systemic risk / scale associated with the tech startup scene has just been proven to the world. "Other banks didn't want to take $100+ Billions in startup deposits" is beginning to look like the smarter move, given the circumstances.
Are you really saying BofA would not take deposits for you?
Would BoA have been more willing to open an account for you if your business already had one?
(understanding it may have had little to do with why they tanked)
You want your flock made whole. I get that. But are you also asking for regulators to kill the startup economy by shutting it out of banking?
I believe you, but this doesn’t make any sense to me. I have opened multiple business accounts at Bank of America. It’s just paperwork. If you have a dollar and a legal entity, you can open a bank account for that entity.
What was the issue?
To be fair though, in the US we've long established an expectation that if you have funds in a bank account at a registered bank, the government would back those funds
It's stupid to have set that expectation, but it seems very destructive to suddenly remove that expectation
There will be a cost to suddenly altering expectations, I guess there's a chance we might see what that cost is now (but probably they will just get a boring bailout)
I've known this since I opened my first bank account.
Not since around 2010. The ~2007 crash was not without consequence.
Silicon Valley Bank had nothing wrong with it's business practices other than they were concentrated in one particular industry, and a slowdown in VCs pumping money resulted in them shrinking deposits suddenly. They asked their investors for money, some VCs basically yelled fire in a crowded theatre and boom a 40 year old institution was wiped out in 24 hours.
America has thousands of banks, and the way you would have this work would shrink that to 5. This way of operation would also wipe out every single credit union. Literally none of them have the insane levels of stability necessary to trust with money, if larger accounts are going to be at risk of a bank run.
That 250,000 number hasnt changed in nearly a 100 years. Maybe it isn't what we should be going off of?
No, if you're not keeping more than $250k in the account, you don't have to do the homework. If you're keeping more than $250k in the account, you can afford to pay someone $1k to do a bit of due diligence.
Just my 2 cents on this strawman part of discussion.
$1k gets you several hours of an accountant's time to go through the bank's balance sheet and tell you if their interest rates and other perks are, in fact, too good to be true.
If you want to go the extra mile and try to move money around to keep under the limits, more power to you, but paying someone to occasionally keep an eye on your bank's balance sheet and make sure it's not going to collapse under you is totally within the capabilities of pretty much any company.
I.e. having a CFO who's on top of things might mean I'm first in line to get out once there are public red flags, but not everyone can exit an insolvent bank, so the macro result seems similar.
"SVB collapse highlights $620 billion hole lurking in banks’ balance sheets" -https://archive.is/qnwYh
Also short sellers worked it out a while back
"A Silicon Valley Bank short seller explains how he knew the bank was in trouble months ago" - https://archive.is/XaKkt
True, we’d need to look at previous filings to understand when it could have first been worked out
VCs should have kept a closer eye on where their cash was, but perhaps they were too enamoured with the benefits they were getting from SVB
For what it's worth, it used to be $100K and was increased to $250K in 2008.
Here's a timeline:
https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
> In the Y Combinator community, one-third of startups with exposure to SVB used SVB as their sole bank account.
So apparently two-thirds of startups in YC with SVB have at least one other bank. That might not be representative of startups as a whole, but is at least a good data point.
Most companies live and die by what most people would call arbitrary choices in things they wouldn't think of. I use more than one bank account for my personal finances and I don't even have 250k cash. Begging for tax payer money after the 10 year tech bull run we've seen, shame.
How true. You can imagine that most people have only a vague idea of what is supposed to happen and why. There are entire professions devoted to many aspects of life (eg Healthcare, law, education, finance, politics, software). Even if you are such a professional, you probably have a mere specialty within the breadth of a vertical. The vast majority of choices people make are gambles based on intuition, localized/anecdotal deduction, and the type of education someone has been exposed to.
Taking stock of what everything anyone knows is true and why, will take longer to explore than a lifetime. A company, as an entity, is worse off.
If you choose a bank because they were offering better products because they were taking more risks, why I should bare the cost?
SVB had $20 billion in unrealized losses. There's estimated to be $600 billion more in the banking system.
There's the problem: startups are doing an inadequate job of managing the risk around their treasury operations. That sucks, but that's on them.
I as a taxpayer do not care to bail out -- yes, that is what that is -- these startups, when they could have done a better job at risk management. I know some smaller startups that do have their cash at multiple banks (SVB one of them). While this is still a headache for them to deal with, it's not an existential threat. Perhaps more startups should be like that.
If you take a risk, you have to be prepared to accept the consequences of what might happen.
> Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
False. Companies live or die because of every business-related decision they make. Choosing a particular bank, and choosing not to diversify where they keep their cash, is one of those decisions.
It is not an arbitrary choice, svb was known for their risk taking behavior which is why so many risky small businesses landed on their lap
Rather than taking standard loans designed to reduce systemic risk, startups chose to use this bank because it allowed them to access capital more rapidly or in exchange for their own pennystocks, which ofc leads to increasing systemic risk and leads to the situation today
Sow winds and reap whirlwind
Why should a company, perhaps a slower and more risk-averse company who intentionally chose a different, safer banking institution to do business with, do they not get to benefit from their discretion in choosing that banking partner? One could argue that choice put them at a disadvantage against their fast-moving competitors, who chose fast-moving “corporate infrastructure” like SVB.
If bailouts like this take place, how do those companies ever benefit from being prudent? Should nobody bother?
(FWIW, this is just a thought exercise, I am not opposed to the petition.)
If your personal bank went out of business through no fault or gain of your own, most individuals would feel that it would be fair for you as the depositor should be made whole. That's the same with a business, and as important since this represents the payrolls of thousands of people.
Are consumers smart for doing that? Or are they dumb for even bothering, since it sounds like they should expect to be made whole regardless? Should consumer deposits not benefit similarly if these SVB corporate deposits are made whole? What dollar limit would you recommend the FDIC or CDIC (Canada) insure going forward?
(I ask because you comment on YC asking to advance banking regulation elsewhere in this thread, and I’m wondering what a good number should be going forward. Like, should the insured amount be $10mm, or $50mm, or what?)
But at the same time, you are also aware of the limits of your protection. If you leave all but $250k uncovered, you're willingly and knowingly taking a risk.
How is it fair to ask a bunch of people who had nothing to do with any of this to make the depositors whole from a risk those depositors willingly took? I really don't understand the ethical stance here.
If the choice was "arbitrary" then you'd expect startup banking to be distributed arbitrarily among the various banking choices in the market. Clearly that's not the case.
No, this was "the startup bank". It was the startup bank because it operated in tandem with the startup funding ecosystem (an entity of which the startups themselves are really just a small part). That's not an efficient market. That's more or less a cartel.
The VC world, YC included, is a toxic mess at this point. I don't see why a bailout is a bad idea, but... yeah, the startup ecosystem needs a reboot. Bail out the startups if we must, but nothing for the dealmakers.
What happens if the startup you're referring to is a bank itself?
Before the crash, YC, Founders fund and others could have raised money to stop the collapse but it seems the VCs just let the bank fail and now are begging to the US government for a bailout put on the taxpayer to foot the bill?
Absolutely NOT this time.
What on earth are you talking about? SVB had so many startup companies because they offered perks like mortgages for illiquid founders and high yield savings accounts funded by their poorly thought bond strategy, and, allegedly, because they were recommended to them by various VCs.
It’s not arbitrary, all these startups specifically chose to use SVB and chose to not hire a competent CFO or accountant who could tell them “lol no, bank account insurance isn’t free or infinite”.
This is one of the most pathetic pro-YC-startup-culture-nonsense posts I’ve ever seen on HN and that is saying something.
Why aren't these companies, and the VCs advising them, responsible for neglecting Cash Management 101?
There was a false choice there because there are multiple options that were strategically ignored by the people who own the banking system. The financial system can be replaced. The crypto people haven't been getting bailouts AFAIK and it doesn't seem to be hurting the ecosystem; we're running side by side experiments despite the best efforts of the powers that be and it is showing that in low-trust environments the system is actually pretty robust. The response should have been to get rid of the systemic inflation that incentivises people to give their money to untrustworthy institutions.
> Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round.
I personally feel this way. But as a matter of fairness, if banks get bailouts why shouldn't YC get bailouts? YC is a more deserving cause than the banks. This was always the problem with bailouts; it is grossly unfair that incompetent banks get a handout but potentially competent companies do not.
Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe. If this is not true, then most people will only bank with the largest banks. That's not a good situation.
We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.
And it's a lot of money (e.g. 30% loss on $200bn is about $600 per US resident household).
But I'm conflicted, because:
- the federal administration doesn't seem to care about moral hazard or changing the rules of the game retroactively (e.g. handouts to people who borrowed lots of money whilst they were enrolled in college)
- banking is necessary for companies to operate, and it doesn't seem reasonable for every business to become expert in managing counterparty risk
- bank regulation seems to have failed, and that's a responsibility of govt
- it's almost impossible to be neutral about this; if you're a founder/CEO you aren't going to feel you did anything wrong by choosing SVB; if you're a random taxpayer you are going to feel any obligation to pay some west coast companies because their bank failed.
Of course I don’t have all my positions in cash and I take into account the necessary risk/reward equation into account.
But then again, I would never work for a non public company where part of my compensation comes from “equity” and I sell/diversify all my after tax RSUs within 6 months after that vest. So I’m very risk averse about holding positions in any company I work for
This calculation really put it in perspective.
CEO of HN asks that every family in America send his friends $500.
Cocaine, mostly :P
Sounds like YC should invest more in mentoring their portfolio companies to manage their treasury correctly.
(And obviously actual losses are gonna be like 20% here, not 100%, but you get the picture).
"Regulatory backstop" sounds a lot better than "tax grandma to make sure out portfolio companies don't lose a penny of their deposits on this"
I'm not sure where you got this number, but it's different than what I've seen. Yes, SVB had $200B in deposits, but it had $15B in unrealized losses. The FDIC is probably contributing $12B as roughly 6% of deposits were insured. That means the gap is probably $3B if the government is to step in, which is very different than the $60B you're suggesting. If these instruments can't be held to maturity then the losses may be greater as many of them are illiquid and would have to be sold at a discount, but the government has the liquidity to avoid that.
I did a quick calculation based on:
- $200bn deposits (on which we agree)
- press reports that Jefferies and hedge funds are offering to buy claims at up to 70c on the dollar (suggesting 30% loss)
I imagined they would sell assets for the insured. And then sell more for the uninsured. If that process didn't cover the insured, they would bring money.
In this case, the insured are well covered by the assets, so the FDIC won't bring money.
We have a $12B difference of opinion here. Although, more generally, I agree from initial reports the assets - deposits gap does not seem to reach 30%. We should know more tonight and Monday morning.
Those deposits get first call on the assets. The FDIC only chips in if those assets aren't enough.
> Coverage Limit: All deposits owned by a corporation, partnership, or unincorporated association at the same bank are added together and insured up to $250,000, separately from the personal accounts of the owners or members.
> The corporation, partnership, or unincorporated association must be separately organized under state law and operate primarily for some purpose other than to increase deposit insurance coverage.~
https://www.fdic.gov/resources/deposit-insurance/financial-p...
> Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.
https://www.fdic.gov/resources/deposit-insurance/faq/index.h...
Most people - people - have far, far less than this. And it's fundamentally about protecting people - institutions, like we're discussing here, are supposed to be considerably more risk-aware.
I don't disagree that something should be done in the future to prevent this, but when you gamble, sometime you lose.
If they had deposited that 3B in, say two banks rather than one, they'd have 1.5B in that other bank
Use treasures bills if you’re that concerned.
-Purchase high-limit cash insurance from a Reinsurer like Lloyds of London or Berkshire Hathaway up to their underwriting limit, perhaps $100M. Do this across 4-5 different banks with 4-5 different reinsurers.
-Put the remaining $2-2.5B into mixed US Treasuries of varying maturities
If your entire business model revolves around moving multiple billions of dollars via an asset-backed stablecoin model, it's reasonable to expect you to have dozens of bank accounts, in at least 3 time zones, and likely more.
I don't know why people (not saying you specifically) seem to have this expectation any entity should be able to deposit billions of dollars risk-free at a single institution.
Ironically it's often the same people who can intuitively grasp why to hold your crypto across multiple wallets, who cannot fathom that infinite $ cannot be deposited at a single bank, without risk.
If you're leaving 7 to 9+ figures in a single account, then either buy custom insurance, or only do business with banks which offer excess insurance.
People here simply decided to not inform themselves or seek appropriate assistance and therefore got bitten
How do you even run a payroll system if your money is spread out between a dozen banks?
sounds kinda rich tbh
[1] https://news.ycombinator.com/item?id=27468549 [2] https://news.ycombinator.com/item?id=27654940
The benefit to the larger bank is that SVB’s customer base represents a large chunk of the most innovative sector of the US economy and beyond. And scientific and technological innovation is only going to increase in importance as a main driver of economic growth in the world, as the developing world becomes developed and their growth rates inevitably slow. Acquiring SVB at cost seems like a great deal in that regard, and stops a panic as nice side effect.
One one hand, end of December, they self-assessed that they had $209.0B in assets and $175.4B in deposits. Enough to pay everyone. [1]
On the other hand, they've suffered some losses. The regulator that closed them explicitly called them out as insolvent. [2] Possibly sloppy language, possibly they have relevant recent information.
I expect we know by Sunday night.
[1] https://www.fdic.gov/news/press-releases/2023/pr23016.html [2] https://www.cbsnews.com/news/silicon-valley-bank-sivb-stock-...
[1] https://www.theguardian.com/business/2023/mar/11/silicon-val...
Those who led all these entities from the same industry to bank at the same place must be held accountable too.
To my knowledge SVB was never required, and startups always had choice.
But I think this is worse. Bailing out individuals is one level, bailing out massive banks is pure corruption.
Nor does the lack of a requirement indemnify someone from responsibility.
Could be a selling point for alternative incubators in the future.
Perhaps being a part of YC puts you at greater risk from these events. Draw your own conclusion about the reason why.
If bank regulators move swiftly and ensure orderly withdrawals, his comments will go down in history as crying wolf, and that's putting it lightly
Exactly. And "don't put all your eggs in one uninsured basket" is the exact sort of 101-level business advice I'd expect the experienced hands at YC or any Angel investor to provide pretty routinely.
1) Skin in the game - GPs of YC / a16z / Sequoia / Founders Fund / etc put in some equity in to a joint venture to acquire SVB's assets and make depositors whole. Government will backstop some portion of it.
2) YC / a16z / Sequoia / Founders Fund / etc agree to support ending the carried interest tax exemption
Not if they know how banks work, and plenty of those depositors do. They know that there’s a risk to their uninsured deposits (that’s why the insurance exists!) and so they either account for that risk or play dirty and pretend, after the fact, that they didn’t know better and that the government should pretty please make them whole.
> If this is not true, then most people will only bank with the largest banks. That's not a good situation.
No. They’ll do what they’ve doing for a century: diversify banks and asset classes, sweep accounts, buy private insurance, etc.
Deposits are a loan to the bank. If the bank doesn’t have any risk of default on those loans, that’s no free and efficient market. That’s the government giving bankers free money to play with. We already do that for small accounts held by naive investors because the stability is worth it and they can’t be expected to afford the inherent risk themselves, but that can’t extend to all accounts.
If you have >$5m and you haven't done due diligence on this, I'd call that a failure on the part of the company (or its advisors, like the accelerator they're a part of).
Maybe the VCs should step in and make bridge loans available if they want to keep their investments? If you believe in your portfolio, why not help them weather the storm? Or are you afraid to be exposed to additional risk? Should the taxpayers take on that risk instead?
This is actually the right answer. Something something founders deserve their money because they take on all the risk.
Well, since we all love capitalism and meritocracy so damn much, let's see those at play for once, shall we?
In which law does the US say that your deposits are safe? You get insurance up to 250K. That’s it.
Why didn’t you mitigate risk by using a few banks? Even 4 would’ve meant only a 25% loss.
@garry, while it may be a reasonable expectation, it's always been very clear and _explicit_ that it's not a guarantee beyond $250k (or $500k).
What's more troublesome is that VCs and Y! have portfolio companies that either didn't understand this and/or didn't take the time to shore up their exposure to this otherwise very easily, manageable risk.
Open additional accounts, utilize CDARS, etc. -- there are so, so, so many incredibly simple, straightforward ways your portfolio companies could've mitigated this.
And yes, I agree with you -- the risk _was_ negligible. But it was risk nonetheless. And the fact that the mitigation options are _so_ simple but that your portfolio companies didn't do this really brings into question their ability to manage cash / risk management in general.
So then to ask for taxpayer money to bail out companies who didn't take the time, thought or energy to minimize exposure to this is what I think most people on this thread are pushing back on.
> We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.
In fact, depositors can _already_ prevent this from happening from themselves.
And frankly, if you say, "We're not a VC firm, we're an accelerator", that is a distinction without a difference. You give money to companies that need it. So do that and do not use mine or my family's money. End of discussion.
The limits to FDIC have been on physical stickers legibly and purposefully placed all over every bank for decades, and define reasonable expectation clearly, for decades, to all customers.
That reasonable expectation states insurance limits are not unbounded.
Was there any level of due diligence that could have warned people off of SVB?
> Was there any level of due diligence that could have warned people off of SVB?
Really no. A small business manager doesn't have time or expertise to read a bank's financial statements. SVB's did show serious problems but most businesses don't have the capacity to spot this.
But the answer to that is to not trust any bank for any long period when zero-risk options are available.
But surely smart VCs with millions / billions invested are capable and have capacity to do this?
It's bad enough to be asking for a bailout, at least be upfront that you're asking for a bailout.
Depositors do have a reasonable expectation that their deposits are safe. That's what the FDIC does: makes sure that 99% of people never have to worry about bank failures. For the 1%, well, it's time to put the big-boy pants on and accept sometimes in market economies there are disruptions. Something startup CEOs were perfectly happy to accept as long as it was other people experiencing the disruption.
No regulation can totally prevent this from happening to rich depositors in the future as long as the banks are capitalist institutions trying to turn a profit. There is no reward without risk. Arguing for zero risk is basically arguing for nationalizing the banks and creating a federal Boring Depository Bank whose job it is to just hold cash and that takes no risks with it.
Which honestly, it would be great to see the CEO of YC arguing for reducing the role of capitalism in key parts of the economy. But I'm guessing that the VC class's interest in tighter regulation is going to last exactly as long as it takes to get government subsidies, and then will go back to its previous extremely negative levels.
Respectfully, no sophisticated entity should ever expect their deposits to be safe beyond their insured limits. That is why businesses purchase insurance on their excess deposits, and/or use other financial products to ensure they have no excess deposits.
Frankly, YC failed to advise its companies in rudimentary financial risk management. Holding millions of dollars in a single bank account and taking no measures to mitigate the obvious, enormous, (and yes, unlikely) risk of bank failure is mind-boggling.
It is an elite class of people who banked at SVB. Most people bank with less risk-taking community banks or the very large ones.
Casting SVB as an underdog and the people who bank with them as helpless is upside down.
Many startups can survive taking the 30-40% haircut on their bank balances. Very few can survive their cash being locked up for many months (especially when there are many startups in the same boat.
The FDIC is planning to pay an advance dividend of uninsured deposits next week, per their press release: https://www.fdic.gov/news/press-releases/2023/pr23016.html
These "movements" are folks asking for normal processes to be suspended for the sake of that 5% or whatever and it's going to muddy the waters vs asking for the obvious "give us some liquidity now since you can immediately secure a huge chunk of it and businesses need it"
The big question is how much of the "run" has been paid, or will have to be paid at 100% because of transactions initiated before receivership. I also think 95% is a little bit optimistic from the get-go.
> They have been pretty clear that they want to do this.
An unspecified dividend at an unspecified time sometime next week is better than nothing, but it's still pretty toxic.
Market corrections are normal, they need to happen otherwise we just end up with a tiny group of ololigopolies with a free reign from consequences. Bad actors need to be punished.
The only way this sort of hand ours from startups needs to be just like the reaction to 2008 should have been: not punishing small/medium companies for the actions of a $200B bank and their like. YC has a reputation of being wealthy VCs so it does nothing to help this point.
Why does size matter? These VC funded "small companies" are so sketchy that they needed their own special bank to manage the risk, and now their special bank just failed.
It's not the government's job to protect the weird VC funded moonshot "business model."
Nothing about SVB's failure had to do with tech startups. It's entirely because their executives gambled on a giant ball of mortgage debt with the worst timing. And now tech companies are paying the consequence. Much like how everyone else did in 2008.
It's trendy to blame VCs and the tech 'bubble' but this isn't the time. And I should reiterate I don't agree gov should be excusing the bankers behavior to save tech startups.
People who invested in SVB should be wiped out, probably.
People who deposited in SVB should not be wiped out.
Depositors in banks aren't expected to do due diligence on the financial statements of the bank they're depositing in. Have you read the 10-K filings of your bank in detail?
It is expected that you manage your risks if you have significantly more than the insured amount.
smaller depositors should be ensured by the FDIC
you can, and should, have accounts in different banks if you have over a quarter million in US$
If you're depositing more than the FDIC insurance limit, you should probably do some due diligence and/or get private insurance for the risk.
If you have less than the insured amount you are not expected to do anything.
If you have significantly more than the insured amount you should do your homework and manage your risk. Anyone who was alive during the 2008 crisis should be aware of the problem.
According to Brookings, “Annually, venture investment makes up only 0.2% of GDP, but delivers an astonishing 21% of U.S. GDP in the form of VC-backed business revenues.”
https://www.brookings.edu/research/as-the-venture-capital-ga...
SV-style tech startups distribute more equity to employees than any other sector of business I know of and the average VC’s returns are worse than private equity, worse than the stock market and worse than real estate. You only hear about the biggest winners, but venture capitalists are taking on very long odds and the vast majority lose. More importantly, we all benefit from the advances the industry leads to—such as this wonderful phone I’m typing this comment into that can access and search nearly any encyclopedia, map or song in the world in seconds, from almost anywhere.
You might as well say Hasbro distributes more money than most companies because of all of the Monopoly games they sell.
If VCs make no return on their investment then they have just dumped millions of dollars into the pockets of startup employees and vendors.
I can trade my RSUs for real cash every six months after they are deposited in my account. I know the potential value of my next RSU grant every 15 minutes as it is updated on my Google Sheets.
The VCs make a return by diversifying their bets. But as an employee for a startup, you are not well diversified.
On a related note, Warren Buffett made a bet with hedge funds that he could have better returns just by investing money in an index fund over 10 years - he won
Cell phones were not created by tech startups.
Your suggestion is equivalent to saying that if I were to support hundreds of kickstarters for various board games and resell them for a profit to collectors over the years and then kickstarter imploded after taking on extreme financial risks, then I should bail out all the new customers of kickstarter who paid and didn’t get their games. It makes no sense. The people running kickstarter should take the hit, not some random other party working in their ecosystem.
SVB owners should get wiped out, not the people or companies who opened bank accounts.
But, much of the profits they made, and losses they are now incurring are both a consequence of the zero interest rate environment and it's current unwinding.
If the goverment bails out YC's companies, when they are successful later, who is going to benefit the most from that?
There are thousands of businesses using SVB. If they only know they have 250k coming in the near future, and can’t be sure they’ll make payroll, what do you think happens to all of their employees? Or the other businesses relying on their products? Or anyone they owe?
This is the second largest bank failure in US history, and for now it’s confined to a single bank and the cost to stop the fallout is relatively low.
If decisive action is not taken by the end of this weekend, it’s going to get much, much worse.
But what you're saying is the same thing: that taxpayers (random third parties who weren't even working in their ecosystem) should take the hit instead.
Spending taxes on preventing financial meltdowns from cascading actually makes the government and its citizens wealthier than not doing so.
What was your cash management strategy with your startup (assuming you have relevant experience)?
The consequence is, cash deposits for thousands of small businesses, are unavailable. The direct consequence is these businesses can't pay payroll, and can't pay vendors.
This isn't about socializing investor's losses. It's about making sure employees, contractors, and vendors get paid by fully backing cash deposits.
SVB's stockholders, on the other hand . . .
FDIC promises for the ordinary-people, everything will be uninterrupted. Checks from the older SVB accounts will clear, debit cards will work, money will be available.
> Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout.
> Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round
Where are they asking for that?
Edit: And of course, downvoted. Lol.
So no. If your bank can't make payments? Tough, it should close down and go into administration or whatever. Maybe the government can bail out individuals, but companies relying on said banks can deal with bankruptcy or closure like it was any other sort of business risk. Company can't pay a higher minimum wage (or a livable one)? Then deal with less staff, or shut down, your business model simply doesn't work and isn't profitable.
And if your industry is dying because of technology (like say, Australian media outlets with Google and the internet), then tough. Accept it's probably dead and either downsize, come up with a new business strategy or close down.
So many seem to want a dog eat dog system when they're winning, but beg for mercy when it goes wrong.
I’m the last person to feel sorry for BigTech employees (I am one) making $300K+ a year (I don’t. I’m not complaining) who got laid off and didn’t save during the good times (I have used almost every penny of my after tax signing bonus/RSUs toward “increasing my net worth”). But most of the people working at startups aren’t making nearly that much (?). Why should they suffer harm?
Could the CFOs at these companies known they were making risky bets (serious question)
Banks fail. That's part of life.
Every decade or two there is a wave of bank failures. It's a risk that should be managed.
No, but you should be aware that if you put money into a deposit account, and the bank fails, you are only guaranteed (by the FDIC) to get $250k of that money back. This is usually not a problem, as most individuals don't have that much cash, period, let alone in a single bank account.
But it's a problem for businesses, obviously. And yes:
> Could the CFOs at these companies known they were making risky bets
Absolutely! Putting more than the FDIC-insured max into a deposit account is an obvious risk that any CFO (or corporate finance person in general) will absolutely know about.
In the 2009 crisis the banks got bailed out because we were in the position of very nearly breaking the buck on money market funds. The interconnectedness of the entire financial system meant that we were plausibly looking at a situation where most businesses wouldn't be able to make payroll soon. ATMs could start to not give out cash. The whole short-term lending market was in danger of freezing up solid.
The lesson from that seems to not have been "we need to regulate things better up front so companies cannot make bets that place the system at risk and imperil everyone" but "fuck it, let it all burn down".
And we've got Republicans controlling the House that will drive the financial system into a brick wall hoping that they can blame it all on Biden and take over in the next election.
Honestly starting to think the right idea might be to stock up on food, water, gas and toilet paper like I'm worried about another pandemic and go bury $10k in the backyard. People have gotten fucking insane.
If you are saying that you should take additional personal steps to protect yourself from downside risks, the answer is yes. It's not a foolish way to live and in the long term, the benefits outweigh the costs, similar to being adequately insured.
If this very costly government is not able to guarantee the integrity of its federal reserve notes deposits, then what is its purpose? What makes it legitimate?
But, I am sympathetic to the employees and even the owners of the startups. They didn’t take risky bets. I couldn’t imagine spreading my business as a startup (if I had one) to 10 different banks and trying to manage all of the obligations.
It's essentially a business choosing to underinsure themselves.
Various organs of the government are claiming the authority to create and enforce financial regulations. And yet, cash deposits in government-backed currency at a 100% government-regulated bank can still vanish overnight.
Given the huge costs of maintaining this government, and given the similar benefits it provides to others (Wall Street bailouts, stimulus checks, student debt forgiveness, etc.), is it that unreasonable to ask what YC is asking?
Up to $250,000, which covers almost every individual and most businesses in the country.
You want to be bigger, you should be coming correct.
literally all the time, the entire country is shaped around the benefit of corporate interests and capitalism
They could easily have jailed a lot of bankers, and saved the banks.
They didn't.
HSBC alone pleaded guilty to over 1000 counts of money laundering, each one of which should have gotten someone 7-14 years in jail.
The government bailing out private industry seems counter to the maturation of private industry.
It sucks that the ones will who suffer the most have the least culpability in this situation.
Yes it’s bad. Yes it’ll get worse if no buyer at 100 cents to the dollar is found by Monday morning. And yet, literally everyone involved signed up for it! It isn’t like there aren’t other banks? The thing had a circus for its risk management office. The big mighty all-knowing VC firms shouldn’t go around crying like babies and signing petitions but be organizing bridge loans until FDIC, the most brutally efficient government organization known to man fixes this, which will be soon and for most, soon enough.
Please don’t make VCs look worse than they are and socialize their losses. You’re in the risk business, do your job.
Now the risk has shown its downside, Big Government is asked to bail them out?
SVB didn't fail because of "FUD", but because of a dumb decision to invest at the top. SVB is squarely at fault here.
I'd like to see a post-mortem or some sort of regulatory investigation to understand how it all went wrong. SVB had a risk management department, so what compelled SVB to make the decision that sealed its fate?
These are businesses who willing took a chance that their deposits might not be there.
So the message is: "Please shore up and reopen SVB, so we can get our funds out. Then you can shut it back down."
Key paragraph:
> "All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors."
The advance dividend presumably should protect most of the small-business account holders from imminently missing payroll. Presumably after that, there will be a secondary market in receivership certificates, and the question will be how much of a discount these trade at relative to the original account balances.
It's still a bad situation to be in, but it shouldn't be as thoroughly catastrophic as many seem to think.
The FDIC’s handling of the situation appears to be geared toward urgency and keeping depositors up and running. The advance dividend provides significant access to funds beyond the $250K limit.
The number of comments, Tweets, and even opinion pieces I’m reading from people who assume that all money beyond $250K has disappeared is concerning. The FDIC is rushing to provide access on Monday to substantial funds for a takeover that happened on Friday.
Depositors might take a haircut, yes, but the commentary about this being an “extinction level event” is just fear mongering.
I’m sure VCs and investors would love if the government stepped in and covered the remaining X% of missing funds when the dust settles, but the way they’re playing off of public panic to exaggerate the situation is starting to feel distasteful.
FDIC website indicates remediation time in the months-to-years. This is the concern.
In effect, it encourages concentrating deposits in a single bank. Benefits the bank, does not benefit the depositor.
So if you had "substantially more" than that, you should be financially savvy enough to insure your accounts and pay for the insurance on them as a cost of doing business.
That's why we insure anything - in case something happens.
So if banks offer more insurance for a fee, I can't easily tell how to do this. My business banking account has nothing about such a feature, either online search or looking at the fees schedule.
I'd consider this obscure, even esoteric information. But I'd expect a CFO should know this. And I'd expect a venture capital fund would have an info sheet on avoiding consolidating deposits in a bank, given the 2008 experience. And yet... nothing.
But I think it's not common because there are other treasury management strategies besides "keep all your eggs in one pure-cash basket".
> The FDIC will pay uninsured depositors an advance dividend within the next week.
This will likely be a substantial fraction of the uninsured deposits. Take a look at the FDIC website.
https://closedbanks.fdic.gov/dividends/
Pick a bank, say, "IRWIN UNION BANK & TRUST CO". The first dividend was almost 47% of the uninsured amount, and anoth 25% or so over a decade.
The failure of SVB as reported is not nearly as bad.
If a company still can't make payroll, they were pretty close to the edge. If the company is either profitable or very promising, they can look to their investors or providers of things like bridge loans.
If not, well, most startups fail, so it's all part of the game. But it's a good lesson for people in why profitability is more than just a nice-to-have.
This has real consequences. The FT reported this morning that companies are selling SVB deposits for 50%-65% on the dollar to make payroll. That is a HUGE mistake, but understandable for some 25 year old naif who's been told the sky is falling.
https://www.ft.com/content/3c6551ff-9778-4713-afc5-f87ba0bb8...
Most people will agree it's unfortunate that depositors might lose some of the money they deposited. It's also unfortunate if you get robbed or your business catches on fire. That doesn't mean the government is obligated to reimburse you for your losses. Next time, consider paying for more insurance.
Also, you're probably not losing all your money. You'll get back what the FDIC can recover, which they do for free, and most people guess it's going to be upwards of 80%. Much better than the result of robbery or fires that ordinary people put up with. You can also get a loan to deal with the short term, from your investors or from a bank. High interest? Deal with it.
Even in the worst case, people are working for startups knowing that they are high risk positions. You are much better off on than the average American, even in the worst case. Your personal finances are unaffected. Think before asking people poorer than you for money.
Note the complete lack of ANY contrition, accountability, etc in their communications on this.
Edit: Sources in my other comment https://news.ycombinator.com/item?id=35114110
[0] https://www.govinfo.gov/content/pkg/CHRG-114shrg94375/pdf/CH...
https://www.dailymail.co.uk/news/article-11847295/amp/CEO-co...
I googled that for you.
Demo days are great and pump the pipeline. Who’s doing your third party and vendor risk management across the portfolio? Who is doing and monitoring public policy? Rhetorical, not meant to salt the wound, I genuinely want YC to learn from this and do better.
Details matter — let's wait to see what y'all actually advocate when it comes down to writing actual regulations.
The cynic in me says this letter is less about bailing out the small companies trying to make payroll and more about the VC's not wanting to lose massive investments.
Absolutely not sure why these world beaters hacking everything under Sun need to be bailed out by some stodgy old institution anyway.
- Repackaging an existing codebase or business model
- ... as a black box
- ... attempting to rent it out
- ... with worse data privacy
- ... exploiting systemic economic excesses
- ... ... inflicting societal harm
- ... ... often with minimal upside to the consumer short-term
- ... ... or long-term
- ... colluding with large existing players
- ... ... to create a treadmill of declining product quality
- ... ... to facilitate government surveillance and information operations
- ... ... to "play defense" against competitors
It's kind of like how OOP was intended to stratify and contain developers, except instead of abstracting commodity PCs there's a whole different calculus which basically implies that the ultimate consumer of computing equipment is like, 2 or 3 big companies, because financing. You know how the old democratic saying goes, "none of us is as strong as the 2-3 permanent CEOs of reality."
Average Joe is swindled by con-men into bad deals and/or is subject to events outside his control: should have known better/worked more
Huge company in the business of risk management fucks up: bad luck, the taxpayer will cover you, no civil or criminal responsibility will come to anyone regardless of the magnitude of the fallout
Isn't it possible to think that both small businesses/startups and average joes deserve to be bailed out when shit goes sideways?
i also don't think either average joe or bigco necessarily deserve to be bailed out. if i see a tv on fb marketplace and send the asking price to the seller only later to find out that they're scamming me, should i be bailed out for that? if so nobody has any incentive to take basic risk-aversion precautions in economic dealings.
Sure! Either both of them or none of them, that's the point! But we see bailouts for "systemically critical" banks, but not for the average joe.
Right now, it is mostly a regional problem, since the “startup industry” did not diversify much outside the Bay Area, or the Pacific Coast. Industries with a broader national reach maintain a broader and deeper lobbying presence in Washington and thus get more Federal attention. Might be a lesson-learned here. Along with the most elemental due diligence in financial risk management.
I mean, if you can save the jobs of the people you funded, great. But, founding a startup is risky, blah blah blah... and losing a few or a few thousand hardly seems like a reason to call congress. At least no more than any other industry getting disrupted. We've seen, and perhaps you've been part of, putting huge swaths of people put out of work. Huge swaths of business out of business. Industries that came crashing down at no fault of the business owner, other than not being prepared for some an unseen stealth startup who leveraged prior institutional knowledge to come and take it all in a flash.
It's both. VCs don't want to lose their cash accounts and see their investments become insolvent. At the same time, it doesn't help society if all these workers suddenly find themselves jobless. There's also a risk of contagion. If companies suddenly discover their deposits aren't de-facto safe, they'll flee other banks with similar risk profiles, causing more bank runs.
Banks going under and taking lots of funds with them is bad because it undermines confidence in the system. It's financial infrastructure that's supposed to always work. Sure, if it doesn't, you can work around it, but it becomes a drag on the economy, and things start looking like a developing country.
There are potentially millions of workers under a great deal of pressure to not lose their jobs to some disruptor or another. Are we somehow less sympathetic to them than these tech workers?
SVB was well capitalized and while there could be losses here they should be small, especially given the FDIC shut down the bank pretty quickly.
I do think the government needs to resolve the deposits fast so every involved company can figure out whether and exactly how much haircut they’ll get and get on with their business ASAP. The big mistake I think the government could easily make is to let this take months to unwind, which would unnecessarily kill businesses that could be fine even with small losses as long as they get access to their capital restored immediately.
SVB's customers did start/maintain a run on the bank which caused the bank failure, so when SVB's customers are asking to be made whole beyond the well known and generous FDIC limits, it's a little sus.
It wouldn't fail if these VCs don't spread fears in the first place. Now they want their companies get their money back. They killed SVB and now want to act as victim.
Edit: I fully expect the YC sycophants to flag this story to hell and get it off the front page, and the censors here will come along with their canned finger wagging and admonishments of anybody taking them to task.
i have news for you lol.
VC needs a haircut to capital and ego. It’s obvious now that free money is the reason for their success, not skill. Everyone looks like a genius in a bull market and when the bear comes fact and fiction are split.
Don’t they already? Isn’t that where payroll is coming from? I would guess for the first two years (at least) half of startups are paying out of investors’ funding instead of revenue.
Would the taxpayer receive 10% equity in YC?
It seems like YC could have insured these funds, but didn’t. They saved money and accepted the risk. This risk is now realized.
Seems bizarre that YC would be made whole. Certainly it saves jobs, but it benefits YC more than anyone else.
Make that 30–50 and we'd have a deal. Fucked up and want the state to rescue you? Fine, but your business is now mine, future profits and dividends (evabled by the bailout) will be distributed to all Americans, not just the handful of owners of "your" business.
It's how the 2008 bailouts should have been handled, instead we got the biggest transfer of wealth from poor to rich in history.
That's 0.6% return on investment which is kinda poor but overall the bailout was profitable for US taxpayers.
> Pretty much. The Treasury Department injected $412 billion into banks, carmakers and other struggling companies through the Troubled Asset Relief Program, or TARP. As of the end of last year, it had collected everything it had paid out in bailout funds and then some, leaving the government with a profit of $12 billion.
https://www.washingtonpost.com/business/economy/a-guide-to-t...
(2018)
If I go unemployed for a few months and can't pay my house [1], unfortunately there's nobody to bail me out. I'll lose the house and go homeless, notwithstanding the fact that I'd be willing to pay that 1.5% interest over 10 years for a liquidity bailout for myself during those times. Unfortunately I'm not too-big-to-fail.
[1] Ironically, in the downturn caused by those very same companies we're talking about.
if we ignore the hundreds (at least) of billions $$$ that the fed created and flooded the world economy with, in order to make that $15B "win" possible.
of course it was mostly non-Americans who ate the gigantic costs, thanks to the dollar's unique status as world reserve currency. but that just makes it worse, from a moral hazard POV.
The same applies here: these companies would go under without state intervention, the very least you could do is gain a large stake in the equity of those companies, in exchange for bailing them out. That and criminal liability for the people in charge.
That money would not have made huge returns anymore than medicare does.
We _do_ gain from bailing them out - we tax them. We do not put business owners in jail for losing the risk game.
There are plenty of corrupt governments that do the sort of things you are suggesting, such as Russia. They are not considered effective economies and their corruption ruins their ability to be functional.
We discovered about 30% of YC companies would not be able to make payroll even after the $250,000 insured amount if they were to wait months for their payments. That is detailed on the FDIC website currently as the process for remediation.
This petition represents the lived experience of thousands of founders, and this is how we are communicating this is a real problem that DC needs to be aware of.
Again, this is not about saving SVB, the bank that made decisions that led to this, nor their equity holders. This is about saving innocent depositors.
Everyone knows that amounts over $250K were not insured. These are not "innocent depositors".
A lot of my portfolio companies are affected, but I will not lobby for a government bailout on their behalf.
It's not the right thing to do.
I 100% agree with you on lobbying for an expedient process, but if these companies have to take a haircut, they have to take a haircut. The strong will survive (and learn a lesson about risk management).
This is technically true, but I think there's a feeling that traditional banks are de-facto safe places to keep money. Depositors losing money in bank runs feels like a 1920's problem.
The lessons from 2008 were to look out for risks of an asset class failing and that packaging risky, correlated assets doesn't make them much safer. The lesson here is sudden interest rate increases can cause bank failures. This was a mostly unknown unknown.
What? It's only unknown if all you know about financial crises are from 2008.
A google search on "borrowing short and lending long" gives this in the first page:
http://www.bondeconomics.com/2015/09/banks-borrowing-short-a...
Where were the financial advisors for these companies, then? A big part of their job is to strip away "feelings" and talk cold, hard facts.
Let's be fair. They were innocent in the sense that the failure wasn't their fault.
What they aren't is naive. To the extent that they had deposits exceeding FDIC insurance, they were knowingly taking a risk.
Can you comment on what the many billionaires associated with the SV ecosystem are doing? Sounds like they have personal risk plus social responsibility, and (collectively) enough billions to bail out SVB.
It seems to me that there's a lot of investors who could individually pitch in a few million without really missing it, but whose collective action would go a long way to mitigating the knock-on effects of a bank failure on small firms that are not themselves int he investment/financial engineering/risk management space, and can't be blamed (much) for trusting that a conservative-seeming brick-and-mortar bank would safeguard their cash deposits.
I think it's laudable that you're going to bat on behalf of YC companies, but you've got to be conscious of how it reads to the casual onlooker. 'Chastened investors rally round to help startups make payroll' is a much better headline than 'VCs beg Uncle Sam for cash lifeline'.
It also seems odd that all 37k didn’t insure against bank collapse. That seems like systemic risk that they all took on.
I’m sure DC is aware of this problem. The issue is what to do.
It seems more fair to request that the government invest in these companies and in exchange for government cash, equity is given out. Or something of value. Otherwise it seems like the taxpayer is just covering the losses of lots of small business owners choosing to save money by taking on too much risk.
A small business is the donut shop down the street, owned by a woman and employs 3 kids.
NONE of the SVB clients come even close to that. Startups are not small businesses. Startups take on an intrinsically large financial risk, whether funded by the founder, with his/her own money, or via VC.
This is on them for not having identified this risk and/or not hedged against it.
I looked at the list of signers of your petition. All CEOs.
How about ya'll put in 1,000,000 of your bonus into this. Then we'll talk.
They'll get 40% back next week, enough to make payroll for a while, and another 50% later (possibly much later), and for that second part they can find someone with big pockets to buy them out early at a discount.
Sorry, a small business is a machine shop or hair studio. They don’t bank with SVB.
These are startups that get millions in funding for often very dubious purposes. There are a few gems among them - but let them stand on their own.
Or course, the real culprit is years of low rates and QE that has justified all of this. Time to stop.
What I don't understand is why YC itself doesn't allocate what appears to be a painful but survivable amount of its profits and bail out its own portfolio companies.
This would cost a few billion dollars... but they have it. Indeed, a notable number of individuals closely associated with YC could do it without breaking a sweat. Indeed, there's a strong argument to be made that this would be an excellent investment in their future hero/GOAT status, never mind ensuring that their beloved startup ecosystem continues to return huge profits long into the future.
I don't share the reductive views expressed in the comments. I strongly empathize with the founders and their employees who are not investors but depositors in a bank that they were told to use. The notion that startup founders could or should maintain a bank relationship for every $250k of operating capital isn't practical or helpful.
However, I don't think that going to the US citizens is a good look, either. This petition's core ask frames it as a binary choice when the third option is that YC itself should 100% step up and take this hit.
FWIW, my thought process (I should leave being a comedian to comedians) is that this is sort of like kids asking for their inheritance early.
- Silicon Valley
- Startups
- Y Combinator
- Current Events
Any one of those is an appropriate submission for Hacker News but altogether, it’s just … there is nothing more appropriate for HN. This belongs at the top of the front page where I encountered it.
Keep in mind the above is only speculation, but since the moderators haven't taken a public stance on this or clarified anything it's what I'll believe for now.
The balls to even try this, I'm enraged and the last thing I want is them getting more eyes.
This truly shows the disconnect we are now living in.
They said the quiet part out loud.
This wasn't an article or blog post talking about the out-of-touch CEO-bros having the lack of self-awareness to even attempt to have us bail them out.
This was a direct link to their 'petition'.
We've gone beyond moral hazard, we are now at the point where it's expected for tax-payers and poor people to bail out the rich when their greed finally catches up with them.
I definitely understand why you flagged it though, it just didn’t occur to me when I commented
So I agree with you in general. But in my opinion YC doesn't want the petition on the front page probably because they don't want to have to explain the comments to Congress or the press. Imagine asking for a bailout and having the comments here read out loud in a hearing. It's just not a good look. But you know what else isn't a good look? That this post was flagged, edited and restricted.
In my opinion they probably didn't want it on the front page with that title ("Y Combinator is asking for a bailout") because it looked desperate. I don't think that's why it disappeared though. Apparently some others didn't want it on the front page with the revised title ("Urgent: Sign the petition now") because they didn't like the idea that YC would get some special treatment (see https://news.ycombinator.com/item?id=35115948).
Weird story altogether, and some people who would actually otherwise be aligned ended up doing a bit of friendly fire.
Shame on you. This is a moment to remember.
Let's just bring back ol regular forums with just regular overlords (and pay them and place them on rotation).
It's well into the AM here but tomorrow I will spend a little time installing/building a little forum at this address: Oslo.eu.org
See you there, if you want.
Where's the sense of responsibility here? YC told their funded companies to use Silicon Valley Bank. It's YC's responsibility to find a market for SVB's assets. It's YC's responsibility to create a secondary market for SVB's receivership certificates.
In the case of students, they borrowed money that was not theirs, spent it and don’t want to have to repay it.
IMO student debt forgiveness has a major problem of essentially punishing those who did repay their debts and the many, many more who didn’t go to college in order to help those who borrowed and did not repay their debts. There’s an additional problem in that college costs are spiraling out of control, largely due to easy loans that students can never escape.
The solution I’d rather see is to let student debt be discharged via bankruptcy again. This would let people in a tough spot get a reset and it would also encourage lenders to be a bit more judicious and maybe even apply some downward pressure to tuition rates.
Their own money. Well... aren't these mainly venture capital based startups? It's not actually the money of the startups but rather the money of the VC funds. So the situation is more similar to student loans than you portray it.
In fact, the ideas behind VC startups and student loans seem very similar. In both cases, you have people who lack capital — the startup founders (some of whom are as young as students and may even be students) and the students — and people who do have a lot of money — VC funds and the government — give them money in the hope that it'll help these people make money in the future and pay back the investment.
> It might easily cost the government even more in lost tax revenue if the thousands of companies cannot make payroll due to a banking failure, thus forcing them out of business and their employees out of their jobs.
That's an argument to bail out every failing business. Why this one in particular? Why not every one?
Anyway, it's not the job of the government specifically to maximize tax revenue. If the government needs more tax revenue for some reason, they can raise the tax rates. But interfering directly in the free market is not the way to do it. Bad businesses are supposed to fail. It's morbidly funny how many people rail against socialism until they're the ones in need of assistance.
> In the case of students, they borrowed money that was not theirs, spent it and don’t want to have to repay it.
This is a very one-sided description, making it sound like the students stole the money. There are two sides to every loan, the borrower and the lender. The lender in question here was the US government itself. The government lent the money to people who could not afford the loans and who had no collateral for the loans. In other words, without regard for the ability to repay. If a bank did this, the bank would go out of business. But then by your own argument, there ought to be bailout. ;-)
> essentially punishing those who did repay their debts
How so?
> the many, many more who didn’t go to college
Forgiveness of student loans is not a punishment to these people. The punishment was the high college costs and society's requirement that job seeker have college degrees. Both debtors and non-debtors are punished by this situation; they just suffer the punishment in different ways.
> encourage lenders to be a bit more judicious
You're missing the part where the lender is the government. These are direct government loans, which is why the government has the power to forgive them. The government cannot forgive private loans.
No. They literally sold pieces of their businesses for that money.
The equivalent for students would be if instead of borrowing the money, they signed over a percentage of all future earnings for the rest of their lives.
There's no effective difference. Only the terms are different. Although if your student loan debt is large enough, you may in fact be signing over a percentage of all future earnings for the rest of your life. One of the biggest growing groups of student loan debtors is senior citizens.
Both a loan and VC funding are legal relationships between someone who lacks money and someone who has money. It's a trade of current money for future money. Of course it's always a risk, because the future money may never show up: the debtor defaults, or the startup goes out of business. Plenty of startups die for reasons that have nothing to do with bank failure.
(Note also that a loan holder cannot simply repossess the money if the loan is in default. The disbursed money is no longer theirs. At worst, the loan holder can sue to have the debtor's wages garnished by a certain %, maximum 15% for federal student loans.)
But the money over $250K doesn't exist anymore if the bank is gone. It doesn't matter what they would use it for. This was a risk calculation, people put more that $250K into the bank assuming nothing would ever happen, it did, and now people want all their money back regardless of the risk they should have been aware of. But the contract/rules depositors signed up for the money is gone. Now those companies want money that doesn't exist anymore. They were playing roulette with very very low odds, but odds none-the-less.
The tax revenue aspect is nonsensical when compared to student loans as you could quite easily say getting rid of student loans would allow people to have more money to purchase more things for the government to get tax revenue on.
Source: https://twitter.com/bhargreaves/status/1634245405205471245
"11 of 15 YC startups with IPOs bank with SVB. And 7 of those began with SVB Startup Banking."
"Silicon Valley Bank: The choice of YC game changers"
(The SVB web site is still up, for now. But logins are disabled.)
Again, it's certainly within your rights to flag this post but you're literally asking for an untold amount of money from the public while you're using what little power you have to stop the public from criticizing you.
Just try to not be a fucking hypocritical asshole for once.
“YC Is Asking for a Bailout”
Not a good look when there is a conflict of interest here.
That was solely because of the title.
Why are small tech startups building something new less deserving than say, giant banks that knowingly took extreme risks in 2008, or giant auto businesses that refused to modernize and truly compete with Japanese competitors in the 80s?
I think it would be refreshing to see a cheaper bailout of small and medium sized businesses actually innovating and building new things instead of giant incumbents.
Anyways, I'm not American so this doesn't affect me directly (not my money), but as an outsider I find it ludicrous how accepting everyone is being about mismanaged banks and companies that didn't do their due dilligence. I thought America was all about owning the consequences to your actions, but when shit hits the fans everyone forgets about it and comes back asking for help from Uncle Sam.
my bank does that. your bank does that. every bank on the planet does that. depositors don't have any say in what the bank does.
https://techcrunch.com/2023/03/11/silicon-valley-bank-collap...
The "Help us because jobs" line is just mendacious.
Let's not use so much lip gloss on this particular pig.
Many startups are just building some shitty apps that exploit labor in this horrible gig economy while they are kept afloat with VC money until they are dumped into the general public via IPO. This marketing fluff has no place here.
Venture capitalists and startup founders are playing the apex of capitalism. Failure and risk is part of the game. Being saved with taxpayer money is antithetical to that.
Also, it's on them if they only used 1 bank, and worse, it's a bank whose clients are all the same as you. So if there is an industry wide event, you ALL are hosed.
Guess those algorithms they've been building to push me 'relevant' information didn't push the 'diversify' notification to their CEOs.
Let them burn.
"Urgent: Sign the petition now" is easily the most click-baity post-edit headline that I've ever seen on hacker news.
The answer to a lot of our problems as a country is much stronger taxes on the rich. People who say otherwise are either wealthy themselves or under some delusion they eventually will be (lottery winner mentality). Luckily you can ignore them because they’re such a small fraction of actual people, they’re just loud online.
An industry so ideologically against government intervention in the free market should stick to their guns, even if the barrel is in their own mouth.
Live by absolute freedom, die by absolute freedom.
I'd be open to bailing them out if they allowed the US government to take significant equity positions.
Why don't the startups talk to their VCs who can talk to their LPs? They probably represent something like 75% of US wealth. I'd say they have enough money to take care of themselves.
This crisis may make deflation happen, if developer salaries deflate.
I'm an employee of one of these companies and I joined with the knowledge that it might fail, but with plans to bail quickly if it looked like it was heading that direction. Given the current size of the company I joined, I expected that to be on the scale of weeks to months, not two days.
(I do have the funds to deal with some amount of payroll fuckery, and don't plan to immediately do anything unless this gets much worse next week.)
This is not the ycombinator I knew.
While the fact that the bonuses were paid at the time does help underscore the level of malfeasance of the bank leadership, many of those receiving the bonuses probably didn’t know about the gaps.
From where would the money come from, US taxpayers? How is this different from asking for a bank bailout?
> Longer term, Congress should work to restore stronger regulatory oversight and capital requirements for regional banks, and any malfeasance or mismanagement on the part of SVB executives leading to this failure should be investigated.
SVB execs successfully lobbied congress to lighten banking regulations affecting them [0].
Their C sold millions of stock the week prior to insolvency (yes, these sales were scheduled in January, but execs would have been well aware of the impending liquidity crisis at the time) [1]
They also paid bonuses to staff hours before the FDIC shut down the bank [2].
I cannot sign this petition in good faith knowing the above, at least without these questions being answered: what is the mechanism through which depositors can be backstopped without bailing out SVB? What would be the source of this money? How does the ask differ from a bank bailout?
[0] https://www.theguardian.com/business/2023/mar/11/silicon-val...
[1] https://twitter.com/unusual_whales/status/163455502148748083...
[2] https://www.cnbc.com/2023/03/11/silicon-valley-bank-employee...
Move fast and break things. Am I right?
Note sure what happened but I don't recognize these whiny young techies. They're a fundamentally different than they kinds of tech people I grew up/old with.
Apparently everyone expects life to be all upside no downside.
SMH
Less regulation equals more cases of failures like SVB.
Striking a good balance is hard. It‘s certainly not zero regulation.
Are Wells Fargo or Bank of America not hip enough?
A bank should be like a gas station, you go to the nearest one given that the pruduct being sold is essentially all the same.
I think that what happened is that founders weren't the one opening the accounts, the VC industry took it upon themselves to streamline the process in order to free the founders of the 'burden' of having to provide the documents etc. So it was the legal office of VCs doing the opening and they were opening with SVB because VC funds are incestous and they have zero geographic and ideologic diversification in their non-portfolio business relationships. So they all end up using the same law firms, banks, consultants etc. Same reason why they all sits on each other's boards.
Every big bank surely has the receipts by now and they can check the sender as well as the cause for the wire (which should always be added) .
A 2.5M wire with sender being 'Founder Fund' and cause being 'Equity investment' will get the green flag even if the account is 3 months old or less.
Monday - $250k unfrozen
Wednesday or Thursday a huge amount of funds will be unfrozen from proceeds from FDIC big selloff of SVB assets yesterday.
Balance should be available in 2-3 months but will require a process.
This isn't going to be the big catastrophic event YC are pushing.
Although I do understand the fear.
The strangest part is there's no 'vouch' button, which is typically/always available on flagged submissions.
And fuck that, if I’m being blunt.
I agree the current title is not appropriate.
.... which is maybe a weak signal that nobody's biting yet and YC feels the need to escalate to actual government money ASAP.
...with the federal government taking equity in return, at the last valuation, diluting existing owners.
That would let the businesses keep running, without the "privatize gain / socialize loss" merry-go-around.
If you need $100k next month to meet payroll, and you had it deposited in SVB, the Fed will cut you a cheque for $100k, and in return, receive $100k in equity at the more advantagous (to the Fed) of your last valuation and your next valuation.
Nothing bad will happen if these startups run into issues. The most solid will have revenue, they may have to get a loan. The less solid could layoff and raise more. Some might go bankrupt, but that’s part of the risk.
Sometimes people get fired, no back pay, and they have to make it work. In way of a different example, imagine a farmer losing his crop & tractor in a storm. They have to make it work.
Companies are really no different.
Edit: my opinion reversed. I actually with the replies here. It is effectively what YC is asking for. It’s a matter of choosing who suffers: investors or private home buyers? Because Mortgage Backed Securities have been screwing individual home buyers for years.
Sincerely, us
How about the shareholders of Silicon Valley Bank pool Their resources and bailout Silicon Valley Bank.
Taxpayers have zero responsibility to lift a finger to put one penny into this failing bank. You all should have understood that a bank can do foolish and stupid things with your money when it's too big to fail.
"YC is asking for a bailout" to: "Urgent: Sign the petition now"
??
I don't like neither title. If I has infinite power, I'd use the other part of the title, something like "Petition: Thousands of startups and hundreds of thousands of startup jobs are at risk"
This problem is found everywhere where humanity organizes and cooperates in groups. It’s in no way unique to SV, tech, or any other field. It’s also the dominant style in the corporate world, such as "Go along, to get along".
Also, it is not a good look with SVB's CEO personally lobbied to be excluded from stress tests that more than likely would have prevented SVB from YOLO'ing on 10 yr duration MBS.
We need to get to a point where asset reporting is weekly, or ideally daily, so risks are out in the open.
When you're a startup founder, you have to focus your efforts on the unique problem you are trying to solve.
For generic problems like "which bank should I use" taking a shortcut like "the one my peers are using already" is generally a great idea - saves you from having to waste your time investigating options that usually don't make a material difference to your business.
P = group makes better decisions than individual
Q = there’s no downside to everyone making the same decision
P && Q => yay groupthink
~P && Q => could go either way
P && ~Q => could go either way
~P && ~Q => groupthink is bad
P.S I mean for “not obvious” to be load bearing. Upthread, someone says SVB is much easier to work with for founders. If so, maybe it was a reasonable decision. But if so, that’s on the merits (aka P && ~Q).
I'm saying that, had this situation not happened, defaulting to "what bank do other companies like us use?" would have been a perfectly reasonable strategy.
Also, I’d really say that founders probably weren’t the ideal people to be thinking about this risk, VCs were. If you advise a portfolio of companies, you’re better positioned to think about broad risks.
When you're a founder, the unique problem that needs to be foremost in your mind is the business. You don't make business decisions based on "this is what everyone around me is doing".
If you don't have the time, talent, or energy to get into the minutia of running the business, you do at least hire good people who are into that sort of thing. Good people who do things like analyze situations, determine best approaches, etc.
> taking a shortcut like "the one my peers are using already" is generally a great idea
No. That's a really dumb idea. Is that really a common approach in SV startup culture?
Yes, absolutely.
As a founder, especially at the start of your company, you're responsible for _everything_. You need to figure out how to do product roadmap planning, and sales, and marketing, and hiring, and HR, and run payroll, and work with investors, and manage an office... anything that can help shortcut a decision that isn't fundamental to the unique opportunity your business is going after is very welcome.
Where an established company might have a whole role (or even a whole team) who are responsible for selecting a bank account, you need to get one setup RIGHT NOW because you just landed your first investment check and you need somewhere to put it!
Have you seen the TV show Silicon Valley? There's a scene in the first series where they've just landed their first cheque, but they don't have a bank account yet so they have nowhere to pay it in!
This happened to us when we founded a YC company back in January 2011. We went to the Mountain View branch of Silicon Valley Bank because someone told us that they would know what to do with us. They sorted us out.
We did not pause for one second to check who their Chief Risk Officer was.
I know, I've been a founder more than once. You are responsible for everything. When it comes to the things you don't have expertise in, or don't have the time for, you need to bring in people who do. I wouldn't even begin to entertain the thought of starting a business without having an accountant and attorney at least on retainer.
> you need to get one setup RIGHT NOW because you just landed your first investment check and you need somewhere to put it!
Those checks don't come without you knowing they're coming, though. Surely you'd have already have made a plan for what you're going to do with them.
> We went to the Mountain View branch of Silicon Valley Bank because someone told us that they would know what to do with us.
You had no actual experts to consult about this?
My general understanding is that with many banks, if you walked in and said "Ya a bunch of people gave us $10M, and we're basically going to be cash flow negative for the next decade, will run out of money unless people invest again, and we're 90% likely to be out of business in 5 years", they'd likely not want to work with you. They especially wouldn't be offering you additional lines of credit.
SVB on the other hand seemed to be understanding that the business model of SV start-ups was different than more traditional companies, and was a lot more willing to work with them and accept a level of risk.
It sure seems now that the risk associated there didn't necessarily work out (perhaps the biggest understatement I've made in a long time), but that's the reason that so many businesses in the tech start-up/bay-area used them.
As to why they used it solely, I can't answer,m but I've heard that raising debt from SVB required you to keep the majority of your account holdings with SVB (which really doesn't seem that unreasonable)
Yes, they allowed non-US founders to open a bank account for their companies. They weren't the only one, but many other banks won't do it.
Not sure why startups used it solely, but I can see why startups used SVB. One great reason is that they provided lines of credit to startups and "got it", understanding the typical business setup and risks of a startup and was able to underwrite the LoC.
I used Chase bank for my startup and they would have chased me out with a pitchfork if I even inquired about a Line of Credit, even if it was a pull-forward of predicable SaaS revenue.
yeah, they gave the company insane terms for additional cash and sweetheart deals for when your founder or buddies needed a mortgage. No wonder everyone used them.
"we are asking you to save innovation in the American economy."
be nice if so much of this innovation wasn't about destroying american workers, spying on americans, exploiting developing world labor, and controlling the public mind in new ways.
Those are the ones with all the money at stake. It’s the VCs money that is going up in smoke, and it’s their portfolios that are going to take a huge hit when all their bets go poof at once.
Let it happen.
For example: “We have a simple request” instead of “We have a simple ask”.
"Ask", "Spend", "Solve". It makes people sound stupid.
I believe the petition is asking that the government cover the difference by paying out now and assume the risk of the bank's assets not covering the difference.
If you wanted such a high cap, you'd need to increase the deposit insurance premiums much further to cover for it. The banks were already unhappy about the most recent 2 basis point increase earlier this year -- https://www.fdic.gov/news/financial-institution-letters/2022...
That's like saying you don't remember hearing about CDOs as a potential problem in 2006. This is the second-largest bank failure in the US, and it disproportionately hits one industry. This just isn't a problem we're used to thinking about.
It's not suddenly unpopular. It's never been popular to ask people to rescue businesses just because the lost a bet.
> it's clearly way too low for businesses.
Right, but businesses have a number of ways to limit their risk that individuals don't have. FDIC is not the only protection available, it's just the one that doesn't cost you anything.
No one's asking for SVB or shareholders to be bailed out, they're asking for depositors to be bailed out. When you put money in the bank, you don't think of it as "making a bet."
Up to the limits of your insurance, you're not. (Well, even then you technically are, but it's as close to a sure thing as you'll get). Beyond that, though, you are, always have been, and always will be. There is no risk-free place to park a bunch of money. Not even under your mattress. That's why you always need to be thinking about risk mitigation. Not just with money, by the way, but with everything your business does.
If you're beyond the $250k, you should be fully aware that you're making a bet. There's literally signs inside of every bank telling you that.
Every company who has deposits there are going to wire it out once reopens. You can't make money if you have no deposits.
SVB doesn’t have to die just because the shareholders get wiped out and management booted. It’s probably better for customers that it doesn’t.
If a company got caught up in this, maybe they were never mature enough to exist in the first place, or got bad advice.
Play stupid games, win stupid prizes.
BINGO
SV arrogance finds a new high water mark.
It does seem like a "privatizing profits and socializing risks" scheme.
I don't get how any of these companies are at risk of immediate failure. What I do see happening is these startups may lose some smallish percent of their account balance. These startups banked at a bank that actively lobbied for less regulation of risk and had over the FDIC insurance limit in their account so that seems entirely fair and reasonable.
To make matters worse, this petition is being put forward by a VC company that actively helped cause the crisis by encouraging a bank run.
However, instead of taking any of that responsibility, I see more fearmongering to get people on-board with socializing the losses.
A non-benevolent take: why would you do that with your own money if you can make it happen at the expense of somebody else?
Edit: grammar
Many brokerages offer their clients the option to spread their free cash across a large number of banks to minimize risk. Excess cash could also be invested in 4-week Treasury bills, again held at more than one fiduciary agent.
The eventual return on uninsured deposits will likely be around 80-90c on the dollar.
How can we stop this happening again? Simple: we put back the Basel III rule that SVB lobbied to have not apply to them, the absence of which let them do the dumb things that got them into this position: https://archive.is/gmJxU
A convenient list of grifters that I can avoid working for and with in the future.
The strippers are the startups.
The mortgage jocks who chuckle about getting strippers to sign for mortgages are Silicon Valley Bank.
The CDOs themselves are treasury bonds: the fake AAA ratings are the treasury bond government-backed guarantee of 1.8% return, and the rot inside the CDOs that brings them tumbling down is the Federal Reserve rapidly hiking interest rates.
The smarmy CDO seller is thus the Federal Government.
There isn’t really a Mark Baum or a Michael Burry in this story as far as I can tell.
If this idea sounds stupid to you, consider the empirical evidence that your current approach is exponentially more stupid - being roundly excoriated by the majority of Hacker News comments was not in your model, was it?
The other day I saw the old quote "there's no atheists in a foxhole" extended with "and no libertarians in a bank run".
If there's a tax payer bail out (and I don't believe there needs to be - this seems more a liquidity problem than total funding) then all of that money is just tax payers giving money to VCs.
More over, this bank run is almost entirely a product of VCs telling all of the startups they funded to pull all of their money out of the same bank they told all of them to use - so they supported removing the regulations that make runs harder, and then they caused the run, and now they're asking for tax payers to take on all the losses.
I hope I’m not wrong…
Man, talk about cognitive dissonance.
Depositors should get back what is available from sale of bank assets. No more
They don't care about the individuals affected. They care about their investments. That's it.
Are they like the mandatory checking accounts for the day-to-day management ? That should indeed be bailed out immediately, to unfreeze their processes.
Or is that investment? I don't care if investors loose money for once.
And how can a bank 'loose' money from checking accounts, without anyone profiteering or getting the money for friends ? Banks shouldn't be supposed to invest with checking accounts. They should just hold the book, and charge you a yearly fee if they need.
Yes, we're talking about startups with their operating capital frozen and struggling.
Many of the commenters here appear to be confusing bank depositors with bank investors. If you started a startup, it's very likely that your funds would be frozen.
> And how can a bank 'loose' money from checking accounts
As usual, it's complicated. Banks have always used the money in checking accounts to make investments. All of the service fees are just a tiny fraction of how a bank makes money.
The real question is how - and to what degree - a bank should be able to invest that money without creating untenable risk. Essentially, they are allowed to loan a significant multiple of their actual cash holdings.
Let's say that they can loan $5 for every $1 in trust. This works great so long as they don't have 21% of their customers show up and demand their holdings at the same time... which is a drastically simplified version of what happened late last week.
Unfortunately, they don't teach this stuff in high school. They 100% should.
They sure did when I was in high school. When did that change?
Sure, there might be the occasional teacher who could spend a few minutes on a good question, but it was not part of any curriculum, so far as I could tell.
If the government is to back deposits 100%, then it should and will have authority to regulate assets purchased. Anything looking different or new or without a track record will be "risky" and unsuitable. Hello, that's what startups look like. Do you want some bureaucrat holding veto power over your bridge loan? Well, if the regulator is on the hook for the loss, then that's what you've got.
https://violationtracker.goodjobsfirst.org/?parent=wells-far...
And particularly egregious: https://violationtracker.goodjobsfirst.org/violation-tracker...
I'm not sure I agree that banks should even be allowed to buy mortgage backed securities. Banks earn their keep by lending money and writing mortgages and selling the mortgages to securitizers. A bank buying mortgage backed securities is like Target announcing they will no longer focus on sales of goods, but rather, returns!
Stop privatizing profit and socializing losses.
Bank deposit accounts are supposed to be boring financial infrastructure, not a source of risk. If you destroy faith in the US banking system among depositors, this particular bank failure will be the least of our problems.
[1] https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...
People cheering for thousands of businesses to lose funds and potentially go under just because they chose the wrong top-20 bank to hold their cash??
We also learned in 2008 that the private credit rating agencies cannot effectively assess the risk of what banks are doing either, despite that ostensibly being their entire area of expertise. So paying a company to assess the risk is out as a realistic option.
This was one of the 20 largest banks in the United States. If you can't trust the soundness of deposit accounts at top 20 banks that have been operating without issue for decades, your only rational choice is to move your deposits into the four "too big to fail" banks that you know the government will bail out in the event they collapse. Nothing else is safe.
That's not what anyone is expecting them to do. At all.
What's reasonable to expect is that they know that any uninsured deposit comes with a chance that it will be lost, and that they take steps to limit their risk to acceptable levels -- just like every other risk businesses take.
None of this is esoteric knowledge. Even as an individual opening a bank account, you are informed of the risk in the contract you sign.
By the way, the FDIC tries to recover everything, even though it isn’t promised. They are going to need to to keep faith in the banking system. And your $250k “insurance” isn’t even guaranteed because the FDIC is funded by member fees and can only cover a small amount of losses.
No. Roku would have had to use one of the many other methods to mitigate the risk. They could buy their own insurance, for instance. There are options.
It isn't a new phenomenon that companies have to handle more than $250k at a time, and companies have been managing this risk though a number of different mechanisms from long, long before silicon was anything other than sand.
If you had a company and were keeping large amounts of money deposited without any risk mitigation, that was a choice. Or that was you winging it without competent financial advice. Either way, it was a risk you were choosing to take.
> You are basically telling businesses to not use the banking system outside of the too big to fail banks
I'm actually not, because the same risk exists with those banks, too. It's less likely, perhaps, but it's not zero. Just like it wasn't likely that SVB couldn't pay out to all the depositors, but it wasn't zero.
No matter how small the risk is, if you roll the dice enough, sooner or later you will get bit. That's the nature of risk.
I'm not mad at the depositors. I just don't think it's right to ask the rest of us to cover their bad bet.
> Bank deposit accounts are supposed to be boring financial infrastructure, not a source of risk.
And it's not, up to FDIC limits. But we aren't talking about average joes here. We're talking about businesses dealing with very large amounts of money. These people have a responsibility to know that everything comes with risk -- including uninsured deposits -- and not to be naive about how business and banking actually works.
Small government has its consequences
List of bank stress tests > Americas https://en.wikipedia.org/wiki/List_of_bank_stress_tests#Amer...
https://www.google.com/search?q=increased+capital+thresholds...
From "Transparency & Accountability - EGRRCPA (S. 2155) Rulemakings" https://www.fdic.gov/transparency/egrrcpa.html :
> The FDIC is responsible for a number of rulemakings under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). This page provides links to proposed and final rules and related documents.
"FDIC Releases Economic Scenarios for 2022 Stress Testing" (2022) https://www.fdic.gov/news/press-releases/2022/pr22019.html
How can the scenarios and policies be improved?
The vcs and startups (including yc) were gambling on the taxpayer dime.
I’m ok helping on some of the uninsured deposits (say 80%). But rewarding people for gambling with taxpayer money? No thanks.
I think comparing the depositors in Silicon Valley Bank to these children would have made a better analogy.
In the doc: "Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout."
Long term maybe just establish a “federal deposit bank” with no private profits but guaranteed unlimited FDIC protection.
Propping these companies up now with government money (that is, our money) will just make the failures cost more, ultimately.
What we're really talking about here is bailing out investors who, of course, knowingly took these high risk flyers.
(BTW, the rising interest rates affects everything about this kind of investment. All kinds of things that made sense in the era of free money are going to stop working now. SVB is just one sad step in the process of this stuff grinding to a halt. It's not the the start of it, and it's certainly not going to be the end.)
That's the nature of risk. Even low risk things go bad, just not as often.
(Also, it's not like a tax-payer funded bailout is the only way these startups can stay afloat... take a bridge load... find an opportunistic investor. Of course the startup investors would much prefer a taxpayer funded bailout because other options will cost them more money and/or a share of the startup. As many are pointing out: they are seeking to socialize the risks and keep the rewards.)
It’s boring stuff, but good governance includes things like risk management policies, and treasury policies. Too late the lesson is re-learned - spread your banking risk, especially if holding large amounts of cash. Meanwhile it’s not too late to think about how to lower client, counterparty and supply risk through diversification, including into other locations and countries.
We need one for banks. DoesMyBankHaveAChiefRiskOfficerRightNow.com.
Ayn Rand needs to be memory-holed.
Risk is everywhere.
Sad face. I want your money.
What kind of double-speak is this?
How is "implement a backstop for depositors" anything other a "bank bailout?"
This has nothing to do with that--it's about making sure the depositors of a bank get the cash they were holding there.
A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy.
I'm not aware of a commonly accepted definition of the term that is restricted to protection for the company's investors.
Edit: the original title was correct and gave helpful context.
If little sympathy, why?
May they burn brightly.
The vitriol for those archetypes will override any empathy for the victims from knock-on effects and lower level, poorer employees that will impacted by this. If that empathy was ever there to begin with, I guess. I personally believe that people want to hate the rich more than they want to empathize with the poor.
Personally, I can do without the DoorDashes of the world... but startups collectively employ A LOT of people and not all of them are wealthy, senior engineers. When the wealthy sneeze, the poor tend to catch pneumonia.
I don't think many will argue that this is a "good" thing or that they are "happy" to see ppl suffer (some might but they generally are a fringe group) but agreeing that a situation sucks doesn't mean you are willing to take a bullet to fix it.
I get the sense that most people are more in the camp of: "Yeah that sucks, hope it works out for you and maybe think about the risks more next time"
A good book with a first person blow by blow is “The Great Depression: a diary”
> Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout.
With emphasis on that "We are not asking for a bank bailout". They are also asking for more regulation.
Taking rapid action to make sure this does not cause a domino effect seems like a pretty good idea if you ask me.
If this bank failure touches off something similar to what happened in 2000 for the online economy the results will be colamatious. The average person doesn't realize how much bigger the Valley is in the entire American economy than it was back then.
FWIW I have no money in Silicon Valley Bank.
I think this is probably a unique case that hasn't happened much, because most banks that have failed where the smaller ones in 2008.
I vote that the FDIC insure and require insurance for accounts up to $5,000,000. But after you exceed that amount, you can no longer deposit money at that bank. Like the $250,000 limit on insurance should mean that you are capped at $250,000 in balance.