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Comment by jimrandomh | Hacker News Reader

Statement by the FDIC: https://www.fdic.gov/news/press-releases/2023/pr23016.html

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.

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The FDIC’s statement, which is very short and to the point, should be required reading for anyone wanting to discuss the situation.

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.

There is no certainty over the amount of dividend the FDIC will pay out. IMO this weekend is a critical time: if the FDIC/Government act quickly and provide hard numbers, it will both stabilize the depositors and prevent panic from rippling through the ecosystem. I feel like the urgency and fear mongering is quite justified considering the tiny window of opportunity present to avoid irreversible catastrophic damage to the system.

Urgency should be directed at the process which is providing that advance and rightly demanding the amount to sufficient and the release quick for the reasons you specify. Instead they are off on their own demanding bailouts and rejecting even the systems set up to protect them in this scenario, demanding special cases and further alienating this entire industry in the eyes of the public. It's beyond embarrassing to watch.

They are doing exactly what they should be doing to minimise impact while letting markets be markets, VCs are just too busy making a big mess in their underpants and screaming about why they should be special-cased to read the details

We will make payroll, but valuations will suffer and upset our limited partners just didn't have the same ring to it.

This. I'm afraid that Garry and others are exaggerating the situation to make a case for their bailout. They're freaking people out rather than helping them work the problem.

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...

What is the ycombinator petition asking for that this FDIC statement isn't covering?

$250,000 will be available initially, which is doable for payroll of up to 15 to 25 people for one month, generally if you're a startup.

FDIC website indicates remediation time in the months-to-years. This is the concern.

You ignore the next sentence:

> 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.

Why did YC encourage startups to put their eggs in one basket?

Or not encourage them to have multiple bank accounts so that deposits are fully FDIC insured?

In effect, it encourages concentrating deposits in a single bank. Benefits the bank, does not benefit the depositor.

What's weird is that you can insure an account for more than that, it's just not free.

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.

I found no information on how to do this with a cursory Google search. What comes up are other stratgies, like multiple bank accounts, each at different banks. Or instruments like certificates of deposit, which aren't suitable for payroll.

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.

Yep. I find it funny - though I feel bad for the small businesses that may have been oblivious - that a VC CEO is complaining when he effortlessly could have hired a financial consultant for a day to look into the first bank he encouraged his customers to use. A regional bank that had an obvious and alarming reputation of being the only place in town that would make high-risk loans to high-risk ventures. If anyone outside SVB was in the responsible position to avoid this situation, it was this CEO, and I’d suggest - if he truly believes in maintaining innovation and having those responsible suffering the consequences - that he personally go first in making his companies whole, rather than the taxpayer.

This is an example: https://www.difxs.com/DIF/Home.aspx

But I think it's not common because there are other treasury management strategies besides "keep all your eggs in one pure-cash basket".

For this payroll cicle, but what about the next one in two weeks?

The FDIC promises to make a large portion of uninsured deposits available within a week.

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.

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