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.