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Comment by axlee | Hacker News Reader

There was nothing arbitrary about that choice. This bank promised better deals BECAUSE they were not careful enough about the risk it entailed. That was their competitive advantage, and they made bank for it. Well, tough luck, now it's not anymore: it has nothing to do with being a large bank or a small bank, it has to do with healthy business practices.

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Sorry, I'm not sure if you're confused, but these are simple bank accounts. There was no high interest yield. The average interest yield was a fraction of a percent.

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?

>Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?

100% yes.

They were definitely doing high interest yield:

> ## 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.

https://www.svb.com/startup-banking

Bingo. Anyone who has dealt with SVB knows that. And that's just the public part.

Funny how this not mentioned in the petition or any of the posts

You can find similar rates from some other banks today. It is not so hard to do when 1mo treasury bills are yielding 4.80 and 3m over 5.0%

It's about 1% higher than most solid/large high-yield online banks right now (Capital One 360 at 3.4%, Discover Savings is at 3.5%, Ally Bank is at 3.6%).

So I wouldn't say that you could get 4.5% from a reputable bank at the moment.

If your amount is under 250K, its insured. If not, take 1/4 (or 1/8th) of funds and place in 4 or 8 week t-bills every week for 4 (or 8) weeks with automatic roll over. On Wed those rates were 4.80% and 4.88%.

The 4.5% rate linked above is in a money market account. It's the exact same rate available from Vanguard today.

I’m saying banks should not be able to lend without tracing and specific consent from the individuals whose money is being loaned out.

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.

> Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks

Yes? I do it with my personal after 2008

You are misled regarding the kind of offers SVB was running. They were offering above market returns specifically aimed at startups. I believe the documentation has been offered in another comment, and anybody who has been in touch with SVB knows what their sell pitch is, so I will not copy/paste it there. Most of it is undocumented publicly anyway, but even the public part should inform you enough.

> "Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?"

Golly, some of us even chose non-banks, and use local credit unions. There are millions of us!

> Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?

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.

>No one was chasing any yield. No one was taking any risks. It's a bank account.

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.

> "Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?"

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.

Interesting take — I imagine these banks will be getting net inflows as a result of this fiasco because people will assume (perhaps correctly) that they are too big to fail.

Many startups chose SVB because they were the ones willing to open a bank account for them at all.

I remember going to a branch of Bank of America to open a bank account for Posterous and not being able to.

What’s your take on SVB vs. First Republic?

> Many startups chose SVB because they were the ones willing to open a bank account for them at all.

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.

Now I wonder what is the intersection of those asking for this petition and the ones that organised this bank run... As things might not be so bad if it wasn't organised...

What? Just about any bank will open a basic small business checking and savings account. It won’t be fancy or high yield but they will bank for you.

Are you really saying BofA would not take deposits for you?

This is not true. I had the same problem with my business at two banks (not BofA). In think it’s related to KYC regulations that makes them cautious. All I wanted was a checking account, no loans.

Was that before you had an account at SVB?

Would BoA have been more willing to open an account for you if your business already had one?

Why? Is that normal in the US? Credit is a different thing (did you need a big overdraft facility?), but here in Australia I can’t imagine that a bank would refuse to open transaction or savings accounts for a legal business… The main exception is a few banks are stopping directly offering products to fossil fuel companies and the like, but that’s it.

I think it'd help understand the situation to answer "why not?", and for svb then, "why yes?"

(understanding it may have had little to do with why they tanked)

There is no way this is accurate. I've started several bank accounts for the smallest most poorly articulated, poorly documented, businesses you can imagine starting from 18 years old. Never had a problem.

So let's get this straight. You want a bank who will take risks willy-nilly on start-ups. But you also want that bank to be subject to regulations to prevent banks from taking risks. But those regulations exist, and SVB begged for exemptions to them, so they could take risks. But your experience with more-regulated banks shows that they're too risk averse. What exactly are you asking for here?

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 remember going to a branch of Bank of America to open a bank account for Posterous and not being able to.

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?

Yeah this is a fact lots of people don't want to accept

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

Your funds are insured up to $250k. That's the expectation and reality. Every account has the disclaimer that amounts in excess of $250k are not insured.

You are right of course, but we've established a moral hazard

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)

No we have not established a moral hazard. It's always been $250k. You are trying to make one up implying that we are "suddenly altering expectations". The narrative has always been, FDIC insured accounts are insured up to $250k.

I've known this since I opened my first bank account.

It's a moral hazard if people over 250K got bailed out in the past. Look up the Temporary Liquidity Guarantee Program.

> 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

Not since around 2010. The ~2007 crash was not without consequence.

Indeed. Deposits at IndyMac Bank were only paid 50 cents on the dollar in 2008.

Wait so now everyone has to sit down and evaluate their banks balance sheet before trying to do business with them?

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?

> everyone has to sit down and evaluate their banks balance sheet before trying to do business with them?

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.

$250k is nothing for a company. It's 1 engineer salary. And, no, it's not $1k. It's more like $10k-$20k per month, plus all the overhead of having your money in multiple bank accounts and shuffling it all around just to never hit the $250k limit.

Just my 2 cents on this strawman part of discussion.

My parent wasn't talking about shuffling money around, they were talking about reading the bank's balance sheet.

$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.

How could my accountant have known the risks? I don't think there was any public information about SVB's poorly-timed MBS purchases, the main cause of this incident.

This guy short sold SVB based on their quarterly and annual reports:

https://archive.ph/XaKkt

AFAIK it was in SVBk’s Nov 7th public filings

I don't think their MBS positions were public until last week. But say we knew earlier, perhaps soon after they purchased the MBSs - wouldn't the result have been similar, just the bank run would have been shifted up a bit?

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.

> It’s true that investors had been aware at the latest since its 10-Q filing on Nov. 7 that it had sustained unrealized losses among its held-to-maturity (HTM) portfolio large enough to wipe out its entire $15.8 billion in shareholder equity. While this would theoretically render it insolvent were they to materialize in full, SVB Financial was dismissive of the risks.

"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

I stand corrected, though the point remains that if everyone tried to exit once that news came out on Nov 7, we still would have had a bank failure with roughly the same shortfall.

> though the point remains that if everyone tried to exit once that news came out on Nov 7, we still would have had a bank failure with roughly the same shortfall.

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

if $250k is nothing then $1k is less than nothing.

I mean, completely reducing this risk to 0 is probably expensive and annoying, yes. But you could halve the risk by splitting your money into just two bank accounts, and reduce it further by keeping medium/long-term savings in short-duration no-coupon T-Bills or something.

You can purchase insurance for excess deposits. Businesses that have to keep large amounts of cash on hand routinely do this.

> That 250,000 number hasnt changed in nearly a 100 years. Maybe it isn't what we should be going off of?

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...

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