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Comment by skwirl | Hacker News Reader

People are misdirecting their (rightful) ire over 2008 bank bailouts at depositors, which apparently is because they don't like some of those depositors for unrelated reasons. Nobody is defending the bank, which already has been shut down and its shareholders rightfully wiped out. The idea that backstopping depositors is moral hazard is preposterous and honestly embarrassing on a platform where people should know better. This is a bank that was in compliance with state and federal regulations, and according to California's regulatory agency, was "in sound financial condition prior to March 9, 2023."[1]

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...

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> People are misdirecting their (rightful) ire over 2008 bank bailouts at depositors

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.

You can both hold the opinion that we should actually bail the depositors out but also regard the fact that they exhibited a serious lack of due diligence at the same time. They are not mutually exclusive. I think you're assuming that simply because people are critical of the lack of risk controls at these companies, they also necessarily mean to say that they all deserve to be wiped out.

I don't think many people are qualified to assess the risk of a bank, and I don't think it's reasonable to expect founders to be able to do this. It's a bit like expecting people to inspect bridges before they drive over them (or companies to inspect the bridges that lead to their office buildings). We expect regulators to keep basic infrastructure working - be it financial or physical. As I said above, the State of California found this bank to be "in sound financial condition prior to March 9, 2023." The company was meeting its obligations with regulators. It then suffered a crisis of confidence which led to a bank run, which no bank can survive.

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.

> I don't think many people are qualified to assess the risk of a bank, and I don't think it's reasonable to expect founders to be able to do this.

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.

FDIC insurance limits are set to protect individuals. $250k is nothing for a business. Roku would have needed 8000 bank accounts to hold their cash at 250k per account. You are basically telling businesses to not use the banking system outside of the too big to fail banks that we know the government will backstop. If this is the message, we should all run on any bank other than the top 4.

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.

> Roku would have needed 8000 bank accounts to hold their cash at 250k per account.

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.

Fed should take responsibility for erratic monetary policy and swap the MBS for cash. No sense tut-tutting over bureaucratic bullshit.

I agree that depositors did nothing wrong here and that they took VC recommandation of using SVB. Can you also touch on why and who started this bank run in the first place and what they should have known better?

I hope this is what’s going on because the comments in this thread are wild.

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??

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