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Comment by bentlegen | Hacker News Reader

The C-suite paid themselves millions of dollars via bonuses and stock sales right before insolvency. Executives got paid. What’s to stop future bankers from running the same playbook? (We can debate that this the stock sale was premeditated/signaled months in advance, but the stock had already declined 80% from its 2021 peak and they surely knew about the tough liquidity position months ago — external observers drew attention to this back in January).

Note, one of the SVB executives was the former Lehman Brothers CFO in 2007, just one year prior to that institution’s collapse in 2008. What did he learn, exactly, besides how to get out in time?

https://www.foxbusiness.com/economy/silicon-valley-bank-exec...

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So to punish them, we need to punish depositors?!?

So the play is to use funds on me as the manager instead of depositors. Then depositors get covered and I, the manager, keep my earnings.

It’s not that we punish the depositors but the scheme is set up that depositors suffer.

Imagine the mob stole all that money. It’s not punishing the depositors to not pay them back. The mob punished the depositors by stealing.

If I don’t buy homeowners insurance and some arsonist burns down my house, I’m out $100k to rebuild. Is it punishing me if the government doesn’t bail me out? The government isn’t punishing me, the arsonist punished me.

If we want government coverage then we should enact laws to cover this kind of thing and raise taxes and fees accordingly. We can’t enjoy the benefits of low regulation when it makes us money and then ask for coverage after the fact. After we’ve reaped the benefits of no regulation.

What I’m saying is that the management are in no way impacted by what happens to depositors, these are separate issues.

If you want to stop mismanagement like this don’t repeal banking regulations and instead regulate banks properly, that has nothing to do with that the fed decides to do for depositors to stop contagion and ripple effects in other industries.

And what I’m saying is that managers knew this and paid themselves with funds that could have went to depositors. Depositors have the same right to be made whole as any other victim of a crime.

The government has fdic and insures up to $250k. That’s what our taxes paid for. If we wanted to insure depositors for greater amounts, we would have paid more taxes.

This was an eyes wide open situation. Depositors could have managed their large sums of cash better. They didn’t, choosing to save money. Now it sucks.

Another analogy would be that if a couple skipped life insurance and leased a Porsche. And now the wage earner has been murdered and the remaining spouse is asking the government to pay for their dead spouses wages, while still driving the Porsche.

> The government has fdic and insures up to $250k. That’s what our taxes paid for.

FYI, FDIC insurance coverage is funded by premium payments from covered banks, not from "our taxes".

https://www.fdic.gov/about/what-we-do/index.html

This wasn’t a crime, it was a bank run because this bank apparently wasn’t great at managing risk and the risk free assets they bought are not as safe as they used to seem when they bought them now that rates have risen substantially, it could (and probably will this week) happen to other banks like First Republic. If the fed dithers today that seems a lot more likely.

EDIT - seems Signature bank has failed as well today, and the Fed has decided to guarantee deposits at both.

This isn't how this process works at all. Nothing precludes the FDIC from clawing back management pay if it was done illegally.

> If we want government coverage then we should enact laws to cover this kind of thing

We already have. The uninsured depositors will be repaid from premiums paid to the FDIC by the rest of the banking industry.

>If I don’t buy homeowners insurance and some arsonist burns down my house, I’m out $100k to rebuild. Is it punishing me if the government doesn’t bail me out? The government isn’t punishing me, the arsonist punished me.

The distinction here is that in this metaphor, the bank managers are both the homeowner and the arsonist.

I didn’t say that? I asked, what’s to disincentivize executives if the Fed backstopped all depositors money, now and perhaps in perpetuity? (Forgive me if I misinterpreted your position here. I have also edited this post for clarity.)

Which plan exactly? Yellen specifically said they have no interest in bailing out the bank itself and only care about depositors.

> “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said on Face the Nation.

> “But we are concerned about depositors, and we’re focused on trying to meet their needs.”

I think there’s confusion in this thread, as some are advocating that depositors be made fully whole, and some are interpreting Yellen’s comments to mean that’s what will happen.

Other laws, which have nothing to do with depositors and how to treat them. I’m confused as to why you think these two issues are linked.

I would hope these execs are prosecuted and any bonuses clawed back but that would be under the purview of a different agency (sec) not fdic, and is not an immediate concern, whereas a massive financial shock and 100s of companies closing due to lack of funds is.

I think the implication is that if you make depositors take some of the risk then they'll be more proactive in their oversight of their banks' executives. I'm not sure how realistic that assumption is in practice though ...

In practice, they yell for what's happening - making depositors whole through government means. Or maybe additional regulation.

I’m not a lawyer, but it’s unclear to me - a random internet observer - that anyone performed anything illegal. It strikes me more as a bet gone colossally wrong, basic human mismanagement, capitalism in action, etc.

Depends on the deals with startups and their founders. Look up tied selling.

Aren't the execs in this case losing the vast, vast, vast majority of the money they old in the bank? I haven't seen anything that makes it seem like they're getting out of this unharmed, and especially not at anyone else's expense.

I also don't know how refusing to make depositors whole would disincentivize bas behavior by execs, anyway? Seems like two unrelated issues.

The depositors may have been able to borrow money at excessively favorable terms. For example, the bank lending money to businesses that otherwise would not have been lent to, or lent to at a higher interest rate. Or home mortgages for the business’s employees at lower rates, subsidized by the bank’s mismanagement (taking excess risks).

How would punishing depositors disincentivize this behavior from executives?

Actually, yes. Absolutely. Maybe with enough punishment these depositors will stop stuffing the accounts of these fat cats full of cash for them to "invest" and lose everything with.

How many global economic meltdowns do we have to go through before people learn that banks are literally the root cause of so many of society's problems? Depositors aren't being punished enough if they're still buying into this system. They keep feeding the beast and complaining when it eats them.

Every bank exec is a fat cat to some extent. People and businesses need banks no matter what, and they shouldn't be required to do exhaustive due diligence on every bank. This is the whole purpose of regulation; everyone benefits from oversight.

> People and businesses need banks no matter what, and they shouldn't be required to do exhaustive due diligence on every bank.

They're already required to do KYC/AML due dilligence on normal human beings. Why shouldn't they be required to do the same for the banks they trust their fortunes with?

Who is? Random SaaS and biotech startups?

Pretty much every US business is.

I don't know if there is any regulatory authority to do this, but I think those executives should have their bonuses clawed back to pay depositors.

How does making the depositors whole affect any of that, though?

I think the argument is that if I can start a bank and depend on the government to make my depositors whole in the event of a failure, then I can act/invest in a high risk manner to get more yield, while also paying me and my executive team millions in the process. If or when things hit the fan, my depositors are paid, I am paid, and the investors are the collateral.

>The C-suite paid themselves millions of dollars via bonuses and stock sales right before insolvency.

This is highly misleading. The bonuses were calculated/awarded from last year. The stock sales were pre-scheduled.

"Last year" as in the year they had no Chief Risk Officer? Got it.

I don't see how that's relevant. The leadership team at SVB undoubtedly made a bunch of dumb decisions and they deserve to be raked over the coals for that, but there's no need to make the unsupported claim that the executives were looting the place a few days leading up to the collapse.

We can't replay history, but maybe if they had a CRO, they would not be in this mess. They had time to set bonuses, they had time over the past few years to lobby for looser regs, but apparently a CRO was just too much bother.

Right, but those people are not getting bailed out. They're losing ownership of their bank!

I think those were “just” the yearly bonuses all employees receive.

Hopefully those might be able to be clawed back?

Can that be clawed back?

Fake news. The largest bonuses paid were $140,000 to managing directors, which is just bankerese for VP. Bonuses were already scheduled to be paid and earned for work done in 2022.

According to Bloomberg, the CEO sold 3.6 million dollars worth of shares days before insolvency. The sale was scheduled back on January 26th.

Around the same time, analysts were commenting negatively about SVB’s earnings and liquidity position.

Please correct me if I’ve misinterpreted.

https://www.bloomberg.com/news/articles/2023-03-10/svb-chief...

https://seekingalpha.com/article/4573087-svb-financial-30-pe...

The very first line should tell you how little the article author knows how it works:

> Greg Becker used prearranged stock-trade plan to sell shares

He didn't "use a prearranged plan", a plan went into action and sold the shares. Becker had already filed paperwork to sell those shares at that specific time.

To my recollection, that was 10% of his shares. Becker wasn't planning months in advance on the bank smashing into a wall precisely a few days after he sold a measly 10%.

You’re making this sound like some Ocean’s 11-level heist, and then discounting the premise you’ve created as being absurd.

It doesn’t have to be that complicated. Perhaps he saw that the bank was in trouble and made a decision to sell shares when the company was at a 52 week low. His calculus could just be: “with the information I possess, this price could go a lot lower.” He may not have foreseen an insolvency event, or perhaps he knew it was a risk and he sought to hedge it. Or maybe he just sold it randomly at a low price … because.

It’s not unimaginable that he managed to delay the bad news from coming for a couple of days before the sale went through though.

I would strongly assume that require not only the cooperation of more than just him but also many people including those who had no real gain for doing that.

Even if both the CEO and CFO conspired to hide this, more than just them would know about the trouble and them conspiring to do this. Those individuals would now have no reason not to whisteblow immediately.

I find conspiracies, especially non-governmental, about large organizations incredibly hard to believe because of how difficult they would be to pull off.

I don’t know if the work they did in 2022 really warranted a bonus though. Doesn’t seemed to have worked out for the shareholders.

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