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Comment by mlyle | Hacker News Reader

> Plenty of startups fit that bill and will nonetheless be impacted by SVB’s failure

Startups are going to get most of their deposits back-- perhaps all if there's an acquisition. If SVB is not acquired, I hope the FDIC is able to get a substantial dividend quickly so that they can keep operating and that everyone works to keep disruption low.

But I don't think the federal government needs to make depositors whole beyond the insurance limits. I think that sets its own bad precedent. Maybe some startups are going to lose 5-40% of their cash because of their treasury management choices. That is OK.

The times when I was a founder of a startup with a substantial cash balance--- we hedged the bank risk. There was a cost to it. I don't think those costs should be socialized.

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To further this, a lot of people (see Sam Altman, for example[1]) are saying the federal government should give depositors all of their money bank, and don't seem to care at all about what this would mean in the long run. Is the FDIC now insuring all deposits in the U.S. for an unlimited amount? What would the implications of that be?

Maybe there should be changes made to help protect depositors more, but instead of a collected and rational conversation about how we'll treat deposits going forward we're getting glib "just give these people there money back, they don't deserve this" responses. Of course these things are tragedies, but the degree to which the federal government assists people in these situations is a complex discussion, and we have to come up with a consistent approach.

People are asking about salty response, but this kind of cavalier attitude toward the financial system from supposedly serious thought leaders is a bit alarming.

[1] https://twitter.com/sama/status/1634958179657449475

Was it Muhammad Ali who said "Everyone has a plan until they get punched in the mouth"?

Seems to me all these "disruptors", "thought leaders", "visionaries" are disrupted and their plan to deal with this is nowhere to be seen.

Mike Tyson

> Was it Muhammad Ali who said "Everyone has a plan until they get punched in the mouth"?

It was Mike Tyson - https://www.sun-sentinel.com/sports/fl-xpm-2012-11-09-sfl-mi...

Mike Tyson, the epitome of sound fiscal management. ($300 million lifetime earnings, had to declare bankruptcy)

Sounds like he’s in the perfect position to know the fruits of such errors.

The 250k limit should be inflation adjusted. It’s not been raised since 2008. If inflation adjusted the FDIC insurance would be closer to 350k

> The 250k limit should be inflation adjusted. It’s not been raised since 2008. If inflation adjusted the FDIC insurance would be closer to 350k

That 100k difference wouldn't make any difference here though, since the problem is for businesses (startups mostly) who had accounts there.

The 250K insurance limit seems quite reasonable for individual personal accounts per bank. But applying the same limit to a whole company which may well have more than 250K in payroll per month... well there's a problem.

Maybe the fed should open a bank for deposits that's guaranteed but provides either tbill interest or zero interest.

It's pretty ridiculous for people to need to judge whether their bank is fiscally sound.

Are your computers and networks secure?

If you operate in 1% space of wealth there are and should be risks. Making everything the lowest common denominator literally leaves us with Camacho for president.

Why should there be risks? If someone just wants to park some cash without it possibly disappearing, that seems like a solvable problem. E.g. as the parent said, central banks could simply offer accounts to anybody.

> Maybe the fed should open a bank for deposits that's guaranteed but provides either tbill interest or zero interest.

> It's pretty ridiculous for people to need to judge whether their bank is fiscally sound.

This is a great idea. We should look into this more.

iirc three researchers asked this same question back in 2018.

> A potential policy recommendation was posed in 2018 by three researchers, two of whom worked in the Treasury Department. Under their proposal, the Federal Reserve would offer the option to all individuals and businesses in the United States to open a bank account, termed a “Fed Account,” with the Federal Reserve itself, providing an alternative to private banks or credit unions. Such an option could have significant effects on a wide array of monetary and economic issues.

https://econreview.berkeley.edu/fed-accounts-and-the-right-t...

If I had $1M stored in SVB, I would have 4 accounts with $250k each. Why is this so hard for people to understand?

The limit is per depositor * bank, not per account.

You’ll just be the depositor four times, once per account. It’s per account at the end.

No... if the same depositor + ownership structure owns 4 accounts, the total insurance is $250,000, not $250,000 x 4.

Per person, per bank, per account ownership category.

https://www.fdic.gov/resources/deposit-insurance/brochures/i...

If you had a single-owner account and a joint account, you would have $250K in insurance for each of those accounts.

Yeah, there was a lot of balls to Sam's post, "many of the relevant people in government don't understand the magnitude of this"? Like the FDIC? I think they understand plenty. That's very specifically why they don't communicate with the bank before they take it over, that's why as many people have seen and been impressed with, they come in with almost surgical precision and take things over and work (literally) around the clock, realizing every hour, day counts, and get this stuff sorted.

No Sam, it was people like you who underplayed the magnitude of this, and are now panicking, and looking for a bailout, and are entirely unable to justify why of the several hundred or more banks FDIC has closed (though one of the larger ones), SVB should be special, beyond "well, it's MY money".

> I hope the FDIC is able to get a substantial dividend quickly so that they can keep operating and that everyone works to keep disruption low

The FDIC has publicly said there will be an advance dividend and I don't see why it wouldn't be substantial, given that there's going to be a LOT of recovery unless SVB has big non-public problems.

FDIC has to make a decision about risk. There's no way they have done enough diligence to have a complete picture of liabilities (e.g. to find any non-public problems).

FDIC should pay early (Monday-Tuesday, not anytime "next week" as they've indicated so far) and should pay a big chunk, even though it's not completely safe.

Every day that goes by with uncertainty, the cost of the fear grows.

Why wouldn't there be a way? They're a government corporation with a $2bn budget, thousands of employees, whose only purpose is to oversee this kind of event. And it's not like they've been overwhelmed with work recently. The bankruptcy was only made public Friday, but they've been working on it for longer than that. Yes, they've certainly done their due diligence.

> The bankruptcy was only made public Friday, but they've been working on it for longer than that.

Not much longer. It's only Thursday's run that tipped SVB into insolvency.

> It's only Thursday's run that tipped SVB into insolvency.

What triggers in their holdings do you think started the run?

I think we understand that differing mark-to-market rules between GAAP and banking regulations were important here.

So, legally speaking what authority does the Treasury Department have to make depositors whole beyond the legally guaranteed $250,000 insured and an equal share up to the amount of their deposits of the auctioned and liquidated assets?

The question I have is do some of the proceeds of the liquidation get used for $250,000 insurance payout first? Or do the tax payers get to help?

> The question I have is do some of the proceeds of the liquidation get used for $250,000 insurance payout first?

Yup. FDIC gets the bank, and has to pay the insured amount. Then, the remainder must be managed for the benefit of depositors, other creditors, and shareholders. Any shortfall of the insured amount can be paid from the deposit insurance fund.

> Or do the tax payers get to help?

The FDIC deposit insurance fund is paid for by banks.

I think people have forgotten that depositor bailouts are not just free money, but money taken from other people. There's a balance between minimizing the pain to depositors and minimizing the pain to the rest of society by not only taking money from them, but creating an environment where people don't have to care about where they put their money and thus have no reason to demand the people they trust with their money not act like reckless assholes. Corrupting the entire concept of risk vs reward would destroy us all.

…where does the extra money go then? If a bank has more than the insured deposits still, but is insolvent, where does the rest of it go? To the depositors, is what makes sense to me.

Yes, if the bank isn't acquired then the assets will be liquidated and depositors will receive most of the proceeds. They are relatively senior in a bankruptcy process.

Right, that makes sense to me. So I guess I'm confused by the other commenters suggesting that depositors should only receive the $250,000 and no more. What are they proposing happens to the remaining money?

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