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Comment by wpietri | Hacker News Reader

If you are a small business who has way more than $250k but only has time to manage one bank account and lack the need for more sophisticated treasury management, then yes, I would absolutely say you should put it in the least risky bank. Or you could take the wild step of not putting all your eggs in one basket.

The bank run was the proximate cause of the failure, but they also made some big bets and lost, making them vulnerable to the bank run in the first place.

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The end point of every business doing “treasury management” to keep all their accounts under 250k is that the FDIC ends up insuring all the money anyway. The only difference is lot more of it goes to fees for money managers and banks, and starting/running a business is a lot more complicated.

What’s the point? Either set a limit that can’t be skirted by maintaining multiple accounts or guarantee the same amount in a single account.

Is that what you think large businesses do for treasury management? Just keep opening bank accounts until they've got one with every bank in the US?

It’s one component of it, clearly. That’s pretty much what IntraFi does—while they don’t open an account with every bank, they have thousands of banks in their network and claim to be able to maintain FDIC insurance for up to 160 million.

If FDIC wants it to be possible to insure that much, they should cut out the middlemen and financial engineering requirements and just insure deposits of every business to that amount. If they don’t want to insure that much, then IntraFi and other similar services should be illegal.

Nope. The FDIC's main concern is with individual bank failure. If people spread their money out among many banks, then they have lowered both their risk and the FDIC's risk.

If you'd like to argue that the FDIC should go further so as not to subsidize people with shit-tons of cash, I'm certainly open to that. But the increased regulatory complexity might not be worth the total risk reduction, so I'd want to see some math. I suspect it's mainly a red herring, though, as I couldn't find any sign that Intrafi is a particularly large business.

> If FDIC wants it to be possible to insure that much

FDIC doesn’t want to insure that much against a single bank failure. Encouraging diversification of large balances helps the FDIC’s goals, since it reduces the impact of single bank failures and reduces the possibility of single failures turning into broader economic collapses without increasing the cost to the Treasury of a single bank failure, which is an efficient way of promoting the purpose for which the FDIC exists.

If the deposits are insured, a bank failure is far less likely in the first place.

It might be efficient for the FDIC to require complex and expensive financial engineering just to keep operating capital safe, but it's hostile to businesses, especially small ones, and is out of reach for many.

> It might be efficient for the FDIC to require complex and expensive financial engineering just to keep operating capital safe, but it’s hostile to businesses

The FDIC exists to protect against a general collapse of banking like the one that preceded the Great Depression, not as a generalized subsidy to business.

More moral hazard however: when you've got to use 10 banks to be covered by insurance you're not exactly going to do due diligence on them.

> If they don’t want to insure that much, then IntraFi and other similar services should be illegal.

Why though? The "$250k per bank" rule is clearly a feature of the system, not a bug. If the FDIC wanted to have the insurance limit be across all banks, that's how they would've structured the rule.

But they didn't, because their purpose wasn't to provide unlimited protections to corporations from bank failure, it was to limit the impact of any individual bank's failures and decrease the likelihood of bank runs.

The current rule does this effectively, and encourages larger businesses to diversify their assets while also providing significant downside protection to many individuals and small businesses.

The point is that these diversified funds are much less likely to need the FDIC to bail them out all at once.

Yes and now think about the implication of all the SMBs flowing their cash out of their regional banks all at once. And if you have anything more than a few employees, you definitely have an account over $250k because that's still an incredibly small business.

There's a serious risk of contagion here.

I understand you have a fear of contagion risk, but I don't see many signs of it. I think this mainly happened because SVB had a depositor base where a big chunk was tightly knit and prone to herd-like behavior. Most companies just aren't a) in the red, b) letting millions in cash sit around, and c) lacking in treasuring management capacity.

But if there are a ton of regional banks who took advantage of laxer regulation and had balance sheets in as poor a shape as SVB, then I am fine with some of them failing too. It won't be anywhere near the problem that 2008 or the S&L crisis was, and we'll end up with tighter regulation for those banks next time around.

You don’t see any risk of contagion? We have a fractional reserve banking system. If even a small percentage of depositors try to withdraw all at once, that can bring down any bank.

Right now, everyone in the country with uninsured accounts is being incentivized to pull those deposits and pull them fast. We don’t know how things will turn out, but there is obviously a major risk of contagion.

As with the other person, I understand that's a thing you're imagining. I'm just not seeing much evidence for it. It is a possibility? Sure. But not one I see as a major risk. And from what financial regulators are saying, I don't think they see it that way either.

You're not seeing it because banks are generally closed over the weekend. This is like sitting in the eye of the hurricane and saying that everything is fine because it's not windy yet.

For the third time, I understand people have this belief. But restating a belief without adding evidence doesn't convince me you're right. If anything, it's the opposite.

We could be in the eye of a hurricane. Or we could be in any of the non-hurricane locations on the planet. I think the latter is more likely.

Fyi: https://www.federalreserve.gov/newsevents/pressreleases/mone...

Seems like the verdict is in.

Now that we know a second bank is being taken over, yes, a verdict is in. But I think that says more about having a second failure than the situation we were discussing.

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