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Comment by ProjectArcturis | Hacker News Reader

The reality is, $250k is a very low limit, even for a small business. Do we want to make it so every business has to do due diligence on its checking account provider? More importantly, do we want to start a bank run on every mid-sized bank in the country? Because if the depositors to SVB don't get 100% of their money back, every competent CFO in the country, in every industry, is going to take their business from the regional or local bank they've been with for years and switch to JP Morgan or another Too Big To Fail bank. There will be cascading bank runs everywhere.

To be clear, SVB's investors should be zeroed out. They made a bad investment and should lose it all. But depositors must be made whole or the economy will be rocked. And going forward we'll either need to raise the $250k limit or create a second line of FDIC insurance for business accounts.

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That misses the point that litterally everyone knows that anything above 250k is uninsured.

Everyone learned this during the collapse of banks in the mid 2000s. Everyone knows that holding accounts at multiple banks is a way around it.

This isn't something that's specific to businesses either - it applies to individual accounts the same. They took a risk by holding more than 250k in a single account and a risk isn't a risk if there's no chance of failure.

I can't stress this enough, but markets do better when agents have skin in the game. Commercial survival of the fittest requires failure.

This applies individual-person logic to a company. Maybe a person can have a bunch of separate $200k accounts, but it would be strange for a company to do that. If you have a dozen engineers, that's just one month's payroll. I would expect a company to have some buffer in its bank account, not to have literally 100% laddered rigidly in T-bills.

This also doesn't reflect on the fitness of the companies in question. If you're starting a software company, you should be able to go to the bank and it should Just Work. If it doesn't, that's the bank's fault, not yours. You shouldn't have to think about the average duration of the bank's bond portfolio, or about how many interest-rate swaps it has on the books. That responsibility and risk should go with the bank. That's their role.

Ok, for one strange and legal are different axes, and companies are only constrained by what is legal. They have no reservations about the strange.

Secondly, what a person or company thinks should happen bears no actual relation to what actually does happen. Why should we start giving credit to misconceptions? This is on par with someone arguing that it's ok to distribute copyrighted property for free because no one made any money on it and when confronted with the legal reality that the courts don't care, pleading, "but thats the way it should just work."

Sorry, but that's doesn't reflect the reality of the terms of the banking arrangement. Excesses of 250k are not insured.

There's a lot of things I think should just work, but using that as a justification is beyond logic.

There are insuring agreements that can cover this kind of risk. It ought to be a part of any risk-management program.

>Everyone learned this during the collapse of banks in the mid 2000s.

No depositors lost a penny to bank failures in 07-08, or to any bank failures since 1933. If you had a billion dollars on deposit with Lehman, you got a billion dollars back. The lesson everyone has learned is that bank deposits are safe.

Which makes sense! Why should anyone with more than $250k have to become a bank analyst just to keep their money in a single account? It's not as if mid-sized businesses are going to hire CPAs to navigate this jungle. They'll just pick a giant bank, and we'll end up with a total of three banks in the whole country.

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