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Comment by AH4oFVbPT4f8 | Hacker News Reader

Why are you happy for the depositors? They took a risk depositing more than what was covered by fdic.

to clarify, i'm happy for the employees, workers, etc that will remain employed while their company made poor decisions. My beef is that companies knowingly took risks. Would this even be an issue if all the VC companies didnt all try to pull their money out on Thur/Fri ?

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This is a reasonable middle ground. Depositors are made whole and taxpayers aren’t on the hook directly (although this will filter down to them in aggregate in a de minimis manner).

To those with large amounts of fiat hanging around: please don’t fuck around again. Spend a few hours with your finance team to minimize risk. It is straightforward and well within the means of anyone with these cash or cash equivalents on hand (sweep accounts, short dated treasuries, etc). Build it into your runbook. Costs are minimal, consider them an insurance premium.

Edit: if you don’t have a finance team, you can get the same help from a contract finance professional. There is some responsibility that must be taken.

Spend a few hours with your finance team to minimize risk.

That's great for people who have a finance team, but a startup with over $250k in the bank can easily be just one or two people who raised money and have no particular finance expertise.

Personally I think we should bump the limits - it should be reasonable for a startup that just raised $10m to be able to put that money somewhere safe, and pay rent, payroll, and an AWS bill with it, without having to hire a "finance team".

> it should be reasonable for a startup that just raised $10m to be able to put that money somewhere safe, and pay rent, payroll, and an AWS bill with it, without having to hire a "finance team"

Aren't VCs supposed to support their investments with expertise? This is eminently socializable expertise.

Nobody has made a real case substantiating why the entire economy does not need to insure upwards to protect startups that don't understand how to secure a giant sack with a dollar sign on it.

Exactly. Having to split your money among multiple banks should be a mature/medium-sized company problem, not a mom-and-pop or 30 person startup.

Few "mom-and-pop" companies get to the point where they have $250K in liquid business cash without hiring an accountant. A "30 person startup" is waving around the cash supplies of a much, much larger actual-business and if those very sage VCs cannot guide them to safeguard that investment I am at a loss as to why every other depositor should do so for them.

This is setting a very low bar for entrepreneurs. What else should be only a "mature company" problem? Should startups also not have to care about doing a good job in other fields orthogonal to the product itself like recruiting, marketing, governance, accounting, security? These are all things that come with the territory of starting your own company. Managing your own finances is just one of them, and it absolutely should be the startup's responsibility. It can delegate if it wants to, but "I'm too small to address it at all" is just naivete or incompetence.

I completely agree with your point here, but I also don’t agree with this announced decision.

There should definitely be a place for a company to hold $10M without risk. Maybe $20M.

That doesn’t mean that it needs to be the same place for a company to dump $3B.

My point is that there is a lot of room between the (previous?) $250k “limit”, and the apparently new “infinity” limit.

> There should definitely be a place for a company to hold $10M without risk. Maybe $20M.

There is. It's called a T-bill. I know how to buy them, and I am not a hotshot startup CEO. I think it's okay to expect some level of maturity out of somebody handed That Kind Of Money.

Why are VC giving money to a company who can't manage it?

Why bother? It seems all deposits are in fact insured regardless of what rules say.

The wheel will not always land on zero. Everyone got lucky there was will to bend the rules.

Everyone will now act as if all deposits are insured, because the authorities demonstrated that it's true. This in turn will make any other decision in the future even harder, it's kinda self fulfilling prophecy.

Seriously, you'd have to be stupid now to buy deposit insurance.

https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-...

> To those with large amounts of fiat hanging around: please don’t fuck around again.

They are going to. The smuglord backpatting on social media has already begun.

But I admire your optimism.

I can't believe we're on day 3 of this and it still has to be explained. SVBs depositors were mostly companies. Companies don't go to new banks every time their account balance reached $250k. If these deposits were not honored thousands of companies would not be able to make payroll.

https://www.intrafinetworkdeposits.com/

The number of comments (including from high-profile people) that completely ignore the fact that deposit sweeps exist in the past few days has been astounding...

Is it really a desirable solution though? Seems like gaming the system, and if the end result will be that effectively all deposits are FDIC insured anyway, why not just get rid of the $250k limit?

It spreads the risk out among a bunch of different banks, thus drastically lowering the odds that the FDIC will have to pay out on the full amount deposited.

I would put it differently. SVB was a bankers' bank, i.e., venture capital. Venture capital now is systemically important, having initiated their own bank run.

Many banks offer ways to get around the $250k limit, sometimes it's as simple as to open an account in another version of the same bank chartered in a different state

There are a zillion ways to deal with this. Split up your cash. Buy private insurance. Whatever. They agreed to a particular contract---deposits insured up to $250,000, and then ex-post, when it turns out they should have done something different, they want special favors.

Are you aware that SVB had exclusive banking clauses that preclude opening accounts with other banks?

https://www.cnbc.com/2023/03/12/silicon-valley-bank-signed-e...

> Are you aware that SVB had exclusive banking clauses that preclude opening accounts with other banks?

That, in and of itself, ought to be a negative inducement to bank with them, and I think a good case could be made that such clauses should be prohibited by policy, as customer diversification across banks makes the financial system more resilient.

Sure, fine, but you’re paying for my deposits insurance. Banks can and will purchase insurance for large depositors when they want their business.

those clauses are a sign that SVB and the VCs are in bed together and if you take their money and agree to these terms you are complicit too. the VCs used SVB loans to their portfolio companies to magnify the effective size of their funds without themselves taking on that leverage. SVB got massive interest income.

this is corrupt, the whole thing is corrupt.

I can't believe we're still on day 3 and people are still arguing with the strawman that you'd have to open an account per $250k to mitigate the risk. (You need to open two or three accounts total, and beyond that you're big enough to start buying your own T-Bills. And no, that doesn't mean you do that at $750k. Christ, it's a distributed systems problem, you guys should be able to figure this out.)

A 3 person tech startup with more than $750k is not going to buy treasures.

Why not? Some private individuals with $10k to invest by treasuries.

Startups aren't investing their money. They are drawing on it for payroll.

Sure, and T-Bills are easy to draw on for payroll. It's basically the most liquid market in existence.

It’s simply unrealistic for businesses to not exceed the $250k insurance limit.

Both insured sweep accounts and non-FDIC depository insurance exist.

You can buy insurance to protect amounts above $250k.

That just moves the source of risk to the company selling you that insurance. If they go under as well, then that insurance is worthless.

Which insurance company can pay out a $40bn risk event?

When Lehman Brothers collapsed, the associated insurance payouts totaled ~$100 billion.

Reinsurance literally exists for this purpose. It's what Berkshire Hathaway does, for example.

You can only reinsure so many times before you arrive in the central bank.

Lloyds of London?

Berkshire Hathaway could. They probably wouldn’t have insured SVB, though.

Exactly this, take out insurance, open additional accounts so that the companies livelihood is not dependent on a single bank. What about all the companies who funded all these 'companies' ? Why aren't they stepping in to clean up the mess?

And who ensures that the insurance company has enough capital to pay out on that insurance?

I had no idea that was an option. My google-fu is failing me, what is that called? Who are the providers? Seems like it would be a mega capital intensive insurance product.

edit: this is way out of my wheelhouse, so an actual answer would be educational.

The term to google for is "insured cash sweep", but the specifics depend on the particular financial institution you work with. Instead of a single insurance provider, your cash is sharded behind the scenes among many member institutions. Here's one bank I picked at random from Google[0]. Brokerages like Schwab[1] and IBKR[2] also have a private insurer (both use Lloyd's of London) they offer as a service to customers.

[0] https://www.stearnsbank.com/personal/high-balance-deposit

[1] https://www.schwab.com/legal/sipc-account-protection

[2] https://ibkr.info/node/2012

Thanks for pointing me to this!

Try searching for "reinsurance" as in insurance for insurance, Swiss Re and Lloyds of London are the two big names I can think of, I don't know much other than that.

We solved this problem decades ago, these businesses chose not to use the tools available to them to protect their money.

https://www.intrafinetworkdeposits.com/

It’s silly. Either way, the money’s coming from the insurance fund. FDIC claims insurance is “at least” 250k.

The point is that diversifying deposits across banks reduces the risk of failures happening in the first place, reducing FDIC payouts. This incentive structure completely breaks down if there's no cap.

I'm very ignorant on the subject - what else would they do with the money?

As others have pointed out there are of course options: multiple accounts, buying safe bonds, etc. But those are all pretty unrealistic for most small businesses. Startups with 3 or 4 people aren't going to spend a lot of time learning all the ins and outs and risks of the options available.

Buy treasury bills?

People have pointed out brokers that will shotgun your deposits across many banks to game the deposit insurance limit, and apparently the FDIC is fine with that. But if every employer needs to do this, they can’t vote with their feet anymore, and I’m not sure there’s still a reason for separate banks to exist and compete.

Buy safe, highly liquid securities like t-bills, commercial paper, money market funds etc.

Why are you happy for the employees? They took a risk working for a company that was depositing more than what was covered by fdic.

The same way I feel bad for someone who is at fault in an accident and gets hurt. I don't like seeing bad things happen to people or see people suffer. Those employees who work for these companies don't have a lot of say where the company keeps their money.

The companies who deposit money in these banks don't have a lot of say where the bank invests their money.

Are you aware of how your employer’s cash and assets are held?

Are you aware of how your bank's cash and assets are invested?

Genuine question but if a company has 10 million where or how do they deposit it for it to be insured?

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