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Comment by 0xB31B1B | Hacker News Reader

The decisions about "is this bank adequately capitalized to serve its depositors" should be made by the regulators, not by the market. We know what it takes to run a bank safely, and its really easy to both quantify and test. This is how the "too big to fail" banks are run today. No one talks about the moral hazard of elevators (make sure you inspect it before you get on) or airplanes (make sure you do your own pre flight check) we trust that the regulators have set up processes that make this infrastructure safe for the public to use. Even with a deposit guarantee, a poorly run bank can still be closed by regulators, a bank run doesn't need to happen for a bank to be shut down, just like an elevator accident doesn't need to happen to decertify an elevator in a building.

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It doesn't take a CPA to know that depositing above 250k comes with increased risk. And I think you're kind of conflating types of consumers here. People depositing above that limit are generally not working from the same limitations and lack of information that regular people are.

Exactly. Circle and USDC are essentially a bank themselves, and those deposits were just guaranteed. Risk free return.

> People depositing above that limit are generally not working from the same limitations and lack of information that regular people are.

250k is not that much money. What a weird statement.

Feels like a lot to me. That's more than a year's wages.

Consider financially responsible people in their 50’s and 60’s that have had decades to save. There are plenty of “regular”, middle class people with this type of savings in their account.

If you have that much in liquid cash, you meet virtually no definition of the term "middle class". You are upper middle class at leadt and you probably have a financial advisor who is telling you that you shouldn't locate all your money in one account unless it is yielding in a way that justifies such a risk. At least I hope you do.

Or you're just old and you don't believe in investing. Lots of people are like this.

I concede that edge case. My dad hides cash in coffee cans.

Yes, that is a lot of cash for an individual. I don't really know why anyone would sit on a lot more cash than that without at least putting a healthy portion into Treasuries or other durable assets.

For businesses, it is a trickier proposition but there are reasons that companies roll cash into assets and operate largely from credit.

Companies need to run payroll twice a month. $250k is about one months payroll to 25 people. Many companies are a lot larger than that. You also have planned and unexpected expenses and other payments. Many payroll and providers also require you to set up one account where the funds are pulled. You don’t want to move money around every week, so you keep heathy balance.

I don't disagree, but fwiw it's only about one month's payroll for 25 people if each employee makes around $200k per year.

Obviously people have different salaries but also are payroll taxes and other taxes or fees that also need to be paid like unemployment insurance and whatever else the local government has decided. Sometimes these are collected city/county as well as at state level.

Benefits also cost $500-2500/mo (if you cover 100% employee and 70% dependents).

Not complaining but just saying there are costs that are not always apparent to employees.

also rent, servers, the cost of anything else you have to run your businesses. For broadly generic tech companies, take everyones top line salaries, double them, that is your rule of thumb monthly expense line item that wraps everything up (rent, taxes, the cost of doing business, marketing spend, etc)

It’s also never adjusted for inflation, despite this mess in theory being triggered by raising of interest rates due to super high inflation. 250K when it was set in 2010 is the equivalent of almost $350K now. If we ignore that, then we’re just admitting the number is totally arbitrary and we shouldn’t even bother arguing whether it’s a lot or a little.

Separately, it’s weird that a joint account is insured to 500K but a business account stays at 250K. It actually does weirdly favor wealthy individuals vs. working capital accounts for businesses that might represent many employees.

It was set to 250k from 100k… That’s quite far from ‘never adjusted’ and quite a bit more than ‘for inflation’.

The sentence clearly means that it was never adjusted from inflation from when it was adjusted to 250K, 12 years ago. You can tell that this is far from being adjusted for inflation since it is now 100K off from what it was in 2010, or 40%. This should be a "neutral" issue with respect to the SVB thing, pegging it to inflation helps everyone in the system.

That's more than most American will ever have in savings, no less

That’s a senior software Eng in LA’s annual salary. With five years of experience.

Yeah, that's actually about what I make but let's be real, this is a very small number of people. I have a financial planner.

Are there people in this asset class who aren't getting financial advice? Yes. But it's not like ma and pa kettle are getting wrung out by the savings and loan here.

It is more than the average lifetime peak retirement savings in the US (which will be in multiple accounts, generally).

At this point we should just nationalize the whole banking system. Currently we have the worst of both worlds: privatised profits and socialised losses; strict regulations but limited oversight or appeal; no real market competition but no real voter influence either.

we don't have "socialized losses". Tax payers aren't paying for anything here. The FDIC is run an funded by an interbank consortium. Its essential a union of banks that run a collective risk pool and decide the rules of the risk pool. It works and has worked for nearly 100 years.

> we don't have "socialized losses". Tax payers aren't paying for anything here. The FDIC is run an funded by an interbank consortium. Its essential a union of banks that run a collective risk pool and decide the rules of the risk pool.

What meaningful distinction are you drawing here? It's not practical to opt out of banking, and FDIC has no real competition (the NCUA offers exactly the same terms, and in the credit union thread fans were at pains to emphasise how equivalent to the FDIC it is). Not all taxes are collected by governments from individuals.

Cryptos?

People will be taxed for this through inflation. Where else does the money come from during a QT cycle?

I haven't looked into the details for how this will be paid, but that would be my initial guess.

Consider: “Reserve requirements are a tool used by the central bank to increase or decrease the money supply in the economy and influence interest rates. Reserve requirements are currently set at ZERO as a response to the COVID-19 pandemic.” ref: https://www.investopedia.com/terms/r/requiredreserves.asp

A mean reserve requirements are stupid and have no place in real risk assessment so that's a good thing.

How so?

I don't think it necessarily is adjusted for risk that specific banks take on as operators. It's likely set at some requirement to help the fed achieve its goal while also adjusting for median or 2 std dev risk.

And so the regulators are empowered to make a whole bunch of other decisions, such as asset and lending strategy.

I prefer to minimize regulators' control over decisions.

Perhaps you have noticed that regulators are at bottom politicians?

at the end of the day, everything in life is political.

Did you also consider that the political incentive for a regulator are at odds with the ones running the bussiness. (mainly, not getting people killed).

I prefer to minimise banking's influence over everything, because banking is itself a form of political regulation - but not a democratically accountable one.

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