A better analogy would be lastpass getting hacked, and then rightfully disclosing that instead of just keeping it under wraps.
The banking equivalent of Lastpass getting hacked and not disclosing it would be if a bank was insolvent and instead of rightfully disclosing that it instead just kept it under wraps. That would be accounting fraud and executives would be charged with crimes like they were in the Enron scandal. SVB experienced a sudden liquidity problem, not a solvency problem. Solvency and liquidity are two separate things.
The conclusion from this isn't that it was solvent and suddenly became insolvent. The conclusion is that almost every bank is insolvent.
In as far as “the sky is blue”, except when it’s cloudy, or night time, or the sun goes supernova.
They had a solvency problem.
The MBS they held with a six year duration didn't generate sufficient income. That meant they couldn't meet the cash letter from the Fed. That's why the FDIC was called in.
The whole strategy was based upon holding uninsured non-interest bearing liabilities for the duration - ie the cash of startups in burn mode.
It wouldn't have mattered if they had insured the HTM portfolio in the traditional manner.
Any sought equity investment in the bank would have had to be sufficient to get the net income up to the level where they could meet the terms of the cash letter from the Fed. I doubt anybody would have gone for that when the alternative was to attend the FDIC auctions and pick up the assets on sale.
FTX was a different issue, because it had a requirement of 100% backing of customer deposits for example (that's why SBF was trying to acquire a bank).
It sounds to me like there's a big disconnect between what banks actually do, and what their customers think they do.
I agree on the disconnect, but I don't think it's all relevant to this situation. Almost every party involved should have been well aware of this fairly basic concept.
It's a bit like suggesting zoomers know what a filesystem is because they grew up with computers; seems like it should be the case on the surface but you'll quickly realise they've never dealt with the underlying realities of the system, they just use the interface.
I am suggesting that business owners with substantial cash holdings should be well aware of fractional reserve banking, or at least the notion that money in the bank is not guaranteed.
Do you seriously think any of these companies weren't aware of the $250k insurance limit?
I'm genuinely curious what you mean, as your example sounds like a straw man, but I'm hoping there's something I'm missing.
Don’t you mean “or even the fact that money was ever backed by gold”? If you knew about gold backing at all, surely you’d know we left the gold standard last century.