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Comment by 1vuio0pswjnm7 | Hacker News Reader

"Some observers fear that the decision to disregard the $250,000 cap on insured deposits could generate irresistible pressure to insure deposits fully regardless of the amount. This would undermine the purpose of the cap, which was to give large depositors an incentive to monitor the conduct of their banks and subject the system to market discipline. A total guarantee, many argue, is an invitation to irresponsibility. This may be right."

SVB was happy to conceal their precarious position until they were required to recognise and disclose losses when they sold some of their bonds.

Is there any reason we should promote personal responsibility on the part of depositors.

The author's children are VC. What appears to be an easy question suddenly become challenging.

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The Federal Reserve is literally an example of the banks self-regulating. Look up the story of Jekyll Island. The problem is, the banks’ idea of self regulating isn’t the same as yours

And don’t think that handing more power to the federal government would be any different. Take a look at what a revolving door there is between banks and regulators, particularly during crises. Geithner, Paulson, Mnuchin, Bernanke, Bob Rubin, Larry Summers, etc…

SVB is actually an inverse example of that hypotheses.

The biggest depositors added pressure on the bank to be more risky.

Which proves the need for regulation.

Or that the depositors should have lost money, with the ensuing ripple effects: unpaid workers, state fines for violating wage payment laws, bankruptcies, lawsuits, unpaid vendors and contractors and all their downstreams, etc.

i.e. carnage, a big bloody nose, but not an extinction level event.

Maybe the depositors deserved a bloody nose. But do their employees, vendors, and contractors?

In my outspoken opinion you’re onto something. Regular FDIC insurance should kick in. Every aaccount gets their 250k, and rest will take years to figure out with lawyers scrambling to stake claims of the carcass. Enhanced unemployment for the non executive level employees of companies effected by the failure. Highly compensated employees that don’t budget might suffer, good. Executives, investors, etc should all take a bath from this. They should be made whole on the backend if they didn’t have insurance and well managed risk. There should also be a lot of high profile and HNWI people thrown in prison for their gross negligence. Hopefully the regulators can secure the evidence they need for convictions without their investigations getting compromised by any manner of the typical shenanigans.

In what way did the depositors add pressure for the bank to be more risky? Naively, it seems like there would be zero incentive for a depositor to do that unless they were trying to chase a measly yield on deposits.

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