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Comment by mcherm | Hacker News Reader

I am one of those who has been harmed.

I work at a different bank. The rates charged to banks for FDIC insurance have been based on the assumption that the FDIC would cover depositor losses up to the insured limit. By choosing to cover all losses even above the insured limit, we have chosen to put the burden for paying for those losses on all of the other banks (and indirectly on those banks depositors). I suspect this means that you will not see the interest rate on savings accounts go up as much as it might have otherwise.

I'm not saying this outcome is terrible, perhaps it was the best solution for the system as a whole. But using an insurance fund to cover a kind of loss, the insurance was not sized to address is not a choice that has no impact.

If I were in charge of everything (perish the thought!) I would probably have insisted that the uninsured portion of the deposits take some haircut. If depositors had gotten back 90% or 98% of their deposits instead of 100%, it might have increased the chance in the future that institutions with 100 million+ bank accounts would pay more attention to the risk profile of the banks they choose to invest with. Banks are rewarded mostly in proportion to the risks that they take; having a force other than government regulation that pushes in the opposite direction can be very useful.

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Have the FDIC rates actually changed or is this a hypothetical. It's relevant because the FDIC limit has not actually increased--it's still de jure $250K. The fact that the FDIC said they would cover 100% of deposits at SBV could be related to the fact they weren't actually insolvent and could have covered the run if given enough time to liquidate assets.

100% hypothetical.

Of course the banks are only happy to have ANY justification to complain and not raise saving rates, and blame the Federal Government.

But there have been no indication yet that the FDIC will be drawing on the insurance fund to cover the depositors.

>Have the FDIC rates actually changed or is this a hypothetical.

It's hypothetical. The FDIC is likely to recover a vast majority of the uninsured deposits through asset sales, people just want to be outraged.

At smaller banks, 60-75% of uninsured deposits are usually recovered by FDIC and those banks went out of business for bad balance sheets, not bank runs due to duration mismatch.

We've gotten so used to assuming every statement is spin on 'you're getting screwed' that people assume it's always the case.

Relatedly, the FDIC is built as an insurance pool and has always stated coverage as a minimum with no explicit maximum coverage. It's entirely possible to see the FDIC's over-coverage here as an explicit "this pool has seen lower portfolio risk than expected" which may only indicate that past rates were higher than necessary versus real world risk profiles and that serves no expectation of future rate changes just a sign of a very healthy risk pool. (It's just as possible to argue that if the insurance pool was able to 100% cover the deposits in this event that actuaries should reevaluate the risks for the entire pool and decrease rates moving forward to stronger align with the expected minimum coverage and present risk assesment knowledge of the likelihood of events of this scale.)

I keep reading comments like this, but I've seen no well sourced material saying that the FDIC is raising rates.

Do you have some reliable source about it?

(NOT a "look at it logically" or "here's how my health insurance works, why would the FDIC be different", or "do your own research" or anything else that's some random internet comment - I'm looking for real meat about this claim).

From the Treasury announcement:

Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

In other words, if the FDIC's current funds can't cover the bill, an extra fee will be levied on banks to make up for it.

https://home.treasury.gov/news/press-releases/jy1337

So they might raise rates. If they can't recovered from SVB assets via selloff, the government loans on bonds, etc.

Well we already know there are some nominal losses, because the FDIC did take over SVB.

FDIC took over because SVB failed to make a margin call Thursday 9 March. Not having the money today while operating as a going concern, and having the money never after a liquidation, are different things.

No, that is not known at this time. It will take a few years to fully wind down the assets so as of right now no one knows if recovery will be <100%, 100% of deposits, or >100% of deposits (in which case general creditors may get some money).

The only thing we can be certain of is shareholders are wiped out and general creditors will take a significant haircut.

I is pretty clear they are underwater from their SEC filings. You know what exactly what their assets are and what their the fair market value of their securities. They reported the fair market value of their underwater loans.

I guess the FED could have bullied some banks into buying the securities at a higher rate, but the books themselves are transparent.

The market fluctuates. If those assets are held to maturity most will payoff without losses... even some of the subprime mortgage dreck from 2007 ended up recovering, SVB's assets are far less impaired.

No one has published what kind of discount the gov't applied to the assets it is leveraging to make uninsured SVB depositors whole. For all we know the government correctly forecast the likely future losses, allocated some extra assets from the SVB carcass, and functionally prepaid those maybe rate increases.

The problem, as it were, isn't some lurking or hidden loss, it's arguably that these answers aren't currently available and we don't have the slightest idea in the public what will happen if profits result from the bailout venture. This shouldn't be a "heads-I-win-tails-you-lose" redux.

If you can recover full capital from a selloff, SVB wouldn't be insolvent in the first place. The reality is that you can't, which is why we are here. The haircut is probably, also, deeper than 1-10% because otherwise SVB would have borrowed this money against its own "capital". Clearly, that was not possible too. The haircut seems to be quite big but there is no information whatsoever about how big the losses are.

Nope. The haircut was only severe because of the immediacy of the bank run. With more buffer (presumably the new holders of SVB's assets have more cash!) and no bank run fears, those assets will eventually mature to their full value. The "haircut" only applies if you're forced to take the marked-to-market value today.

You're conflating two reasons why an asset might be worth less now, but more later:

1. Illiquidity. For example, there might be few people anywhere in the world with the expertise to accurately value some weird loan to a startup. If those prospective buyers are busy or undercapitalized, then the market may become inefficient, with best bids well below FMV. If we wait for those expert buyers to research the startup's credit risk, to raise more money themselves, etc., then the bids will eventually come back up to FMV. This is the classic "It's a Wonderful Life" style bank run, and was an important dynamic in 2008.

2. Time value of money. Assuming positive interest rates, a dollar later is worth less than a dollar now. The NPV of a given cash flow will remain constant, which means that its current value will increase steadily with time. When interest rates increase, the NPV of a future cash flow decreases, and the FMV of the corresponding asset decreases. This isn't a market inefficiency. If you assume that money is lent at interest and no riskless arbitrage opportunities exist, then it's just how money works.

The SVB's problem was #2. There's a liquid and orderly market for their assets, trading at prices close to those predicted by a simple NPV calculation; that price is just lower than the SVB wished. Hold-to-maturity accounting allowed them to ignore that, but that didn't change the economic reality.

> if the FDIC's current funds can't cover the bill

The FDIC's current funds were $128.2 billion on December 31 2022

SVD had ~$200 billion of deposits December 31 2022 - but obviously had significant withdrawals prior to being taken over. Likely < 100 billion remained.

> I've seen no well sourced material saying that the FDIC is raising rates

Beyond the special assessment, they almost certainly need to raise a new assessment to cover $250k+ deposits. Full insurance can't be on a discretionary basis.

Minus the assets they recovered from SVB which will probably cover most of it given they were just illiquid, not fraudulent. All those bonds didn’t just disappear.

The value of those bonds is less than what it says on the balance sheet. They were not able to sell them at price X meaning they are no longer worth that much. The rate on those bonds is less than inflation, meaning keeping them to maturity won't recover original value.

What’s the delta though? Nobody seems to be able to quantify how much this is, but still are able to muster outrage over some unknown amount of harm done to them as bank users.

> What’s the delta though

For the Treasuries, this is known but not public. For the MBS, a theoretical value is known but not public. (The federal government has to sell these securities. It doesn't make sense to announce the holdings so they can be front run.)

This is a lie. It says on their SEC filings.

They state clear as day that they had 91 billion of securities, currently worth 76 billion in their hold to maturity portfolio.

In their avalable for sale (AFS) portfolio, they had 28 billion, currently worth 26.

They break it all down by asset type, MBS, treasuries, foreign debt, ect. They break it down by the duration, eg <1yr, 5-10, 10+ yrs

There is no mystery. I dont know why people keep saying this.

Check out page 124 onward if you are curious: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d...

> break it all down by asset type, MBS, treasuries, foreign debt, ect. They break it down by the duration, eg <1yr, 5-10, 10+ yrs

Yes, categorically. No, not specifically. 5 and 10 years produce different answers, particularly with current convexity. (It is fine if you're trying to get broad-grained answers.)

Potential buyers over the weekend got a list of CUSIPs. The public does not get that until ex post facto.

The public does know the current value of all securities, and of several different buckets. Yes, these market values will change at different rates for individual assets, and we dont have a list of every stock, bond, and loan.

We still have a very good understanding of the "delta" and the magnitude of the loss, if not with crystal clarity.

Nearly all of the unrealized loss was in securities more than >10 years. They had 15.1 billion in unrealized HTM losses. 14.7 billion of this had a maturity >30

9 billion is agency MBS

2 billion in agency collateralized mortgage obligations

2.3 billion in commercial mortgage backed securities, and

1.2 in municipal bonds and notes.

They actually have relatively few treasuries, and none in their HTM portfolio. Unrealized losses on treasuries are ~1 billion, And mostly treasuries from treasuries less than 12 months ( contrary to what most people report).

I really recommend actually looking at their filing. It is extremely detailed.

https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d...

We can estimate the delta as of filing dates. We don’t know what the delta is.

That doesn’t matter, because they’re federally backed. But it’s a crucial difference to appreciate less than one week after a run.

Like I said above, you won't have a crystal clear number but you have some brackets on the fair market value. The assets under management belong to the account holders so you can zero them out. You can zero out the shareholder value which is zero. This mainly leaves there other cash assets and physical assets.

I'm not willing to do it to win a hn debate, but there's enough public information to estimate the size of their hole within a billion or two.

Claims that they were evasive or hiding things in their financial reportings are off base. Claims that it would be impossible to get an idea of their Financial losses are also off base.

> they were evasive or hiding things in their financial reportings are off base

Nobody (in this thread) claimed this? And I disagree with the “within a billion or two,” though do think within a few tens of billions is accurate. The problem isn’t the specificity of the filing per se but the delay; that isn’t the balance sheet anymore.

>And I disagree with the “within a billion or two,” though do think within a few tens of billions is accurate.

It is clear from the statement that we are almost entirely talking about 30 year MBS purchased in 2021.

3% 30yr MBS were about $105 throughout 2021. These were about $89.2 at the end of 2022 (10-k filing), and about $89.4 today.

You might say, "but they may have put it 30yr MBS!". The thing is, you can validate this by the ammount they lost from 2021 to 2022. It also doesnt make much of a difference if they bought slightly different rate MBS at 2.5% or 3.5%, as they track pretty closely. Lastly, MBS value havent changed much since the time of the 10-k filing.

To get "a few tens of billions" difference, they would have had to tripple their losses on MBS in a time when MBS value has been stable.

https://fred.stlouisfed.org/series/MORTGAGE30US

https://www.mortgagenewsdaily.com/mbs/umbs/30/30

You know what else is below inflation? The rates SVB has to pay its depositors. As long as the rate is > 0, which is the rate SVB will pay its depositors, there’s no reason the Feds should take any hits.

As long as the rates on the bond are > than the rates SVB is paying its depositors it will be fine.

Keep in mind SVB was not the only bank. 3 banks went under (at least so far).

They don’t have enough treasuries to cover deposits even if they could liquidate them for par value. They’re also holding a bunch of startup loans which I doubt are going to fetch the valuation they assigned to them on their balance sheet, otherwise they would’ve been acquired whole by one of the big banks. Nobody put in a bid for the whole book of business, there must be a good reason for that. Not wanting to assume the credit risk of SVBs loan portfolio is a reasonable guess.

Janet has just declared that. The Banana court will determine whether you are worthy of full insurance or not. As a bank. I wouldn't be surprised if we have more of these in the future, that the insured parties will be favored too. "Oh, we are only covering X and Y, because they are systemically important to the rest of the economy".

Buy Banana futures while it's still cheap.

> Janet has just declared that.

Since 1933.

It always has been.

> we have chosen to put the burden for paying for those losses on all of the other banks

But isn't it likely to cause more bank runs if depositors lost money? So in a real sense, many other banks were saved from going under, by assuring depositors that their money is safe, whichever bank they're at.

My understanding is that other banks have massive unrealized losses as well, due to the steep interest rate increases. So they're all kind of vulnerable.

I'd say it's more likely that there will be at least slower rolling runs on smaller banks by large depositors. Keep in mind that the unlimited coverage only applies to the depositors of the two banks that were taken over, not all depositors everywhere. Keeping large balances in a bank that may not be deemed a systemic risk is still rolling the dice if said bank fails. (i.e. unless a bunch of other banks fail around the same time getting national attention, you'd probably be out of luck)

Here is my question about that: whatever the increased costs to insure other banks by making uninsured depositors whole, aren't they ultimately based on the resolution costs for SVB itself? That is to say: in the limit, if it costs almost nothing to wrap up SVB, because their assets are fine (just inconveniently structured), what drives insurance costs up at other banks?

I'd also add that covering uninsured depositors isn't new behavior for FDIC, at least as I understand it. The mechanics of how it was done here are different than in previous instances.

Covering uninsured deposits is common as they retain their senior debt status. Guaranteeing them on the other hand is very new.

And if we are going to expect them to be guaranteed in the future insurance rates must go up, not just to cover more things but to cover the riskier behavior it creates.

If we aren’t going to cover them 100% in the future then apparently it’s true that there are not just different classes of banker but different classes of depositors.

Or just different circumstances? IndyMac famously paid uninsured depositors back 85 cents on the dollar, right? But IndyMac was also plowing depositor dollars into a portfolio of Alt-A MBS's.

A regulatory regime that makes depositors whole when a bank fails due to not managing their interest rate risk appropriately but not when they mismanage their credit risk feels even stranger than just admitting that the fdic cares more about some depositors than others.

First Republic now has a sweep account that spreads up to $100m across 400 banks in increments of up to $FDIC_INSURANCE_LIMIT.

What's the difference between the FDIC insuring all deposits at US banks directly and US banks doing it themselves by forming a complete graph? (Other than there being a clear upper limit in the latter case, which is currently greater than $1b per account.)

Insurance only pays out to $FDIC_INSURANCE_LIMIT if a bank fails. I can't say what the scenario looks like where 400 banks fail simultaneously, but I can image it would not be good. I'm not sure the current FDIC payout models account for that, either.

I agree about 400 banks failing would likely be due to some greater catastrophe.

But financially I think it's the same. If 400 customers each use 1 bank each, then a single bank failure means the FDIC needs to make whole one customer.

But if every customer put 1/400th of their wealth into each of the 400 banks, then FDIC has to cover all customers for 1/400th each.

The cost to us as depositors/taxpayers is equal.

I'm not sure I'm following. If the FDIC only needs to insure 1/400 of all deposits, then they only need to have on balance 1/400 of the total funds. So the cost to all accounts is in effect 1/400, no?

If customers are only utilizing a single bank, and the FDIC will insure all deposits regardless of amount, they would need 400 times as much than would be necessary if the balances were swept.

The FDIC insures the entirety of the deposits either way.

> Insurance only pays out . . . if a bank fails

That's a good point. So one difference is that while the money is equally insured in both cases, the payout dynamics would change. Very roughly, the amount of a payout might be expected to go down in the cross-bank case (smaller account values, but then also more accounts per bank, so it isn't quite so simple), and the likelihood of a payout might be expected to go up (higher chance of failure with more and smaller banks). But this all depends on how interlocked the banks become; in the extreme they could end up functionally a single bank.

The first thing that came to mind for me is somewhat related: Spreading deposits across banks is relatively better for small banks and worse for big ones, since the small banks gain deposits and the big banks lose them. So you can definitely argue there's some advantage to keeping a lower insurance limit, although it gets murkier when we bring behavioral considerations and "too big to fail" into the picture.

>The FDIC insures the entirety of the deposits either way.

This is new with SVB. I get the whole "250K minimum" argumemt, but this is the first where we are seeing major 10M++ depositors getting 100% guarantees.

I don't see issue with spreading money across smaller banks - other than perhaps they may not be able to assess risk as well as larger banks. But again, SVB.

I think one thing to keep in mind is that most bank depositors hold far, far less than the 250K guaranteed by FDIC. By a large margin. Id be surprised if the average was above 10K. There are $17T in deposits across the country [1]. The FDIC at the beginning of the year had $128B in balance as insurance to depositors [2].

[1] https://fred.stlouisfed.org/series/DPSACBW027SBOG

[2] https://www.fdic.gov/analysis/quarterly-banking-profile/inde...

If you look through the thread I replied to and the broader conversation, some people objected to backstopping deposits without limit and think rates have to go up if this is the new status quo.

The question is in what way(s) does it matter whether deposits are insured without limit in a single account, which is new, or with limits when spread across an arbitrary number of accounts, which isn't? If one costs 1x, why should the other cost > 1x?

It's a serious question. FDIC assessment rates aren't as simple as tax brackets and for example it's possible that the act of spreading deposits across more accounts in more banks would increase the fees paid into the existing system anyway.

>The question is in what way(s) does it matter whether deposits are insured without limit in a single account, which is new, or with limits when spread across an arbitrary number of accounts, which isn't?

It matters because only 1 (SVB) bank failed. If those depositors had their money swept across multiple banks this point would be moot.

Edit: If deposits are spread about multiple banks, the FDIC does not need to carry as large of a balance to cover the loses of any single bank, which results in less indirect fees to depositors of different banks.

I don’t follow the math. A bank failure is a bank failure. There’s no difference to the FDIC between 100 depositors with $250k swept across 100 banks and 1 depositor with $25m.

If that one depositor with 25m banks only at the bank that fails, FDIC is on the hook for all 25m.

If the deposit is 250k across 100 banks, and only 1 bank fails, FDIC is only on the hook for at most the 250k.

Now multiply that by number of depositors. It's RAID for banks. You're gaining fault tolerance by decreasing the impact of any particular failure.

>It's RAID for banks.

Just wanted to say this is such a great analogy. Thanks.

> But if every customer put 1/400th of their wealth into each of the 400 banks, then FDIC has to cover all customers for 1/400th each.

Seems like having everyone use at least 400 different banks achieves one of the core goals of the FDIC guarantee - making small/midsize banks viable and preventing everyone from piling into the big four megabanks.

That's not an accurate summary.

The regulatory regime is one that makes depositors whole when doing otherwise seems likely to cause a major crisis in the banking system. Which we've had for a long time. It merely seems inconsistent because evidence of "likely to cause a major crisis" differs by current possible crisis.

As https://www.bitsaboutmoney.com/archive/banking-in-very-uncer... explains in painful detail, the reasons why they likely concluded that there is systemic risk. But long story short, rising interest rates caused the banking sector to have $620 billion in unrealized losses. Unsurprising since the interest rate rise was *INTENDED* to make people lose money, making money more valuable relative to goods and services, which reduces inflations.

But $620 billion is substantially more than the $130 billion in the FDIC insurance fund. It is substantially less than the $2 trillion in equity in the banking sector, but both losses and equity are unevenly spread. Therefore there are banks under water, and others that are fine. But nobody is sure which are which. And given cash outflows from worried people, we were about to find out the hard way. And once there is a bank panic, even fine banks become not fine.

Like Wile E. Coyote, running off this cliff works fine until you look down. But we've looked down. And now the whole sector needs saving. Thus these actions.

They will go back to normal behavior once the crisis is over.

> Or just different circumstances? IndyMac famously paid uninsured depositors back 85 cents on the dollar, right?

About 50 cents on the dollar.

The typical depositor in post-2008 bank failures (all tiny, until SVB and Signature) got about 75 cents on the dollar.

> because their assets are fine (just inconveniently structured) If assets are so inconveniently structured that the bank fails, then the assets are not fine. A bond that pays 0.01% that never matures has an infinite value over infinite time. So while the FDIC/gov can solve the liquidity issue by replacing a $100 face value bond with $100 cash but that's still a net transfer of actual value from the FDIC i.e other banks.

As far as I know, regulatory requirements require/encourage holding good bonds but if the FDIC is going to start treating gov/muni bonds of any maturity length as good as cash, then there's less reason to hedge against interest rate risk.

I think this move probably saved the FDIC money. If you had a massive bank run(1), it's probably cheaper to pay back 250k+ depositors of one bank than for the FDIC to pay out < 250 on 40. Not to mention unloading enormous amounts of MBS's could trigger further insolvencies.

1. which seemed pretty likely, I know people who over the weekend were planning to pull all of their money out of a regional bank and put it in one of the 4 super banks Monday morning)

What's the rationale behind not breaking up the accounts of large depositors into FDIC-insurable accounts? Apparently this is called a 'cash sweep'. Typical ad blurb:

> "Insured cash sweep is a safe and convenient service that provides FDIC insurance on large balances while giving you access to your money, as well as the ability to earn interest. Choose between demand accounts, which offer unlimited withdrawals, and money market accounts that permit up to six withdrawals per month."

I've heard some claims that SVB was offering incentives to depositors who kept their funds in one lump account, is this true and if so what's the benefit to SVB from doing that?

It’s called brokered deposits, there is not reason to not do it if it’s just sitting in bank acccount, but if the $ size gets large (>$25m it can be cumbersome), and if there is a lot of operational activity it doesn’t make much sense.

What’s unforgivable is why these large depositors that didn’t tend this cash for short term operational needs didn’t have the funds in govt securities in an insured brokerage account at a trust company…

Where many venture backed companies got hung up though is that the terms of venture debt provided by SVB required the borrowers to keep use SVB as their bank…

Just so I’m clear, you’re saying that you’ve been harmed because your savings account will pay a lower interest rate?

(Note that I’m not trying to suggest that you were not harmed, I just want to make sure that I understand the source of the harm.)

I'm guessing that if they work for a bank the FDIC special fee might also cut into bonuses.

As you have insight,

1) Is this outcome better than (expected) panic on the banks and bank runs? There still seem to be runs going on e.g. First Republic. Are the markets “calm” now?

2) Because insurance fund is not designed for the task it is currently experiencing, how the gap will be plugged?

3) Could this cause depositors move money from smaller banks to larger ones, and then larger banks just lend this money back to small banks w/some nice profit?

Could you quantify your harm?

How much extra are they taking from your bank to cover the delta between what the FDIC will recover and what they have to pay out?

> I am one of those who has been harmed.

How were you harmed specifically?

> you will not see the interest rate on savings accounts go up as much as it might have otherwise.

Bullshit. Interest rates for savings accounts are and have been an absolute joke. Are they going to become a more hilarious joke? Probably but seriously, who cares?

> I'm not saying this outcome is terrible, perhaps it was the best solution for the system as a whole.

Yes, it is the best solution, otherwise you'd have written a completely different statement if the bank run went viral and you would have been really harmed.

> How were you harmed specifically?

That's like asking how you were specifically harmed as a result of there being one more CO2-spewing pickup truck in the world. Bad things amortized over millions of people are still bad, even if the harm to any individual is too small to verbalize.

No, it's not. One more CO2-spewing pickup truck doesn't take the headlines for a week.

>interest rate on savings accounts go up as much as it might...

No sensical person is concerned with the interest rate on savings, it is nearly zero and effectively negative.

I dont believe anyone should have a single account with 100 million dollars nor should banks allow that, but they do. Perhaps part of the problem is that the $250k coverage is a value that should adjust annually and coverage should be relative to each account as opposed to each account holder

> No sensical person is concerned with the interest rate on savings, it is nearly zero and effectively negative

This might have been true for the past ten years or more, it's not true now. You can easily find savings accounts now which offer over 3%, and it's going up as the fed continues to raise rates.

This still might not be the best investment when you consider the high inflation, but it's great for emergency fund type accounts that need low risk, high liquidity.

3% savings in a 6% inflation year is negative returns.

I cant believe this got downvotes...

As somebody employed by a company which kept all their assets in SVB, I strongly support the FDIC bailout. Even a couple percent haircut would've resulted in many many second order economic implications. I think even for member banks, strong economic activity not realized through a systemic contagion is much better than slightly lower premiums.

If we're not going to let economic signals tell companies to check who they're banking with before putting all their assets in one place, how can that happen? Regulations saying every small business needs to have a risk officer, and more regulations specifying how that officer has to make decisions?

>If we're not going to let economic signals tell companies to check who they're banking with before putting all their assets in one place, how can that happen

The assumption that an operating company should understand fixed income pricing dynamics, have a POV on future FED interest rate moves, and dive into each potential banking partners' asset duration is an interesting one, especially when most of SVB's deposits were made during a period of perpetually falling interest rates, where duration mismatch helped banks.

Maybe not each company, but the VCs who encouraged their portfolio companies to put everything in SVB should have some inkling of the risks involved in doing that.

Isn't the point of banking regulations that we are relying on the government to do that checking?

Relying on customers to check their bank, besides being fairly impractical for all but the largest and most sophisticated customers, is just going to trigger bank runs as soon as customers get any whiff of a problem.

I don't see the problem with unlimited FDIC provided the regulations are congruent with that. If you want to go the private route for better interest rates and take on the regulatory burden yourself, you can always go with an uninsured bank. If you just want a simple place to stash a few hundred million, why make you jump through hoops?

What I don't understand is why start-ups were apparently keeping millions of dollars of capital in a bank account rather than government bonds or other instruments, given that the FDIC limit was well known.

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