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Comment by mark_l_watson | Hacker News Reader

This worries me, but I also feel that I don’t have the personal knowledge to really understand how big of a threat this is.

I feel more confident in my belief that Wall Street (as opposed to good banks, like local credit unions who stimulate local economies) are corrupt, and the individuals involved care 100% about their own power and status, and close to 0% about the working public.

I expect that Wall Street banks would love to discredit the safety of local banks, but for my money I choose to do business with a few local credit unions whose board of directors are local and relatively transparent.

The other elephant in the room is the astronomical amount of money in derivatives, and their lack of transparency.

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> I expect that Wall Street banks would love to discredit the safety of local banks, but for my money I choose to do business with a few local credit unions whose board of directors are local and relatively transparent.

They don't have to discredit them, the Feds are doing that.

Local banks, credit unions, etc are NOT on the "too big to fail" (or "systemic risk") list so therefore they can fail and will be allowed to fail.

It's also interesting that of the Big Four that are "too big to fail" three of them offer savings rates of under 0.25% it's almost as if they don't have to do anything to appeal to customers.

> They don't have to discredit them, the Feds are doing that.

The Fed == the Wall Street banks. The Wall Street banks are the overwhelming shareholders of the Fed.

> Local banks, credit unions, etc are NOT on the "too big to fail" (or "systemic risk") list so therefore they can fail and will be allowed to fail.

Sorry but isn't this only a problem for those with more than $250k, and that frankly is a lot for an individual. And even then you could just create another account at another local bank and you're golden. If you have a million cash, then handling four bank accounts is really not a bad problem.

> only a problem for those with more than $250k,

And lots of local businesses. 100 employees at 48k a year gets you to 200k a month in payroll. Never mind the money it takes to run that business.

Even if you are under the 250k mark, if your bank closes on a pay day your staff is the group that suffers.

Sounds like a perfect HN startup MVP. Split your operating cash among banks to keep under FDIC limits while presenting a convenient front end ui for payroll

Google for "insured cash sweep". https://www.cbhou.com/Resources/Customer-Corner/entryid/237/...

The specific problem for SVB was that many VCs got their companies to agree not to do this, specifically to keep all the money in SVB.

> specific problem for SVB was that many VCs got their companies to agree not to do this

What was in it for the VCs???

I have not yet heard a specific explanation for this, although there has to have been some quid pro quo.

>Split your operating cash among banks to keep under FDIC limits while presenting a convenient front end ui for payroll

I work for a six-person startup; our CEO landed on Brex after SVB, and one of the reasons he gave was that it does exactly this (up to 9 banks). See https://www.brex.com/product/business-account

But if you're a midsized construction firm turning over $10 million a month 40 bank accounts is unwieldy. If you're that and watch SVB collapse with the slow pokes holding the bag then you move to one of the big 4. For a few reasons:

(1) SVB taught you that the feds will let a bank run happen

(2) They won't save the poor saps that were too slow moving their money

(3) The systemically important banks are too big to fail. A bank that can't pay depositors back is failed. Ergo, the SIB are too big to lose customer deposits.

So you flee your regional bank because the single most important thing about a bank is that they don't lose your money.

> (1) SVB taught you that the feds will let a bank run happen

You can't prevent a bank run if people are going around whatsapp groups of major depositors telling each other to get their money out.

> (2) They won't save the poor saps that were too slow moving their money

They absolutely did, even when the rules didn't say they had to?

>You can't prevent a bank run if people are going around whatsapp groups of major depositors telling each other to get their money out.

Sure you can. You close the bank when it's insolvent and people are saying to get your money out.

>They absolutely did, even when the rules didn't say they had to?

Yes and my post was to illustrate why. Perhaps that was not as clear as it could be.

> You close the bank when it's insolvent and people are saying to get your money out.

How does this materially differ from what happened? Is there a federal power to temporarily close banks? Doesn't the run immediately continue when reopened?

It doesn't because they made all the depositors whole. If they didn't do that then the last 30% or whatever depositors remained would have taken all the losses.

Regulators have broad power to close banks. They could have done so when SVB failed to raise equity or really before that. Run stops because deposits are transferred to a healthy bank.

> turning over $10 million a month 40 bank accounts is unwieldy

Perhaps, but does this mean you just leave your cash exposed to almost a complete loss? Surely there are services/software that could manage this for you? Seems like a lazy and incompetent accounting department.

Just ask ChatGPT how to do it <sarcasm>

> won't save the poor saps that were too slow moving their money

This fear is unfounded. Depositors were bailed out. (That said, yes, utilising the bank’s sweep feature would be wise. As would having a second bank account.)

Thank goodness they’re forced to be a little less reckless with our money so they can still make disproportionate profits off our savings. I am more than happy to help.

What kind of government allows their citizens to bear the brunt of the risk for pitiful gains?

When a bank complains about the onerous, expensive or excessive costs associated with risk management and compliance, what they're really saying is:

"If it wasn't for that pesky government, we'd more than happily take more risks with -your- money!"

That's both true and not true.

So sure, banks want to take more risks with your money. But if you start to understand the web of banking regulations, you'll see that there are multiple different groups with oversight, each with different goals and different regulatory frameworks. It's extremely difficult to maintain compliance and the complexity is a problem for a number of reasons, including the fact that a lot of the regulations are legacies of a time before interstate banking.

> It's also interesting that of the Big Four that are "too big to fail" three of them offer savings rates of under 0.25% it's almost as if they don't have to do anything to appeal to customers.

This is literally how it's supposed to work: anybody more risky has to offer an incentive to the punters.

But bank deposits are different (as Matt Levine put it: you don't want to evaluate your bank's solvency any more than you want to inspect the factory where your can of beans was packed) -- most people don't even look at the rate their bank is paying when they open an account.

This is the news doing fear-based marketing. You can't really spot the problem on the big chart: https://www.spglobal.com/spdji/en/indices/fixed-income/sp-us...

The "bubbliness" doesn't match 2008. For one thing, there hasn't been a build boom to try to cash in. My personal opinion is that we've absorbed another systemic shock - the war and sanctioning of the Russian economy, and especially the European gas price shock. That's still propagating through but the effect is diminishing rather than increasing.

(my slightly cynical take is that anything the news tells you to be scared of is probably not a threat, and that the real threats are surrounded by protective clouds of optimistic hype)

> the individuals involved care 100% about their own power and status, and close to 0% about the working public.

The American Way, surely?

It's not necessarily the case that local banks are safer. The US "savings and loan crisis", Spanish "cajas" etc.

> The other elephant in the room is the astronomical amount of money in derivatives, and their lack of transparency.

It does feel like this is where the systemic risk may have gone.

> > The other elephant in the room is the astronomical amount of money in derivatives, and their lack of transparency.

> It does feel like this is where the systemic risk may have gone.

It's... kind of supposed to?

Take SVB, for instance. What they should have done is use derivatives to hedge their exposure to interest rates rising. They should have transferred the risk to other parties that either had the opposite exposure, or else were willing to take the risk for the right price.

Now, as we saw in 2008, all kinds of eldritch horrors can hide in derivatives, and the lack of transparency makes it very hard to see problems coming. And even in the case of SVB, that would still have left them with the counterparty risk. But the derivative market is where the risk is supposed to go, because it's the place that's supposed to be in the business of handling it.

This is rather nebulous, but I feel like the environmentalist's response of "there is no away" to things being "thrown away" is relevant here. The derivative market is not an "away" into which unlimited amounts of risk can be dumped. Everyone would clearly like the world to be set up so that it's only the richest and least deserving that take losses in a crisis, but that's not how it works and may not even be possible.

We'd prefer any derivatives crisis to blow up only some unloved hedge funds, fly by night banks, and dumb sovereign wealth funds, but it turns out they keep selling on risky assets to unsophisticated investors. Like interest rate swaps.

https://www.usnews.com/opinion/blogs/economic-intelligence/2...

https://en.wikipedia.org/wiki/Local_authorities_swaps_litiga...

If you manage your own money you are fine. If you are expecting the manager of a pension fund to have made good decisions then you are probably in bad shape

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