SVB customers who lost their deposits remain on the hook for loans
wsj.com
wsj.com
They deposited money in SVB's Cayman Islands subsidiary (a country that's a well-known tax haven). SVB goes under and the Cayman Islands have no deposit insurance so their deposits are wiped out. Now they want their money back or their debt forgiven. The SVB Cayman deposits didn't pay into the FDIC insurance fund so they shouldn't be given the protection of the FDIC.
The title of the article makes it sound like some poor SVB "customers" are in a bad situation. The truth is that it's going to be venture capital, private equity, and some really wealthy individuals (who were probably trying to dodge taxes). It's hard to feel bad for extremely rich people using a well-known tax haven losing some money. The WSJ is really burying the lead in this story. If you're trying to avoid US laws, regulations, and taxes, you can't come looking for US protections.
EDIT: In a previous article on the topic, the WSJ noted "The financial pain being felt by SVB’s foreign depositors could make investment firms that are incorporated or doing business in offshore financial hubs reconsider where they should put their money and what protections they have" https://www.wsj.com/articles/cayman-islands-regulator-explor...
We don't want to incentivize people to dodge taxes while thinking they'll enjoy all the protections paid for by taxes.
I never have more than a small amount held in cash, and even if I had a crazy windfall and made some billions, I wouldn’t keep more than a small amount in cash. For the patient folks, there’s equities… For the risk averse, there’s money markets, treasurys, real estate, etc.
see also COVID PPP loans
Alternatively, you can also buy your own insurance from a 3rd party to minimize risks.
However, you can also get incentivized to ignore the risks and keep large sums at individual institutions. Which has the obvious downsides SVB customers are discovering.
They should take their losses.
The point is that these other instruments don’t have the same risks as lending large amounts of cash to a bank, or even just holding large amounts of cash under your proverbial mattress.
If you’re chasing returns, you’ll need to take risks (and you probably won’t be interested in a 5% savings account in this sort of inflationary environment).
Cayman is one of the most financially transparent, if not _the_ most financially transparent, location in the world. We fully comply with FATCA, CRS, and AEOI, to the extent that it takes even a native Caymanian multiple weeks to open a local bank account.
The reason most foreign investors use Caymanian intermediaries is actually just that transparency, particularly when they’re being scrutinized by foreign regulatory bodies and don’t want their money to disappear into a Delaware numbered company.
It is very, very hard to use Cayman to hide money from taxes. It is, however, a particularly easy place to keep global funds in a law abiding and transparent way. This is our whole regulatory strategy for continued national growth and prosperity.
I don’t challenge your conclusion that FDIC protection shouldn’t apply to non-regulated funds. Just don’t trash Cayman. If your country allows tax shenanigans that’s on your government and has nothing to do with us. Cayman will not aid or abet any tax evasion, and does not deserve the snide aside.
Those are just facts.
https://www.republicworld.com/world-news/rest-of-the-world-n...
Now if someone or some corporation's hiding money in Dubai, Cyprus or Liechtenstein or one of those dozens of other dodgy tax havens, then you can bet your ass there's something shady behind the scenes. My neighbor for a while in Dubai was a wanted criminal in the UK.
> The nation's low tax rates have led to it being used as a tax haven for corporations; there are 100,000 companies registered in the Cayman Islands, more than the population itself. The Cayman Islands have come under criticism for allegations of money laundering and other financial crimes, including a 2016 statement by former US president Barack Obama that described a particular building which was the registered address of over 12,000 corporations as a "tax scam".
Companies do not choose Cayman. They choose “not my home/operating country”, then as a well regulated and safe third party location many of them end up in Cayman. And you should be glad they do, because here they operate transparently and legally, and if it’s for tax benefits whatever tax loopholes exist in their home countries are closed they’ll have no choice but to richly comply. (BTW, In surveys the most frequent reason cited for being in cayman is regulatory neutrality, not tax mitigation.)
And if Obama has a problem with hundreds of companies sharing an address, I can’t wait until he finds out about Delaware. Or a post office!
I don't see where the Cayman Islands were criticized.
“The Cayman Islands are considered a tax haven because the Caymans do not impose a corporate tax, making it an ideal place for multinational corporations to base subsidiary entities to shield some or all of their incomes from taxation. The Cayman Islands do not impose taxes on residents. They have no income tax, no property taxes, no capital gains taxes, no payroll taxes, and no withholding tax.”
https://www.investopedia.com/ask/answers/100215/why-cayman-i....
We just charge them differently. There’s an effective 22% consumption tax (with carve-outs for basics), levied on all imports and increased on luxuries. We have 7% taxes on all property transfers (for both income and to minimize house flipping). We have a ton of fees on any government interaction which aligns regulatory burdens with income.
You're using it (and your source) as "low or minimal taxes" are levied against corporations and people in the Cayman islands.
The grandfather's definition is "a great place to hide your money so you don't have to pay the taxes you're supposed to pay".
I would normally define "tax haven" as the second.
That's why Switzerland used to be a great place to hide your money decades ago - low taxes and numbered accounts where it was illegal to reveal the true identify of the account holder.
Based on DelaneyM's comment - Caymans has the 1st but not the 2nd.
Cayman invests a lot of energy in sensible and globally integrated financial regulations. We specialize on that as a country. So when companies are moving money around globally we often feature in that. But we can’t be held responsible for what those funds transfers are used for.
We can be transparent (and we are exceptionally so), we can be responsive to global financial crimes queries (we are that as well). But what are we supposed to do about another country’s laws?
> Cayman invests a lot of energy in sensible and globally integrated financial regulations. We specialize on that as a country.
the reason the Cayman islands may have made all those investments is because that is what is expected of a mature tax haven
> we can’t be held responsible for what those funds transfers are used for
> what are we supposed to do about another country’s laws?
I mean, if you don't want to be a tax haven, you could raise taxes to be less favorable to businesses, but I'm not saying you should do anything, because this conversation is descriptive, not prescriptive
Some companies put money outside of their operating or home country to minimize taxes, but Cayman has no part of that besides being “not their operating country”.
And it’s actually less often the tax treatment of funds which brings companies to Cayman, and much more often the simpler regulations. Operating globally often means a geometric growth in financial complexity. Cayman is a neutral third country, which simplifies things tremendously. Think of us like a financial cache.
You appear to think that that near-ubiquitous reputation is because of some sort of misunderstanding?
Can you explain why you think the Cayman Islands does have that reputation? Is it the result of some sort of conspiracy? Angry people weaving tales to assail the reputation of the citizens of Cayman?
If your country allows companies or individuals to not be taxed on assets they locate overseas somehow, that’s on your country, not on us. And it has nothing to do with the money being here. All we can do is ensure that money flows are transparent and legal, which we do.
We put a lot of effort into being the world’s safest and best neutral third party location, and sometimes companies which are orchestrating tax mitigation schemes put money here while doing so. But they’re not putting money in Cayman to hide it, they’re putting money here because if you need to put money somewhere here is the easiest place to put it.
Who is blaming the Caymans? They Caymans is commonly used as a tax haven for US companies due to US laws. It's on the US to fix those laws. Correctly observing the Caymans is used as a tax haven does not imply the Caymans should change, and I'm not aware of anyone in the US calling for holding the Caymans responsible. I am aware of many calling for reform on the laws that make havening profits in a foreign country possible.
> It is, however, a particularly easy place to keep global funds in a law abiding and transparent way.
I don’t doubt that Cayman is strict for individuals like yourself opening bank accounts, but the regulations on companies are a different story. It’s a well-known tax haven on the global scene.
FTX chose The Bahamas.
If your country allows a company to locate money somewhere else and not be taxed on it, that’s on your county, not on us. The best we can do is make sure it’s visible, which we do.
The Cayman islands are a well-known tax haven. Sorry to say.
Economists, in journals, routinely refer to the Cayman islands as a tax haven. Just a few examples out of many thousands:
https://www.nber.org/system/files/chapters/c14730/c14730.pdf
https://eprints.lse.ac.uk/56125/1/__lse.ac.uk_storage_LIBRAR...
If you want to know more this is a thorough review of the Cayman islands and their role as a tax haven: https://www.tandfonline.com/doi/pdf/10.1080/09692290.2016.12...
The main reason for having a subsidiary in the Cayman islands is to avoid paying taxes. In some cases this is legal tax avoidance, in others it is illegal. The ratio of the two is unclear because of secrecy laws.
One common way businesses legally avoid taxes (note that legal is not moral, many people think should be illegal) is through IP. They make money in country X, then their subsidiary in the Cayman islands has to be paid because it owns the patents involved, but that subsidiary is owned by the main company and sends that money back with zero taxes. In country X the profits look very small now because so much had to be paid in licensing fees.
Another way is through round-tripping money. Investing in the Cayman islands and then taking that money and investing it back into their country as a foreign investment.
There are countless other ways. The Cayman islands along with a few other tax havens play a nasty and selfish role in today's financial system that gives rich companies and rich people a massive advantage while hurting everyone else, while of course generously skimming something off the top for themselves.
This is where you demonstrate your ignorance and bias.
Yes, there are American laws which allow US companies to minimize their global tax burden, but those are on America, not Cayman. The best we can do is ensure the money is well documented and visible, which we do.
Cayman is used not because of tax friendliness, but because if you’re going to put money somewhere which isn’t a major economy Cayman is the easiest and safest place to do so. It’s a neutral third location.
It’s easy because we comply with every global financial interop and transparency regulation. It’s safe because we have a large and strong financial services industry with British law.
And Cayman does not “generously skim” for ourselves. We have pretty minimal fees and a local economy of professionals. The primary way we benefit is services and expertise, which is how we level up our country and a contribution to the global economy.
Caymans in particular has a decent level of transparency around trusts and the like, but its banking system still records the de-minimus KYC it can get away with (including uneven FATF compliance).
It can be both - transparent, and a tax heaven. And it's one of the most well-known. Sorry, but in at least 2 countries where I lived, if you hear Cayman, you immediately think "tax evasion".
I get that you're offended though - when you see the Swiss - that somehow managed to turn their most shady banking system into a national pride thing - and admired but others too !
If you keep money in the US, and the beneficial owner of that money is in Singapore/UAE/China/etc, then profits are taxed twice.
If you operate in USA but earn money globally, then you’re subject to at least double, but sometimes a polynomial combination, of reporting and filling obligations from combinations of jurisdictions.
Cayman is clean, simple, above-board, and safe. It’s like a global money cache.
Again, you literally state that it's for tax avoidance. Are you reading your own words?
To a local, yes. To a wealthy local, and even more so a wealthy foreigner or foreign company, no.
You just can’t hide money in Cayman. You can put money in Cayman, when you need to put money somewhere safe and neutral, but not hide it. Nobody dodges taxes by putting money in Cayman.
There are some ways to save on some countries’ taxes by putting money here, but that’s on those countries, not on Cayman.
This exactly. Either the deposits were insured or they weren't (as it seems in this case). Can't have it both ways, having cake and eating it too.
Ultimately, the FDIC is backed by "the full faith and credit of the United States government", which means if push comes to shove, it's backed by taxes.
Regardless of whether it really is taxes or not, it is an extra cost of doing business that the Cayman islands do not have, and therefore do not pass on to their customers. So reasonably, if one puts money in the Cayman Islands one is enjoying the benefits of looser regulation, i.e. lower costs. You can't then complain when that looser regulation includes not enforcing deposit insurance and you lose all your money.
> SVB Cayman Islands … which had deposits from the bank’s clients in China, Singapore and other parts of Asia, including venture-capital and private-equity firms
A) non-Americans should never bank directly in the US given the option of the Cayman Islands because the US not a competitive jurisdiction in comparison to more competitive jurisdictions such as the Caymen Islands, its way more than just the tax rate. It requires complete indoctrination and hubris to assume the US is the most right and claims to the title to all capital. In this case, the US has onerous requirements levied on non-US persons in an effort to create a “tax person” that had no reason to be created, but its not about avoiding that status because there may be no tax event regardless, it’s about the mountain of paperwork. Its not based on an intention of Congress its just fallout from a nebulous regulatory environment.
B) The FDIC placed this subsidiary into receivership and made them unsecured creditors. In order to harbor your opinion, the FDIC most likely shouldnt have done that. It doesnt pay into FDIC insurance so FDIC shouldnt have taken it over. So its more like the US took funds it shouldnt have and the investors/depositors were correct to rely on the advances of the Cayman Islands but the US, once again due to nebulous regulatory quirks, chose to seize the parent organization and everything under it in a hurried mess, which maybe a more developed nation could do better.
C) The FDIC did pick winners in coordination with the Treasury and Federal Reserve, which undermines your stance on the people you denigrate under poor assumptions. There was actually no way to make everyone whole immediately, without the credit facility from the Federal Reserve to give a 100% LTV loan on treasuries, marked UP to a price nobody would pay on the market.
If any VC and PE funds were US based General Partners, then I would mostly agree with you, partially because even their offshore feeders can bank directly in the US. But the FDIC also probably should have just ignored that subsidiary either way, or not called them unsecured creditors.
It's pretty competitive when your couterparty goes bankrupt. If you opt out of US protections, congrats, you've opted out of US protections.
They opted out of US protection and got US receivership of the worst kind
Here's the lesson I want people to take away from this: only when the government gives money to ordinary people is it somehow a moral hazard. The wealthy will never say no to government money. Worse, they will expect it and lobby for it.
It's why student loan forgiveness is somehow a moral hazard but forgiving PPP loans isn't.
So here you have a bunch of rich people who wanted to avoid paying any US taxes and being outside the protections the US financial system offers. And they may well get burned. It won't stop puff pieces like this from the WSJ to somehow paint the problems of a Cayman Islands hedge fund manager being a slippery slope to the government seizing Iowa farms.
Sucks to suck.
If a customer has both a bank loan and a bank account, I think it is reasonable that the customer received some of the proceeds when their loan is sold off.
They will get some of the proceeds of their loan, if there are any proceeds left over once secured creditors are paid. But that's where their complaints come in. There's almost assuredly not enough to recoup 100% of their deposits. Not only that, it could take a while before they receive anything. Time is money as they say, especially with today's interest rates.
If I have a bank and there are 10 secured customers who have deposited $100 each and 10 non-secured customers who have deposited $100 each and I can only cover $1,200 worth of deposits, the non-secured customers are going to be understandably upset. The 10 secured customers get made whole and then I have $200 left over. I can give each non-secured customer 20% of their $100 deposit.
These unsecured creditors will receive money in proportion to their deposits from what is left over. The questions are: is there anything left over and how much will it cover.
Yes, the deposits do become an unsecured claim on things like the proceeds of loans that are sold off (not the proceeds of their specific loan, but the proceeds of things sold off generally). The issue isn't that people are trying to deny that. The issue is that there's probably very little left over to recoup.
Now the FDIC has to decide if it will repossess those loans from bank #2 and forgive them or not.
It is a question of which debts a bank pays before its assets can be sold off to another bank.
In this case, I think it is reasonable that a bank use the assets it has to pay back depositors, before those assets can be sold to someone else.
"In the case of a non-delinquent loan, the depositor might elect to “set off” the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit). In either case, no “offset” is possible unless the obligations are “mutual” – meaning that the borrower and the depositor must be the same person or legal entity acting in the same legal capacity."
> In response to a query from the Journal, a First Citizens spokeswoman said a setoff “isn’t legally possible in this situation,” because First Citizens owns the capital-call lines while the Cayman deposits were with SVB Financial Group, the former holding company of Silicon Valley Bank.
https://archive.is/1d4uw#selection-353.0-357.287 (paywall passthrough for original article)
Presumably these loans were offloaded before the insolvency hit.
No, that isnt what it is saying here. The loans weren't offloaded beforehand. First citizens obtained them as a result of the insolvency. First Citizens is claiming that they dont have to perform setoffs for some of the loans they acquired.
First citizens did perform setoffs for other unsecured customers in US branches, similar to how I described in my posts above, as required by law. Customers with accounts AND loans get their loans forgiven before the account balance goes to FDIC insured accounts. However, First Citizens thinks that due to the structure of their purchase and the SVB organization, they are not obligated to do the same for international branch customers with accounts and loans. For those, they get to hold the loan but not the setoff obligation.
Now the FDIC is in the position where they have to decide if they will claw back the loans from First Citizens and forgive them directly.
It all comes down to priority in asset recovery.
There is no moral, philosophical, or biblical truth that FDIC insured depositors must be paid out first. It is just as conceivable to have a system where customers with both bank assets and debts have higher priority to recovery, at least for to funds recovered from their assets..
Galatians 3:15: "To give a human example, brothers: even with a man-made covenant, no one annuls it or adds to it once it has been ratified."
Proverbs 17:18: "One who has no sense shakes hands in pledge and puts up security for a neighbor."
Outside of that fact, the reason that the system is designed this way is to protect normal people from Rich people destroying these banks. If it were the way you're proposing, only the Rich people taking on the most risk and debt would get paid out, and every normal person using the bank would lose everything. We know this, because that's exactly what happened before the FDIC, which is the entire reason it exists.
To be clear, I'm not advocating abolition of the FDIC. Normal people wouldn't lose everything. The rich still would pay for FDIC payments, just like they now.
You would just see some individuals have less damage, specifically when bank assets in their name are commensurate with bank debt in their name. FDIC payouts would be slightly larger, but again, these are recouped by banking fees, largely paid by the rich
No, but it is US federal bankruptcy law. And it was when all the business relationships with SVB were made.
Assets -> cash -> distributed according to the courts.
Assets -> cash -> forgive any loans to the people who had accounts -> payoff FDIC insured accounts -> distribute remainder according to the courts
This is what happened for US customers with both loans and unsecured accounts. bank #2 says they dont have to forgive the loans specifically for some customers.
FDIC takes over bank -> FDIC allows people to pay off their loans with the same bank using funds at the same bank -> FDIC pays off insured accounts and takes on debt from the bank -> Sells Assets -> Uses cash to pay itself back by being first in line with the courts.
If it gets to Bank #2, it's not their problem and they specifically don't have to. Also, this wasn't a US bank! It wasn't under FDIC control. That payoff happens before bankruptcy. If the FDIC doesn't take over your bank it doesn't apply.
That's the part that I disagree with. My understanding is that FDIC took possession and sold off the International loans to bank number two, but did not discount them by the international account balances.
It doesn't seem right to me that the FDIC can say "it's not my problem we don't have control“ while simultaneously taking and selling the international loans
In any case, those people who complain should take it up with the FDIC.
This isn't about what happens to FDIC insured accounts, it's about how to apply pre-existing FDIC policy for handling non-insured accounts. The regulation is very clear on how not insured accounts get offset in some cases and the regulations are unclear or discretionary in other cases.
This goes full circle back to my original point that if the FDIC takes control of the International loans, but they should deduct the value of that counts from those loans, just like they did for the majority of the customers
I wonder if this is the case for YC[1] companies.
[1] https://www.ycombinator.com/blog/urgent-sign-the-petition-no...
[1] https://news.ycombinator.com/item?id=35114009 [flagged]
(lede, not lead)
Not at all. The article gets right into it, immediately. It's not a surprise ending or afterthought. Sure the headline is slightly clickbait (but just slightly). The article reads just like you've summarized.
It's all fun and games until someone has to pay.
That doesn't seem fair to me.
Let's say that you deposit money with me and I tell you "if my house burns down, you won't get the money I'm holding in the house back." You agree. I lend you money and you say, "if my business fails, I won't repay the loan." I agree. My house burns down, but your business is doing fine. According to the terms that we both agreed to, you still need to pay me back the loan.
Let's say that you deposit the money with me and we say that if my house burns down, you don't have to pay back any loans to me. I refuse to lend you money because of that clause. You borrow money from Frank, my house burns down, and you're back in the same position.
Should people who had deposits wiped out, but had borrowed from other companies receive debt forgiveness? Should Frank be required to forgive your debt even though he had nothing to do with the failure of my bank?
If it worked the way you propose, banks would never lend money to people whose deposits they held (unless those deposits were externally insured). You'd deposit at SVB and have to get loans from another bank since SVB wouldn't lend to you as a depositor-customer.
When you take on a debt, you're saying you can pay that debt even with all the risks that exist in the world (including the risk that uninsured deposits might disappear). You're agreeing that if you can't pay the debt, that's your fault. We have processes like bankruptcy when people and companies can't pay their debts.
I think I'd update your quote to be "hey we went bankrupt so we don't have your money, but we still expect you to pay us back unless you're willing to declare bankruptcy yourself." I think that's a key change and highlights what they don't want to do. These VCs, private equity, and wealthy elites don't want to declare bankruptcy. They looked at the risks, accepted the risks, and now they're annoyed that the risks went against them. Most likely, they can all pay back those loans. They just don't want to since they took a big loss on their uninsured accounts.
Companies don't declare bankruptcy and wipe out their owners for fun. SVB's shareholders lost everything, over $40B. This isn't a fun technicality where the bank gets a happy ending on the backs of its depositors.
I'd also note that these depositors may not have lost their money. They're simply unsecured creditors. If the bank's assets can cover their deposits, they'll eventually get their money back (or a portion of it).
I think the key thing is that the act of taking the loan must be treated independently of the act of depositing money. When taking the loan, one must assess the risk involved. With an FDIC insured account, you can be pretty assured that you can repay the loan based on deposited funds. With an uninsured account, you know you are taking the risk that the deposited funds might not be there. That makes it seem fair to me. The alternative is that banks simply wouldn't lend money to their depositors since they'd have more rights on the loans of non-depositors.
It's fair, to me, because taking out a loan means accepting the risk that you might lose your job, your deposits might change within the regulatory framework on those accounts, etc. They accepted the risk that their deposits wouldn't be around to pay the loan - just as they would have if they'd taken the loan from HSBC while depositing at SVB. The decision to accept the risk of uninsured deposit account was the depositor's choice. Now the bank also accepted the risk that the borrower might default and declare bankruptcy just as the depositor accepted the risk that the bank might go under and their deposit would be lost. Then the issue becomes that the borrowers don't want to declare bankruptcy having accepted all the risks involved. They'd rather whine that they don't like how the risks they took turned out and hope someone else will cover the cost of those risks for them.
But it's also somewhat essential to the banking system. Let's say I run a bank and there's no deposit insurance for 2 people. Bob has deposited $500 and has a loan for $10,000. Susan has deposited $10,000 and has a loan for $500. Someone tries to withdraw and I have a bank run and everyone's accounts are wiped out - pending the unwinding of the bank's loans. If we just said "ok, all the deposits are wiped out, but we'll wipe out the loans too," then Bob gains $9,500 while Susan loses $9,500. That's certainly not fair. Let's say that the unwinding process can only get people back to 90% because the loans won't cover all the deposits. It's still a lot closer to fair for Bob to repay $9,500 and get $450 in deposits (losing $50) and Susan repays $500 and gets $9,000 in deposits. That's a lot more fair than simply telling Susan that she should have borrowed and giving Bob a big pay day.
In a sense, you're right that it isn't fair. However, it's probably the closest approximation of fairness. What would be fair is being able to wind back time and re-do things so that SVB didn't do the things that led to its collapse. However, when you find yourself in a situation where you owe more than exists, you only get to approximate fairness. There is no truly fair outcome. The fair outcome is that they'd have all their deposits back. The approximation is that they'll get their deposits back based on how much is actually left to give them. Simply wiping out their loans would mean redistributing wealth randomly from depositors to borrowers - a vastly less fair outcome. Letting someone who deposited $5 and borrowed $5M out of their debt would be unfair to someone who deposited $5M and borrowed nothing. If they don't have to repay the loans, it changes the funds available to repay the depositors and that would be unfair to those who deposited more than they borrowed.
Again, bankruptcy is never quite "fair". Maybe bankruptcy should be thought of as trying to find the best approximation of fairness given an unfair situation.
I can't see the article since it's paywalled, but the bank would have required that a certain amount of funds remain on deposit for the borrower to get the terms. I've seen and facilitated an SVB loan agreement for a startup, and I can tell you that's exactly what it says. So the bank required you to park your money there, and then it lost the funds. In any normal business context, the money lost would come off of the balance owed. It sounds like the loan was received from one entity, but the deposits were placed with another, and none of the parties contemplated a bank collapse that would require the bank to forfeit a portion of the owed amount.
Not surprised the person "who has structured several hedge funds" is spreading misinformation about finances and taxes.
The reason these jurisdictions exist is because when you have pension funds that need to pay their members over a long horizon, you need to hold the assets in a place with a legal framework that has the incentives and protections to be able to make those payment guarantees. Sovereign wealth funds also need management, and you can't leave the money where some regime is going to loot the treasury to keep themselves in power instead of supporting the conditions that return growth.
If your understanding of money is something that you just debase yourself and accumulate resentments for, and then compensate for it by indulging in small acts of malice and deprivation, consider what you are putting out into the world before you complain about what you (or "the people") are getting back.
The Pain of Silicon Valley Bank’s Collapse Is Being Felt by These Depositors: Customers that banked at SVB’s Cayman Islands branch have had their funds seized by the FDIC
https://www.wsj.com/articles/the-pain-of-silicon-valley-bank... (https://archive.is/Gzj06)
Posted back in May at https://news.ycombinator.com/item?id=35932002 and https://news.ycombinator.com/item?id=35968213 but not discussed.
I don't really understand the reporting here. Really? The investment firms with funds in a tax haven were 'stunned' when they found out their deposits weren't protected? That doesn't sound credible to me. They're bloody investment firms! Figuring out how to manage money is literally their job, it's not credible to turn around and go "Gee, I'm just a simple guy trying to pay for groceries, I don't understand this complex banking stuff". Why write an article like this - other than you've been in contact with someone looking for a sympathetic write up to pressure regulators.
If they really are this stupid - and I don't believe they are - get a list of their names and send the IRS after them because there's no way they successfully structured their companies to dodge the tax.
These people are the opposite of stupid when it comes to money. Cunning, ruthless, underhanded, obsessed, win at all cost, win even at the expense of your own grandkids.
When we have no culture though beyond sports, video games and a wealth creation, net worth game, it is hard to imagine this not happening.
But in this case, SVB used two different entities: one for loan accounts, and another for Cayman-based deposits.
Whilst this seems correct, it's also unintuitive.
I guess many people here have both a mortgage and a savings account that they got from the same bank.
Imagine you just had some sort of windfall (bonus, bequest, whatever) and your checking account temporarily had more than the FDIC limit. But then the bank collapsed, and some of your deposit is uninsured. No problem, you think, because you owe the bank more than that on your mortgage. But then you find out that your mortgage loan was sold soon after the bank originated it, so you mortgage is with a different entity. Now, under FDIC rules, your uninsured deposits cannot be used to offset your outstanding mortgage.
I hope these people are not made whole.
[0] In practice, while not obligated to do so, the FDIC has always repaid people 100% in the situation you described.
ERR_SSL_VERSION_OR_CIPHER_MISMATCHSee also, for example: https://twitter.com/archiveis/status/1018691421182791680?s=2...
Edit: see this from the FDIC, which suggests this would be an option for depositors https://www.fdic.gov/consumers/banking/facts/borrowers.html
If it turns out to be a crime, I think I’ll take my chances with a jury trial where all have to agree to convict.
If the bank repossessed my house, for example, I would not continue paying my mortgage.
The same reason there is to pay any debt. Damaged credit, judgements, seizure of assets.
This is literally what this thread is about, people's debt getting passed on from the bank to someone else
It doesn't work the other way around: if your end of it is a liability (your loan/mortgage/whatever), nobody wants to buy that from you, because it's worth a negative amount of money, it's a burden, a liability. Companies want to purchase the other end of the deal, because it's what makes them money: it has a positive value.
So depending on the the loan, you might be able to buy it so you can pay it off at a discount.
Reap what you sow.