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Comment by yeetcode | Hacker News Reader

But SVB didn't get bailed out though? At least not the investors. Only the depositors were given their money back.

Yes, and my understanding is that SVB's assets, which are still productive over the long term, were sold on to pay for this "bailout." So the narrative that there was a government bailout is not really true here. The real concern I've heard is that FDIC insurance paid out to a lot of depositors who had more than the statutory limit, but what's left out is that FDIC actually sold on SVB's assets to pay those depositors. It seems like they're taking an interpretation that the statutory limit only applies to banks which don't have any assets that can be traded on.

Their assets were worth less than they owed depositors. An auction would have caused a 30 percent or so loss to many millionaires.

The SVB investors which were many millionaires, did lose 100% of their investment.

The depositors, regardless of wealth, were lied to about the safety of their funds. It was roughly fraud - it wasn't their fault - they didn't take excess risk. How is it a bailout to let them keep their money?

SVB’s bailout is estimated to have cost the FDIC 20B. The Fed also set up new lending programs to support the banks, which was essentially free* money.

The FDIC insurance fund is paid by banks, so ultimately depositors were "bailed out" by the broader banking industry.

I don’t really see how that’s relevant. Paying into the FDIC DIF is a legal requirement of the banks. It’s basically a tax. Somehow bankers have convinced everyone that they have impunity to mess up the financial system just because they pay a special tax.

And if the FDIC is really going to offer unlimited depositor protection, they’re going to need a lot more than the 100-200B in the DIF.

What would you propose as a system to replace the FDIC?

To be clear, that money comes from the Deposit Insurance Fund

The depositors were bailed out. Also, I would say the banking sector as a whole was bailed out. Providing unlimited insurance is to SVB’s depositors allowed other banks to remain solvent, as did the Fed’s new lending programs.

> I would say the banking sector as a whole was bailed out

I disagree with that characterization.

The FDIC refunds depositors using money (assessments) they collect from member banks. So in essence, unless the government does something special to inject funds directly into the FDIC, the remaining FDIC member banks would likely see their assessment rates go up to cover the costs of these bank failures.

From https://www.fdic.gov/news/speeches/2023/spmar2723.pdf:

> "any losses to the FDIC’s Deposit Insurance Fund (DIF) as a result of uninsured deposit insurance coverage will be repaid by a special assessment on banks as required by law."

I don’t think “the government funds its operations via taxes” is a strong argument against this being bailout.

I'm not sure you understood what I'm saying.

My point is that the FDIC refunding more than 250k wasn't a bailout of the banks because FDIC insured banks are the ones who fund the FDIC.

The main point to take away is that healthy banks are on the hook for paying depositors through assessments charged by the FDIC.

My point is that the FDIC DIF premiums and assessments are mandated by law and are thus a tax levied on banks. So the you’re trying to make it seem like the banks are managing the risk themselves but another way of looking at it is that all FDIC operations are funded via tax revenue, just like everything else the government does. Ultimately, the FDIC is backed by the full faith and credit of the US.

> funded via tax revenue, just like everything else the government does

FDIC assessments and taxes are different. You can over-simplify mentally to a tax, but that doesn't make it true.

The FDIC runs more like an insurance provider than a run-of-the-mill government agency.

Social security and Medicare are also a form of insurance. Are you not paying a social security and Medicare tax? How is that different?

The depositors, were lied to about the safety of their funds. It was roughly fraud - it wasn't their fault - they didn't take excess risk.

How is it a bailout to let them keep their money? At best its an "internal banking restructuring in favor of the depositors".

It's indirect. Softbank gave money to startups. Startups put the money in SVB. If the startups hadn't been made whole then softbank would have seen many of it's investments fold.

That doesn't really hold water.

Its an argument that creates a bailout of whoever we want, as long as they're within 6 degrees of SVB. [^1]

A huge rhetoric win, a loss for understanding.

[^1]: https://en.wikipedia.org/wiki/Six_Degrees_of_Kevin_Bacon

If startups couldn't make payroll, what do you think would happen here?

Does asking this advance the discussion, or is it a passive-aggressive way to continue signalling you believe “seized the bank and sold it, keeping deposits whole” means “SoftBank bailout”?

If you really think about it, it was a bailout of the American people. And that's why it was good and an example of socialist praxis.

After all, startups take venture capital money from the rich and spend it primarily on t-shirts and catering - which primarily comes from small businesses who hire local unskilled labour.

Marx would be proud of the FDIC for their work.

Who were the depositors?

SVB's depositors were primarily businesses with more than $250,000 in an account. Over 90% of depositors(google for exact percenatge) had more than 250,000 in the account.

So who was the bailout for? Not the average guy on the street...

The depositors were payroll accounts.

> So who was the bailout for? Not the average guy on the street...

The "bailout" (badly named) was for the average people working at these companies. Their families that wouldn't have gotten a paycheck. The grocery stores they couldn't have bought from.

Payroll accounts should be 100% FDIC insured the same why it works in many other countries.

"Payroll accounts should be 100% FDIC insured the same why it works in many other countries."

Perhaps, but they are not so it is a bailout.

"The "bailout" (badly named) was for the average people working at these companies."

That jumps to a conclusion and fails to recognize the business owes a debt required to be paid by law to the employee for the work they have performed in the previous weeks.

I don't want to see banks fail like any of you folks, but the reality is responsibility lies somewhere and that somewhere isn't in more FDIC insurance. Business management is just as culpable as the banking staff in maximizing profit and maintaining proper liquidity and insuring working capital is secure.

> but the reality is responsibility lies somewhere and that somewhere isn't in more FDIC insurance.

Yes, and this is why $20 BB from SVB investors, hit $0. The bank management and investors were did have to live up to that responsibility.

Should they have to do more? Yes. There should be compensation clawbacks from the C-suite over the last 5 years or something. Lets see where this goes.

I for one am glad that SVB depositors were made whole and thus I was able to continue to get a paycheck.

Getting a Slack from the CEO on Saturday night saying basically "we *should* be able to pay you this week, I think" is fairly nerve wracking.

That’s simplistic thinking. The majority of those businesses would not have been able to pay staff and there would have been many redundant “average guys on the street”.

Perhaps, but perhaps the simplistic thinking is that the bailout changes anything. Are businesses which are trying to meet payroll now running a buffer in multiple banks? Are they securing the future of their employees by making sure they can meet payroll in an emergency? Probably not and as a result they didn't learn anything from the experience.

The truth is, this is the tip of the iceberg. Don't be sailing on the Titanic since you have been warned.

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