colinmorelli

Please link to the policy where the FDIC announced 100% coverage of all deposits in all banks, not the press release where they announced providing depositors coverage in two specific banks.

Edit: this is not debating nuances. Insurance coverage is not what we feel and think it is. It's what is specifically documented and funded. In this case, the FDIC is neither documenting nor funding 100% coverage for all deposits in the nation. They may decide to do so, but they certainly have not at this time.

There was absolutely zero announcement yesterday that 100% of all deposits in all banks are guaranteed by FDIC. There was a commitment to cover 100% of SVB and Signature Bank deposits under the systemic risk exception. You can take issue with this, or suggest that they will offer protection for 100% of deposits in the future, and that's fine. I'm not going to argue that point, since I don't know what will happen next.

But to say that the FDIC came out and announced 100% protection of all deposits is no more true today than it was when banks were bailed out in the '08 crisis, and there have been many, many examples of depositors losing money since those bailouts happened.

And if they do, then that's the right time to begin claiming that 100% of deposits are FDIC insured. That time is not now.

The Failed Bank List on the FDIC has quite a few examples.

You can see dividend payouts from failed banks here: https://closedbanks.fdic.gov/dividends/

There are many examples of cases in which depositors take a 4-10% haircut, and receive it months or years after the failure (meaning the haircut is quite a bit larger when factoring for time).

This is a bad take on what FDIC did with SVB, and certainly not an assumption that is safe to rely on. Please do not spread this, as people who believe it carry a real risk of financial harm.

There are multiple threads trying to go into detail about the nuance of what happened, so I'll spare from rehashing it here. But it certainly was not promising FDIC coverage on all deposited funds.

SVBs liquidity issues predate VCs telling portfolio companies to take cash out. They already had to liquidate securities at a $1.8B and sell equity to fill the hole in the balance sheet on Wednesday, which was the announcement that led to the run.

SVB likely would have made it through the immediate term if companies did not pull out money en-masse. However, they were in fairly dangerous territory no matter what, and highly susceptible to the ongoing pattern of declining deposits (as burn rates remain high but new capital is not being injected at the same rates it was 18 months ago).

All that said, there were companies (not VCs) flagging SVBs risk on the weeks and months prior to this incident. Some were already pulling money out, albeit much more slowly.

The very nature of bank runs is that as soon as the fundamental trust that we can withdraw tomorrow is gone, everyone wants to withdraw today. That can, as we just saw, happen in a very short period of time. Once that happens, it is objectively in each individual party's best interests to get money out.

So sure, you could say that everyone should have just stayed put and not reacted. But in doing so, you'd be asking depositors in a bank that just announced they were unable to meet liquidity obligations to keep their money where it is, and that as long as everyone else did the same, then we'd all be fine, knowing that:

1. We would still likely have faced problems in the months and quarters ahead, and 2. That if enough of them did not heed the advice, you'd be caught holding the bag and unable to pay employees or vendors

So I'm not quite sure what those blaming VCs were expecting here. Would you leave your money in a bank with demonstrable liquidity issues?

If you think this created a multi hundred billion dollar hole, then I’m not sure you’re following what actually happened here.

SVB had assets to cover most deposits, if not all. FDIC needs time to sell those assets, but depositors need the security of their cash now. FDIC pledged a larger portion of their pool, which is funded by banks, to cover withdrawals while assets are sold.

By most reasonable estimates, FDIC will recover at least 80-90% of deposits at no cost to anyone. This means that, at most, there’s a 10-20B hole to plug, if any at all. If needed at all, that hole will be plugged by a special assessment on other banks. Given the relatively small dollar amount, it’s my personal opinion that banks wouldn’t bother trying to pass down the fee, be that’s the primary way this would impact regular people.

As mentioned in another thread, $250k is a minimum.

The FDIC guarantees $250k which is covered by fees paid by the banks. Above and beyond that they will pay out depositors first by selling the bank’s assets, which they took over on Friday.

In this case, FDIC is saying they will make depositors whole. They’ll do so by covering it with FDIC funds which they’ll recoup by selling assets and charging other banks if there’s a shortfall.

It is absolutely in the collective market's best interest to retain confidence in the bank infrastructure of the nation. There were already people lining up at First Republic over the weekend, Signature Bank was shut down as part of this same announcement, and almost certainly more would have come in the following week.

The collapse of a ~$200B bank was going to have significant ripple effects that would almost certainly have exceeded the fees that banks will pay to fill in any shortfall resulting from this backstop, whether they're ultimately charged down to account holders or not.

This is not a bailout in the historical sense of the word. Equity holders in the bank are getting nothing. They'll be wiped out. Senior leadership has been removed.

All this did was protect _depositors_, the people who put their money in the bank and thought it would be there tomorrow. And it's being done by dipping further into the FDIC fund, which is paid by banks. It will reach down to taxpayers likely through reduced rates or increased fees.

Dipping into the FDIC pool beyond what's needed to cover the $250k. That, combined with the ability to sell of SVBs assets must give confidence to cover all deposits without burdening taxpayers.

I quite literally said in the message you're replying to "It's not clear what the better outcome is here" so I'm not really opining on what's preferable. It doesn't change the reality that this is going to impact "regular people" in the end whether it's intentional and direct in the form of a bailout, or indirect in the form of layoffs.

To your questions: The companies you'd prefer to see shut down almost certainly will outside of the zero interest rate environment we've recently excited. But there's quite a big difference between businesses running their course and dying, and them rapidly laying off employees alongside one another because they just lost much of their runway. Mass layoffs create a sudden oversupply of candidates and strain the system, making it more difficult for those laid off to find new jobs.

While I'd prefer businesses not die for "random chance" of having chosen the wrong bank, my concerns here are not for the companies themselves. I'm much more worried about the downstream impact of employees who will go without wages or systemic failures of other banks if we can't regain confidence quickly.

There's also a big difference between a startup failing because it doesn't deliver a product that people want and will pay for, and a startup failing because of "random chance" (in quotes because I can't prove that bank choice is a random distribution among startups, but it's not clear that it's a proxy for quality of founder or company)

There are plenty of workers at tech companies that are extremely vulnerable. It's an absolute myth that startups employ only 6-figure salary earning tech employees.

Regardless, you're not replying to a thread where anyone claimed that the government should bail anyone out. You're replying to a thread where I mentioned that taxpayers are going to foot this bill one way or another. Either because the government does bail out the bank, or because regular taxpayers lose their jobs in the fallout.

I hear you. Having run a venture backed startup myself, my opinion on how modern venture businesses work is...not at its highest point, to say the least.

At the same time, I really have a preference for people who didn't sign up for this kind of risk (I.e. most companies are Seed-Series B companies who understood the risk that the company might fail, but not the risk that their company had all their cash in one bank that failed), to not be laid off as a result of this.

It's a tough time.

> Or by raising earlier than expected, as a down round?

Raising down rounds will be lower on the priority list to layoffs. Most companies would vastly prefer to buy more time to grow into their next milestone than to admit they can't achieve it and raise at a lower valuation. We generally know this to be true, in part because we just watched it happen across the entire tech ecosystem over the last ~12 months or so.

Logically, it makes sense. VC backed startups operate on optics and momentum. Layoffs are recoverable, failing to hit goals is much less so (I'm speaking purely about optics here, not my personal preference).

> though I'm not convinced that a high proportion of SV companies are actually solid

This is likely accurate. But that's not necessarily criticism, most companies in their early days aren't "solid" (if by solid you mean default alive and/or having a path to profitability). SVB is overly exposed to these types of clients, which is why I think there stands to be a large impact here if depositors need to take a 10-20% haircut.

This speaks to my latter comment. You can use sweep accounts to increase protection, money market accounts which have different risk profiles, T-bills backed by the USG, etc.

That said, it's all a tradeoff. Increasing FDIC insurance coverage means decreasing the yield on savings accounts, since banks fund FDIC and wouldn't take a cut in profits for it. Not sure what the optimal outcome here really is.

Losing deposits means losing cash flow to fund runway. Many tech companies just spent the last year optimizing to get 18-24 months cash runway. If they just lost several months of that, they will need to recover it somehow. That will come either from layoffs or increasing prices.

Similarly, companies raise capital to achieve goals. If 10-20% of that capital vaporizes, the ability to achieve those goals will be harmed. Some companies will not achieve those goals, and may be unable to raise future financing.

We're talking about operating cash for these companies. The hit to equity holders is not the problem right now.

Of course my comments above refer mostly to venture backed tech companies, but that represents a significant share of SVB's clients.

The only way taxpayers avoid footing the bill here is if the FDIC can sell assets to cover 100% of deposits in a very short timeframe, or if another bank comes in and agrees to cover the shortfall.

In any other scenario, if businesses with deposits in SVB lose some material amount of their cash, people will be getting laid off, prices will increase for some goods, and some companies will fail. All of these things negatively impact taxpayers.

It's not clear to me what the better outcome here is, but this is going to affect everyday people either way.

Isn't this just exactly what the FDIC is? The vast majority of people do not have more than $250k in deposits sitting in cash. More than that sitting around in cash wouldn't be a prudent financial decision anyway, since putting that capital to work (even in very safe investments), would yield a better return.

Those that are below $250k are taking effectively zero risk. The worst case scenario is possibly losing access to funds for one business day before the FDIC returns deposits up to the coverage limit.

This is, of course, without playing games using sweep accounts or other instruments.

Employees also have no choice in which courier their employer chooses to send mail, but it would be a bit egregious to report them because a FedEx truck crashed and their letter was delayed for a day or two.

I think people are reacting to your suggestion that employees should report their employers for a circumstance that was entirely, 100% out of the hands of the employer.

To be clear, this isn’t about employers using SVB. This is because Rippling, a payroll vendor, uses SVB to transact payroll on behalf of customers.

This was entirely out of the control of the employer, most of which are scrambling along with Rippling to make employees whole ASAP.

I think an important backdrop here is the initial catalyst for this (to my understanding) was a decline in VC funding and elevated cash burn in their clients, leading to a net outflow of deposits, which is ultimately what necessitated selling securities in the first place.

When the economy is generally healthy and your clients are diversified, deposits remain fairly stable. If this had happened, SVB likely would not have needed to sell the low-yield mortgage backed securities to cover liquidity. SVB is very exposed to the venture community and very impacted by the changing climate.

I am quite confident that using this model for commercial purposes will, if detected, land you in quite a legal quagmire that almost certainly sides in favor of Meta.

And even if it did not, Meta certainly has a more capable legal team with more cash to spend than the average HN user.

The FTC would likely block the transaction precisely because of this. If they didn't block it, Apple would - upon doing the above - immediately subject themselves to anti-trust litigation from a lot of parties with a lot of money. Really hard to see this working out well for them.

I would wager a guess that if you actually based success on revenue/employee, operating margins, and overall "healthy" business criteria, the number skews probably even higher.

As we were clearly made aware of in the last year, many unicorns of the last 5-10 years were little more than good marketing and a Tier 1 VC footing the bill.

...isn't...this...exactly what autopilot in airplanes does? Self-driving cars? Manufacturing robots? The daVinci Surgical System?

In fact, let's not even go that far. If you have one, your car is likely drive-by-wire, and the throttle is controlled not by mechanical linkage of your foot pressing the pedal, but by the output of computers that are deciding what to do based on how hard you push the pedal. If you have a car in the last 5 years, it can likely suddenly apply the brakes and turn the steering wheel for you to avoid what it thinks is a collision.

Every one of these things is trivially lethal in different ways, and all are connected to computer programs already.

I'm not personally that concerned about AI taking over the world any time soon, but quite frankly the areas where technology and AI have made the biggest waves are all specifically in areas that are high risk (or very rote) for humans. Isn't that kind of the point?

I really struggle with this perspective for a pretty simple reason:

"Market expectations" are predictions of the future. Early pandemic, predictions for tech companies were favorable. They were hiring not because of quarterly targets or short-term objectives, but because companies believed they would be able to pull future goals forward. They are now laying off because future predictions are more bleak. With new data, we form new ideas. There are few companies out there saying "we're 100% confident we can grow 100% YoY for the next two years" but not hiring according to that. Their projections of where they will get have changed, and the hiring plan follows suit.

It's really easy to say this with hindsight, and we often forget/don't realize when we're acting based on it. The reality is that unless you (the general you) were shorting Google/DO/Salesforce/whoever in 2021 at their peaks, then it's clear none of us really know what the future hold and are all guessing. If it was so obvious then, there are ways for us to individually profit off of that.

So, being 100% genuine here: if you really believe you have a better opinion about long term value, play in the stock market. Short companies that are underinvesting in growth compared to their competition. Buy the dips. Sell the highs. But my guess is you don't have that level of confidence (I certainly don't!) and that should help explain why, as the person responsible for a >$1B annual budget, you might have to change some decisions you made when new data comes in.

It absolutely applies at cash-rich companies as well. Losing money is losing money, no matter how much you have in the bank. I don't know why folks seem to keep thinking that having money means you can lose it forever, or that out of the kindness of the company's heart they can continue taking investor money it and funneling it back out to non-productive activities. For-profit companies exist to make money. Investors were willing to put that on hold for 5 years because interest rates were low enough to make borrowing cash effectively free, allowing you to trade cash in the short term for growth. That is no longer true, and they're no longer willing to do that.

Put more clearly: investors __do not want to invest__ in companies that are burning money right now, no matter their cash balance. Responsible, profitable growth is the goal. Your cash backstop is not relevant.

It's not to make one quarter look better, it's to align the company with new market expectations. Investors now are expecting responsible cash burn, since capital has become significantly more expensive than before. Companies exchanging cash for market share are no longer as attractive. Profitability and sustainable growth are the new objectives (personally I wish this was always the goal and think the last 3-5 years were a bit of a shame, but that's not the point - the market did not agree with me).