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Yellen says government will help SVB depositors but rules out bailout

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Re: Yellen says government will help SVB depositors but rules out bailout

#411

Post by JJMcJ »

DoneWithAllThat wrote: post #386
belter wrote: post #382

Earlier quoted context omitted.

It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.

It wasn’t a “risky bank”.

Their SVB Private subsidiary, which is an ordinary consumer bank (people deposit money, bank buys bonds and writes mortgages) is still in good shape and will probably be snapped up by a bigger bank in the next few dya.

For the shareholders of SVB, Patio11 of course says it best: https://twitter.com/patio11/status/1634925745515692034

> The sacred duty of equity is to take losses before depositors.

Re: Yellen says government will help SVB depositors but rules out bailout

#412

Post by chiefalchemist »

manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

> "This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.

From the broader public's perception, you're splitting hairs. The gov - at taxpayer's expense - *are* ______ing* depositors with deposits over $250k. Depositors who are well aware of the limits of what's covered. Depositors with more advisors than most taxpayers have bank accounts.

Capable and well educated people made poor decisions. Why is The Nanny State the solution? Again??

* call it what you want, but it's special treatment of the very well to do.

Re: Yellen says government will help SVB depositors but rules out bailout

#414

Post by amalter »

lotsofpulp wrote: post #214
a13n wrote: post #176

Earlier quoted context omitted.

This is short sighted. If the government doesn’t make depositors whole then people and companies all over the world lose trust in US banks and eventually US dollars. This is a federal problem. It makes sense to make depositors whole, they’re innocent here. It doesn’t make sense to make SVB whole for managing their risk poorly.

It does not make sense to let bank shareholders profit from having an implicit guarantee of federal taxpayer funded bailouts. The bank’s owners have to pay $x for buying FDIC insurance of up to $250k per account per person. If it actually costs $y > $x to insure for more than $250k, then that is quite a windfall for the bank owners at the expense of federal taxpayers.

There's no moral hazard if we pay out depositors and let the bank fail. The big "problem" in 2008 was that the bailed out banks were made whole with equity injections and then continued to grow. (Although the government did quite well on those investments).

SVB is dead. Shareholders are getting zero. The losses are not being socialized. But because we don't want a bank run on every regional bank, let's make depositors whole.

Re: Yellen says government will help SVB depositors but rules out bailout

#415

Post by kemiller »

belter wrote: post #382
idopmstuff wrote: post #339

Earlier quoted context omitted.

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you…

It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.

Many were restricted by covenant with their investors to only use SVB.

Re: Yellen says government will help SVB depositors but rules out bailout

#416

Post by tsimionescu »

idopmstuff wrote: post #339
manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you…

First of all, even if the company you work for goes bankrupt, you're very likely to still receive your salary, as debts to workers are the highest priority in any bankruptcy case. So the risk to workers' livelihoods is being way overblown. Of course, if a substantial amount of your compensation was company stock, you may lose a lot on that, but that is par for the course with stock.

Second of all, the purpose of having a limit to FDIC insured deposits is to limit the government's liability in case of bank failures to small-ish depositors. A company thag has millions of dollars to deposit also has more responsibility to evaluate the bank they are depositing in. Perhaps they shouldn't keep money in the bank in the first place, but find other uses for them.

Note that the true FDIC insurance limit is much larger than the 250k that usually gets cited - since there are various facilities for business accounts which can take that up to a million $ or more (multiple signers on the same account, multiple types of accounts). Should be plenty for most startups to pay their employees' salary outright, even without going bankrupt.

Re: Yellen says government will help SVB depositors but rules out bailout

#417

Post by Cthulhu_ »

JJMcJ wrote: post #400
belter wrote: post #382

Earlier quoted context omitted.

It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.

It wasn't risky as long as prime rate stayed super low. But that rate has been creeping up for months now. SVB was too small to qualify for risk assessment under the revised banking rules. So they could get away with money in volatile securities that were very interest rate sensitive. That said, SVB seemed very solid until Thursday morning.

Would it have been better if the rate increases were further apart and there were strong declarations of intent?

Re: Yellen says government will help SVB depositors but rules out bailout

#418

Post by belter »

dmix wrote: post #406
belter wrote: post #382

Earlier quoted context omitted.

It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.

You think consumer banking is lightly regulated? Or that VC should have their risk controls? Only conservative old school bankers should invest in startups? Or what exactly?

No. Due to the previous crisis, is one part very well regulated. Here is what should happen...The emphasis below on unlikely is mine...

"A: In the unlikely event of a bank failure, the FDIC responds in two capacities."

"First, as the insurer of the bank's deposits, the FDIC pays insurance to depositors up to the insurance limit. Historically, the FDIC pays insurance within a few days after a bank closing, usually the next business day, by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank....

...In some cases—for example, deposits that exceed $250,000 and are linked to trust documents or deposits established by a third-party broker—the FDIC may need additional time to determine the amount of deposit insurance coverage and may request supplemental information from the depositor in order to complete the insurance determination..."

"Second, as the receiver of the failed bank, the FDIC assumes the task of selling/collecting the assets of the failed bank and settling its debts, including claims for deposits in excess of the insured limit. If a depositor has uninsured funds (i.e., funds above the insured limit), they may recover some portion of their uninsured funds from the proceeds from the sale of failed bank assets. However, it can take several years to sell off the assets of a failed bank. As assets are sold, depositors who had uninsured funds usually receive periodic payments (on a pro-rata "cents on the dollar" basis) on their remaining claim."

"Deposit Insurance FAQs" - https://www.fdic.gov/resources/deposit-insurance/faq/

Re: Yellen says government will help SVB depositors but rules out bailout

#419

Post by chiefalchemist »

JJMcJ wrote: post #400
belter wrote: post #382

Earlier quoted context omitted.

It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.

It wasn't risky as long as prime rate stayed super low. But that rate has been creeping up for months now. SVB was too small to qualify for risk assessment under the revised banking rules. So they could get away with money in volatile securities that were very interest rate sensitive. That said, SVB seemed very solid until Thursday morning.

To clarify, SVB's problems are the result of The Fed's change in direction. It just takes a while to see the affects of those decisions.

Re: Yellen says government will help SVB depositors but rules out bailout

#420

Post by ohgodplsno »

idopmstuff wrote: post #339
manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you…

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