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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

#431

Post by [deleted] »

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…

[deleted]

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

#432

Post by lambo4bkfast »

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…

I agree there are a lot of poorly thought out populist arguments for not making depositors whole. I for one prefer HN to not converge into another social forum like Reddit that has a lack of critical thinking in discussions.

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

#433

Post by tqi »

jmull wrote: post #404
tqi wrote: post #353

Earlier quoted context omitted.

ooc why is unlimited deposit insurance a bad idea? A quick Google search didn't have many results, except some brief articles about section 343 of Dodd Frank (which itself seemed limited in scope).

It’s called “moral hazard”. Normally, depositors have to have confidence the bank they choosewill handle their money competently and responsibly. With unlimited insurance, depositors will simply choose the bank that offers the best terms. Banks need depositor, so they will respond to what depositors want. In the first case there is pressure to handle money competently and responsibility. In the second, there is press…

But Moral Hazard seems more like a risk of Deposit Insurance overall, rather than just unlimited insurance?

Also it's not like FDIC is granted automatically, couldn't there just be much more strict capital requirement and risk limits in exchange for a higher protection?

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

#434

Post by tock »

JumpCrisscross wrote: post #428
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…

> because our CEO used a well-reputed bank That didn’t have an investment grade rating, where $250k comes out of taxpayer coffers Monday morning, and where everyone has unemployment insurance? Yes. The assets of the bank should go to your company first. But the public purse should not be opened.

> $250k comes out of taxpayer coffers Monday morning

This isn't coming out of taxpayer coffers. FDIC insurance premiums are paid by the banks.

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

#435

Post by hermannj314 »

1. Executives of SVB receiving bonuses.

2. Depositors that withdrew their money 100%.

3. Depositors that will fall under FDIC and made whole by this.

4. Depositors that will receive X% of deposits (likely under 100%)

5. Debt and equity with SVB

6. American taxpayer.

OK, I think every possible permutation of who owes who money has been explained in this thread.

I personally would like to see a legal mechanism where group 2 owes group 4 money. Not sure how that would work, but it would definitely give no one an incentive to run on a bank ever again if we could figure it out.

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

#436

Post by prepend »

nasseri wrote: post #392
rayiner wrote: post #231

Earlier quoted context omitted.

Why shouldn’t depositors learn a lesson that they should get additional insurance beyond the $250,000?

If the lesson you want corporate depositors to learn is that in the United States, any dollar beyond 250K in an account can evaporate overnight, than be prepared for a lot more bank runs in the immediate future.

The lesson is to mitigate this risk with insurance, account structures and other things.

I think the lesson is also don’t bank with banks doing shady, dumb things. And that’s a valuable lesson that people with over $250k should already know and not need to be taught.

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

#437

Post by tqi »

mark_l_watson wrote: post #368
tqi wrote: post #311

If depositors take a haircut, what incentives could smaller banks offer in order to remain competitive with GSIBs for business deposits? Higher rates seem like it would just increase risk.

Smaller local banks and Credit Unions are great! Just don’t keep more than $250K in any one of them. The governance of Credit Unions tends to be very transparent, at least for the two that my family uses. Seriously, you are promoting giving business to the major Wall Street banks? I would argue this is against your personal long term interests.

Agree that for individuals they are great! But for companies with more than 250k in cash, I would think that the incentives to keep your treasury "safe" would drive you toward banks that you believe are too big to fail?

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

#438

Post by tsimionescu »

gerad wrote: post #199
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 just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that. First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of…

> people won’t make payroll, and employees who have no responsibility won’t get paid

This gets repeated over and over, but just like depositors have the highest priority to a failed bank's assets, so do employees of any failed company.

So, if a company goes bankrupt because it can't access funds stored with a bank, first stockholders would get wiped out, then debt holders, and only then employees (when talking about salaries already owed - of course, the company can fire staff to try to avoid bankruptcy).

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

#439

Post by JumpCrisscross »

nightpool wrote: post #288
lotsofpulp wrote: post #146

Earlier quoted context omitted.

> “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? I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth. And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of…

Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stabil…

> not their current market value if sold at fire-sale prices

Fire sale means the selling of the assets pushes their value down. This is not that. It’s insolvency; the assets were and are worth less than their book value.

> stability of the US banking infrastructure

Speaking anecdotally, New York is surprised and the Bay Area scared. This is a local problem. Not a systemic one.

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

#440

Post by phamilton »

tsimionescu wrote: post #416
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…

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 havi…

> So the risk to workers' livelihoods is being way overblown

If this were 2015 I would agree. But it's 2023 and thousands of software engineers are already struggling to find work after layoffs. Companies shutting down en masse because of SVB will soften what is already an employer's market for talent.

This may hurt specific founders and VCs a lot, but total damages (in the form of a softer market for engineers) may hurt the average employee more, even if they aren't directly affected.

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