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SVB customers who lost their deposits remain on the hook for loans

wsj.com

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Re: SVB customers who lost their deposits remain on the hook for loans

#31

Post by toast0 »

Simulacra wrote: post #4

Is it normal for loans to be wiped clean in a bank failure?

No, but it's not unsual to be able to offset deposits and loans. If you owe me $X and I owe you $Y, and you won't give me my $X back, why should I pay more than $Y - $X on the loan?

Edit: see this from the FDIC, which suggests this would be an option for depositors https://www.fdic.gov/consumers/banking/facts/borrowers.html

Re: SVB customers who lost their deposits remain on the hook for loans

#32

Post by sp332 »

epgui wrote: post #19
mdasen wrote: post #14

This article feels like rich people who were trying to get around US law/regulations/taxes now wanting the protections afforded by it. 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…

I don’t know if it’s just me that’s heartless, but I think if you’re financially sophisticated enough to bank in other countries or to have more than the insurable limit held in cash (!!! why???) then you ought to have known better or to have known the risks. 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.…

Any company with more than a couple dozen employees is going to have more than $250k in the bank for payday. SVB had some payroll processing companies as clients, so they each had multiple companies' payroll in the accounts that Friday. And the article mentions that the Cayman Islands branch had investment and private equity firms as clients, so they wouldn't get too far with only $250k in their accounts.

Re: SVB customers who lost their deposits remain on the hook for loans

#33

Post by bhaney »

epgui wrote: post #19
mdasen wrote: post #14

This article feels like rich people who were trying to get around US law/regulations/taxes now wanting the protections afforded by it. 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…

I don’t know if it’s just me that’s heartless, but I think if you’re financially sophisticated enough to bank in other countries or to have more than the insurable limit held in cash (!!! why???) then you ought to have known better or to have known the risks. 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.…

They certainly did know better. They're just hoping if they whine loudly enough now, they won't have to deal with the consequences of the risks they knowingly took and would have happily benefitted from without a word.

Re: SVB customers who lost their deposits remain on the hook for loans

#34

Post by seanmcdirmid »

mdasen wrote: post #14

This article feels like rich people who were trying to get around US law/regulations/taxes now wanting the protections afforded by it. 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…

Reminds me of Iceland being on the hook for all those savings from people in the UK looking for better interest rates. It almost bankrupted the country since the size of their banking industry was much larger than their internal economy needed.

https://en.m.wikipedia.org/wiki/Icesave_dispute

Re: SVB customers who lost their deposits remain on the hook for loans

#35

Post by award_ »

mdasen wrote: post #14

This article feels like rich people who were trying to get around US law/regulations/taxes now wanting the protections afforded by it. 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…

We don't want to incentivize people to dodge taxes while thinking they'll enjoy all the protections paid for by taxes.

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.

Re: SVB customers who lost their deposits remain on the hook for loans

#36

Post by StanislavPetrov »

hamandcheese wrote: post #22
StanislavPetrov wrote: post #13

Earlier quoted context omitted.

These were essentially secured loans offered by the bank against funds that had already been deposited. I'm definitely not a fan of Cayman Island banking nonsense, but it seems rather unfair to seize the deposited funds that secured the loan and still try to enforce repayment.

If the loans are no longer secured, then is there any reason to pay? Can payment be forced in any way? If the bank repossessed my house, for example, I would not continue paying my mortgage.

>If the loans are no longer secured, then is there any reason to pay?

The same reason there is to pay any debt. Damaged credit, judgements, seizure of assets.

Re: SVB customers who lost their deposits remain on the hook for loans

#37

Post by crazygringo »

Ensorceled wrote: post #23
StanislavPetrov wrote: post #13

Earlier quoted context omitted.

These were essentially secured loans offered by the bank against funds that had already been deposited. I'm definitely not a fan of Cayman Island banking nonsense, but it seems rather unfair to seize the deposited funds that secured the loan and still try to enforce repayment.

Imagine what would happen if you didn’t have house insurance and your house burnt down. Would you expect the mortgage to be waved because the security (the home) was now seriously devalued?

I agree with you, but in this analogy it was also the bank that set your house on fire in the first place. Which is what makes it less intuitive to separate the two.

Re: SVB customers who lost their deposits remain on the hook for loans

#38

Post by _armchair »

hanniabu wrote: post #18
papercrane wrote: post #9

Earlier quoted context omitted.

Loans are an asset on the banks balance sheet and can be sold like any other asset.

Why can't people sell the bank's debt to them?

They could try, but who would pay for it at a worthwhile price? The bank already defaulted. The loan has value and can be sold because the borrower is still solvent.

Re: SVB customers who lost their deposits remain on the hook for loans

#39

Post by Ensorceled »

crazygringo wrote: post #37
Ensorceled wrote: post #23

Earlier quoted context omitted.

Imagine what would happen if you didn’t have house insurance and your house burnt down. Would you expect the mortgage to be waved because the security (the home) was now seriously devalued?

I agree with you, but in this analogy it was also the bank that set your house on fire in the first place. Which is what makes it less intuitive to separate the two.

Well, except the depositors chose to put their money in uninsured accounts.
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