SVB customers who lost their deposits remain on the hook for loans • Hacker News Board

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

#121

Post by imustbeevil » Tue, Jun 20, 2023, 3:25 AM UTC

toast0 wrote: post #108

imustbeevil wrote: post #85

Earlier quoted context omitted.

And we're saying that's not how that works. When the FDIC takes over the bank, they pay out all of the insured deposits, sell all of the assets, and distribute the remaining funds, which in cases like this one are not enough to cover uninsured deposits. https://www.fdic.gov/consumers/banking/facts/priority.html https://www.fdic.gov/resources/deposit-insurance/faq/

https://www.fdic.gov/consumers/banking/facts/borrowers.html "In the case of a non-delinquent loan, the depositor might elect to “set off” the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit). In either case, no “offset” is possible unless the obligations are “mutual” – meaning that the borrower and the depositor must be the sa…

> Some SVB customers told the Journal they have asked First Citizens if their loans can be set off with the deposits that the funds had in their Cayman bank accounts.

> In response to a query from the Journal, a First Citizens spokeswoman said a setoff “isn’t legally possible in this situation,” because First Citizens owns the capital-call lines while the Cayman deposits were with SVB Financial Group, the former holding company of Silicon Valley Bank.

https://archive.is/1d4uw#selection-353.0-357.287 (paywall passthrough for original article)

Presumably these loans were offloaded before the insolvency hit.

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

#122

Post by ImPostingOnHN » Tue, Jun 20, 2023, 4:18 AM UTC

refurb wrote: post #109

theRealMe wrote: post #105

Earlier quoted context omitted.

Entities DO hide their money in tax havens to avoid paying taxes. They avoid paying taxes BECAUSE tax havens have low or no taxes. Those two definitions are defining two ends to the same thing. The caymans have low or minimal taxes. The caymans are also used by entities to hide their money so they don’t have to pay taxes. Entities are not incorporating in the Caymans for any reason other than avoiding taxes. And the…

True, but if you're looking to hide your money you want two things: 1) low taxes within the country and 2) low transparency as to who owns what in the country. That's why Switzerland used to be a great place to hide your money decades ago - low taxes and numbered accounts where it was illegal to reveal the true identify of the account holder. Based on DelaneyM's comment - Caymans has the 1st but not the 2nd.

it seems the topic is havening the money, not "hiding" it, so 2) isn't necessary

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

#123

Post by epgui » Tue, Jun 20, 2023, 4:26 AM UTC

hyevbnff wrote: post #45

epgui wrote: post #19

Earlier quoted context omitted.

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.…

High yield savings accounts give up to 5% atm.

In inflation-adjusted terms, it’s not that exciting: so do other fixed assets that aren’t you lending a random bank cash, such as US/Canada treasurys / government bonds.

The point is that these other instruments don’t have the same risks as lending large amounts of cash to a bank, or even just holding large amounts of cash under your proverbial mattress.

If you’re chasing returns, you’ll need to take risks (and you probably won’t be interested in a 5% savings account in this sort of inflationary environment).

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

#124

Post by yieldcrv » Tue, Jun 20, 2023, 4:27 AM UTC

flangola7 wrote: post #93

yieldcrv wrote: post #54

Earlier quoted context omitted.

thats not what happened its actually a bad take due to the inaccuracies it relies upon, I wrote the other view in a sister comment

It is what actually happened, and it is an accurate take. Your opinion or feelings about it don't change that.

https://news.ycombinator.com/reply?id=36398029&goto=threads%...

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

#125

Post by s1artibartfast » Tue, Jun 20, 2023, 4:48 AM UTC

mdasen wrote: post #113

s1artibartfast wrote: post #64

Earlier quoted context omitted.

I think it's actually more nuanced than you're making out to be. If a customer has both a bank loan and a bank account, I think it is reasonable that the customer received some of the proceeds when their loan is sold off.

That's the thing: the depositors are now unsecured creditors of SVB. The problem is that they don't want to be unsecured creditors. They want to be secured creditors. They will get some of the proceeds of their loan, if there are any proceeds left over once secured creditors are paid. But that's where their complaints come in. There's almost assuredly not enough to recoup 100% of their deposits. Not only that, it cou…

This is a pretty different issue than what you described. The analogy would be if you take off $100 loan from your bank, and have the $100 sitting in the bank account when the Bank goes bankrupt. Normal FDIC rules state that yes the bank can take your $100, but they also have to forgive your $100 loan. This loan forgiveness is exactly what happened to all of the unsecured account holders in the US. However, when it comes to the Cayman Island accounts, the bank #2 that received the loans is not forgiving the value of the accounts held.

Now the FDIC has to decide if it will repossess those loans from bank #2 and forgive them or not.

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

#126

Post by [deleted] » Tue, Jun 20, 2023, 4:58 AM UTC

sp332 wrote: post #32

epgui wrote: post #19

Earlier quoted context omitted.

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.

[deleted]

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

#127

Post by s1artibartfast » Tue, Jun 20, 2023, 5:09 AM UTC

imustbeevil wrote: post #121

toast0 wrote: post #108

Earlier quoted context omitted.

https://www.fdic.gov/consumers/banking/facts/borrowers.html "In the case of a non-delinquent loan, the depositor might elect to “set off” the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit). In either case, no “offset” is possible unless the obligations are “mutual” – meaning that the borrower and the depositor must be the sa…

> Some SVB customers told the Journal they have asked First Citizens if their loans can be set off with the deposits that the funds had in their Cayman bank accounts. > In response to a query from the Journal, a First Citizens spokeswoman said a setoff “isn’t legally possible in this situation,” because First Citizens owns the capital-call lines while the Cayman deposits were with SVB Financial Group, the former hold…

>Presumably these loans were offloaded before the insolvency hit

No, that isnt what it is saying here. The loans weren't offloaded beforehand. First citizens obtained them as a result of the insolvency. First Citizens is claiming that they dont have to perform setoffs for some of the loans they acquired.

First citizens did perform setoffs for other unsecured customers in US branches, similar to how I described in my posts above, as required by law. Customers with accounts AND loans get their loans forgiven before the account balance goes to FDIC insured accounts. However, First Citizens thinks that due to the structure of their purchase and the SVB organization, they are not obligated to do the same for international branch customers with accounts and loans. For those, they get to hold the loan but not the setoff obligation.

Now the FDIC is in the position where they have to decide if they will claw back the loans from First Citizens and forgive them directly.

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

#128

Post by s1artibartfast » Tue, Jun 20, 2023, 5:14 AM UTC

HWR_14 wrote: post #117

s1artibartfast wrote: post #81

Earlier quoted context omitted.

yes, and I am saying the first bank should have to use the assets it has tied to you to pay off the debt it has to you, before it can sell them in bankruptcy to bank #2.

How do you think the bankrupt bank pays it's creditors/depositors? It sells all the assets in bankruptcy to bank #2 and then uses that cash to reimburse the people it owes money to in an orderly way. It doesn't go to each creditor and negotiate the debt separately. The entire point of bankruptcy proceedings are to ensure that the CEO doesn't make his golfing buddies whole by settling their debts and leaves everyone e…

in the USA, the order is:

Assets -> cash -> forgive any loans to the people who had accounts -> payoff FDIC insured accounts -> distribute remainder according to the courts

This is what happened for US customers with both loans and unsecured accounts. bank #2 says they dont have to forgive the loans specifically for some customers.

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

#129

Post by scheme271 » Tue, Jun 20, 2023, 7:49 AM UTC

djbusby wrote: post #42

MallocVoidstar wrote: post #15

Earlier quoted context omitted.

archive.is is poisoning results to users of Cloudflare DNS again. You can look up its IP (via e.g. 8.8.8.8) and hardcode it locally for their domains to fix it.

How do they know which DNS a client is using?

Archive.is requests EDNS information about the subnet that your system is on. Cloudflare doesn't pass this information along since it can be used to determine your location in part. So when archive.is doesn't get the subnet info, it sends bogus dns results back and you get that error. See https://jarv.is/notes/cloudflare-dns-archive-is-blocked/ for all the details.

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

#130

Post by HWR_14 » Tue, Jun 20, 2023, 11:25 AM UTC

s1artibartfast wrote: post #128

HWR_14 wrote: post #117

Earlier quoted context omitted.

How do you think the bankrupt bank pays it's creditors/depositors? It sells all the assets in bankruptcy to bank #2 and then uses that cash to reimburse the people it owes money to in an orderly way. It doesn't go to each creditor and negotiate the debt separately. The entire point of bankruptcy proceedings are to ensure that the CEO doesn't make his golfing buddies whole by settling their debts and leaves everyone e…

in the USA, the order is: Assets -> cash -> forgive any loans to the people who had accounts -> payoff FDIC insured accounts -> distribute remainder according to the courts This is what happened for US customers with both loans and unsecured accounts. bank #2 says they dont have to forgive the loans specifically for some customers.

Technically it goes:

FDIC takes over bank -> FDIC allows people to pay off their loans with the same bank using funds at the same bank -> FDIC pays off insured accounts and takes on debt from the bank -> Sells Assets -> Uses cash to pay itself back by being first in line with the courts.

If it gets to Bank #2, it's not their problem and they specifically don't have to. Also, this wasn't a US bank! It wasn't under FDIC control. That payoff happens before bankruptcy. If the FDIC doesn't take over your bank it doesn't apply.