81–90 of 145 posts
> "the answer will almost certainly be far more stringent regulation on small banks" And that regulation won't look kindly on lending to anything new, different or weird. A lending model like SVB's won't be supported by regulators.
Has the low cost of online banking removed the need for fractional reserve banking? Why does a basic checking account need to have economy destroying risks?
In what way does online banking change things?
No physical locations, no actual tellers, no physical money stored, etc.
VC money is completely frozen. It's an insane tragedy. There needs to be a bank where we can put our funds above 250k that is insured but also heavily regulated.
> "the answer will almost certainly be far more stringent regulation on small banks" And that regulation won't look kindly on lending to anything new, different or weird. A lending model like SVB's won't be supported by regulators.
They can always still lend on useful, productive, and with a chance of success, rather than using cheap QE VC money for BS business ideas...
Earlier quoted context omitted.
Combine it with another novel idea: the gold standard.
I know it's very trendy to advocated for that, but we do know that the removal of the gold standard was an attempt to keep the United State economy from melting down too, right? It's not actually a solution to all our economic woes. Sure, removing the gold standard created a new class of problems but going back isn't going to stop the ones we used to have.
I'd rather it was let to melt down, learned the lesson, and we went for a more sustainable model.
>The federal government’s action is, in my estimation, the right thing to do for this moment in time. There will, though, be long-term consequences for fundamentally changing the nature of a bank: remember, depositors are a bank’s creditors, who are compensated for lending money to the bank; if there is no risk in lending that money, why should depositors make anything? Banks, meanwhile, are now motivated to pursue e…
Limits were not "ignored", the companies simply have no other choice. The problem is systematic and by design. A medium sized startup/business handling only 25 million would need to bank with 100 different banks, obviously that's inconceivable in practice. And now look at some of the more prominent customers. Pinterest, Shopify, CrowdStrike Holdings, Beyond Meat, Andreessen Horowitz, Founder's Fund, Circle. The latte…
Earlier quoted context omitted.
I can go buy a fireproof safe for a few hundred bucks. Or rent a safe deposit box. My money becomes less valuable the longer it sits in either.
Your money becomes less valuable in a bank too, as a bank account is not an investment vehicle anyway. It's just that now you also have the added risk of the bank defaulting like SVB. If you want to invest, invest. If you don't, you shouldn't have the added risk tied to your "sitting in the bank" money, just inflation.
The FDIC limit is not just some technicality that businesses abuse with many accounts, it is a recognition of that fact that banks like SVB, which hold large deposits from a small number of highly correlated depositors, are fundamentally more risky than banks with a large number of smaller uncorrelated depositors. Sweeping large deposits across banks and properly investing in treasuries reduces systemic risk and prevents bank runs in the first place. The de facto removal of FDIC caps defeats this diversification and protection.
The current dollar value of the cap also makes sense. Unlike what plenty people are trying to claim, there is no amount of money for which that current system is unsuitable. Deposit sweep accounts cover up to $3M (and diversify across banks, exactly the point of FDIC limits). Money market funds provide short-term treasury exposure above that, and businesses with many millions liquid should absolutely be expected to invest in treasuries. If Bogleheads can do it in their retirement accounts why can't $10M+ startups?
Maybe the SVB depositor bailout was necessary in this case to prevent broader panic, but it sets a grim precedent for depositor behavior that ultimately makes the system more brittle and reliant on government handouts (which despite rhetoric to the contrary, will be paid for by the taxpayer/bank account holder).
Earlier quoted context omitted.
I know it's very trendy to advocated for that, but we do know that the removal of the gold standard was an attempt to keep the United State economy from melting down too, right? It's not actually a solution to all our economic woes. Sure, removing the gold standard created a new class of problems but going back isn't going to stop the ones we used to have.
> I know it's very trendy to advocated for that, but we do know that the removal of the gold standard was an attempt to keep the United State economy from melting down too, right? I'd rather it was let to melt down, learned the lesson, and we went for a more sustainable model.
"This action effectively means the $250,000 FDIC limit is meaningless: all deposits in any bank are presumably insured by the full faith and credit of the United States."
Exceptional circumstances sometimes call for exceptional measures. A bank with 85% of its accounts over the $250k limit where most of the depositors are contractually locked-in companies is not normal. Moreover the contagion nucleus in this network were a few culpable super-spreaders with exceptional power. Other banks don't face that threat either.
Banking policy must be written to include exceptional circumstances, but the idea that all banking policy needs to be rewritten to burden smaller banks with situational precautions which are impossible for them to encounter is dangerous idiocy. Don't write housing codes that require 9.0 earthquake tolerance in areas primarily hit by hurricanes!
Furthermore it's dispiriting to see generous tit-for-tat given such a cynical portrayal. If two people have knives to each others throats you don't win by just not being the first to cut, you win by putting the knives down.
This situation was exceptional, and the panic was triggered by people with outsized network influence who should have known better. So maybe, just maybe, we deal with the reality of the situation rather than assuming it must be a harbinger of total change.