This isn't grounded in reality. You make it sound like banks will just end as an enterprise, and we'll have to go back to carrying little bags of silver coins.
Depositors are the absolute last group to lose money in a bankrupt bank. When a bank collapses its assets don't just disappear, and depositors (and paychecks) get first scoop from the pot.
It would be nice if everyone didn't have such hostility towards personal responsibility. You never put all your eggs in one basket. You diversify where you keep your money.
The government can best help by doing what it does best. Let it invest in making bankruptcy courts super efficient. Set up automated systems to drip feed payouts to depositors as assets are sold.
The "heads you win tails we lose" deal we give to bankers, which we don't give to anyone else, is fundamentally evil, and we have to stop bowing to their terroristic threats that if you don't give us this deal you're all doomed.
The important role of banks in our economy is lending, funded by deposits. Few businesses can survive, let alone get started, without access to credit.
If the banking system collapses most businesses will fail.
Made up, mostly by bankers, and not grounded in history. Bank panics don't mean most businesses fail.
They mean the risky, overleveraged and marginally valuable businesses fail, and the conservative, careful, and valuable businesses survive and buy up their assets.
It's precisely the interference with this process that's exacerbating economic booms and busts in the first place.
Let those who played it safe now have their reward, and those who played it risky have their comeuppance - not the other way around.
You've baked the answer into your question. They wouldn't have a bank account singular.
In fact nobody recommends holding one bank account, under any circumstances. Banks can and do freeze accounts for any reason. You always have some backups standing by.
You also don't keep all your assets that way. Businesses can hold reserves in stocks or bonds or gold or cash in a safe just like everyone else.
What price are VCs paying for concentrating too much of their portfolios into a bank that was careless? No price. And that is what is upsetting some people.
The VCs didn’t concentrate their money like this for no reason. They got some benefit out of it, surely (easier access to loans for their portfolio companies, I suspect). And VCs are, or should be, sophisticated enough to be accountable for concentrating their capital without purchasing insurance.
There’s no clear way for VCs to pay the price they should pay without some startups being collateral damage. I think that’s the crux of the disagreement about what should have been done.
VC portfolio companies don't need loans; that's what they have all that cash for. It's also why SVB had everything in treasuries because they couldn't loan it out.
Founders used SVB because of hearing things like how regular banks, if they see you have a failed startup in your history, might not give you a home loan. (And because it was trendy.)
Venture debt is a thing. I worked for a startup that had a loan through SVB ... so I don't think you're quite correct, though I don't know how common those loans were.
This is it, and really banking (and any currency for that matter) is a make believe system that ONLY works because we all believe in it. If that trust is broken or there’s a panic leading to a banking system collapse, everything else will. Like the world will grind to a halt. If people stop believing in the currency, our paper monopoly money won’t be worth shit.
So much of this is built on trust, it’s literally the government’s job to step in and fix this before this explodes. Luckily, it sounds like SVB has the assets to cover the losses but not liquid so it will take time. Also, nobody is getting a bail out. SVB is dead, period. Depositors money belongs to them and they should be made whole. This could have been so much worse.
If you look at the history of banks, it's clear that banks naturally fail whenever a bank run occurs. This happens because banks exist to turn liquid deposits into long term loans for things like homes.
Liquid deposits at low interest rates are useful. Home loans are useful. And banks can bridge the two successfully almost all the time. And even when banks can't, the biggest problem is probably panic.
In many countries, the solution has been to transfer the tail risk from bank depositors (not owners) to the state. The state then reduces this risk by regulating banks heavily, and by requiring them to pay into an insurance fund.
I am not a libertarian. I support the idea of government as a regulator and an insurer of last resort. I am 100% aware that banks can only exist because the government holds the tail risk.
I think that wiping out SVB's shareholders and unsecured creditors was the right move. If we can claw back some executive bonuses or recent insider stock sales, all the better. However, I also think that making depositors whole is the right move in this case, because lots of banks own long term T bills and mortgages locked in at low rates, making them vulnerable to bank runs. Our best chance of fixing the situation is to prevent short-term contagion and then to change the regulations on banks to eliminate this risk in the future.
But yeah, I think banks are a useful fiction created by state regulation and state-mandated insurance. If we no longer want to provide that particular economic fiction, then I would prefer voters to elect people who figure out an orderly plan to wind down banks, rather than just letting the system implode.
(Full disclosure: Neither me nor my employer has money in SVB. But my paycheck is handled by Rippling, which passed funds through SVB in the process. Had my paycheck been paid last Friday, it would have been held to at least Monday.)
I keep some of my money at the bank because I have to and because my employer is paying my salary through a bank account. The most of it is at some safer place.
They did let the bank fail. The bankers lost any wealth that was tied to ownership of the bank. Of course, a bunch of them sold shares as they saw the end near, but that's something the SEC should prosecute as insider trading.
They're saving customers to a large extent, who could have done more diligence when choosing a bank, you could argue. But they still feel pain going through this process. And not saving them would have worse consequences for the entire system.
> Of course, a bunch of them sold shares as they saw the end near
Insiders file 10b5-1 plans with their brokers well in advance to automate the sale of their stock. It's very unlikely that the sales had anything to do with recent events.
In this case, 30 days in advance. So it's much more like a transaction delayed by a few weeks, rather than one planned months/years in advance with no knowledge of how stock price will perform in the future.
There are lots and lots of ways to use 10b5-1 plans and still trade on insider information, I.e., selective cancellation or trading on longer-term insider info.
I'm fine with that as soon as we save taxpayer's money and punish those who triggered the accident and replace them by people who are paid by taxpayers money, under direct control of the state.
All banks are under control of the state via bank regulators. And those bank execs just lost their jobs when the banks stopped existing, so you got that.
There is no sensible reason to want the state to own every bank; that means you're accepting a silly amount of risk and not diversifying your investments. What you want is a social wealth fund, not owning a random industry you don't like.
>> And those bank execs just lost their jobs when the banks stopped existing, so you got that.
SVB’s CFO was previously the CFO at Lehman, so whether he still has his job today seems to have no impact on whether the revolving door will continue to open for him or anyone else there.
Eh, this is just that story about the engineer who makes a big expensive mistake and his boss who refuses to fire him because he just got expensively trained to not do it again.
Just shows that they knew even early SVB was fucked. I meant it was clear SVB was fucked since JPOW raised rates and SVB had dog shit assets on their HTM.
But instead of doing something they kept it afloat until they sold their shares which took about month to let it fail after they cashed out.
> The "heads you win tails we lose" deal we give to bankers, which we don't give to anyone else, is fundamentally evil, and we have to stop bowing to their terroristic threats that if you don't give us this deal you're all doomed.
That’s not what’s happening here. The bankers — investors in SVB — are getting wiped out. The FDIC is protecting people and companies with accounts at the bank, not the bank itself.
We also give it to sports teams, private enterprises which receive huge amounts of free advertising and discounted real estate, and huge subsidies for same, from public coffers.
No explanation other than "this is the way things are done".
Depositors are the absolute last group to lose money in a bankrupt bank. When a bank collapses its assets don't just disappear, and depositors (and paychecks) get first scoop from the pot.
It would be nice if everyone didn't have such hostility towards personal responsibility. You never put all your eggs in one basket. You diversify where you keep your money.
The government can best help by doing what it does best. Let it invest in making bankruptcy courts super efficient. Set up automated systems to drip feed payouts to depositors as assets are sold.
The "heads you win tails we lose" deal we give to bankers, which we don't give to anyone else, is fundamentally evil, and we have to stop bowing to their terroristic threats that if you don't give us this deal you're all doomed.