In YC it often is. You are almost expected to prop up other YCs companies with your funds. If everyone buys each others services everyone can show their super duper growth and nobody lost anything (except VCs who invest later).
provided their main customer base is not from the area or the sector then it's pretty fantastic for them, especially if they had significant competition in their business model and many of those competitors are now insolvent
If your competitors can't pay their employees you can poach them for very cheap if they are desperate to make rent or mortgage payments. So more sensible competitors might even benefit from the stupider ones.
10 minutes earlier it was posted with the blog post title https://news.ycombinator.com/item?id=35113681 but users came to the same conclusion: despite the blog title it's asking for a bailout.
LOL, nope. Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round.
The banks had to be saved in 2008 because they were, like, the financial system. I don’t see why private companies and funds that are much less integral to the functioning of the economy as a whole should be saved by the public fisc.
Are you saying if I deposit more than $250k (which is NOT a lot for a business) into a reputable and regulated US bank at negligible rates of interest I should just accept the impact of the bank shutting down due to events unrelated to my actions and choices? And that my deposit should vanish into thin air?
> Eight years before the second-largest bank failure in American history occurred this week, the bank’s president personally pressed Congress to reduce scrutiny of his financial institution, citing the “low risk profile of our activities and business model”, according to federal records reviewed by the Lever.
> Three years later – after the bank spent more than half a million dollars on federal lobbying – lawmakers obliged.
It's truly remarkable that most likely SVB lobbied congress to allow more risk taking because it will encourages innovation, while in reality what it did destroys innovation.
It was just yesterday that there were pages of comments here on HN filled with people talking about how there should be no bank reserves. The arguments were that cash flow is king and reserves are bad for the economy.
FWIW, I am a taxpayer and am not a SVB bank account holder.
I don’t want to see this spin out of control on Monday when all those companies can’t make payroll and even more carnage ensues. This could blow up into a much much bigger panic contagion.
Maybe, just maybe, instead of us collectively trying to manage the latest collapse, perhaps we could impose actual requirements (not regulations) on banks. There have been 562 bank collapses since 2001. I doubt that many people who work outside of finance would think the balance sheets of those banks look like anything like what people would expect in a stable "bank".
It's insane that very few banks in the country can reasonably withstand bank runs. The reason? They have no money on hand, because they are gambling. Sure, the ecosystem would change, but that's not a bad thing.
1. It won't spin out of control.
2. Stock in SVB (market capitalization) is $6B. Deposits are almost $200B. Depositors who had put more than 250k did so willingly knowing the risks.
…which is what many crypto companies have had to do for a very long time… bank redundancy is crucial in an environment where innovation has stalled, regulations stifle and monopolies abound.
> Are you saying if I deposit more than $250k (which is NOT a lot for a business) into a reputable and regulated US bank at negligible rates of interest I should just accept the impact of the bank shutting down due to events unrelated to my actions and choices?
Yes, because that is how risk works.
> And that my deposit should vanish into thin air?
No, you should insulate yourself from that risk, either by spreading out your cash between multiple institutions, or obtaining deposit insurance beyond the government's, or (most likely) both.
>No, you should insulate yourself from that risk, either by spreading out your cash between multiple institutions, or obtaining deposit insurance beyond the government's, or (most likely) both.
Why would I do that when I can bank with a too-big-to-fail bank like JP Morgan Chase, Citibank, Wells Fargo, or Bank of America?
The point is that everyone should bank with four too-big-to-fail banks and all other banks in the US should be shut down? That's certainly A Take. I thought we wanted to do away with too-big-to-fail banks, not permanently cement them into place.
Because you're assuming just as much risk that one of these banks won't lock the entirety of your account for {reasons} while you fight it out with them.
If you can, then do that. "Bank with too-big-to-fail bank" is a rational choice that you could make while doing a risk assessment.
Unfortunately, many small companies and first-time founders can't get a business account at one of the big banks. Hence: SVB. I don't think this means we should automatically bail them out, though.
I'm not, because I know the federal regulators have strict requirements for these banks and will bail them out if they did somehow fail for being a "systemically important bank." I'm not qualified to evaluate the soundness of a bank, and neither are the rating agencies (as 2008 showed), so I'm going to go with the banks I know the federal government will backstop.
> so I'm going to go with the banks I know the federal government will backstop.
Sure, there's nothing wrong with that. It's still a nonzero risk, of course.
But it's also not necessary. You don't have to assess the soundness of the bank yourself, really. You can bank with pretty much any random bank and get the same level of safety. You just have to actively manage your risk, is all.
I think you're wrong. 'risk' is where I invest my money somewhere I can expect to lose some/all of my investment. Placing my money into the likes of a JPM or SVB, etc. should be RISK FREE because a) I am not investing my money and b) To recognise the fact it should be close to risk-free, I receive negligible interest on my deposit.
If they are asking for government assistance to bail them out of their own problem that were created when they lobbied the government to lower oversight regulations of SVB, then no, they aren't capitalists.
Are you arguing for the abolishment of private banking and erecting a government run banking institution in its place? because it sounds like that to me.
Just about everyone in the US who has a business bank account faces that same issue. There have been hundreds of bank failures before this. SVB account holders are not unique and probably won't get special treatment.
Then they should have only kept the minimum funds necessary for transacting business in that bank account and kept the rest in short dated treasury bills at another institution(s). Part of being a company is having a treasury department to manage the cash flow needs, whether that is one person or ten.
I think you should be made whole, but only if you submit a public statement supporting welfare for individuals as well as corporations in trouble. If you want a socialist handout from the government, fine, but you can’t be a hypocrite about it.
In the UK, consumer deposits are protected only up to £85k. Everyone has several bank accounts. If the person on the street knows this, it’s not too much to ask that someone running a business does too.
yep and if US$250K in cash is not a lot to have in deposits, then certainly some basic risk management and due diligence shouldn't be too much to ask for either
I know that 250k cash is not a lot for a company with a few folks on payroll. But why wouldn’t you distribute cash across multiple banks as a business?
It hasn’t to be this situation, but if your accounts are flagged for fraud or someone hacks an account, aren’t you safer by distributing cash in multiple banks?
>I know that 250k cash is not a lot for a company with a few folks on payroll. But why wouldn’t you distribute cash across multiple banks as a business?
On the topic of FDIC insurance and startups...
I'll put in a shameless plug for a startup I helped launch 20yrs ago:
*Promontory Interfinancial Network"
https://www.intrafi.com/solutions/depositors/
It was a startup them (now acquired), and created a bank deposit product "CDARS" which took customer deposits and distributed it across (k = N/<FDIC Limit) banks and kept the relationship as a single bank with a single account.
Even cooler, as k other people did it at k other banks, the service would just swap deposits across all the banks. It was a super-cool and valuable product, and i'm proud to say I helped write the matching engine for it back in 2002.
I realize this doesnt help startups with locked funds at SVB, but I'm pointing out -- there are options out there to have 100% FDIC insured safety for both individuals and startups.
This workaround seems rather silly when it mostly applies to medium-sized businesses trying to get safe, stable bank accounts. FDIC coverage is too low for businesses.
There are a number of mechanisms besides the FDIC that are commonly used for depositors of this scale. You can even buy your own insurance, if nothing else.
CDARS is one system. A whole bunch of different systems have been mentioned scattered throughout these comments. But the bottom line is that if you really need to know what the options are, you really need to talk to a financial advisor with expertise in this level of business. They'll know what all the options are.
This is a rather specialized and technical area of finance, and like most technical areas, I imagine it's hard to search for unless you know the magic terms and jargon to search for.
And who do you expect to foot the bill to recover your money? There are ways to mitigate this risk and it's not the taxpayers problem you mismanage your assets.
Look up CDARS. There are well known cash management strategies that solve for exactly this set of circumstances. I’m not really sure why taxpayers are supposed to backstop CFO competence?
But to answer your question, yeah, I think the equity in a for-profit business takes the risks and rewards of capitalism as they come.
If the owners didn’t want to lose the basis points by holding cash in CDARS or liked the interest paid by SVB (approximately twice the median of other financial institutions), they probably shouldn’t have been trying to pick up pennies in front of steamrollers or expecting taxpayers to save them from the consequences of that freely made decision. Capitalism, baby.
Awesome to hear about CDARS on this board. CDARS have only seemed valuable twice in my life (2008, and yesterday)...but that is how insurance-linked products are supposed to work. You only need them when you need them. But when you need them, it is darn good to have them.
Are you saying if I deposit more than $250k (which is NOT a lot for a business) into a reputable and regulated US bank at negligible rates of interest I should just accept the impact of the bank shutting down due to events unrelated to my actions and choices?
Yes. That's the way this works. Or you can choose whatever risk mitigation strategy you're comfortable with: spread your deposits across multiple institutions, buy Krugerrands and bury them in the backyard, purchase 3rd party insurance whatever.
People keep talking about buying third-party insurance for this but a quick google didn't turn up any mention of insurance like that. Could you link some?
That's very odd, the entire first page was full of hits for me. What were you searching?
Take a look at https://www.forbes.com/advisor/banking/ways-to-insure-excess.... It explains several methods, including extra deposit insurance from CDARS, MaxSafe, Depositors Insurance Fund, etc. It also explains cash management accounts, credit union overflow, using multiple banks, and so forth. I can't help but think a good CFO or comptroller would be well aware of these.
Yes, I'm aware that I can put money in multiple accounts, or get an account that spreads the money to multiple accounts for me. None of these are what I was responding to: the suggestion to "purchase 3rd party insurance." The closest in that article is DIF but even that isn't insurance you go and buy, it's another kind of special bank account available at DIF's member banks. As far as I can tell, you can't just go buy supplemental deposit insurance, but for some reason people keep suggesting that as something SVB's depositors should have done.
(And as someone who's worked as the first employee of a startup, I can tell you it was while before we were able to get a CFO.)
You can purchase DIF, when the account is at a participating bank. SVB chose not to participate in that non-FDIC program. However, SVB knew all about the program, even commenting on FDIC rule changes for it over a decade ago. [1]
Ultimately, people will have to accept that SVB wasn't as trustworthy of a guardian as some other banks. It appears that people were pushed into using SVB, because it was part of the VC ecosystem.
It's an individual CFO or Founder's decision as to whether to insure deposits or not, but claiming ignorance of the possibility is going to be ignored by a lot of others.
I mentioned DIF above, and as I said there, it's not third-party insurance that you can go purchase. What you can do is get certain accounts that automatically include it for free: https://www.difxs.com/DIF/Home.aspx
It's a short list, they're small banks, and they all have addresses in Massachusetts. Wells Fargo and Bank of America, for example, are not on the list.
If you have an account in need of insurance in excess of the FDIC limits, you can speak with your CFO about depositor bonds or contact the appropriate party about any of the other methods in the links that were posted in this thread.
Unless you have a link for these depositor bonds, I'll remain skeptical since they weren't mentioned in your previous link, google produces nothing obvious and DIF isn't at all what you'd claimed.
You want me to google for you? You don't seem serious. Here you go anyway with 5 out of the top 6 links on the first page from Google.com. Hopefully, these links will help someone who is looking for information on how to secure their bank account.
The normal method for this insurance is to call an insurance company and ask for excess deposit insurance. This should be your first step. But, it seems very strange to me that you are beligerently asking people on the internet for financial information that you don't appear to need.
1. Understand How a Depositor Bond Works [1]
2. Depositor bonds for FDIC-insured deposit accounts [2]
3. Excess Deposit Guarantee Surety Bond [3]
4. Bond Penalty: Based on Coverage Requested Excess FDIC Limits [4]
5. Hello old friend – The reappearance of excess deposit bonds [5]
Here is the summary copied from the first link, in case you don't want to load the link from here or from Google.
In summary, the Depositor Bond provides a third
party guarantee (from the insurance company who
is called the Surety) that deposits will in fact
be returned to the depositor. Depositor bonds
are designed to be “Excess FDIC Insurance
Coverage” and coverage begins at the point where
the $250,000 FDIC insurance obligation ends. [1]
No, I can't call up my insurance company to get depositor bonds. From [2]: "Depositor bonds allow banks to offer deposit protection in excess of Federal Deposit Insurance Corporation (FDIC) insurance coverage to its most valued customers."
The other links say similar things. This is something banks can buy, to provide extra coverage for their customers.
People here have been arguing that SVB's customers were negligent by not purchasing their own third-party insurance. I think it's reasonable to ask them to support that argument, even if I'm not personally in the market. Supplemental insurance like that still does not appear to be available.
If you are serious about looking for solutions, you really need to consult a financial advisor who specializes in these sorts of things. They'll know where to find insurance. They'll also know of a variety of other mitigation strategies that might be better than insurance for your particular situation.
If you deposit more than $250k, you absolutely should take actions to limit your risk to an acceptable level. There are myriad ways to do this.
> I should just accept the impact of the bank shutting down due to events unrelated to my actions and choices?
You should hedge against potential losses, yes, absolutely. You're knowingly taking a risk. Just like every other risk in business, you determine if you can take the hit if things fail, and if you can't you arrange a mechanism that will reduce the damage to a level where you can.
Or, you should purchase private additional insurance, yes. It's not like it didn't say "covered up to $250,000" on the package, it's not like theyre the only bank in town, it's not like the FDIC was the only option.
Most commenters have a very low-dimensional understanding of politics, and assume if you’re a businessman or capitalist, all failings of Republicans can be attributed to you personally.
he's making a joke that I think is pretty clear, and jokes are only funny when they're stripped to their essentials.
if anybody holds the perspective that the govt should use public funds to save a set of companies because ma jobs, ma innovations, etc. in the venture capital sector it would seem that person does hold that perspective, at least enough to joke about it.
Unless you're making a more unlikely point that the government should be intervening all the time?
The problem is many of your peers in your space actively advocate, lobby, and spend lots of $$$ to reduce regulations whose aim is to try to prevent this sort of stuff. SVB themselves were pushing to be exempt from stress tests in Dodd-Frank, which they were successful at achieving back in 2018. If regulation is really a concern, why continue banking at a company that was actively lobbying to be exempt from regulations that already existed?
Anyways, I'm not gonna pass judgement either way. People make mistakes. However, it's a constant battle, and when ground is gained its easily lost. It's a tireless fight against monied interests trying to make more money in any way possible. People are going to understandably be frustrated at petitions like this.
TARP did turn a profit, but there was no guarantee that the US treasury wasn’t going to take a loss on it.
Now, if these companies are willing to sign over warrants for 79.99% of the equity (like the banks did)… well, maybe there’s something to discuss. But otherwise reaping the rewards of capitalism while declining to take its risks - nah, I don’t think so.
I think by "capitalism" you mean "free market" but yeah there is a massive difference between giving loans to massive banks, the larger of which were not going to fail anyway except Morgan Stanley, and giving money to small companies that can potentialy lose all of it (AKA the "start up" business model).
If this is handled by the ordinary procedures used to handle bank bailouts and if the story is what we've been told (problems w/ bonds going bad because of an interest rate increase) there could be some haircut for depositors but it will not be apocalyptic.
If the real problem is the quality of the loan book, however, it calls the startup and VC economy into question.
We'll learn a lot more about this in the next few weeks.
If a startup can't pay their employees at the end of the month, it's apocalyptic no matter whether or not they get access to their money again at some future date.
The FDIC should have payments working very close to normal early next week if not by Monday. People might be getting paid a few days late and whoever is processing payments will be working overtime but there's a good chance it will be "no big deal" for most employees.
Often when a bank fails they change the sign at the branch to some other name otherwise you wouldn't know what happened. In the 1980s there was a lot of bank instability in New Hampshire, my mom kept all the statements going back to 1971, the name of the bank changed numerous times and she was not inconvenience except when the mortgage was about to come due the bank said the original payment was miscalculated and she'd owe more payments. I told her to go tell the bank regulator about it and the bank came back with their tail between their legs and forgave her the last 6 months of mortgage payments.
When I was a student I was banking with an S&L in New Mexico that went under as part of the S&L crisis, they just moved me to a different S&L, it was no skin off my back.
So there's a good chance that the FDIC will manage this with a minimum amount of disruption... Bank routines are handled routinely.
I'm not sure what your argument is exactly. They haven't transferred the depositors' balances to new banks, they've simply issued them IOUs (receivership certificates). From what is known about the balance sheet of SVB, it will probably be between 8 and 10 years before those IOUs are replaced with dollars. You can't pay employees, the FTB or the IRS in receivership certificates. To say that it will be "no big deal" and that there will be a "minimum amount of disruption" is simply an assertion based on no evidence.
>> Didn't the public get paid back, plus extra, after bailing out the banks?
To be totally factual, while the public did get paid back, part of the reason is that the Fed started printing money and buying bonds way above asking price to move the market. If you do this enough, prices naturally correct because everyone knows there is a buyer at a certain price and a floor price.
These are depositors of a bank. Most startups only have one bank.
Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
There's also a real risk of bank contagion if it is only safe to deposit in the largest banks.
There was nothing arbitrary about that choice. This bank promised better deals BECAUSE they were not careful enough about the risk it entailed. That was their competitive advantage, and they made bank for it. Well, tough luck, now it's not anymore: it has nothing to do with being a large bank or a small bank, it has to do with healthy business practices.
Sorry, I'm not sure if you're confused, but these are simple bank accounts. There was no high interest yield. The average interest yield was a fraction of a percent.
No one was chasing any yield. No one was taking any risks. It's a bank account.
Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
And what about all the other regional banks? Based on your comment, do you think the prudent thing would be for every single small business in America to transfer their funds out of regional banks into a large bank?
> Help make your money last longer with our Startup Money Market Account. Like with a savings account, you’ll earn up to 4.50% APY on deposits — so you gain a longer runway. Certain restrictions apply.
It's about 1% higher than most solid/large high-yield online banks right now (Capital One 360 at 3.4%, Discover Savings is at 3.5%, Ally Bank is at 3.6%).
So I wouldn't say that you could get 4.5% from a reputable bank at the moment.
If your amount is under 250K, its insured. If not, take 1/4 (or 1/8th) of funds and place in 4 or 8 week t-bills every week for 4 (or 8) weeks with automatic roll over. On Wed those rates were 4.80% and 4.88%.
You are misled regarding the kind of offers SVB was running. They were offering above market returns specifically aimed at startups. I believe the documentation has been offered in another comment, and anybody who has been in touch with SVB knows what their sell pitch is, so I will not copy/paste it there. Most of it is undocumented publicly anyway, but even the public part should inform you enough.
> Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
Honestly yes. All it takes is one financial analyst's time. I do it with my retirement plan for example, and I'm only a "small business" of one family. If there was demand for such info, I'm sure there would be a small community/industry for evaluating bank books like there is for financial planners (if that might not even be something a financial planner could already do).
And particularly with Y Combinator advising so many companies, I think it's on the side of negligence that they didn't evaluate the bank they were steering their companies towards. They were steering them there because they knew that tended to be the only bank that would deal with their high-risk companies - and it's too hard to believe that professional VCs didn't recognize that such a bank could have a lot of risk in some dark corner to compensate.
>No one was chasing any yield. No one was taking any risks. It's a bank account.
It is by definition a risk for a corporation (or individual) to keep over $250k at a single institution ($750k if including SIPC-protected accounts). Reports are stating 97% of SVB's customers kept more than FDIC guaranteed limits. How can you claim this is not risky?
There is also additional insurance clients can purchase or the financial institution can themselves provide a statement they've purchased excess insurance for their clients.
>Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
If they're keeping more than $250k in a single account, absolutely, yes, I cannot be sure this is even a serious question.
> "Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?"
Yes, this exactly why millions of people, not just businesses, avoid banks like Bank of America and Wells Fargo. They review how they have historically operated and what risks they passed on to their customers.
Interesting take — I imagine these banks will be getting net inflows as a result of this fiasco because people will assume (perhaps correctly) that they are too big to fail.
> Many startups chose SVB because they were the ones willing to open a bank account for them at all.
I mean, given the epic scale, herd-mentality of tech startup types to cause a $46 Billion bank run in a singular day (March 9th), can you blame them?
Its clear that other banks have seen systemic risk in focusing on this sector, and are pickier about choosing their customers.
-------
I get that this is a problem in any case. But the systemic risk / scale associated with the tech startup scene has just been proven to the world. "Other banks didn't want to take $100+ Billions in startup deposits" is beginning to look like the smarter move, given the circumstances.
Now I wonder what is the intersection of those asking for this petition and the ones that organised this bank run... As things might not be so bad if it wasn't organised...
This is not true. I had the same problem with my business at two banks (not BofA). In think it’s related to KYC regulations that makes them cautious. All I wanted was a checking account, no loans.
Why? Is that normal in the US? Credit is a different thing (did you need a big overdraft facility?), but here in Australia I can’t imagine that a bank would refuse to open transaction or savings accounts for a legal business… The main exception is a few banks are stopping directly offering products to fossil fuel companies and the like, but that’s it.
There is no way this is accurate. I've started several bank accounts for the smallest most poorly articulated, poorly documented, businesses you can imagine starting from 18 years old. Never had a problem.
So let's get this straight. You want a bank who will take risks willy-nilly on start-ups. But you also want that bank to be subject to regulations to prevent banks from taking risks. But those regulations exist, and SVB begged for exemptions to them, so they could take risks. But your experience with more-regulated banks shows that they're too risk averse. What exactly are you asking for here?
You want your flock made whole. I get that. But are you also asking for regulators to kill the startup economy by shutting it out of banking?
>I remember going to a branch of Bank of America to open a bank account for Posterous and not being able to.
I believe you, but this doesn’t make any sense to me. I have opened multiple business accounts at Bank of America. It’s just paperwork. If you have a dollar and a legal entity, you can open a bank account for that entity.
Yeah this is a fact lots of people don't want to accept
To be fair though, in the US we've long established an expectation that if you have funds in a bank account at a registered bank, the government would back those funds
It's stupid to have set that expectation, but it seems very destructive to suddenly remove that expectation
Your funds are insured up to $250k. That's the expectation and reality. Every account has the disclaimer that amounts in excess of $250k are not insured.
You are right of course, but we've established a moral hazard
There will be a cost to suddenly altering expectations, I guess there's a chance we might see what that cost is now (but probably they will just get a boring bailout)
No we have not established a moral hazard. It's always been $250k.
You are trying to make one up implying that we are "suddenly altering expectations". The narrative has always been, FDIC insured accounts are insured up to $250k.
I've known this since I opened my first bank account.
Wait so now everyone has to sit down and evaluate their banks balance sheet before trying to do business with them?
Silicon Valley Bank had nothing wrong with it's business practices other than they were concentrated in one particular industry, and a slowdown in VCs pumping money resulted in them shrinking deposits suddenly. They asked their investors for money, some VCs basically yelled fire in a crowded theatre and boom a 40 year old institution was wiped out in 24 hours.
America has thousands of banks, and the way you would have this work would shrink that to 5. This way of operation would also wipe out every single credit union. Literally none of them have the insane levels of stability necessary to trust with money, if larger accounts are going to be at risk of a bank run.
That 250,000 number hasnt changed in nearly a 100 years. Maybe it isn't what we should be going off of?
> everyone has to sit down and evaluate their banks balance sheet before trying to do business with them?
No, if you're not keeping more than $250k in the account, you don't have to do the homework. If you're keeping more than $250k in the account, you can afford to pay someone $1k to do a bit of due diligence.
$250k is nothing for a company. It's 1 engineer salary. And, no, it's not $1k. It's more like $10k-$20k per month, plus all the overhead of having your money in multiple bank accounts and shuffling it all around just to never hit the $250k limit.
Just my 2 cents on this strawman part of discussion.
My parent wasn't talking about shuffling money around, they were talking about reading the bank's balance sheet.
$1k gets you several hours of an accountant's time to go through the bank's balance sheet and tell you if their interest rates and other perks are, in fact, too good to be true.
If you want to go the extra mile and try to move money around to keep under the limits, more power to you, but paying someone to occasionally keep an eye on your bank's balance sheet and make sure it's not going to collapse under you is totally within the capabilities of pretty much any company.
How could my accountant have known the risks? I don't think there was any public information about SVB's poorly-timed MBS purchases, the main cause of this incident.
I don't think their MBS positions were public until last week. But say we knew earlier, perhaps soon after they purchased the MBSs - wouldn't the result have been similar, just the bank run would have been shifted up a bit?
I.e. having a CFO who's on top of things might mean I'm first in line to get out once there are public red flags, but not everyone can exit an insolvent bank, so the macro result seems similar.
> It’s true that investors had been aware at the latest since its 10-Q filing on Nov. 7 that it had sustained unrealized losses among its held-to-maturity (HTM) portfolio large enough to wipe out its entire $15.8 billion in shareholder equity. While this would theoretically render it insolvent were they to materialize in full, SVB Financial was dismissive of the risks.
I stand corrected, though the point remains that if everyone tried to exit once that news came out on Nov 7, we still would have had a bank failure with roughly the same shortfall.
> though the point remains that if everyone tried to exit once that news came out on Nov 7, we still would have had a bank failure with roughly the same shortfall.
True, we’d need to look at previous filings to understand when it could have first been worked out
VCs should have kept a closer eye on where their cash was, but perhaps they were too enamoured with the benefits they were getting from SVB
I mean, completely reducing this risk to 0 is probably expensive and annoying, yes. But you could halve the risk by splitting your money into just two bank accounts, and reduce it further by keeping medium/long-term savings in short-duration no-coupon T-Bills or something.
Why do startups only have 1 bank? I own a bootstrapped startup with literally just 1 employee and am easily able to get an account in Chase or Citi. Why do startups with much more revenue not able to get the same account in major banks?
SVB was a major bank and most businesses in the USA only have one bank. Once you have an established relationship it’s just easier to do all of your banking with that bank.
That doesn't answer the question. Why does the government need to underwrite the risk you assume for convenience? And "everybody does it" isn't an excuse, it just makes the prospect of the government doing so all the more expensive to the taxpayer.
> In the Y Combinator community, one-third of startups with exposure to SVB used SVB as their sole bank account.
So apparently two-thirds of startups in YC with SVB have at least one other bank. That might not be representative of startups as a whole, but is at least a good data point.
Possibly 'bootstrapped' is the key factor here - many non-bootstrapped startups will want to open an account with a very big cheque and little else (from the bank's point of view), and likely will fall foul of Anti Money Laundering policies.
> not because they made an arbitrary choice like which bank they started using
Most companies live and die by what most people would call arbitrary choices in things they wouldn't think of. I use more than one bank account for my personal finances and I don't even have 250k cash. Begging for tax payer money after the 10 year tech bull run we've seen, shame.
> Most companies live and die by what most people would call arbitrary choices in things they wouldn't think of.
How true. You can imagine that most people have only a vague idea of what is supposed to happen and why. There are entire professions devoted to many aspects of life (eg Healthcare, law, education, finance, politics, software). Even if you are such a professional, you probably have a mere specialty within the breadth of a vertical. The vast majority of choices people make are gambles based on intuition, localized/anecdotal deduction, and the type of education someone has been exposed to.
Taking stock of what everything anyone knows is true and why, will take longer to explore than a lifetime. A company, as an entity, is worse off.
BOA should buy the bank, it'll be a big loss, but the clientele are some of the richest in America, or may someday become so, of course I'm not sure they could make everybody whole fast enough.
There's the problem: startups are doing an inadequate job of managing the risk around their treasury operations. That sucks, but that's on them.
I as a taxpayer do not care to bail out -- yes, that is what that is -- these startups, when they could have done a better job at risk management. I know some smaller startups that do have their cash at multiple banks (SVB one of them). While this is still a headache for them to deal with, it's not an existential threat. Perhaps more startups should be like that.
If you take a risk, you have to be prepared to accept the consequences of what might happen.
> Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
False. Companies live or die because of every business-related decision they make. Choosing a particular bank, and choosing not to diversify where they keep their cash, is one of those decisions.
It is not an arbitrary choice, svb was known for their risk taking behavior which is why so many risky small businesses landed on their lap
Rather than taking standard loans designed to reduce systemic risk, startups chose to use this bank because it allowed them to access capital more rapidly or in exchange for their own pennystocks, which ofc leads to increasing systemic risk and leads to the situation today
It is financial negligence on your companies' part. And that too is a risk of doing business. Risk is not just on the product, but also the partners you get into bed with along the way.
Garry I have a question (and this is not intended to be snarky).
Why should a company, perhaps a slower and more risk-averse company who intentionally chose a different, safer banking institution to do business with, do they not get to benefit from their discretion in choosing that banking partner? One could argue that choice put them at a disadvantage against their fast-moving competitors, who chose fast-moving “corporate infrastructure” like SVB.
If bailouts like this take place, how do those companies ever benefit from being prudent? Should nobody bother?
(FWIW, this is just a thought exercise, I am not opposed to the petition.)
Choice of bank historically has been one of the lower priority things people have to worry about. I think this changes now.
If your personal bank went out of business through no fault or gain of your own, most individuals would feel that it would be fair for you as the depositor should be made whole. That's the same with a business, and as important since this represents the payrolls of thousands of people.
As an individual, I am keenly aware of deposit insurance - it’s much lower where I live, in Canada - and as such it’s common to spread your savings among multiple banking institutions to ensure you are covered (and to remove risk where any individual bank is impacted, even temporarily).
Are consumers smart for doing that? Or are they dumb for even bothering, since it sounds like they should expect to be made whole regardless? Should consumer deposits not benefit similarly if these SVB corporate deposits are made whole? What dollar limit would you recommend the FDIC or CDIC (Canada) insure going forward?
(I ask because you comment on YC asking to advance banking regulation elsewhere in this thread, and I’m wondering what a good number should be going forward. Like, should the insured amount be $10mm, or $50mm, or what?)
> If your personal bank went out of business through no fault or gain of your own, most individuals would feel that it would be fair for you as the depositor should be made whole.
But at the same time, you are also aware of the limits of your protection. If you leave all but $250k uncovered, you're willingly and knowingly taking a risk.
How is it fair to ask a bunch of people who had nothing to do with any of this to make the depositors whole from a risk those depositors willingly took? I really don't understand the ethical stance here.
> not because they made an arbitrary choice like which bank they started using
If the choice was "arbitrary" then you'd expect startup banking to be distributed arbitrarily among the various banking choices in the market. Clearly that's not the case.
No, this was "the startup bank". It was the startup bank because it operated in tandem with the startup funding ecosystem (an entity of which the startups themselves are really just a small part). That's not an efficient market. That's more or less a cartel.
The VC world, YC included, is a toxic mess at this point. I don't see why a bailout is a bad idea, but... yeah, the startup ecosystem needs a reboot. Bail out the startups if we must, but nothing for the dealmakers.
Banks should live or die based on their management of risk. If the business customers of bad banks are fully protected, then they never need to assess the quality of their bank. Where then will the competitive pressure for prudent risk management come from?
If SVB knew they would be punished for such risks, they wouldn’t have acted like they did. This needs to stop. Public shame for wrecking so many startups will deter future risk seeking. YC is extremely wealthy as it is, shameful for you to shill for more money
Why did startups choose a bank so heavily invested in long duration assets while having long duration liabilities and 0 (zero) interest rate hedges? If VCs told them to open accounts there, what were they thinking? You do due diligence on your founders but skip it on the banks? Guys please.
Sorry but absolutely NO to a bailout or government intervention or help. The VCs got themselves in to this mess of a pyramid scheme and now you have to get yourself out by yourself with others.
Before the crash, YC, Founders fund and others could have raised money to stop the collapse but it seems the VCs just let the bank fail and now are begging to the US government for a bailout put on the taxpayer to foot the bill?
Garry Tan there, making the case for a strong social safety net to shield people from the more ruthless side of capitalism, particularly when it’s as a result of events outside of their control. I’m a little surprised, but I am glad you have joined us.
> Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
What on earth are you talking about? SVB had so many startup companies because they offered perks like mortgages for illiquid founders and high yield savings accounts funded by their poorly thought bond strategy, and, allegedly, because they were recommended to them by various VCs.
It’s not arbitrary, all these startups specifically chose to use SVB and chose to not hire a competent CFO or accountant who could tell them “lol no, bank account insurance isn’t free or infinite”.
This is one of the most pathetic pro-YC-startup-culture-nonsense posts I’ve ever seen on HN and that is saying something.
> The banks had to be saved in 2008 because they were, like, the financial system.
There was a false choice there because there are multiple options that were strategically ignored by the people who own the banking system. The financial system can be replaced. The crypto people haven't been getting bailouts AFAIK and it doesn't seem to be hurting the ecosystem; we're running side by side experiments despite the best efforts of the powers that be and it is showing that in low-trust environments the system is actually pretty robust. The response should have been to get rid of the systemic inflation that incentivises people to give their money to untrustworthy institutions.
> Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round.
I personally feel this way. But as a matter of fairness, if banks get bailouts why shouldn't YC get bailouts? YC is a more deserving cause than the banks. This was always the problem with bailouts; it is grossly unfair that incompetent banks get a handout but potentially competent companies do not.
The crypto people would be getting a bailout through USDC - which is exactly why I don’t support this as a web3 developer. The ideal for crypto is a free marketplace and bad products that failed to do due diligence, were negligent, relied on false government promises, and lied to users must be allowed to fail.
110% agree. At some point, risk HAS to be treated as what it is, risk, rather than just "another way to do things". We have so many banks treating risk as what it is, and pricing for it, well these people decided to go to another bank to get funding, well deal with it. It's not like the average citizen has this luxury.
The equity holders and management of SVB are likely to be wiped. In the petition we specifically call this out: we are not asking for their risks to be "socialized."
Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe. If this is not true, then most people will only bank with the largest banks. That's not a good situation.
We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.
The possibility of changing the rules of the game once it's started can create moral hazard. For example, if people believe that the govt will use taxpayers' money to reimburse funds that were not FDIC protected, then they won't be careful about picking their bank.
And it's a lot of money (e.g. 30% loss on $200bn is about $600 per US resident household).
But I'm conflicted, because:
- the federal administration doesn't seem to care about moral hazard or changing the rules of the game retroactively (e.g. handouts to people who borrowed lots of money whilst they were enrolled in college)
- banking is necessary for companies to operate, and it doesn't seem reasonable for every business to become expert in managing counterparty risk
- bank regulation seems to have failed, and that's a responsibility of govt
- it's almost impossible to be neutral about this; if you're a founder/CEO you aren't going to feel you did anything wrong by choosing SVB; if you're a random taxpayer you are going to feel any obligation to pay some west coast companies because their bank failed.
While I saw first hand what happened in 2008 and afterwards I said “fuck it” and let my three underwater properties that were combined worth a quarter million less than I owed go and did “strategic defaults”, I can’t imagine running a business and having my funds spread across enough banks to meet the $250K protected amount and still try to run payroll and meet all of my other obligations.
You don't necessary have to have all your funds spread out enough that every account is under 250k; you just have to determine how much you are willing to risk. E.g., if you split your funds between two banks, if one of them goes under, you lose 50%. Your risk threshold determines how many splits you need; only if it's 0 do you need to keep every account under 250k.
My risk threshold for cash is $0. So yeah, it would be split across however many banks.
Of course I don’t have all my positions in cash and I take into account the necessary risk/reward equation into account.
But then again, I would never work for a non public company where part of my compensation comes from “equity” and I sell/diversify all my after tax RSUs within 6 months after that vest. So I’m very risk averse about holding positions in any company I work for
I don't even understand why he would even make that comment in good faith in the first place. They are not asking for risks to be socialized, but they are asking for their "deposits" to be safe and the depositors to be "whole". Well, sounds like a lot like socializing the losses, unless there is a magical way to make the depositors whole without burdening the taxpayer.
There is a risk in using a bank. The risk should be low and it's normal to assume your money is safe in the bank. This incident proves it's not. The tax payer didn't take on this risk so why should they have to cover the losses?
It is not normal to assume your money is safe in the bank beyond the FDIC insured amount. A lot of startups have highly compensated (higher salary and/or more stock options than engineers) CFOs -- what are they doing?
Well and it's not just that they had money over the insured amount in a bank. It's that they had ALL of their money in ONE bank. If they had $500K in three different banks instead of $1.5M in one bank, there would still be a risk, but it would be that they'd lose $250K if any of those three banks failed, not that they'd lose $1.25M if one particular bank failed.
(And obviously actual losses are gonna be like 20% here, not 100%, but you get the picture).
> And it's a lot of money (e.g. 30% loss on $200bn is about $600 per US resident household).
I'm not sure where you got this number, but it's different than what I've seen. Yes, SVB had $200B in deposits, but it had $15B in unrealized losses. The FDIC is probably contributing $12B as roughly 6% of deposits were insured. That means the gap is probably $3B if the government is to step in, which is very different than the $60B you're suggesting. If these instruments can't be held to maturity then the losses may be greater as many of them are illiquid and would have to be sold at a discount, but the government has the liquidity to avoid that.
I imagined they would sell assets for the insured. And then sell more for the uninsured. If that process didn't cover the insured, they would bring money.
In this case, the insured are well covered by the assets, so the FDIC won't bring money.
We have a $12B difference of opinion here. Although, more generally, I agree from initial reports the assets - deposits gap does not seem to reach 30%. We should know more tonight and Monday morning.
I mean the 250-500k limits have been around for a long time now, that said they are rather low due to inflation. Most larger companies reduce this risk by spreading assets over a number of banks. Just banking with a large bank does nothing if they fail.
You don’t even need to use multiple banks. Each individual amount is insured to $250k. So if you have monthly payroll due of $1M, then open four checking accounts (all at the same bank), and don’t keep more than $250k in each.
Four checking accounts at the same bank and titled in the same name get only one helping of deposit insurance.
> Coverage Limit: All deposits owned by a corporation, partnership, or unincorporated association at the same bank are added together and insured up to $250,000, separately from the personal accounts of the owners or members.
> The corporation, partnership, or unincorporated association must be separately organized under state law and operate primarily for some purpose other than to increase deposit insurance coverage.~
Not that long, it was raised from $100k to $250k in 2008. They were up for review last in 2020, and again in 2025.
Most people - people - have far, far less than this. And it's fundamentally about protecting people - institutions, like we're discussing here, are supposed to be considerably more risk-aware.
If SVB knew they would be punished for such risks, they wouldn’t have acted like they did. This needs to stop. Public shame for wrecking so many startups will deter future risk seeking. YC is extremely wealthy as it is, shameful for you to shill for more money
Just to clarify, these depositors specifically exceeded the FDIC deposit insurance limit (250K), right? That isn't a new or unknown rule; either through ignorance or calculated risk, those depositors that exceeded the limit took a chance.
I don't disagree that something should be done in the future to prevent this, but when you gamble, sometime you lose.
Chose to exceed that and also not diversify at the same time. In my mind they have only themselves to blame. They could have gotten one or two more accounts if they are legitimate businesses.
If you have 3 billion deposits, why not have let's say 3 different accounts with billion each? They don't cost that much money. And then even if one bank has system failure preventing transactions, you could have two others working. Or even some reasonable amount like one with each top 10 in users. With some amount of money in each allowing customers even better interaction.
They actually had like $12B split across 5 or 6 banks. But yeah, they definitely could've split it better. "No more than $1B per bank" seems like an easy rule, and even maxing at $500M could be doable.
Let's not act like Circle's options were either to put 3 billion in one bank, or open 1200 accounts at 1200 banks.
-Purchase high-limit cash insurance from a Reinsurer like Lloyds of London or Berkshire Hathaway up to their underwriting limit, perhaps $100M. Do this across 4-5 different banks with 4-5 different reinsurers.
-Put the remaining $2-2.5B into mixed US Treasuries of varying maturities
They did already have 77% of the collateral in short-term T-bills, and the 23% in cash was spread out across multiple banks. They held $3.3bn at SVB, but that's out of $42bn total.
So then it sounds like they probably had 10-15 banks (entirely reasonable for them to be expected to open this many accounts at unique banks, given their business model) which is a far cry from the 1200 OP complained about.
If your entire business model revolves around moving multiple billions of dollars via an asset-backed stablecoin model, it's reasonable to expect you to have dozens of bank accounts, in at least 3 time zones, and likely more.
I don't know why people (not saying you specifically) seem to have this expectation any entity should be able to deposit billions of dollars risk-free at a single institution.
Ironically it's often the same people who can intuitively grasp why to hold your crypto across multiple wallets, who cannot fathom that infinite $ cannot be deposited at a single bank, without risk.
If you're leaving 7 to 9+ figures in a single account, then either buy custom insurance, or only do business with banks which offer excess insurance.
you're essentially asking for SVB, and whatever other bank in the same position, to take the entirety of the risk beyond per-contract insurance at no cost for you
It honestly seems like the best solution here is for a large bank like JP Morgan or Goldman to acquire SVB over the weekend and guarantee their deposits. SVB isn’t insolvent if their debt assets can be held to term, but the duration mismatch in assets and liabilities, and declining value of some of those assets due to interest rate increases, caused a liquidity shortfall and panic. But of all the types of financial problems a bank can incur, that seems like the easiest to fix via acquisition. Guarantee the deposits, restore confidence, the panic goes away, and the asset portfolio can be restructured appropriately.
The benefit to the larger bank is that SVB’s customer base represents a large chunk of the most innovative sector of the US economy and beyond. And scientific and technological innovation is only going to increase in importance as a main driver of economic growth in the world, as the developing world becomes developed and their growth rates inevitably slow. Acquiring SVB at cost seems like a great deal in that regard, and stops a panic as nice side effect.
One one hand, end of December, they self-assessed that they had $209.0B in assets and $175.4B in deposits. Enough to pay everyone. [1]
On the other hand, they've suffered some losses. The regulator that closed them explicitly called them out as insolvent. [2] Possibly sloppy language, possibly they have relevant recent information.
I think it quite likely that if there is any haircut at all it will be quite small and that is honestly a price that should be paid by the large depositors for failing to consider the many risks of keeping all their free cash at one institution.
Perhaps I would be more sympathetic had SVB themselves not recently successfully lobbied to have the exact regulations you are asking for to not apply to their bank.
When the smoke has cleared, it would be interesting to quantify whether this event affected a (statically significant) higher percentage of YC offspring than other incubator offspring.
Could be a selling point for alternative incubators in the future.
Perhaps being a part of YC puts you at greater risk from these events. Draw your own conclusion about the reason why.
You're asking for taxpayers to pay for depositors losing their stash. Why should others be responsible to pay for the irresponsibility here? We all take a risk when it comes to storing/investing our money. Same could happen to anyone. Depositors should have been more responsible, and taken better precautions - like by not storing everything in one account, at one institution. So depositors are also in part to blame (certainly more so than taxpayers who have nothing to do with SIVB), even if the culpability mostly lies with the management at SIVB.
> "This isn't some sort of complex bid call option strategy"
Exactly. And "don't put all your eggs in one uninsured basket" is the exact sort of 101-level business advice I'd expect the experienced hands at YC or any Angel investor to provide pretty routinely.
I would be happy to support a bailout of SVB in exchange for some reasonable concessions to American taxpayers.
1) Skin in the game - GPs of YC / a16z / Sequoia / Founders Fund / etc put in some equity in to a joint venture to acquire SVB's assets and make depositors whole. Government will backstop some portion of it.
2) YC / a16z / Sequoia / Founders Fund / etc agree to support ending the carried interest tax exemption
> Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe.
Not if they know how banks work, and plenty of those depositors do. They know that there’s a risk to their uninsured deposits (that’s why the insurance exists!) and so they either account for that risk or play dirty and pretend, after the fact, that they didn’t know better and that the government should pretty please make them whole.
> If this is not true, then most people will only bank with the largest banks. That's not a good situation.
No. They’ll do what they’ve doing for a century: diversify banks and asset classes, sweep accounts, buy private insurance, etc.
Deposits are a loan to the bank. If the bank doesn’t have any risk of default on those loans, that’s no free and efficient market. That’s the government giving bankers free money to play with. We already do that for small accounts held by naive investors because the stability is worth it and they can’t be expected to afford the inherent risk themselves, but that can’t extend to all accounts.
There's other ways to make this work -- FDIC insurance is per-bank so you can spread your deposits across distinct banks to be covered in the low-to-mid-millions.
If you have >$5m and you haven't done due diligence on this, I'd call that a failure on the part of the company (or its advisors, like the accelerator they're a part of).
Why not let the market sort it out? Maybe these startups need to take a down round, or be acquired for a fraction of their value?
Maybe the VCs should step in and make bridge loans available if they want to keep their investments? If you believe in your portfolio, why not help them weather the storm? Or are you afraid to be exposed to additional risk? Should the taxpayers take on that risk instead?
Indeed, VCs bridge startups all the time. There are other mechanisms available also-- hedge funds are willing to pay 80 cents on the dollar for these deposits (indicating that they expect to recover more than that)
You do have a reasonable expectation, up to $250,000. You did at the time too. Nobody made any depositor incur excess risk beyond the insured amount. It was all clear and open, available to everybody. Everyone in the US knows that if they put over that amount in a bank, only up to that amount is guaranteed safe. Those that don't know pay other people to know, or they have so little they don't have to worry about the amount.
Depositors have a reasonable expectation up to 250k, after that they (the depositor) also assumed the risk. ...We're asking for regulations to prevent this from happening again...., then why campaign to have those regulations eased or removed just a few years ago?
> Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe
@garry, while it may be a reasonable expectation, it's always been very clear and _explicit_ that it's not a guarantee beyond $250k (or $500k).
What's more troublesome is that VCs and Y! have portfolio companies that either didn't understand this and/or didn't take the time to shore up their exposure to this otherwise very easily, manageable risk.
Open additional accounts, utilize CDARS, etc. -- there are so, so, so many incredibly simple, straightforward ways your portfolio companies could've mitigated this.
And yes, I agree with you -- the risk _was_ negligible. But it was risk nonetheless. And the fact that the mitigation options are _so_ simple but that your portfolio companies didn't do this really brings into question their ability to manage cash / risk management in general.
So then to ask for taxpayer money to bail out companies who didn't take the time, thought or energy to minimize exposure to this is what I think most people on this thread are pushing back on.
> We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.
In fact, depositors can _already_ prevent this from happening from themselves.
And frankly, if you say, "We're not a VC firm, we're an accelerator", that is a distinction without a difference. You give money to companies that need it. So do that and do not use mine or my family's money. End of discussion.
> Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe.
The limits to FDIC have been on physical stickers legibly and purposefully placed all over every bank for decades, and define reasonable expectation clearly, for decades, to all customers.
That reasonable expectation states insurance limits are not unbounded.
Why not use YC’s bully pulpit to push for the creation of a federal deposit bank for businesses and consumers? Both the profit and risk could be socialized. It would likely offer lower interest rates on deposits than private competitors, in exchange for FDIC guarantee on unlimited deposits.
Put the money in a money market fund backed by T-bills. Zero credit risk and easy access to cash.
> Was there any level of due diligence that could have warned people off of SVB?
Really no. A small business manager doesn't have time or expertise to read a bank's financial statements. SVB's did show serious problems but most businesses don't have the capacity to spot this.
But the answer to that is to not trust any bank for any long period when zero-risk options are available.
> Really no. A small business manager doesn't have time or expertise to read a bank's financial statements. SVB's did show serious problems but most businesses don't have the capacity to spot this.
But surely smart VCs with millions / billions invested are capable and have capacity to do this?
You are absolutely asking for risks to be socialized. You're asking for corporate welfare.
Depositors do have a reasonable expectation that their deposits are safe. That's what the FDIC does: makes sure that 99% of people never have to worry about bank failures. For the 1%, well, it's time to put the big-boy pants on and accept sometimes in market economies there are disruptions. Something startup CEOs were perfectly happy to accept as long as it was other people experiencing the disruption.
No regulation can totally prevent this from happening to rich depositors in the future as long as the banks are capitalist institutions trying to turn a profit. There is no reward without risk. Arguing for zero risk is basically arguing for nationalizing the banks and creating a federal Boring Depository Bank whose job it is to just hold cash and that takes no risks with it.
Which honestly, it would be great to see the CEO of YC arguing for reducing the role of capitalism in key parts of the economy. But I'm guessing that the VC class's interest in tighter regulation is going to last exactly as long as it takes to get government subsidies, and then will go back to its previous extremely negative levels.
>Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe.
Respectfully, no sophisticated entity should ever expect their deposits to be safe beyond their insured limits. That is why
businesses purchase insurance on their excess deposits, and/or use other financial products to ensure they have no excess deposits.
Frankly, YC failed to advise its companies in rudimentary financial risk management. Holding millions of dollars in a single bank account and taking no measures to mitigate the obvious, enormous, (and yes, unlikely) risk of bank failure is mind-boggling.
Though perhaps the feds should expedite, for businesses with only one bank account, getting them 15%-20% of their funds quickly. This is assuming that it appears very clear everyone is going to get more than 20 cents on the dollar.
Many startups can survive taking the 30-40% haircut on their bank balances. Very few can survive their cash being locked up for many months (especially when there are many startups in the same boat.
They have been pretty clear that they want to do this. And the balance sheet as liquidity skewed as it is is healthy, I would be extremely surprised if they get less than 95% back.
These "movements" are folks asking for normal processes to be suspended for the sake of that 5% or whatever and it's going to muddy the waters vs asking for the obvious "give us some liquidity now since you can immediately secure a huge chunk of it and businesses need it"
> And the balance sheet as liquidity skewed as it is is healthy, I would be extremely surprised if they get less than 95% back.
The big question is how much of the "run" has been paid, or will have to be paid at 100% because of transactions initiated before receivership. I also think 95% is a little bit optimistic from the get-go.
> They have been pretty clear that they want to do this.
An unspecified dividend at an unspecified time sometime next week is better than nothing, but it's still pretty toxic.
Funny how everyone loves this idea but it only ever hurts small companies. I don't think gov is the solution here and YC asking is a bad look but let's contextualized the "socialized losses" of American companies in 2008. It 100% benefited bigco and the consequence of "too big to fail" was policy that destroyed a hundred smaller banks and further reduced the banking market to 5 mega players.
Market corrections are normal, they need to happen otherwise we just end up with a tiny group of ololigopolies with a free reign from consequences. Bad actors need to be punished.
The only way this sort of hand ours from startups needs to be just like the reaction to 2008 should have been: not punishing small/medium companies for the actions of a $200B bank and their like. YC has a reputation of being wealthy VCs so it does nothing to help this point.
> Funny how everyone loves this idea but it only ever hurts small companies.
Why does size matter? These VC funded "small companies" are so sketchy that they needed their own special bank to manage the risk, and now their special bank just failed.
It's not the government's job to protect the weird VC funded moonshot "business model."
So because traditional banks do not understand these non-traditional businesses they are "sketchy". That's a bit of a stretch. I've worked for two different companies with serious income in the 10s of millions who are still paying their salaries/taxes a decade later that were treated with disdain by traditional banks. One of which used SVB for that exact reason. Neither raised VC.
Nothing about SVB's failure had to do with tech startups. It's entirely because their executives gambled on a giant ball of mortgage debt with the worst timing. And now tech companies are paying the consequence. Much like how everyone else did in 2008.
It's trendy to blame VCs and the tech 'bubble' but this isn't the time. And I should reiterate I don't agree gov should be excusing the bankers behavior to save tech startups.
People who invested in SVB should be wiped out, probably.
People who deposited in SVB should not be wiped out.
Depositors in banks aren't expected to do due diligence on the financial statements of the bank they're depositing in. Have you read the 10-K filings of your bank in detail?
Correct. The $250,000 FDIC cap is a favor to banks. They only pay fees to insure up to that amount. And it's bogus. The FDIC should require deposits to be insured, no matter the amount.
With the way things are going, don't be surprised if some silicon valley innovator come with insurance product that can be purchased after the fact. With marketing like "Come, Disrupt the Insurance Industry" it might just work out fine
>The $250,000 FDIC cap is a favor to banks. They only pay fees to insure up to that amount.
This is not correct. Banks pay FDIC premiums on ALL liabilities - not just insured ones [0]
>The FDIC should require deposits to be insured, no matter the amount.
This exacerbates the moral hazard problem [1]. Basically, if all deposits were insured, then bank executives would have no restraint on risk taking.
If you think things are bad now, imagine a situation where bank executives know depositors would always be made whole no matter what they did.
An unlimited deposit guarantee is a recipe for disaster.
[0] https://www.fdic.gov/resources/deposit-insurance/deposit-ins...
[1] https://dailyreckoning.com/fdic-fosters-moral-hazard-among-b...
> Depositors in banks aren't expected to do due diligence on the financial statements of the bank they're depositing in. Have you read the 10-K filings of your bank in detail?
If you're depositing more than the FDIC insurance limit, you should probably do some due diligence and/or get private insurance for the risk.
> Depositors in banks aren't expected to do due diligence on the financial statements of the bank they're depositing in. Have you read the 10-K filings of your bank in detail?
If you have less than the insured amount you are not expected to do anything.
If you have significantly more than the insured amount you should do your homework and manage your risk. Anyone who was alive during the 2008 crisis should be aware of the problem.
I know a few small business-people. They have more than 250k cash but not in the millions. They definitely spread their cash in several bank accounts. But then, they are not tech people.
Startups have been anything but “socialized losses”. They’ve literally been the growth engine of the country for the past twenty years.
According to Brookings, “Annually, venture investment makes up only 0.2% of GDP, but delivers an astonishing 21% of U.S. GDP in the form of VC-backed business revenues.”
Anyone who has really looked at the 2nd order effects.
SV-style tech startups distribute more equity to employees than any other sector of business I know of and the average VC’s returns are worse than private equity, worse than the stock market and worse than real estate. You only hear about the biggest winners, but venture capitalists are taking on very long odds and the vast majority lose. More importantly, we all benefit from the advances the industry leads to—such as this wonderful phone I’m typing this comment into that can access and search nearly any encyclopedia, map or song in the world in seconds, from almost anywhere.
And those employees would be statistically better off working for one of the public BigTech companies that give salaries + RSUs.
I can trade my RSUs for real cash every six months after they are deposited in my account. I know the potential value of my next RSU grant every 15 minutes as it is updated on my Google Sheets.
The VCs make a return by diversifying their bets. But as an employee for a startup, you are not well diversified.
On a related note, Warren Buffett made a bet with hedge funds that he could have better returns just by investing money in an index fund over 10 years - he won
No disagreement here. Ignoring the other pros/cons of BigTech vs. startup work culture that some might mention, many startup employees would take BigTech jobs if they could. Not everybody can land a BigTech job though.
> such as this wonderful phone I’m typing this comment into that can access and search nearly any encyclopedia, map or song in the world in seconds, from almost anywhere.
No, but most the apps on my phone were. This includes the web browser itself (pioneered by Netscape), Google search, web-based email (Hotmail), mapping (Mapquest), and many, many others.
YC didn’t make SVB’s decisions or cause any of this and most SVB customers were not YC startups.
Your suggestion is equivalent to saying that if I were to support hundreds of kickstarters for various board games and resell them for a profit to collectors over the years and then kickstarter imploded after taking on extreme financial risks, then I should bail out all the new customers of kickstarter who paid and didn’t get their games. It makes no sense. The people running kickstarter should take the hit, not some random other party working in their ecosystem.
SVB owners should get wiped out, not the people or companies who opened bank accounts.
The failure of the bank is certainly not YC's fault.
But, much of the profits they made, and losses they are now incurring are both a consequence of the zero interest rate environment and it's current unwinding.
If the goverment bails out YC's companies, when they are successful later, who is going to benefit the most from that?
As I said, most SVB customers were not YC startups.
There are thousands of businesses using SVB. If they only know they have 250k coming in the near future, and can’t be sure they’ll make payroll, what do you think happens to all of their employees? Or the other businesses relying on their products? Or anyone they owe?
This is the second largest bank failure in US history, and for now it’s confined to a single bank and the cost to stop the fallout is relatively low.
If decisive action is not taken by the end of this weekend, it’s going to get much, much worse.
> then kickstarter imploded after taking on extreme financial risks, then I should bail out all the new customers of kickstarter who paid and didn’t get their games
But what you're saying is the same thing: that taxpayers (random third parties who weren't even working in their ecosystem) should take the hit instead.
Addressing systemic risks that individual actors aren’t well incentivized to handle is part of what governments and taxes are for. The $250k of FDIC insurance per bank customer exists because otherwise incentives drive bank runs even for banks with broad consumer bases.
Spending taxes on preventing financial meltdowns from cascading actually makes the government and its citizens wealthier than not doing so.
But we're talking about businesses here. They are certainly well-incentivized to properly handle the money in these amounts. The risk of losing it (and potentially the business) sounds like excellent incentive.
From my POV, they did "properly" handle their money by putting it in a large, trusted bank with a great reputation and focus on their type of business.
What was your cash management strategy with your startup (assuming you have relevant experience)?
What growth engine? How many tech companies founded in the last 15 years are actually consistently profitable? The only one that comes to mind of note is AirBnb even if just started turning a profit.
I have an idea. The startup depositors are made whole in exchange for the FDIC receiving shares in the company that dilute the VCs in an amount depending on company valuation and balance lost. This way you bail out the small business and make the VCs pay.
It would be safer for all if the FDIC sticks to what it does best and doesn't take on additional risk outside its mandate as a favor to irresponsible businesses.
The consequence is, cash deposits for thousands of small businesses, are unavailable. The direct consequence is these businesses can't pay payroll, and can't pay vendors.
This isn't about socializing investor's losses. It's about making sure employees, contractors, and vendors get paid by fully backing cash deposits.
SVB has some ordinary people as depositors, with a regular commercial bank as their Boston Private subsidiary. It would be very disruptive and cruel if they lost all or much of their deposits.
That is absolutely the plan. The assets are now with a new bank that will be open for business on Monday.
FDIC promises for the ordinary-people, everything will be uninterrupted. Checks from the older SVB accounts will clear, debit cards will work, money will be available.
Right there in the article. I guess not reading obvious text bolded is the hip new thing to do:
> Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout.
> Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round
The two assertions, "depositors should be made whole", and "we are not asking for a bank bailout" are a bit... misleading? No, they are technically not asking for a bank bailout, but they are asking for a bailout.
Agreed 100%. So many issues with the economic system come from the fact companies want capitalism when it benefits them, but something akin to socialism when there's a risk they'll fail.
So no. If your bank can't make payments? Tough, it should close down and go into administration or whatever. Maybe the government can bail out individuals, but companies relying on said banks can deal with bankruptcy or closure like it was any other sort of business risk. Company can't pay a higher minimum wage (or a livable one)? Then deal with less staff, or shut down, your business model simply doesn't work and isn't profitable.
And if your industry is dying because of technology (like say, Australian media outlets with Google and the internet), then tough. Accept it's probably dead and either downsize, come up with a new business strategy or close down.
So many seem to want a dog eat dog system when they're winning, but beg for mercy when it goes wrong.
I’m torn. When I put my money in the bank, I don’t consider that an “investment” and neither did the employees.
I’m the last person to feel sorry for BigTech employees (I am one) making $300K+ a year (I don’t. I’m not complaining) who got laid off and didn’t save during the good times (I have used almost every penny of my after tax signing bonus/RSUs toward “increasing my net worth”). But most of the people working at startups aren’t making nearly that much (?). Why should they suffer harm?
Could the CFOs at these companies known they were making risky bets (serious question)
> When I put my money in the bank, I don’t consider that an “investment” and neither did the employees.
No, but you should be aware that if you put money into a deposit account, and the bank fails, you are only guaranteed (by the FDIC) to get $250k of that money back. This is usually not a problem, as most individuals don't have that much cash, period, let alone in a single bank account.
But it's a problem for businesses, obviously. And yes:
> Could the CFOs at these companies known they were making risky bets
Absolutely! Putting more than the FDIC-insured max into a deposit account is an obvious risk that any CFO (or corporate finance person in general) will absolutely know about.
With this being the top-voted sentiment we are so very, very fucked.
In the 2009 crisis the banks got bailed out because we were in the position of very nearly breaking the buck on money market funds. The interconnectedness of the entire financial system meant that we were plausibly looking at a situation where most businesses wouldn't be able to make payroll soon. ATMs could start to not give out cash. The whole short-term lending market was in danger of freezing up solid.
The lesson from that seems to not have been "we need to regulate things better up front so companies cannot make bets that place the system at risk and imperil everyone" but "fuck it, let it all burn down".
And we've got Republicans controlling the House that will drive the financial system into a brick wall hoping that they can blame it all on Biden and take over in the next election.
Honestly starting to think the right idea might be to stock up on food, water, gas and toilet paper like I'm worried about another pandemic and go bury $10k in the backyard. People have gotten fucking insane.
>Honestly starting to think the right idea might be to stock up on food, water, gas and toilet paper like I'm worried about another pandemic and go bury $10k in the backyard.
If you are saying that you should take additional personal steps to protect yourself from downside risks, the answer is yes. It's not a foolish way to live and in the long term, the benefits outweigh the costs, similar to being adequately insured.
Can someone start a counter-petition requesting they NOT get a bailout? I've been talking to deaf ears for the better part of a decade about what I called Silicon Valley Sickness and how it's had some really negative impacts in a lot of sectors outside of tech.
I work at a startup that may be affected by this situation and even I agree with your sentiment. If the startups affected by this ordeal are bailed out, then at the bare minimum we the public should get 10% equity for every startup saved. Let's go the VC route and get something for our tax dollars(socialize those gains).
I am leaning libertarian and I am very sympathetic to this point of view. However, with the amount of taxes these companies pay and the economic growth they generate, they have every right to ask the question: when does the government benefit us?
If this very costly government is not able to guarantee the integrity of its federal reserve notes deposits, then what is its purpose? What makes it legitimate?
But, I am sympathetic to the employees and even the owners of the startups. They didn’t take risky bets. I couldn’t imagine spreading my business as a startup (if I had one) to 10 different banks and trying to manage all of the obligations.
How is this the government's fault, unless you want to talk about tighter regulations? From a libertarian perspective, you deposit money at a bank, they make you sign documents about the well-known FDIC insurance limits (a bonus insurance offered by the government), and you make the free choice to mitigate whatever risks you think you have based on that 250K vs whatever you plan to deposit.
It's essentially a business choosing to underinsure themselves.
I wouldn't say it is the government's fault, but is it that unreasonable to expect this basic safety net as a benefit for being a subject/customer of this government?
Various organs of the government are claiming the authority to create and enforce financial regulations. And yet, cash deposits in government-backed currency at a 100% government-regulated bank can still vanish overnight.
Given the huge costs of maintaining this government, and given the similar benefits it provides to others (Wall Street bailouts, stimulus checks, student debt forgiveness, etc.), is it that unreasonable to ask what YC is asking?
> I wouldn't say it is the government's fault, but is it that unreasonable to expect this basic safety net as a benefit for being a subject/customer of this government?
Up to $250,000, which covers almost every individual and most businesses in the country.
You want to be bigger, you should be coming correct.
There is an intermediate solution that seems always conveniently ignored: You ask for taxpayers money to save a business and its employees? Then it’s a good old nationalization. Everyone is happy except shareholders and execs that are rightfully not made whole for their bad bets and management, no special exception to market rules.
SVB is pushed on most companies raising money because the VCs can easily transfer money from their account to the company. So companies looking to raise are pushed to open a SVB account. If they keep the money there is up to them.
I would say it's risky to keep such large deposits with a small bank. We use Wells Fargo for a reason; they make conservative investments and are very unlikely to be shutting down.
Wells Fargo is the least corrupt large bank I can think of. They were nice and helped bail out one of the 2008 losers then those influx employees started doing mischievous things and gave WF a bad name for a while. I think they've got all that sorted now.
Why is that? This is small and medium sized venture-backed startups, a sector that’s taken a tiny fraction of US investment but represented a major portion of its GDP growth. They did nothing wrong and were failed by their bank.
Why are small tech startups building something new less deserving than say, giant banks that knowingly took extreme risks in 2008, or giant auto businesses that refused to modernize and truly compete with Japanese competitors in the 80s?
I think it would be refreshing to see a cheaper bailout of small and medium sized businesses actually innovating and building new things instead of giant incumbents.
They did something, they put their money in a bank which was lobbying for less regulations so they could make riskier plays, which put way too much depositor money into MBS (what the actual fuck). They didn't do their due diligence and now they are paying the price. They will receive dividends in advance and any employees which for some reason had money in the bank will still keep their 250k FDIC insured cash. If they had more that's their problem, 250k is a lot.
Anyways, I'm not American so this doesn't affect me directly (not my money), but as an outsider I find it ludicrous how accepting everyone is being about mismanaged banks and companies that didn't do their due dilligence. I thought America was all about owning the consequences to your actions, but when shit hits the fans everyone forgets about it and comes back asking for help from Uncle Sam.
> actually innovating and building new things instead of giant incumbents.
Let's not use so much lip gloss on this particular pig.
Many startups are just building some shitty apps that exploit labor in this horrible gig economy while they are kept afloat with VC money until they are dumped into the general public via IPO. This marketing fluff has no place here.
Venture capitalists and startup founders are playing the apex of capitalism. Failure and risk is part of the game. Being saved with taxpayer money is antithetical to that.
When we little guys put our eggs in one basket, or put excessive reliance in business we have no control of we get accused, sometimes implicitly, sometimes explicitly, of being incompetent. That we should've known better. Hmmm....
The cynic in me says this letter is less about bailing out the small companies trying to make payroll and more about the VC's not wanting to lose massive investments.
Even if there are small companies I don't think they are in some honest business of producing useful physical goods and charging fair money for that. Most likely they are half-assed scammy SAAS crap.
Absolutely not sure why these world beaters hacking everything under Sun need to be bailed out by some stodgy old institution anyway.
- Repackaging an existing codebase or business model
- ... as a black box
- ... attempting to rent it out
- ... with worse data privacy
- ... exploiting systemic economic excesses
- ... ... inflicting societal harm
- ... ... often with minimal upside to the consumer short-term
- ... ... or long-term
- ... colluding with large existing players
- ... ... to create a treadmill of declining product quality
- ... ... to facilitate government surveillance and information operations
- ... ... to "play defense" against competitors
It's kind of like how OOP was intended to stratify and contain developers, except instead of abstracting commodity PCs there's a whole different calculus which basically implies that the ultimate consumer of computing equipment is like, 2 or 3 big companies, because financing. You know how the old democratic saying goes, "none of us is as strong as the 2-3 permanent CEOs of reality."
Average Joe is swindled by con-men into bad deals and/or is subject to events outside his control: should have known better/worked more
Huge company in the business of risk management fucks up: bad luck, the taxpayer will cover you, no civil or criminal responsibility will come to anyone regardless of the magnitude of the fallout
I don't think startups can be honestly called huge businesses. If you're referring to SVB, then yeah no bailout for them, but the petition isn't calling for that.
Isn't it possible to think that both small businesses/startups and average joes deserve to be bailed out when shit goes sideways?
it depends on your definition of bailout. in my mind, if the government has to step in to do anything to make sure that people aren't fucked, that's a bailout.
i also don't think either average joe or bigco necessarily deserve to be bailed out. if i see a tv on fb marketplace and send the asking price to the seller only later to find out that they're scamming me, should i be bailed out for that? if so nobody has any incentive to take basic risk-aversion precautions in economic dealings.
Do you and/or your friends personally have the assets to make SVB whole? If you were proposing to put substantial “skin in the game” (very dated 1980s business-speak) you might receive a more positive reception.
Right now, it is mostly a regional problem, since the “startup industry” did not diversify much outside the Bay Area, or the Pacific Coast. Industries with a broader national reach maintain a broader and deeper lobbying presence in Washington and thus get more Federal attention. Might be a lesson-learned here. Along with the most elemental due diligence in financial risk management.
As someone who is facing the prospect of re-skilling my career again after being "disrupted" out of my first career, happening a second time 15 years later due to AI, my sympathy for your founders is in short supply. Your founders may get screwed like the many, many workers out there that get screwed all the time by factors beyond their control.
I mean, if you can save the jobs of the people you funded, great. But, founding a startup is risky, blah blah blah... and losing a few or a few thousand hardly seems like a reason to call congress. At least no more than any other industry getting disrupted. We've seen, and perhaps you've been part of, putting huge swaths of people put out of work. Huge swaths of business out of business. Industries that came crashing down at no fault of the business owner, other than not being prepared for some an unseen stealth startup who leveraged prior institutional knowledge to come and take it all in a flash.
> The cynic in me says this letter is less about bailing out the small companies trying to make payroll and more about the VC's not wanting to lose massive investments.
It's both. VCs don't want to lose their cash accounts and see their investments become insolvent. At the same time, it doesn't help society if all these workers suddenly find themselves jobless. There's also a risk of contagion. If companies suddenly discover their deposits aren't de-facto safe, they'll flee other banks with similar risk profiles, causing more bank runs.
Banks going under and taking lots of funds with them is bad because it undermines confidence in the system. It's financial infrastructure that's supposed to always work. Sure, if it doesn't, you can work around it, but it becomes a drag on the economy, and things start looking like a developing country.
Well, if I'm going to remain cyncical I'd hazard a guess that many of these startups are to "disrupt" some industry anyway -- automating the previously unautomate-able, putting huge swaths of people out of a job (often with no clear path to a new career) So, if those jobs are preserved a few days / weeks / months longer, I guess it all works out.
There are potentially millions of workers under a great deal of pressure to not lose their jobs to some disruptor or another. Are we somehow less sympathetic to them than these tech workers?
A discussion about the employee bonuses is at https://news.ycombinator.com/item?id=35112827 and those seem fine, despite the bad image and timing. The blog post here is more about bailing out bank's customers, not employees I think.
While the fact that the bonuses were paid at the time does help underscore the level of malfeasance of the bank leadership, many of those receiving the bonuses probably didn’t know about the gaps.
The most plausible idea would be some other bank buys SVB. Depending on the current state of SVB’s balance sheet (which is not publicly known), other banks may be willing to pay as little as $0 or there may be no takers.
I don't get the sense there is a lot of sympathy from HN over this event. People lost money, payroll may be missed, that's a detrimental thing for a lot of people.
The sharks are in the water and there is a lot of disdain for wealthy tech CEOs. The current public perception is that all of Silicon Valley is either mustache twirling Peter Thiels or tech bros who collect millions trying to create the next Uber for dogs.
The vitriol for those archetypes will override any empathy for the victims from knock-on effects and lower level, poorer employees that will impacted by this. If that empathy was ever there to begin with, I guess. I personally believe that people want to hate the rich more than they want to empathize with the poor.
Personally, I can do without the DoorDashes of the world... but startups collectively employ A LOT of people and not all of them are wealthy, senior engineers. When the wealthy sneeze, the poor tend to catch pneumonia.
There is a difference between having sympathy or empathy and agreeing with the idea of socializing the loss here.
I don't think many will argue that this is a "good" thing or that they are "happy" to see ppl suffer (some might but they generally are a fringe group) but agreeing that a situation sucks doesn't mean you are willing to take a bullet to fix it.
I get the sense that most people are more in the camp of: "Yeah that sucks, hope it works out for you and maybe think about the risks more next time"
I get the thrust of the comment, but it's not a particularly good analogy. The petition signers are asking for the FDIC to prioritize their debt (deposits at SVB) repayment. They aren't asking for debt forgiveness.
I'm sorry, maybe I misunderstand, but they are asking for this 'Small business depositors at Silicon Valley Bank should be made whole', any good business should be aware of the max insured amount, so it sounds like they are asking for more than is specified by law (that they should have known about), and therefore asking the government to give them money that they knew was at risk. Currently given the regulations they would get back up to $250k, yet they are asking for more, from the government. So...they are asking the government for free money to help run their businesses....why is that different from students asking the government for free money to pay off their student debts?
In the case of the depositors, they put their own money into an account and want to be able to spend that money to pay their employees. It might easily cost the government even more in lost tax revenue if the thousands of companies cannot make payroll due to a banking failure, thus forcing them out of business and their employees out of their jobs.
In the case of students, they borrowed money that was not theirs, spent it and don’t want to have to repay it.
IMO student debt forgiveness has a major problem of essentially punishing those who did repay their debts and the many, many more who didn’t go to college in order to help those who borrowed and did not repay their debts. There’s an additional problem in that college costs are spiraling out of control, largely due to easy loans that students can never escape.
The solution I’d rather see is to let student debt be discharged via bankruptcy again. This would let people in a tough spot get a reset and it would also encourage lenders to be a bit more judicious and maybe even apply some downward pressure to tuition rates.
> In the case of the depositors, they put their own money into an account and want to be able to spend that money to pay their employees.
Their own money. Well... aren't these mainly venture capital based startups? It's not actually the money of the startups but rather the money of the VC funds. So the situation is more similar to student loans than you portray it.
In fact, the ideas behind VC startups and student loans seem very similar. In both cases, you have people who lack capital — the startup founders (some of whom are as young as students and may even be students) and the students — and people who do have a lot of money — VC funds and the government — give them money in the hope that it'll help these people make money in the future and pay back the investment.
> It might easily cost the government even more in lost tax revenue if the thousands of companies cannot make payroll due to a banking failure, thus forcing them out of business and their employees out of their jobs.
That's an argument to bail out every failing business. Why this one in particular? Why not every one?
Anyway, it's not the job of the government specifically to maximize tax revenue. If the government needs more tax revenue for some reason, they can raise the tax rates. But interfering directly in the free market is not the way to do it. Bad businesses are supposed to fail. It's morbidly funny how many people rail against socialism until they're the ones in need of assistance.
> In the case of students, they borrowed money that was not theirs, spent it and don’t want to have to repay it.
This is a very one-sided description, making it sound like the students stole the money. There are two sides to every loan, the borrower and the lender. The lender in question here was the US government itself. The government lent the money to people who could not afford the loans and who had no collateral for the loans. In other words, without regard for the ability to repay. If a bank did this, the bank would go out of business. But then by your own argument, there ought to be bailout. ;-)
> essentially punishing those who did repay their debts
How so?
> the many, many more who didn’t go to college
Forgiveness of student loans is not a punishment to these people. The punishment was the high college costs and society's requirement that job seeker have college degrees. Both debtors and non-debtors are punished by this situation; they just suffer the punishment in different ways.
> encourage lenders to be a bit more judicious
You're missing the part where the lender is the government. These are direct government loans, which is why the government has the power to forgive them. The government cannot forgive private loans.
> Well... aren't these mainly venture capital based startups? It's not actually the money of the startups but rather the money of the VC funds.
No. They literally sold pieces of their businesses for that money.
The equivalent for students would be if instead of borrowing the money, they signed over a percentage of all future earnings for the rest of their lives.
As soon as a loan is disbursed, it literally becomes the money of the borrower.
There's no effective difference. Only the terms are different. Although if your student loan debt is large enough, you may in fact be signing over a percentage of all future earnings for the rest of your life. One of the biggest growing groups of student loan debtors is senior citizens.
Both a loan and VC funding are legal relationships between someone who lacks money and someone who has money. It's a trade of current money for future money. Of course it's always a risk, because the future money may never show up: the debtor defaults, or the startup goes out of business. Plenty of startups die for reasons that have nothing to do with bank failure.
(Note also that a loan holder cannot simply repossess the money if the loan is in default. The disbursed money is no longer theirs. At worst, the loan holder can sue to have the debtor's wages garnished by a certain %, maximum 15% for federal student loans.)
>In the case of the depositors, they put their own money into an account and want to be able to spend that money to pay their employees. It might easily cost the government even more in lost tax revenue if the thousands of companies cannot make payroll due to a banking failure, thus forcing them out of business and their employees out of their jobs.
But the money over $250K doesn't exist anymore if the bank is gone. It doesn't matter what they would use it for. This was a risk calculation, people put more that $250K into the bank assuming nothing would ever happen, it did, and now people want all their money back regardless of the risk they should have been aware of. But the contract/rules depositors signed up for the money is gone. Now those companies want money that doesn't exist anymore. They were playing roulette with very very low odds, but odds none-the-less.
The tax revenue aspect is nonsensical when compared to student loans as you could quite easily say getting rid of student loans would allow people to have more money to purchase more things for the government to get tax revenue on.
Yes it’s bad. Yes it’ll get worse if no buyer at 100 cents to the dollar is found by Monday morning. And yet, literally everyone involved signed up for it! It isn’t like there aren’t other banks? The thing had a circus for its risk management office. The big mighty all-knowing VC firms shouldn’t go around crying like babies and signing petitions but be organizing bridge loans until FDIC, the most brutally efficient government organization known to man fixes this, which will be soon and for most, soon enough.
Please don’t make VCs look worse than they are and socialize their losses. You’re in the risk business, do your job.
The rich want to have their cake and eat it too. If they keep pushing their luck the guillotines will be brought out eventually. It's probably about time they realize they don't get to always win.
TBH I don't support the idea of any bailouts, but the idea that someone of your temperament is "making sure people like you don’t get to crash the economy again" doesn't make me feel any less worried.
VC backed founder here whose company is impacted by this.
“Nepotistic trust fund baby” I am not. My family has no money, no connections. I went to Portland State University. I had no VC connections whatsoever.
Our company was originally bootstrapped off of personal savings accumulated by working and living way below our means. No friends or family invested or gave us loans. I’ve had no inheritance and expect none.
We did not see a deposit account as a risky investment in any way.
Did you have more than $250k sitting in SVB? We're you unaware of the $250k FDIC insured limit? Or were you, and didn't act on mitigating this potential problem? Any particular reason?
Yes, I was aware. I don’t think there’s a moral imperative to help us, necessarily. I would only ask that tech depositors not be treated differently due to the schadenfreude I see in this thread.
Consider companies small enough to have no one whose job it is to do finance. As a founder you’re already working long hours and bank failure is not a risk that is top of mind compared to lack of product market fit.
As far as I can tell, everybody is asking that tech depositors get treated like any other uninsured depositor. That being fairly, under the long-established rules.
As a founder, I am sorry that VCs apparently don't help with treasury management. That strikes me as something that should be a clear part of their value prop.
Most banks don’t really like working with startups and sometimes freeze their money over AML controls that don’t play nicely with investor checks. If there’s a way to purchase insurance against this risk, I’ve never heard of it, and it’s probably too expensive for early stage startups.
We were told the capitalist elites deserve their outsized payouts because of all the risk they took and how that was the most meritocratic thing and how dare Government think to interfere with the beauty of the free market.
Now the risk has shown its downside, Big Government is asked to bail them out?
Oh no people might continue putting money in bank deposit accounts at banks regulators have said are solid, we definitely don't want people doing things so totally unnecessary and crazy.
The bank is already shut down, dead, gone, past tense. It's shareholders are wiped out, as they should be. Nobody is calling to save a bank that doesn't exist anymore. We're talking about the depositors. I think this has been confusing to a lot of people.
These are businesses that had a reasonable expectation for their deposits to be there, and we are not advocating for a bailout of SVB's management or equity holders.
Sir you should talk rather firmly to your VC friends who told their portfolio companies to withdraw to maybe not spread FUD next time because things happen. It sucks this time around. Get those founders bridge loans instead of replying to a rando on the internet (though I appreciate the opportunity to interact).
If you want to understand why SVB failed, feel free to read writeups in proper financial publications, like FT or Bloomberg, and please avoid "mainstream" sites by clueless journos with zero finance knowledge. This one is good: https://www.ft.com/content/0387e331-61b4-4848-9e50-04775b4c3...
SVB didn't fail because of "FUD", but because of a dumb decision to invest at the top. SVB is squarely at fault here.
I'd like to see a post-mortem or some sort of regulatory investigation to understand how it all went wrong. SVB had a risk management department, so what compelled SVB to make the decision that sealed its fate?
There can be more than one link in a causal chain. The broad problem was bank executive choices. But the urgent problem was a bank run caused in part by VCs telling everybody to take their money out.
The worst part about this is if SVB does get bailed out by the government, everyone will wire their money out anyway. YC is not going to leave their money if it's back stopped again.
So the message is: "Please shore up and reopen SVB, so we can get our funds out. Then you can shut it back down."
“In 2015, SVB President Greg Becker submitted a statement [0] to a Senate panel pushing legislators to exempt more banks – including his own – from new regulations passed in the wake of the 2008 financial crisis.”
Oof, this is real shot/chaser stuff. For anyone interested, the relevant statement starts on page 115 of the linked document. It’s quite short and worth reading. Some real Big Short vibes here.
Thanks for the reply Garry. I’m a random nobody here, but I just don’t understand how so much of YC had exposure to this institution and no one was checking in on this. It’s a systemic failure.
Demo days are great and pump the pipeline. Who’s doing your third party and vendor risk management across the portfolio? Who is doing and monitoring public policy? Rhetorical, not meant to salt the wound, I genuinely want YC to learn from this and do better.
Might seem like an ahole but can't you guys making 100k+ per year ride it out? We are talking about startup a here, have we forgotten the risks and implications that come with this model?
Regardless, there are people in this world living on 30 USD per month (or less). I don't care you chose to pay 8k rent per month. This is the wakeup call so many people needed.
Why would this be the wakeup call, and why are you arguing for fucking over employees that are making what is a median salary for their region? I'm not pro-bailout either but regular employees are about the least-deserving of the fall-out from this.
I think it's moreso the case that people are unwilling to live within their means and would much prefer to massively overleverage their entire life. It is not other people's responsibility to bail you out when the inevitable consequences come around.
Should developers really be paid $300k a year? Why is it so high compared to a career manager in a bank who will cap out at $120k, after wrecking his health with cocaine to sustain the incredible pace for 25 years?
This crisis may make deflation happen, if developer salaries deflate.
When you join a startup, you don't really think about their traditional bank failing as a risk factor. It's a step away from "what if the office collapses in an earthquake" or some other p9999 off-chance risk.
When you join a startup, you are thinking that there's a good chance the startup will fail. The exact mechanism isn't in your thoughts, because it doesn't really matter.
Usually you get somewhat more warning than this, though.
I'm an employee of one of these companies and I joined with the knowledge that it might fail, but with plans to bail quickly if it looked like it was heading that direction. Given the current size of the company I joined, I expected that to be on the scale of weeks to months, not two days.
(I do have the funds to deal with some amount of payroll fuckery, and don't plan to immediately do anything unless this gets much worse next week.)
People think they succeed because they’re smart, rugged individuals who never give up. They can’t recognize the survivorship bias in their own lives.
The answer to a lot of our problems as a country is much stronger taxes on the rich. People who say otherwise are either wealthy themselves or under some delusion they eventually will be (lottery winner mentality). Luckily you can ignore them because they’re such a small fraction of actual people, they’re just loud online.
I disagree, because the other side of more taxes for the rich is more services for the rich eg bailouts. The reason these entitled folks feel they are justified in asking for a bailout is that the services they paid for (government oversight and guarantee of banking) was not the quality they expected. To them, it’s not a bailout, it’s a refund.
Trump & republicans cut banking regulations and increased capital thresholds from 50 to 250 billion for banks to comply with an FDIC stress test as mandated by Dodd-Frank (which was enacted after the mortgage crisis). SVB would have not gone bankrupt had they been required to pass this stresstest. This change was widely supported by tech companies and banks and here we are again with a bank engaging in risky behavior holding out their hand for taxpayers to bail them out: NO.
> The FDIC is responsible for a number of rulemakings under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). This page provides links to proposed and final rules and related documents.
> "All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors."
The advance dividend presumably should protect most of the small-business account holders from imminently missing payroll. Presumably after that, there will be a secondary market in receivership certificates, and the question will be how much of a discount these trade at relative to the original account balances.
It's still a bad situation to be in, but it shouldn't be as thoroughly catastrophic as many seem to think.
The FDIC’s statement, which is very short and to the point, should be required reading for anyone wanting to discuss the situation.
The FDIC’s handling of the situation appears to be geared toward urgency and keeping depositors up and running. The advance dividend provides significant access to funds beyond the $250K limit.
The number of comments, Tweets, and even opinion pieces I’m reading from people who assume that all money beyond $250K has disappeared is concerning. The FDIC is rushing to provide access on Monday to substantial funds for a takeover that happened on Friday.
Depositors might take a haircut, yes, but the commentary about this being an “extinction level event” is just fear mongering.
I’m sure VCs and investors would love if the government stepped in and covered the remaining X% of missing funds when the dust settles, but the way they’re playing off of public panic to exaggerate the situation is starting to feel distasteful.
There is no certainty over the amount of dividend the FDIC will pay out. IMO this weekend is a critical time: if the FDIC/Government act quickly and provide hard numbers, it will both stabilize the depositors and prevent panic from rippling through the ecosystem. I feel like the urgency and fear mongering is quite justified considering the tiny window of opportunity present to avoid irreversible catastrophic damage to the system.
Urgency should be directed at the process which is providing that advance and rightly demanding the amount to sufficient and the release quick for the reasons you specify. Instead they are off on their own demanding bailouts and rejecting even the systems set up to protect them in this scenario, demanding special cases and further alienating this entire industry in the eyes of the public. It's beyond embarrassing to watch.
They are doing exactly what they should be doing to minimise impact while letting markets be markets, VCs are just too busy making a big mess in their underpants and screaming about why they should be special-cased to read the details
What's weird is that you can insure an account for more than that, it's just not free.
So if you had "substantially more" than that, you should be financially savvy enough to insure your accounts and pay for the insurance on them as a cost of doing business.
That's why we insure anything - in case something happens.
I found no information on how to do this with a cursory Google search. What comes up are other stratgies, like multiple bank accounts, each at different banks. Or instruments like certificates of deposit, which aren't suitable for payroll.
So if banks offer more insurance for a fee, I can't easily tell how to do this. My business banking account has nothing about such a feature, either online search or looking at the fees schedule.
I'd consider this obscure, even esoteric information. But I'd expect a CFO should know this. And I'd expect a venture capital fund would have an info sheet on avoiding consolidating deposits in a bank, given the 2008 experience. And yet... nothing.
Yep. I find it funny - though I feel bad for the small businesses that may have been oblivious - that a VC CEO is complaining when he effortlessly could have hired a financial consultant for a day to look into the first bank he encouraged his customers to use. A regional bank that had an obvious and alarming reputation of being the only place in town that would make high-risk loans to high-risk ventures. If anyone outside SVB was in the responsible position to avoid this situation, it was this CEO, and I’d suggest - if he truly believes in maintaining innovation and having those responsible suffering the consequences - that he personally go first in making his companies whole, rather than the taxpayer.
The FDIC promises to make a large portion of uninsured deposits available within a week.
If a company still can't make payroll, they were pretty close to the edge. If the company is either profitable or very promising, they can look to their investors or providers of things like bridge loans.
If not, well, most startups fail, so it's all part of the game. But it's a good lesson for people in why profitability is more than just a nice-to-have.
This. I'm afraid that Garry and others are exaggerating the situation to make a case for their bailout. They're freaking people out rather than helping them work the problem.
This has real consequences. The FT reported this morning that companies are selling SVB deposits for 50%-65% on the dollar to make payroll. That is a HUGE mistake, but understandable for some 25 year old naif who's been told the sky is falling.
I posted it, I'm aware of the rules about titles, but honestly I thought my title was way more clear about what the story was. In retrospect I should have called it "Tell HN: YC is asking for a bailout", think that would have been fair. The fact that it's been edited here is not cool with me, especially as the story is unfavorable to YC (though I certainly believe readers are smart enough to draw their own conclusions)
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[ 3.6 ms ] story [ 177 ms ] threadEdit: the original title was correct and gave helpful context.
Ayn Rand needs to be memory-holed.
The banks had to be saved in 2008 because they were, like, the financial system. I don’t see why private companies and funds that are much less integral to the functioning of the economy as a whole should be saved by the public fisc.
Sorry about your disruption.
https://www.theguardian.com/business/2023/mar/11/silicon-val...
Edit: https://www.levernews.com/svb-chief-pressed-lawmakers-to-wea...
> Eight years before the second-largest bank failure in American history occurred this week, the bank’s president personally pressed Congress to reduce scrutiny of his financial institution, citing the “low risk profile of our activities and business model”, according to federal records reviewed by the Lever.
> Three years later – after the bank spent more than half a million dollars on federal lobbying – lawmakers obliged.
Don't ask taxpayers to fix your mistakes for you.
Here's the explainer for everyone else: https://archive.is/gmJxU
Not those who had bank accounts there and literally did nothing wrong to cause this or even contribute to it.
Surely you don’t expect everyone to agree with what everyone else has said just because it’s on the same site!
I don’t want to see this spin out of control on Monday when all those companies can’t make payroll and even more carnage ensues. This could blow up into a much much bigger panic contagion.
Maybe, just maybe, instead of us collectively trying to manage the latest collapse, perhaps we could impose actual requirements (not regulations) on banks. There have been 562 bank collapses since 2001. I doubt that many people who work outside of finance would think the balance sheets of those banks look like anything like what people would expect in a stable "bank".
It's insane that very few banks in the country can reasonably withstand bank runs. The reason? They have no money on hand, because they are gambling. Sure, the ecosystem would change, but that's not a bad thing.
https://www.levernews.com/svb-chief-pressed-lawmakers-to-wea...
Might help if you are paywall-blocked.
Yes, because that is how risk works.
> And that my deposit should vanish into thin air?
No, you should insulate yourself from that risk, either by spreading out your cash between multiple institutions, or obtaining deposit insurance beyond the government's, or (most likely) both.
Why would I do that when I can bank with a too-big-to-fail bank like JP Morgan Chase, Citibank, Wells Fargo, or Bank of America?
Unfortunately, many small companies and first-time founders can't get a business account at one of the big banks. Hence: SVB. I don't think this means we should automatically bail them out, though.
Why? I opened my first business account at Bank of America moments after I created the legal entity.
Opening a business bank account is straightforward. Unless there is a KYC issue, you can do it all online in minutes.
Sure, there's nothing wrong with that. It's still a nonzero risk, of course.
But it's also not necessary. You don't have to assess the soundness of the bank yourself, really. You can bank with pretty much any random bank and get the same level of safety. You just have to actively manage your risk, is all.
And - yes.
You chose that bank and you chose to deposit more than $250,000. Are you saying the limit should be higher?
It hasn’t to be this situation, but if your accounts are flagged for fraud or someone hacks an account, aren’t you safer by distributing cash in multiple banks?
On the topic of FDIC insurance and startups... I'll put in a shameless plug for a startup I helped launch 20yrs ago: *Promontory Interfinancial Network" https://www.intrafi.com/solutions/depositors/
It was a startup them (now acquired), and created a bank deposit product "CDARS" which took customer deposits and distributed it across (k = N/<FDIC Limit) banks and kept the relationship as a single bank with a single account.
Even cooler, as k other people did it at k other banks, the service would just swap deposits across all the banks. It was a super-cool and valuable product, and i'm proud to say I helped write the matching engine for it back in 2002.
I realize this doesnt help startups with locked funds at SVB, but I'm pointing out -- there are options out there to have 100% FDIC insured safety for both individuals and startups.
This is a rather specialized and technical area of finance, and like most technical areas, I imagine it's hard to search for unless you know the magic terms and jargon to search for.
Lloyds and AIG will insure just about anything, they'll happily protect $x million or billion for a nominal fee.
But to answer your question, yeah, I think the equity in a for-profit business takes the risks and rewards of capitalism as they come.
If the owners didn’t want to lose the basis points by holding cash in CDARS or liked the interest paid by SVB (approximately twice the median of other financial institutions), they probably shouldn’t have been trying to pick up pennies in front of steamrollers or expecting taxpayers to save them from the consequences of that freely made decision. Capitalism, baby.
Yes. That's the way this works. Or you can choose whatever risk mitigation strategy you're comfortable with: spread your deposits across multiple institutions, buy Krugerrands and bury them in the backyard, purchase 3rd party insurance whatever.
Take a look at https://www.forbes.com/advisor/banking/ways-to-insure-excess.... It explains several methods, including extra deposit insurance from CDARS, MaxSafe, Depositors Insurance Fund, etc. It also explains cash management accounts, credit union overflow, using multiple banks, and so forth. I can't help but think a good CFO or comptroller would be well aware of these.
(And as someone who's worked as the first employee of a startup, I can tell you it was while before we were able to get a CFO.)
Ultimately, people will have to accept that SVB wasn't as trustworthy of a guardian as some other banks. It appears that people were pushed into using SVB, because it was part of the VC ecosystem.
It's an individual CFO or Founder's decision as to whether to insure deposits or not, but claiming ignorance of the possibility is going to be ignored by a lot of others.
[1] fdic.gov/resources/regulations/federal-register-publications/2010/10c20ad66rates.pdf
Here is the complete list of DIF-covered banks: https://www.difxs.com/DIF/DIFmemberbanks.aspx
It's a short list, they're small banks, and they all have addresses in Massachusetts. Wells Fargo and Bank of America, for example, are not on the list.
The normal method for this insurance is to call an insurance company and ask for excess deposit insurance. This should be your first step. But, it seems very strange to me that you are beligerently asking people on the internet for financial information that you don't appear to need.
Here is the summary copied from the first link, in case you don't want to load the link from here or from Google. [1] https://www.depositorbonds.com/understand-how-a-depositor-bo...[2] https://www.travelers.com/iw-documents/surety-bond/59375-dep...
[3] https://surety1.com/bond_info/excess-deposit-guarantee-suret...
[4] https://suretyone.com/bank-depository-bond
[5] https://www.cuinsight.com/hello-old-friend-the-reappearance-...
The other links say similar things. This is something banks can buy, to provide extra coverage for their customers.
People here have been arguing that SVB's customers were negligent by not purchasing their own third-party insurance. I think it's reasonable to ask them to support that argument, even if I'm not personally in the market. Supplemental insurance like that still does not appear to be available.
> I should just accept the impact of the bank shutting down due to events unrelated to my actions and choices?
You should hedge against potential losses, yes, absolutely. You're knowingly taking a risk. Just like every other risk in business, you determine if you can take the hit if things fail, and if you can't you arrange a mechanism that will reduce the damage to a level where you can.
It's just basic business management.
*Unless it's to bail me out.
if anybody holds the perspective that the govt should use public funds to save a set of companies because ma jobs, ma innovations, etc. in the venture capital sector it would seem that person does hold that perspective, at least enough to joke about it.
Unless you're making a more unlikely point that the government should be intervening all the time?
Those single moms living paycheck to paycheck, who you want to fund your bailout, would become part owners of YC
The problem is many of your peers in your space actively advocate, lobby, and spend lots of $$$ to reduce regulations whose aim is to try to prevent this sort of stuff. SVB themselves were pushing to be exempt from stress tests in Dodd-Frank, which they were successful at achieving back in 2018. If regulation is really a concern, why continue banking at a company that was actively lobbying to be exempt from regulations that already existed?
Anyways, I'm not gonna pass judgement either way. People make mistakes. However, it's a constant battle, and when ground is gained its easily lost. It's a tireless fight against monied interests trying to make more money in any way possible. People are going to understandably be frustrated at petitions like this.
Now, if these companies are willing to sign over warrants for 79.99% of the equity (like the banks did)… well, maybe there’s something to discuss. But otherwise reaping the rewards of capitalism while declining to take its risks - nah, I don’t think so.
If the real problem is the quality of the loan book, however, it calls the startup and VC economy into question.
We'll learn a lot more about this in the next few weeks.
Often when a bank fails they change the sign at the branch to some other name otherwise you wouldn't know what happened. In the 1980s there was a lot of bank instability in New Hampshire, my mom kept all the statements going back to 1971, the name of the bank changed numerous times and she was not inconvenience except when the mortgage was about to come due the bank said the original payment was miscalculated and she'd owe more payments. I told her to go tell the bank regulator about it and the bank came back with their tail between their legs and forgave her the last 6 months of mortgage payments.
When I was a student I was banking with an S&L in New Mexico that went under as part of the S&L crisis, they just moved me to a different S&L, it was no skin off my back.
So there's a good chance that the FDIC will manage this with a minimum amount of disruption... Bank routines are handled routinely.
To be totally factual, while the public did get paid back, part of the reason is that the Fed started printing money and buying bonds way above asking price to move the market. If you do this enough, prices naturally correct because everyone knows there is a buyer at a certain price and a floor price.
The downside is, well, all the printed money.
Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
There's also a real risk of bank contagion if it is only safe to deposit in the largest banks.
No one was chasing any yield. No one was taking any risks. It's a bank account.
Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
And what about all the other regional banks? Based on your comment, do you think the prudent thing would be for every single small business in America to transfer their funds out of regional banks into a large bank?
100% yes.
> ## Up to 4.50% annual percentage yield
> Help make your money last longer with our Startup Money Market Account. Like with a savings account, you’ll earn up to 4.50% APY on deposits — so you gain a longer runway. Certain restrictions apply.
https://www.svb.com/startup-banking
So I wouldn't say that you could get 4.5% from a reputable bank at the moment.
When a bank promises to keep your money, then converts it for their own use and purchases investments and lends it to others… that’s fraud.
Yes? I do it with my personal after 2008
Golly, some of us even chose non-banks, and use local credit unions. There are millions of us!
Honestly yes. All it takes is one financial analyst's time. I do it with my retirement plan for example, and I'm only a "small business" of one family. If there was demand for such info, I'm sure there would be a small community/industry for evaluating bank books like there is for financial planners (if that might not even be something a financial planner could already do).
And particularly with Y Combinator advising so many companies, I think it's on the side of negligence that they didn't evaluate the bank they were steering their companies towards. They were steering them there because they knew that tended to be the only bank that would deal with their high-risk companies - and it's too hard to believe that professional VCs didn't recognize that such a bank could have a lot of risk in some dark corner to compensate.
It is by definition a risk for a corporation (or individual) to keep over $250k at a single institution ($750k if including SIPC-protected accounts). Reports are stating 97% of SVB's customers kept more than FDIC guaranteed limits. How can you claim this is not risky?
There is also additional insurance clients can purchase or the financial institution can themselves provide a statement they've purchased excess insurance for their clients.
>Are you suggesting tens of thousands of small business customers need to do due dilligence on the investment practices of their banks?
If they're keeping more than $250k in a single account, absolutely, yes, I cannot be sure this is even a serious question.
Yes, this exactly why millions of people, not just businesses, avoid banks like Bank of America and Wells Fargo. They review how they have historically operated and what risks they passed on to their customers.
I remember going to a branch of Bank of America to open a bank account for Posterous and not being able to.
I mean, given the epic scale, herd-mentality of tech startup types to cause a $46 Billion bank run in a singular day (March 9th), can you blame them?
Its clear that other banks have seen systemic risk in focusing on this sector, and are pickier about choosing their customers.
-------
I get that this is a problem in any case. But the systemic risk / scale associated with the tech startup scene has just been proven to the world. "Other banks didn't want to take $100+ Billions in startup deposits" is beginning to look like the smarter move, given the circumstances.
Are you really saying BofA would not take deposits for you?
Would BoA have been more willing to open an account for you if your business already had one?
(understanding it may have had little to do with why they tanked)
You want your flock made whole. I get that. But are you also asking for regulators to kill the startup economy by shutting it out of banking?
I believe you, but this doesn’t make any sense to me. I have opened multiple business accounts at Bank of America. It’s just paperwork. If you have a dollar and a legal entity, you can open a bank account for that entity.
What was the issue?
To be fair though, in the US we've long established an expectation that if you have funds in a bank account at a registered bank, the government would back those funds
It's stupid to have set that expectation, but it seems very destructive to suddenly remove that expectation
There will be a cost to suddenly altering expectations, I guess there's a chance we might see what that cost is now (but probably they will just get a boring bailout)
I've known this since I opened my first bank account.
Not since around 2010. The ~2007 crash was not without consequence.
Silicon Valley Bank had nothing wrong with it's business practices other than they were concentrated in one particular industry, and a slowdown in VCs pumping money resulted in them shrinking deposits suddenly. They asked their investors for money, some VCs basically yelled fire in a crowded theatre and boom a 40 year old institution was wiped out in 24 hours.
America has thousands of banks, and the way you would have this work would shrink that to 5. This way of operation would also wipe out every single credit union. Literally none of them have the insane levels of stability necessary to trust with money, if larger accounts are going to be at risk of a bank run.
That 250,000 number hasnt changed in nearly a 100 years. Maybe it isn't what we should be going off of?
No, if you're not keeping more than $250k in the account, you don't have to do the homework. If you're keeping more than $250k in the account, you can afford to pay someone $1k to do a bit of due diligence.
Just my 2 cents on this strawman part of discussion.
$1k gets you several hours of an accountant's time to go through the bank's balance sheet and tell you if their interest rates and other perks are, in fact, too good to be true.
If you want to go the extra mile and try to move money around to keep under the limits, more power to you, but paying someone to occasionally keep an eye on your bank's balance sheet and make sure it's not going to collapse under you is totally within the capabilities of pretty much any company.
https://archive.ph/XaKkt
I.e. having a CFO who's on top of things might mean I'm first in line to get out once there are public red flags, but not everyone can exit an insolvent bank, so the macro result seems similar.
"SVB collapse highlights $620 billion hole lurking in banks’ balance sheets" -https://archive.is/qnwYh
Also short sellers worked it out a while back
"A Silicon Valley Bank short seller explains how he knew the bank was in trouble months ago" - https://archive.is/XaKkt
True, we’d need to look at previous filings to understand when it could have first been worked out
VCs should have kept a closer eye on where their cash was, but perhaps they were too enamoured with the benefits they were getting from SVB
For what it's worth, it used to be $100K and was increased to $250K in 2008.
Here's a timeline:
https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
> In the Y Combinator community, one-third of startups with exposure to SVB used SVB as their sole bank account.
So apparently two-thirds of startups in YC with SVB have at least one other bank. That might not be representative of startups as a whole, but is at least a good data point.
Most companies live and die by what most people would call arbitrary choices in things they wouldn't think of. I use more than one bank account for my personal finances and I don't even have 250k cash. Begging for tax payer money after the 10 year tech bull run we've seen, shame.
How true. You can imagine that most people have only a vague idea of what is supposed to happen and why. There are entire professions devoted to many aspects of life (eg Healthcare, law, education, finance, politics, software). Even if you are such a professional, you probably have a mere specialty within the breadth of a vertical. The vast majority of choices people make are gambles based on intuition, localized/anecdotal deduction, and the type of education someone has been exposed to.
Taking stock of what everything anyone knows is true and why, will take longer to explore than a lifetime. A company, as an entity, is worse off.
If you choose a bank because they were offering better products because they were taking more risks, why I should bare the cost?
SVB had $20 billion in unrealized losses. There's estimated to be $600 billion more in the banking system.
There's the problem: startups are doing an inadequate job of managing the risk around their treasury operations. That sucks, but that's on them.
I as a taxpayer do not care to bail out -- yes, that is what that is -- these startups, when they could have done a better job at risk management. I know some smaller startups that do have their cash at multiple banks (SVB one of them). While this is still a headache for them to deal with, it's not an existential threat. Perhaps more startups should be like that.
If you take a risk, you have to be prepared to accept the consequences of what might happen.
> Startups should live or die because they create good products and solve real problems in real markets, not because they made an arbitrary choice like which bank they started using.
False. Companies live or die because of every business-related decision they make. Choosing a particular bank, and choosing not to diversify where they keep their cash, is one of those decisions.
It is not an arbitrary choice, svb was known for their risk taking behavior which is why so many risky small businesses landed on their lap
Rather than taking standard loans designed to reduce systemic risk, startups chose to use this bank because it allowed them to access capital more rapidly or in exchange for their own pennystocks, which ofc leads to increasing systemic risk and leads to the situation today
Sow winds and reap whirlwind
Why should a company, perhaps a slower and more risk-averse company who intentionally chose a different, safer banking institution to do business with, do they not get to benefit from their discretion in choosing that banking partner? One could argue that choice put them at a disadvantage against their fast-moving competitors, who chose fast-moving “corporate infrastructure” like SVB.
If bailouts like this take place, how do those companies ever benefit from being prudent? Should nobody bother?
(FWIW, this is just a thought exercise, I am not opposed to the petition.)
If your personal bank went out of business through no fault or gain of your own, most individuals would feel that it would be fair for you as the depositor should be made whole. That's the same with a business, and as important since this represents the payrolls of thousands of people.
Are consumers smart for doing that? Or are they dumb for even bothering, since it sounds like they should expect to be made whole regardless? Should consumer deposits not benefit similarly if these SVB corporate deposits are made whole? What dollar limit would you recommend the FDIC or CDIC (Canada) insure going forward?
(I ask because you comment on YC asking to advance banking regulation elsewhere in this thread, and I’m wondering what a good number should be going forward. Like, should the insured amount be $10mm, or $50mm, or what?)
But at the same time, you are also aware of the limits of your protection. If you leave all but $250k uncovered, you're willingly and knowingly taking a risk.
How is it fair to ask a bunch of people who had nothing to do with any of this to make the depositors whole from a risk those depositors willingly took? I really don't understand the ethical stance here.
If the choice was "arbitrary" then you'd expect startup banking to be distributed arbitrarily among the various banking choices in the market. Clearly that's not the case.
No, this was "the startup bank". It was the startup bank because it operated in tandem with the startup funding ecosystem (an entity of which the startups themselves are really just a small part). That's not an efficient market. That's more or less a cartel.
The VC world, YC included, is a toxic mess at this point. I don't see why a bailout is a bad idea, but... yeah, the startup ecosystem needs a reboot. Bail out the startups if we must, but nothing for the dealmakers.
What happens if the startup you're referring to is a bank itself?
Before the crash, YC, Founders fund and others could have raised money to stop the collapse but it seems the VCs just let the bank fail and now are begging to the US government for a bailout put on the taxpayer to foot the bill?
Absolutely NOT this time.
What on earth are you talking about? SVB had so many startup companies because they offered perks like mortgages for illiquid founders and high yield savings accounts funded by their poorly thought bond strategy, and, allegedly, because they were recommended to them by various VCs.
It’s not arbitrary, all these startups specifically chose to use SVB and chose to not hire a competent CFO or accountant who could tell them “lol no, bank account insurance isn’t free or infinite”.
This is one of the most pathetic pro-YC-startup-culture-nonsense posts I’ve ever seen on HN and that is saying something.
Why aren't these companies, and the VCs advising them, responsible for neglecting Cash Management 101?
There was a false choice there because there are multiple options that were strategically ignored by the people who own the banking system. The financial system can be replaced. The crypto people haven't been getting bailouts AFAIK and it doesn't seem to be hurting the ecosystem; we're running side by side experiments despite the best efforts of the powers that be and it is showing that in low-trust environments the system is actually pretty robust. The response should have been to get rid of the systemic inflation that incentivises people to give their money to untrustworthy institutions.
> Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round.
I personally feel this way. But as a matter of fairness, if banks get bailouts why shouldn't YC get bailouts? YC is a more deserving cause than the banks. This was always the problem with bailouts; it is grossly unfair that incompetent banks get a handout but potentially competent companies do not.
Depositors have a reasonable expectation that when they choose a bank (especially a publicly traded bank that is regulated) that their deposits are safe. If this is not true, then most people will only bank with the largest banks. That's not a good situation.
We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.
And it's a lot of money (e.g. 30% loss on $200bn is about $600 per US resident household).
But I'm conflicted, because:
- the federal administration doesn't seem to care about moral hazard or changing the rules of the game retroactively (e.g. handouts to people who borrowed lots of money whilst they were enrolled in college)
- banking is necessary for companies to operate, and it doesn't seem reasonable for every business to become expert in managing counterparty risk
- bank regulation seems to have failed, and that's a responsibility of govt
- it's almost impossible to be neutral about this; if you're a founder/CEO you aren't going to feel you did anything wrong by choosing SVB; if you're a random taxpayer you are going to feel any obligation to pay some west coast companies because their bank failed.
Of course I don’t have all my positions in cash and I take into account the necessary risk/reward equation into account.
But then again, I would never work for a non public company where part of my compensation comes from “equity” and I sell/diversify all my after tax RSUs within 6 months after that vest. So I’m very risk averse about holding positions in any company I work for
This calculation really put it in perspective.
CEO of HN asks that every family in America send his friends $500.
Cocaine, mostly :P
Sounds like YC should invest more in mentoring their portfolio companies to manage their treasury correctly.
(And obviously actual losses are gonna be like 20% here, not 100%, but you get the picture).
"Regulatory backstop" sounds a lot better than "tax grandma to make sure out portfolio companies don't lose a penny of their deposits on this"
I'm not sure where you got this number, but it's different than what I've seen. Yes, SVB had $200B in deposits, but it had $15B in unrealized losses. The FDIC is probably contributing $12B as roughly 6% of deposits were insured. That means the gap is probably $3B if the government is to step in, which is very different than the $60B you're suggesting. If these instruments can't be held to maturity then the losses may be greater as many of them are illiquid and would have to be sold at a discount, but the government has the liquidity to avoid that.
I did a quick calculation based on:
- $200bn deposits (on which we agree)
- press reports that Jefferies and hedge funds are offering to buy claims at up to 70c on the dollar (suggesting 30% loss)
I imagined they would sell assets for the insured. And then sell more for the uninsured. If that process didn't cover the insured, they would bring money.
In this case, the insured are well covered by the assets, so the FDIC won't bring money.
We have a $12B difference of opinion here. Although, more generally, I agree from initial reports the assets - deposits gap does not seem to reach 30%. We should know more tonight and Monday morning.
Those deposits get first call on the assets. The FDIC only chips in if those assets aren't enough.
> Coverage Limit: All deposits owned by a corporation, partnership, or unincorporated association at the same bank are added together and insured up to $250,000, separately from the personal accounts of the owners or members.
> The corporation, partnership, or unincorporated association must be separately organized under state law and operate primarily for some purpose other than to increase deposit insurance coverage.~
https://www.fdic.gov/resources/deposit-insurance/financial-p...
> Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.
https://www.fdic.gov/resources/deposit-insurance/faq/index.h...
Most people - people - have far, far less than this. And it's fundamentally about protecting people - institutions, like we're discussing here, are supposed to be considerably more risk-aware.
I don't disagree that something should be done in the future to prevent this, but when you gamble, sometime you lose.
If they had deposited that 3B in, say two banks rather than one, they'd have 1.5B in that other bank
Use treasures bills if you’re that concerned.
-Purchase high-limit cash insurance from a Reinsurer like Lloyds of London or Berkshire Hathaway up to their underwriting limit, perhaps $100M. Do this across 4-5 different banks with 4-5 different reinsurers.
-Put the remaining $2-2.5B into mixed US Treasuries of varying maturities
If your entire business model revolves around moving multiple billions of dollars via an asset-backed stablecoin model, it's reasonable to expect you to have dozens of bank accounts, in at least 3 time zones, and likely more.
I don't know why people (not saying you specifically) seem to have this expectation any entity should be able to deposit billions of dollars risk-free at a single institution.
Ironically it's often the same people who can intuitively grasp why to hold your crypto across multiple wallets, who cannot fathom that infinite $ cannot be deposited at a single bank, without risk.
If you're leaving 7 to 9+ figures in a single account, then either buy custom insurance, or only do business with banks which offer excess insurance.
People here simply decided to not inform themselves or seek appropriate assistance and therefore got bitten
How do you even run a payroll system if your money is spread out between a dozen banks?
sounds kinda rich tbh
[1] https://news.ycombinator.com/item?id=27468549 [2] https://news.ycombinator.com/item?id=27654940
The benefit to the larger bank is that SVB’s customer base represents a large chunk of the most innovative sector of the US economy and beyond. And scientific and technological innovation is only going to increase in importance as a main driver of economic growth in the world, as the developing world becomes developed and their growth rates inevitably slow. Acquiring SVB at cost seems like a great deal in that regard, and stops a panic as nice side effect.
One one hand, end of December, they self-assessed that they had $209.0B in assets and $175.4B in deposits. Enough to pay everyone. [1]
On the other hand, they've suffered some losses. The regulator that closed them explicitly called them out as insolvent. [2] Possibly sloppy language, possibly they have relevant recent information.
I expect we know by Sunday night.
[1] https://www.fdic.gov/news/press-releases/2023/pr23016.html [2] https://www.cbsnews.com/news/silicon-valley-bank-sivb-stock-...
[1] https://www.theguardian.com/business/2023/mar/11/silicon-val...
Those who led all these entities from the same industry to bank at the same place must be held accountable too.
To my knowledge SVB was never required, and startups always had choice.
But I think this is worse. Bailing out individuals is one level, bailing out massive banks is pure corruption.
Nor does the lack of a requirement indemnify someone from responsibility.
Could be a selling point for alternative incubators in the future.
Perhaps being a part of YC puts you at greater risk from these events. Draw your own conclusion about the reason why.
If bank regulators move swiftly and ensure orderly withdrawals, his comments will go down in history as crying wolf, and that's putting it lightly
Exactly. And "don't put all your eggs in one uninsured basket" is the exact sort of 101-level business advice I'd expect the experienced hands at YC or any Angel investor to provide pretty routinely.
1) Skin in the game - GPs of YC / a16z / Sequoia / Founders Fund / etc put in some equity in to a joint venture to acquire SVB's assets and make depositors whole. Government will backstop some portion of it.
2) YC / a16z / Sequoia / Founders Fund / etc agree to support ending the carried interest tax exemption
Not if they know how banks work, and plenty of those depositors do. They know that there’s a risk to their uninsured deposits (that’s why the insurance exists!) and so they either account for that risk or play dirty and pretend, after the fact, that they didn’t know better and that the government should pretty please make them whole.
> If this is not true, then most people will only bank with the largest banks. That's not a good situation.
No. They’ll do what they’ve doing for a century: diversify banks and asset classes, sweep accounts, buy private insurance, etc.
Deposits are a loan to the bank. If the bank doesn’t have any risk of default on those loans, that’s no free and efficient market. That’s the government giving bankers free money to play with. We already do that for small accounts held by naive investors because the stability is worth it and they can’t be expected to afford the inherent risk themselves, but that can’t extend to all accounts.
If you have >$5m and you haven't done due diligence on this, I'd call that a failure on the part of the company (or its advisors, like the accelerator they're a part of).
Maybe the VCs should step in and make bridge loans available if they want to keep their investments? If you believe in your portfolio, why not help them weather the storm? Or are you afraid to be exposed to additional risk? Should the taxpayers take on that risk instead?
This is actually the right answer. Something something founders deserve their money because they take on all the risk.
Well, since we all love capitalism and meritocracy so damn much, let's see those at play for once, shall we?
In which law does the US say that your deposits are safe? You get insurance up to 250K. That’s it.
Why didn’t you mitigate risk by using a few banks? Even 4 would’ve meant only a 25% loss.
@garry, while it may be a reasonable expectation, it's always been very clear and _explicit_ that it's not a guarantee beyond $250k (or $500k).
What's more troublesome is that VCs and Y! have portfolio companies that either didn't understand this and/or didn't take the time to shore up their exposure to this otherwise very easily, manageable risk.
Open additional accounts, utilize CDARS, etc. -- there are so, so, so many incredibly simple, straightforward ways your portfolio companies could've mitigated this.
And yes, I agree with you -- the risk _was_ negligible. But it was risk nonetheless. And the fact that the mitigation options are _so_ simple but that your portfolio companies didn't do this really brings into question their ability to manage cash / risk management in general.
So then to ask for taxpayer money to bail out companies who didn't take the time, thought or energy to minimize exposure to this is what I think most people on this thread are pushing back on.
> We're asking for depositors to be made whole and for regulation to prevent this from happening to depositors in the future.
In fact, depositors can _already_ prevent this from happening from themselves.
And frankly, if you say, "We're not a VC firm, we're an accelerator", that is a distinction without a difference. You give money to companies that need it. So do that and do not use mine or my family's money. End of discussion.
The limits to FDIC have been on physical stickers legibly and purposefully placed all over every bank for decades, and define reasonable expectation clearly, for decades, to all customers.
That reasonable expectation states insurance limits are not unbounded.
Was there any level of due diligence that could have warned people off of SVB?
> Was there any level of due diligence that could have warned people off of SVB?
Really no. A small business manager doesn't have time or expertise to read a bank's financial statements. SVB's did show serious problems but most businesses don't have the capacity to spot this.
But the answer to that is to not trust any bank for any long period when zero-risk options are available.
But surely smart VCs with millions / billions invested are capable and have capacity to do this?
It's bad enough to be asking for a bailout, at least be upfront that you're asking for a bailout.
Depositors do have a reasonable expectation that their deposits are safe. That's what the FDIC does: makes sure that 99% of people never have to worry about bank failures. For the 1%, well, it's time to put the big-boy pants on and accept sometimes in market economies there are disruptions. Something startup CEOs were perfectly happy to accept as long as it was other people experiencing the disruption.
No regulation can totally prevent this from happening to rich depositors in the future as long as the banks are capitalist institutions trying to turn a profit. There is no reward without risk. Arguing for zero risk is basically arguing for nationalizing the banks and creating a federal Boring Depository Bank whose job it is to just hold cash and that takes no risks with it.
Which honestly, it would be great to see the CEO of YC arguing for reducing the role of capitalism in key parts of the economy. But I'm guessing that the VC class's interest in tighter regulation is going to last exactly as long as it takes to get government subsidies, and then will go back to its previous extremely negative levels.
Respectfully, no sophisticated entity should ever expect their deposits to be safe beyond their insured limits. That is why businesses purchase insurance on their excess deposits, and/or use other financial products to ensure they have no excess deposits.
Frankly, YC failed to advise its companies in rudimentary financial risk management. Holding millions of dollars in a single bank account and taking no measures to mitigate the obvious, enormous, (and yes, unlikely) risk of bank failure is mind-boggling.
It is an elite class of people who banked at SVB. Most people bank with less risk-taking community banks or the very large ones.
Casting SVB as an underdog and the people who bank with them as helpless is upside down.
Many startups can survive taking the 30-40% haircut on their bank balances. Very few can survive their cash being locked up for many months (especially when there are many startups in the same boat.
The FDIC is planning to pay an advance dividend of uninsured deposits next week, per their press release: https://www.fdic.gov/news/press-releases/2023/pr23016.html
These "movements" are folks asking for normal processes to be suspended for the sake of that 5% or whatever and it's going to muddy the waters vs asking for the obvious "give us some liquidity now since you can immediately secure a huge chunk of it and businesses need it"
The big question is how much of the "run" has been paid, or will have to be paid at 100% because of transactions initiated before receivership. I also think 95% is a little bit optimistic from the get-go.
> They have been pretty clear that they want to do this.
An unspecified dividend at an unspecified time sometime next week is better than nothing, but it's still pretty toxic.
Market corrections are normal, they need to happen otherwise we just end up with a tiny group of ololigopolies with a free reign from consequences. Bad actors need to be punished.
The only way this sort of hand ours from startups needs to be just like the reaction to 2008 should have been: not punishing small/medium companies for the actions of a $200B bank and their like. YC has a reputation of being wealthy VCs so it does nothing to help this point.
Why does size matter? These VC funded "small companies" are so sketchy that they needed their own special bank to manage the risk, and now their special bank just failed.
It's not the government's job to protect the weird VC funded moonshot "business model."
Nothing about SVB's failure had to do with tech startups. It's entirely because their executives gambled on a giant ball of mortgage debt with the worst timing. And now tech companies are paying the consequence. Much like how everyone else did in 2008.
It's trendy to blame VCs and the tech 'bubble' but this isn't the time. And I should reiterate I don't agree gov should be excusing the bankers behavior to save tech startups.
People who invested in SVB should be wiped out, probably.
People who deposited in SVB should not be wiped out.
Depositors in banks aren't expected to do due diligence on the financial statements of the bank they're depositing in. Have you read the 10-K filings of your bank in detail?
It is expected that you manage your risks if you have significantly more than the insured amount.
>The FDIC should require deposits to be insured, no matter the amount. This exacerbates the moral hazard problem [1]. Basically, if all deposits were insured, then bank executives would have no restraint on risk taking. If you think things are bad now, imagine a situation where bank executives know depositors would always be made whole no matter what they did. An unlimited deposit guarantee is a recipe for disaster. [0] https://www.fdic.gov/resources/deposit-insurance/deposit-ins... [1] https://dailyreckoning.com/fdic-fosters-moral-hazard-among-b...
smaller depositors should be ensured by the FDIC
you can, and should, have accounts in different banks if you have over a quarter million in US$
If you're depositing more than the FDIC insurance limit, you should probably do some due diligence and/or get private insurance for the risk.
If you have less than the insured amount you are not expected to do anything.
If you have significantly more than the insured amount you should do your homework and manage your risk. Anyone who was alive during the 2008 crisis should be aware of the problem.
According to Brookings, “Annually, venture investment makes up only 0.2% of GDP, but delivers an astonishing 21% of U.S. GDP in the form of VC-backed business revenues.”
https://www.brookings.edu/research/as-the-venture-capital-ga...
SV-style tech startups distribute more equity to employees than any other sector of business I know of and the average VC’s returns are worse than private equity, worse than the stock market and worse than real estate. You only hear about the biggest winners, but venture capitalists are taking on very long odds and the vast majority lose. More importantly, we all benefit from the advances the industry leads to—such as this wonderful phone I’m typing this comment into that can access and search nearly any encyclopedia, map or song in the world in seconds, from almost anywhere.
You might as well say Hasbro distributes more money than most companies because of all of the Monopoly games they sell.
If VCs make no return on their investment then they have just dumped millions of dollars into the pockets of startup employees and vendors.
I can trade my RSUs for real cash every six months after they are deposited in my account. I know the potential value of my next RSU grant every 15 minutes as it is updated on my Google Sheets.
The VCs make a return by diversifying their bets. But as an employee for a startup, you are not well diversified.
On a related note, Warren Buffett made a bet with hedge funds that he could have better returns just by investing money in an index fund over 10 years - he won
Cell phones were not created by tech startups.
Your suggestion is equivalent to saying that if I were to support hundreds of kickstarters for various board games and resell them for a profit to collectors over the years and then kickstarter imploded after taking on extreme financial risks, then I should bail out all the new customers of kickstarter who paid and didn’t get their games. It makes no sense. The people running kickstarter should take the hit, not some random other party working in their ecosystem.
SVB owners should get wiped out, not the people or companies who opened bank accounts.
But, much of the profits they made, and losses they are now incurring are both a consequence of the zero interest rate environment and it's current unwinding.
If the goverment bails out YC's companies, when they are successful later, who is going to benefit the most from that?
There are thousands of businesses using SVB. If they only know they have 250k coming in the near future, and can’t be sure they’ll make payroll, what do you think happens to all of their employees? Or the other businesses relying on their products? Or anyone they owe?
This is the second largest bank failure in US history, and for now it’s confined to a single bank and the cost to stop the fallout is relatively low.
If decisive action is not taken by the end of this weekend, it’s going to get much, much worse.
But what you're saying is the same thing: that taxpayers (random third parties who weren't even working in their ecosystem) should take the hit instead.
Spending taxes on preventing financial meltdowns from cascading actually makes the government and its citizens wealthier than not doing so.
What was your cash management strategy with your startup (assuming you have relevant experience)?
The consequence is, cash deposits for thousands of small businesses, are unavailable. The direct consequence is these businesses can't pay payroll, and can't pay vendors.
This isn't about socializing investor's losses. It's about making sure employees, contractors, and vendors get paid by fully backing cash deposits.
SVB's stockholders, on the other hand . . .
FDIC promises for the ordinary-people, everything will be uninterrupted. Checks from the older SVB accounts will clear, debit cards will work, money will be available.
> Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout.
> Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round
Where are they asking for that?
Edit: And of course, downvoted. Lol.
So no. If your bank can't make payments? Tough, it should close down and go into administration or whatever. Maybe the government can bail out individuals, but companies relying on said banks can deal with bankruptcy or closure like it was any other sort of business risk. Company can't pay a higher minimum wage (or a livable one)? Then deal with less staff, or shut down, your business model simply doesn't work and isn't profitable.
And if your industry is dying because of technology (like say, Australian media outlets with Google and the internet), then tough. Accept it's probably dead and either downsize, come up with a new business strategy or close down.
So many seem to want a dog eat dog system when they're winning, but beg for mercy when it goes wrong.
I’m the last person to feel sorry for BigTech employees (I am one) making $300K+ a year (I don’t. I’m not complaining) who got laid off and didn’t save during the good times (I have used almost every penny of my after tax signing bonus/RSUs toward “increasing my net worth”). But most of the people working at startups aren’t making nearly that much (?). Why should they suffer harm?
Could the CFOs at these companies known they were making risky bets (serious question)
Banks fail. That's part of life.
Every decade or two there is a wave of bank failures. It's a risk that should be managed.
No, but you should be aware that if you put money into a deposit account, and the bank fails, you are only guaranteed (by the FDIC) to get $250k of that money back. This is usually not a problem, as most individuals don't have that much cash, period, let alone in a single bank account.
But it's a problem for businesses, obviously. And yes:
> Could the CFOs at these companies known they were making risky bets
Absolutely! Putting more than the FDIC-insured max into a deposit account is an obvious risk that any CFO (or corporate finance person in general) will absolutely know about.
In the 2009 crisis the banks got bailed out because we were in the position of very nearly breaking the buck on money market funds. The interconnectedness of the entire financial system meant that we were plausibly looking at a situation where most businesses wouldn't be able to make payroll soon. ATMs could start to not give out cash. The whole short-term lending market was in danger of freezing up solid.
The lesson from that seems to not have been "we need to regulate things better up front so companies cannot make bets that place the system at risk and imperil everyone" but "fuck it, let it all burn down".
And we've got Republicans controlling the House that will drive the financial system into a brick wall hoping that they can blame it all on Biden and take over in the next election.
Honestly starting to think the right idea might be to stock up on food, water, gas and toilet paper like I'm worried about another pandemic and go bury $10k in the backyard. People have gotten fucking insane.
If you are saying that you should take additional personal steps to protect yourself from downside risks, the answer is yes. It's not a foolish way to live and in the long term, the benefits outweigh the costs, similar to being adequately insured.
If this very costly government is not able to guarantee the integrity of its federal reserve notes deposits, then what is its purpose? What makes it legitimate?
But, I am sympathetic to the employees and even the owners of the startups. They didn’t take risky bets. I couldn’t imagine spreading my business as a startup (if I had one) to 10 different banks and trying to manage all of the obligations.
It's essentially a business choosing to underinsure themselves.
Various organs of the government are claiming the authority to create and enforce financial regulations. And yet, cash deposits in government-backed currency at a 100% government-regulated bank can still vanish overnight.
Given the huge costs of maintaining this government, and given the similar benefits it provides to others (Wall Street bailouts, stimulus checks, student debt forgiveness, etc.), is it that unreasonable to ask what YC is asking?
Up to $250,000, which covers almost every individual and most businesses in the country.
You want to be bigger, you should be coming correct.
literally all the time, the entire country is shaped around the benefit of corporate interests and capitalism
They could easily have jailed a lot of bankers, and saved the banks.
They didn't.
HSBC alone pleaded guilty to over 1000 counts of money laundering, each one of which should have gotten someone 7-14 years in jail.
The government bailing out private industry seems counter to the maturation of private industry.
It sucks that the ones will who suffer the most have the least culpability in this situation.
https://violationtracker.goodjobsfirst.org/?parent=wells-far...
And particularly egregious: https://violationtracker.goodjobsfirst.org/violation-tracker...
Why are small tech startups building something new less deserving than say, giant banks that knowingly took extreme risks in 2008, or giant auto businesses that refused to modernize and truly compete with Japanese competitors in the 80s?
I think it would be refreshing to see a cheaper bailout of small and medium sized businesses actually innovating and building new things instead of giant incumbents.
Anyways, I'm not American so this doesn't affect me directly (not my money), but as an outsider I find it ludicrous how accepting everyone is being about mismanaged banks and companies that didn't do their due dilligence. I thought America was all about owning the consequences to your actions, but when shit hits the fans everyone forgets about it and comes back asking for help from Uncle Sam.
my bank does that. your bank does that. every bank on the planet does that. depositors don't have any say in what the bank does.
https://techcrunch.com/2023/03/11/silicon-valley-bank-collap...
The "Help us because jobs" line is just mendacious.
Let's not use so much lip gloss on this particular pig.
Many startups are just building some shitty apps that exploit labor in this horrible gig economy while they are kept afloat with VC money until they are dumped into the general public via IPO. This marketing fluff has no place here.
Venture capitalists and startup founders are playing the apex of capitalism. Failure and risk is part of the game. Being saved with taxpayer money is antithetical to that.
The cynic in me says this letter is less about bailing out the small companies trying to make payroll and more about the VC's not wanting to lose massive investments.
Absolutely not sure why these world beaters hacking everything under Sun need to be bailed out by some stodgy old institution anyway.
- Repackaging an existing codebase or business model
- ... as a black box
- ... attempting to rent it out
- ... with worse data privacy
- ... exploiting systemic economic excesses
- ... ... inflicting societal harm
- ... ... often with minimal upside to the consumer short-term
- ... ... or long-term
- ... colluding with large existing players
- ... ... to create a treadmill of declining product quality
- ... ... to facilitate government surveillance and information operations
- ... ... to "play defense" against competitors
It's kind of like how OOP was intended to stratify and contain developers, except instead of abstracting commodity PCs there's a whole different calculus which basically implies that the ultimate consumer of computing equipment is like, 2 or 3 big companies, because financing. You know how the old democratic saying goes, "none of us is as strong as the 2-3 permanent CEOs of reality."
Average Joe is swindled by con-men into bad deals and/or is subject to events outside his control: should have known better/worked more
Huge company in the business of risk management fucks up: bad luck, the taxpayer will cover you, no civil or criminal responsibility will come to anyone regardless of the magnitude of the fallout
Isn't it possible to think that both small businesses/startups and average joes deserve to be bailed out when shit goes sideways?
i also don't think either average joe or bigco necessarily deserve to be bailed out. if i see a tv on fb marketplace and send the asking price to the seller only later to find out that they're scamming me, should i be bailed out for that? if so nobody has any incentive to take basic risk-aversion precautions in economic dealings.
Sure! Either both of them or none of them, that's the point! But we see bailouts for "systemically critical" banks, but not for the average joe.
Right now, it is mostly a regional problem, since the “startup industry” did not diversify much outside the Bay Area, or the Pacific Coast. Industries with a broader national reach maintain a broader and deeper lobbying presence in Washington and thus get more Federal attention. Might be a lesson-learned here. Along with the most elemental due diligence in financial risk management.
I mean, if you can save the jobs of the people you funded, great. But, founding a startup is risky, blah blah blah... and losing a few or a few thousand hardly seems like a reason to call congress. At least no more than any other industry getting disrupted. We've seen, and perhaps you've been part of, putting huge swaths of people put out of work. Huge swaths of business out of business. Industries that came crashing down at no fault of the business owner, other than not being prepared for some an unseen stealth startup who leveraged prior institutional knowledge to come and take it all in a flash.
It's both. VCs don't want to lose their cash accounts and see their investments become insolvent. At the same time, it doesn't help society if all these workers suddenly find themselves jobless. There's also a risk of contagion. If companies suddenly discover their deposits aren't de-facto safe, they'll flee other banks with similar risk profiles, causing more bank runs.
Banks going under and taking lots of funds with them is bad because it undermines confidence in the system. It's financial infrastructure that's supposed to always work. Sure, if it doesn't, you can work around it, but it becomes a drag on the economy, and things start looking like a developing country.
There are potentially millions of workers under a great deal of pressure to not lose their jobs to some disruptor or another. Are we somehow less sympathetic to them than these tech workers?
While the fact that the bonuses were paid at the time does help underscore the level of malfeasance of the bank leadership, many of those receiving the bonuses probably didn’t know about the gaps.
.... which is maybe a weak signal that nobody's biting yet and YC feels the need to escalate to actual government money ASAP.
If little sympathy, why?
May they burn brightly.
The vitriol for those archetypes will override any empathy for the victims from knock-on effects and lower level, poorer employees that will impacted by this. If that empathy was ever there to begin with, I guess. I personally believe that people want to hate the rich more than they want to empathize with the poor.
Personally, I can do without the DoorDashes of the world... but startups collectively employ A LOT of people and not all of them are wealthy, senior engineers. When the wealthy sneeze, the poor tend to catch pneumonia.
I don't think many will argue that this is a "good" thing or that they are "happy" to see ppl suffer (some might but they generally are a fringe group) but agreeing that a situation sucks doesn't mean you are willing to take a bullet to fix it.
I get the sense that most people are more in the camp of: "Yeah that sucks, hope it works out for you and maybe think about the risks more next time"
In the case of students, they borrowed money that was not theirs, spent it and don’t want to have to repay it.
IMO student debt forgiveness has a major problem of essentially punishing those who did repay their debts and the many, many more who didn’t go to college in order to help those who borrowed and did not repay their debts. There’s an additional problem in that college costs are spiraling out of control, largely due to easy loans that students can never escape.
The solution I’d rather see is to let student debt be discharged via bankruptcy again. This would let people in a tough spot get a reset and it would also encourage lenders to be a bit more judicious and maybe even apply some downward pressure to tuition rates.
Their own money. Well... aren't these mainly venture capital based startups? It's not actually the money of the startups but rather the money of the VC funds. So the situation is more similar to student loans than you portray it.
In fact, the ideas behind VC startups and student loans seem very similar. In both cases, you have people who lack capital — the startup founders (some of whom are as young as students and may even be students) and the students — and people who do have a lot of money — VC funds and the government — give them money in the hope that it'll help these people make money in the future and pay back the investment.
> It might easily cost the government even more in lost tax revenue if the thousands of companies cannot make payroll due to a banking failure, thus forcing them out of business and their employees out of their jobs.
That's an argument to bail out every failing business. Why this one in particular? Why not every one?
Anyway, it's not the job of the government specifically to maximize tax revenue. If the government needs more tax revenue for some reason, they can raise the tax rates. But interfering directly in the free market is not the way to do it. Bad businesses are supposed to fail. It's morbidly funny how many people rail against socialism until they're the ones in need of assistance.
> In the case of students, they borrowed money that was not theirs, spent it and don’t want to have to repay it.
This is a very one-sided description, making it sound like the students stole the money. There are two sides to every loan, the borrower and the lender. The lender in question here was the US government itself. The government lent the money to people who could not afford the loans and who had no collateral for the loans. In other words, without regard for the ability to repay. If a bank did this, the bank would go out of business. But then by your own argument, there ought to be bailout. ;-)
> essentially punishing those who did repay their debts
How so?
> the many, many more who didn’t go to college
Forgiveness of student loans is not a punishment to these people. The punishment was the high college costs and society's requirement that job seeker have college degrees. Both debtors and non-debtors are punished by this situation; they just suffer the punishment in different ways.
> encourage lenders to be a bit more judicious
You're missing the part where the lender is the government. These are direct government loans, which is why the government has the power to forgive them. The government cannot forgive private loans.
No. They literally sold pieces of their businesses for that money.
The equivalent for students would be if instead of borrowing the money, they signed over a percentage of all future earnings for the rest of their lives.
There's no effective difference. Only the terms are different. Although if your student loan debt is large enough, you may in fact be signing over a percentage of all future earnings for the rest of your life. One of the biggest growing groups of student loan debtors is senior citizens.
Both a loan and VC funding are legal relationships between someone who lacks money and someone who has money. It's a trade of current money for future money. Of course it's always a risk, because the future money may never show up: the debtor defaults, or the startup goes out of business. Plenty of startups die for reasons that have nothing to do with bank failure.
(Note also that a loan holder cannot simply repossess the money if the loan is in default. The disbursed money is no longer theirs. At worst, the loan holder can sue to have the debtor's wages garnished by a certain %, maximum 15% for federal student loans.)
But the money over $250K doesn't exist anymore if the bank is gone. It doesn't matter what they would use it for. This was a risk calculation, people put more that $250K into the bank assuming nothing would ever happen, it did, and now people want all their money back regardless of the risk they should have been aware of. But the contract/rules depositors signed up for the money is gone. Now those companies want money that doesn't exist anymore. They were playing roulette with very very low odds, but odds none-the-less.
The tax revenue aspect is nonsensical when compared to student loans as you could quite easily say getting rid of student loans would allow people to have more money to purchase more things for the government to get tax revenue on.
Yes it’s bad. Yes it’ll get worse if no buyer at 100 cents to the dollar is found by Monday morning. And yet, literally everyone involved signed up for it! It isn’t like there aren’t other banks? The thing had a circus for its risk management office. The big mighty all-knowing VC firms shouldn’t go around crying like babies and signing petitions but be organizing bridge loans until FDIC, the most brutally efficient government organization known to man fixes this, which will be soon and for most, soon enough.
Please don’t make VCs look worse than they are and socialize their losses. You’re in the risk business, do your job.
But it’s not unprecedented for the VC community to confuse capital issues and human rights issues: https://www.npr.org/sections/alltechconsidered/2014/01/26/26...
“Nepotistic trust fund baby” I am not. My family has no money, no connections. I went to Portland State University. I had no VC connections whatsoever.
Our company was originally bootstrapped off of personal savings accumulated by working and living way below our means. No friends or family invested or gave us loans. I’ve had no inheritance and expect none.
We did not see a deposit account as a risky investment in any way.
Consider companies small enough to have no one whose job it is to do finance. As a founder you’re already working long hours and bank failure is not a risk that is top of mind compared to lack of product market fit.
As a founder, I am sorry that VCs apparently don't help with treasury management. That strikes me as something that should be a clear part of their value prop.
Most banks don’t really like working with startups and sometimes freeze their money over AML controls that don’t play nicely with investor checks. If there’s a way to purchase insurance against this risk, I’ve never heard of it, and it’s probably too expensive for early stage startups.
Now the risk has shown its downside, Big Government is asked to bail them out?
SVB didn't fail because of "FUD", but because of a dumb decision to invest at the top. SVB is squarely at fault here.
I'd like to see a post-mortem or some sort of regulatory investigation to understand how it all went wrong. SVB had a risk management department, so what compelled SVB to make the decision that sealed its fate?
These are businesses who willing took a chance that their deposits might not be there.
So the message is: "Please shore up and reopen SVB, so we can get our funds out. Then you can shut it back down."
Edit: Sources in my other comment https://news.ycombinator.com/item?id=35114110
[0] https://www.govinfo.gov/content/pkg/CHRG-114shrg94375/pdf/CH...
https://www.dailymail.co.uk/news/article-11847295/amp/CEO-co...
I googled that for you.
Demo days are great and pump the pipeline. Who’s doing your third party and vendor risk management across the portfolio? Who is doing and monitoring public policy? Rhetorical, not meant to salt the wound, I genuinely want YC to learn from this and do better.
Details matter — let's wait to see what y'all actually advocate when it comes down to writing actual regulations.
This crisis may make deflation happen, if developer salaries deflate.
I'm an employee of one of these companies and I joined with the knowledge that it might fail, but with plans to bail quickly if it looked like it was heading that direction. Given the current size of the company I joined, I expected that to be on the scale of weeks to months, not two days.
(I do have the funds to deal with some amount of payroll fuckery, and don't plan to immediately do anything unless this gets much worse next week.)
Less regulation equals more cases of failures like SVB.
Striking a good balance is hard. It‘s certainly not zero regulation.
The answer to a lot of our problems as a country is much stronger taxes on the rich. People who say otherwise are either wealthy themselves or under some delusion they eventually will be (lottery winner mentality). Luckily you can ignore them because they’re such a small fraction of actual people, they’re just loud online.
Small government has its consequences
List of bank stress tests > Americas https://en.wikipedia.org/wiki/List_of_bank_stress_tests#Amer...
https://www.google.com/search?q=increased+capital+thresholds...
From "Transparency & Accountability - EGRRCPA (S. 2155) Rulemakings" https://www.fdic.gov/transparency/egrrcpa.html :
> The FDIC is responsible for a number of rulemakings under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). This page provides links to proposed and final rules and related documents.
"FDIC Releases Economic Scenarios for 2022 Stress Testing" (2022) https://www.fdic.gov/news/press-releases/2022/pr22019.html
How can the scenarios and policies be improved?
Key paragraph:
> "All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors."
The advance dividend presumably should protect most of the small-business account holders from imminently missing payroll. Presumably after that, there will be a secondary market in receivership certificates, and the question will be how much of a discount these trade at relative to the original account balances.
It's still a bad situation to be in, but it shouldn't be as thoroughly catastrophic as many seem to think.
The FDIC’s handling of the situation appears to be geared toward urgency and keeping depositors up and running. The advance dividend provides significant access to funds beyond the $250K limit.
The number of comments, Tweets, and even opinion pieces I’m reading from people who assume that all money beyond $250K has disappeared is concerning. The FDIC is rushing to provide access on Monday to substantial funds for a takeover that happened on Friday.
Depositors might take a haircut, yes, but the commentary about this being an “extinction level event” is just fear mongering.
I’m sure VCs and investors would love if the government stepped in and covered the remaining X% of missing funds when the dust settles, but the way they’re playing off of public panic to exaggerate the situation is starting to feel distasteful.
FDIC website indicates remediation time in the months-to-years. This is the concern.
In effect, it encourages concentrating deposits in a single bank. Benefits the bank, does not benefit the depositor.
So if you had "substantially more" than that, you should be financially savvy enough to insure your accounts and pay for the insurance on them as a cost of doing business.
That's why we insure anything - in case something happens.
So if banks offer more insurance for a fee, I can't easily tell how to do this. My business banking account has nothing about such a feature, either online search or looking at the fees schedule.
I'd consider this obscure, even esoteric information. But I'd expect a CFO should know this. And I'd expect a venture capital fund would have an info sheet on avoiding consolidating deposits in a bank, given the 2008 experience. And yet... nothing.
But I think it's not common because there are other treasury management strategies besides "keep all your eggs in one pure-cash basket".
> The FDIC will pay uninsured depositors an advance dividend within the next week.
This will likely be a substantial fraction of the uninsured deposits. Take a look at the FDIC website.
https://closedbanks.fdic.gov/dividends/
Pick a bank, say, "IRWIN UNION BANK & TRUST CO". The first dividend was almost 47% of the uninsured amount, and anoth 25% or so over a decade.
The failure of SVB as reported is not nearly as bad.
If a company still can't make payroll, they were pretty close to the edge. If the company is either profitable or very promising, they can look to their investors or providers of things like bridge loans.
If not, well, most startups fail, so it's all part of the game. But it's a good lesson for people in why profitability is more than just a nice-to-have.
This has real consequences. The FT reported this morning that companies are selling SVB deposits for 50%-65% on the dollar to make payroll. That is a HUGE mistake, but understandable for some 25 year old naif who's been told the sky is falling.
https://www.ft.com/content/3c6551ff-9778-4713-afc5-f87ba0bb8...
“YC Is Asking for a Bailout”
Not a good look when there is a conflict of interest here.
That was solely because of the title.