archive.is is poisoning results to users of Cloudflare DNS again. You can look up its IP (via e.g. 8.8.8.8) and hardcode it locally for their domains to fix it.
I was wondering the same thing, my router was set to cloudflair and archive would only work when on mobile... wondered why, thanks for the troubleshooting.
They require EDNS client subnet which is not supported by Cloudflare. Cloudflare's decision not to support it and the resultant breakage are mentioned in the Wikipedia article.
Archive.is requests EDNS information about the subnet that your system is on. Cloudflare doesn't pass this information along since it can be used to determine your location in part. So when archive.is doesn't get the subnet info, it sends bogus dns results back and you get that error. See https://jarv.is/notes/cloudflare-dns-archive-is-blocked/ for all the details.
archive.is actively blocks a selection of requests that do not provide them correct and valid location data; that error indicates that, for whatever reason, your request was blocked. Mine was as well, until I switched to curl; I am not using 1.1.1.1 DNS, but that's their most frequent issue.
The Pain of Silicon Valley Bank’s Collapse Is Being Felt by These Depositors: Customers that banked at SVB’s Cayman Islands branch have had their funds seized by the FDIC
They probably could, but who would “buy” a liability? If someone wanted to sell you their problems, how much money would you pay for the privilege of the burden?
No, when people owe money to the bank, that's an asset on the bank's balance sheet. That's the opposite of a liability. Companies will purchase the bank's assets, because the bank's assets (which are your liability) are worth something.
It doesn't work the other way around: if your end of it is a liability (your loan/mortgage/whatever), nobody wants to buy that from you, because it's worth a negative amount of money, it's a burden, a liability. Companies want to purchase the other end of the deal, because it's what makes them money: it has a positive value.
They could try, but who would pay for it at a worthwhile price? The bank already defaulted. The loan has value and can be sold because the borrower is still solvent.
Who says they can’t? I can’t find it just now, but I recall reading an article about some firm that approached a number of SVB depositors offering to buy the rights to their deposits at a discount (probably a steep discount at that). This was on or about that Friday or Saturday, before the government announced they would cover more than the FDIC limit.
These were essentially secured loans offered by the bank against funds that had already been deposited. I'm definitely not a fan of Cayman Island banking nonsense, but it seems rather unfair to seize the deposited funds that secured the loan and still try to enforce repayment.
Imagine what would happen if you didn’t have house insurance and your house burnt down. Would you expect the mortgage to be waved because the security (the home) was now seriously devalued?
I agree with you, but in this analogy it was also the bank that set your house on fire in the first place. Which is what makes it less intuitive to separate the two.
No, but it's not unsual to be able to offset deposits and loans. If you owe me $X and I owe you $Y, and you won't give me my $X back, why should I pay more than $Y - $X on the loan?
The first thing I’d think to do is write a check to cover the loan drawn on my SVB deposit. Let them explain why they bounced that check and we can take it to court.
Sounds like we agree that living by the sword should be allowed correct? Or do you still intend on making it illegal for others to do what they want with their own money even if you wouldn’t be on the hook for their losses?
This article feels like rich people who were trying to get around US law/regulations/taxes now wanting the protections afforded by it.
They deposited money in SVB's Cayman Islands subsidiary (a country that's a well-known tax haven). SVB goes under and the Cayman Islands have no deposit insurance so their deposits are wiped out. Now they want their money back or their debt forgiven. The SVB Cayman deposits didn't pay into the FDIC insurance fund so they shouldn't be given the protection of the FDIC.
The title of the article makes it sound like some poor SVB "customers" are in a bad situation. The truth is that it's going to be venture capital, private equity, and some really wealthy individuals (who were probably trying to dodge taxes). It's hard to feel bad for extremely rich people using a well-known tax haven losing some money. The WSJ is really burying the lead in this story. If you're trying to avoid US laws, regulations, and taxes, you can't come looking for US protections.
EDIT: In a previous article on the topic, the WSJ noted "The financial pain being felt by SVB’s foreign depositors could make investment firms that are incorporated or doing business in offshore financial hubs reconsider where they should put their money and what protections they have" https://www.wsj.com/articles/cayman-islands-regulator-explor...
We don't want to incentivize people to dodge taxes while thinking they'll enjoy all the protections paid for by taxes.
I don’t know if it’s just me that’s heartless, but I think if you’re financially sophisticated enough to bank in other countries or to have more than the insurable limit held in cash (!!! why???) then you ought to have known better or to have known the risks.
I never have more than a small amount held in cash, and even if I had a crazy windfall and made some billions, I wouldn’t keep more than a small amount in cash. For the patient folks, there’s equities… For the risk averse, there’s money markets, treasurys, real estate, etc.
Any company with more than a couple dozen employees is going to have more than $250k in the bank for payday. SVB had some payroll processing companies as clients, so they each had multiple companies' payroll in the accounts that Friday. And the article mentions that the Cayman Islands branch had investment and private equity firms as clients, so they wouldn't get too far with only $250k in their accounts.
You can use multiple banking accounts at multiple banks and still maintain FDIC protection. There’s many business models set up to facilitate such things, so while you can’t hold billions in this way in practice it’s not a problem for payroll. Ex: https://en.wikipedia.org/wiki/IntraFi_Network
Alternatively, you can also buy your own insurance from a 3rd party to minimize risks.
However, you can also get incentivized to ignore the risks and keep large sums at individual institutions. Which has the obvious downsides SVB customers are discovering.
They certainly did know better. They're just hoping if they whine loudly enough now, they won't have to deal with the consequences of the risks they knowingly took and would have happily benefitted from without a word.
In inflation-adjusted terms, it’s not that exciting: so do other fixed assets that aren’t you lending a random bank cash, such as US/Canada treasurys / government bonds.
The point is that these other instruments don’t have the same risks as lending large amounts of cash to a bank, or even just holding large amounts of cash under your proverbial mattress.
If you’re chasing returns, you’ll need to take risks (and you probably won’t be interested in a 5% savings account in this sort of inflationary environment).
Reminds me of Iceland being on the hook for all those savings from people in the UK looking for better interest rates. It almost bankrupted the country since the size of their banking industry was much larger than their internal economy needed.
US banks are regulated by the US government. One part of that regulation is that they must pay into a government body called the FDIC. Most people would say that if the government adds to your cost of doing business by forcing you to pay money proportional to some amount of money you collect or spend, then that's taxes.
Ultimately, the FDIC is backed by "the full faith and credit of the United States government", which means if push comes to shove, it's backed by taxes.
Regardless of whether it really is taxes or not, it is an extra cost of doing business that the Cayman islands do not have, and therefore do not pass on to their customers. So reasonably, if one puts money in the Cayman Islands one is enjoying the benefits of looser regulation, i.e. lower costs. You can't then complain when that looser regulation includes not enforcing deposit insurance and you lose all your money.
Here's the lesson I want people to take away from this: only when the government gives money to ordinary people is it somehow a moral hazard. The wealthy will never say no to government money. Worse, they will expect it and lobby for it.
It's why student loan forgiveness is somehow a moral hazard but forgiving PPP loans isn't.
So here you have a bunch of rich people who wanted to avoid paying any US taxes and being outside the protections the US financial system offers. And they may well get burned. It won't stop puff pieces like this from the WSJ to somehow paint the problems of a Cayman Islands hedge fund manager being a slippery slope to the government seizing Iowa farms.
Wholly agree. One thing I do not miss about about the US is the erosion of empathy among the common folks, while the elite and ruling class rob the country.
Not at all. The article gets right into it, immediately. It's not a surprise ending or afterthought. Sure the headline is slightly clickbait (but just slightly). The article reads just like you've summarized.
> SVB Cayman Islands … which had deposits from the bank’s clients in China, Singapore and other parts of Asia, including venture-capital and private-equity firms
A) non-Americans should never bank directly in the US given the option of the Cayman Islands because the US not a competitive jurisdiction in comparison to more competitive jurisdictions such as the Caymen Islands, its way more than just the tax rate. It requires complete indoctrination and hubris to assume the US is the most right and claims to the title to all capital. In this case, the US has onerous requirements levied on non-US persons in an effort to create a “tax person” that had no reason to be created, but its not about avoiding that status because there may be no tax event regardless, it’s about the mountain of paperwork. Its not based on an intention of Congress its just fallout from a nebulous regulatory environment.
B) The FDIC placed this subsidiary into receivership and made them unsecured creditors. In order to harbor your opinion, the FDIC most likely shouldnt have done that. It doesnt pay into FDIC insurance so FDIC shouldnt have taken it over. So its more like the US took funds it shouldnt have and the investors/depositors were correct to rely on the advances of the Cayman Islands but the US, once again due to nebulous regulatory quirks, chose to seize the parent organization and everything under it in a hurried mess, which maybe a more developed nation could do better.
C) The FDIC did pick winners in coordination with the Treasury and Federal Reserve, which undermines your stance on the people you denigrate under poor assumptions. There was actually no way to make everyone whole immediately, without the credit facility from the Federal Reserve to give a 100% LTV loan on treasuries, marked UP to a price nobody would pay on the market.
If any VC and PE funds were US based General Partners, then I would mostly agree with you, partially because even their offshore feeders can bank directly in the US. But the FDIC also probably should have just ignored that subsidiary either way, or not called them unsecured creditors.
As a Caymanian I’m doing to take exception to your non-sequitur about Cayman being a “well-known tax haven”.
Cayman is one of the most financially transparent, if not _the_ most financially transparent, location in the world. We fully comply with FATCA, CRS, and AEOI, to the extent that it takes even a native Caymanian multiple weeks to open a local bank account.
The reason most foreign investors use Caymanian intermediaries is actually just that transparency, particularly when they’re being scrutinized by foreign regulatory bodies and don’t want their money to disappear into a Delaware numbered company.
It is very, very hard to use Cayman to hide money from taxes. It is, however, a particularly easy place to keep global funds in a law abiding and transparent way. This is our whole regulatory strategy for continued national growth and prosperity.
I don’t challenge your conclusion that FDIC protection shouldn’t apply to non-regulated funds. Just don’t trash Cayman. If your country allows tax shenanigans that’s on your government and has nothing to do with us. Cayman will not aid or abet any tax evasion, and does not deserve the snide aside.
I don't know what to tell you; the Cayman Islands for years has been ranked top of the list of tax havens and money laundering locations for years and years.
You both are right though. Cayman Islands is actually a trusted jurisdiction for parking cash for companies, part of the reason why a lot of hedge funds are based out of it. Same for BVI, the Channel Islands, etc. Those are jurisdictions enabled by US' own laws to park American money - they fully comply with American rules and if the rich are allowed to park their money, it's because US Law lets them to do so.
Now if someone or some corporation's hiding money in Dubai, Cyprus or Liechtenstein or one of those dozens of other dodgy tax havens, then you can bet your ass there's something shady behind the scenes. My neighbor for a while in Dubai was a wanted criminal in the UK.
> The reason most foreign investors use Caymanian intermediaries is actually just that transparency, particularly when they’re being scrutinized by foreign regulatory bodies and don’t want their money to disappear into a Delaware numbered company.
> It is, however, a particularly easy place to keep global funds in a law abiding and transparent way.
I don’t doubt that Cayman is strict for individuals like yourself opening bank accounts, but the regulations on companies are a different story. It’s a well-known tax haven on the global scene.
There’s tax mitigation and tax avoidance, and I feel like you’re conflating the two.
If your country allows a company to locate money somewhere else and not be taxed on it, that’s on your county, not on us. The best we can do is make sure it’s visible, which we do.
This is some top tier gaslighting, man. You know as well as I do that people put money in the Cayman islands to dodge taxes. You're behaving like someone at the Cheesecake Factory being offended when someone says their food is high calorie.
You just can’t hide money in Cayman. You can put money in Cayman, when you need to put money somewhere safe and neutral, but not hide it. Nobody dodges taxes by putting money in Cayman.
There are some ways to save on some countries’ taxes by putting money here, but that’s on those countries, not on Cayman.
Cayman is factually a place that is very commonly regarded as a tax haven.
You appear to think that that near-ubiquitous reputation is because of some sort of misunderstanding?
Can you explain why you think the Cayman Islands does have that reputation? Is it the result of some sort of conspiracy? Angry people weaving tales to assail the reputation of the citizens of Cayman?
Many people misunderstand the difference between legal tax mitigation and tax avoidance.
If your country allows companies or individuals to not be taxed on assets they locate overseas somehow, that’s on your country, not on us. And it has nothing to do with the money being here. All we can do is ensure that money flows are transparent and legal, which we do.
We put a lot of effort into being the world’s safest and best neutral third party location, and sometimes companies which are orchestrating tax mitigation schemes put money here while doing so. But they’re not putting money in Cayman to hide it, they’re putting money here because if you need to put money somewhere here is the easiest place to put it.
> If your country allows companies or individuals to not be taxed on assets they locate overseas somehow, that’s on your country, not on us.
Who is blaming the Caymans? They Caymans is commonly used as a tax haven for US companies due to US laws. It's on the US to fix those laws. Correctly observing the Caymans is used as a tax haven does not imply the Caymans should change, and I'm not aware of anyone in the US calling for holding the Caymans responsible. I am aware of many calling for reform on the laws that make havening profits in a foreign country possible.
> The nation's low tax rates have led to it being used as a tax haven for corporations; there are 100,000 companies registered in the Cayman Islands, more than the population itself. The Cayman Islands have come under criticism for allegations of money laundering and other financial crimes, including a 2016 statement by former US president Barack Obama that described a particular building which was the registered address of over 12,000 corporations as a "tax scam".
Our decision to have lower taxes, because we don’t need to raise more money, seems an odd thing to criticize us for.
Companies do not choose Cayman. They choose “not my home/operating country”, then as a well regulated and safe third party location many of them end up in Cayman. And you should be glad they do, because here they operate transparently and legally, and if it’s for tax benefits whatever tax loopholes exist in their home countries are closed they’ll have no choice but to richly comply. (BTW, In surveys the most frequent reason cited for being in cayman is regulatory neutrality, not tax mitigation.)
And if Obama has a problem with hundreds of companies sharing an address, I can’t wait until he finds out about Delaware. Or a post office!
"Tax haven" does not mean illegal. The Cayman Islands are a well-known tax haven, just like Ireland, Singapore, and Jersey. It's top of the list when you Google "tax haven". It's number 2 on both the Hines and Zucman lists of tax havens and number 3 on the ITEP list. The Cayman Islands are also on the EU's Anti-Money Laundering blacklist for failure to prosecute money laundering cases.
I’m a wealthy local with a wealth management bank account. It took me 7 weeks and I had to file literal volumes of paperwork with help from an accountant to open a bank account when I moved home.
You can take all the exceptions you wish, but the truth is while its a great spot for certain legitimate above board financial vehicles, its also a tax haven. The two can in fact cohabitate, and in the case of the Caymans, do.
Caymans in particular has a decent level of transparency around trusts and the like, but its banking system still records the de-minimus KYC it can get away with (including uneven FATF compliance).
Why exactly do you think people use the Caymans at all then? If it's as you claim the surely keeping the money domestic makes more sense? Of course the truth is more complicated, and you even skirt around it with "global funds", i.e. a way to operate without repatriating the money and paying taxes.
People use Cayman because it’s a neutral and safe jurisdiction for global funds which plays nicely in the global financial system.
If you keep money in the US, and the beneficial owner of that money is in Singapore/UAE/China/etc, then profits are taxed twice.
If you operate in USA but earn money globally, then you’re subject to at least double, but sometimes a polynomial combination, of reporting and filling obligations from combinations of jurisdictions.
Cayman is clean, simple, above-board, and safe. It’s like a global money cache.
> If you operate in USA but earn money globally, then you’re subject to at least double, but sometimes a polynomial combination, of reporting and filling obligations from combinations of jurisdictions.
Again, you literally state that it's for tax avoidance. Are you reading your own words?
It can be both - transparent, and a tax heaven. And it's one of the most well-known. Sorry, but in at least 2 countries where I lived, if you hear Cayman, you immediately think "tax evasion".
I get that you're offended though - when you see the Swiss - that somehow managed to turn their most shady banking system into a national pride thing - and admired but others too !
It’s mostly Grisham’s fault from his 90’s book “The Firm”, IMO. Also, like much of the world, before global money laundering laws and regulations came into being there _was_ a lot of tax evasion happening here. But that hasn’t been the case for twenty years, we grew up.
The main reason for having a subsidiary in the Cayman islands is to avoid paying taxes. In some cases this is legal tax avoidance, in others it is illegal. The ratio of the two is unclear because of secrecy laws.
One common way businesses legally avoid taxes (note that legal is not moral, many people think should be illegal) is through IP. They make money in country X, then their subsidiary in the Cayman islands has to be paid because it owns the patents involved, but that subsidiary is owned by the main company and sends that money back with zero taxes. In country X the profits look very small now because so much had to be paid in licensing fees.
Another way is through round-tripping money. Investing in the Cayman islands and then taking that money and investing it back into their country as a foreign investment.
There are countless other ways. The Cayman islands along with a few other tax havens play a nasty and selfish role in today's financial system that gives rich companies and rich people a massive advantage while hurting everyone else, while of course generously skimming something off the top for themselves.
> The Cayman islands along with a few other tax havens play a nasty and selfish role in today's financial system that gives rich companies and rich people a massive advantage while hurting everyone else.
This is where you demonstrate your ignorance and bias.
Yes, there are American laws which allow US companies to minimize their global tax burden, but those are on America, not Cayman. The best we can do is ensure the money is well documented and visible, which we do.
Cayman is used not because of tax friendliness, but because if you’re going to put money somewhere which isn’t a major economy Cayman is the easiest and safest place to do so. It’s a neutral third location.
It’s easy because we comply with every global financial interop and transparency regulation. It’s safe because we have a large and strong financial services industry with British law.
And Cayman does not “generously skim” for ourselves. We have pretty minimal fees and a local economy of professionals. The primary way we benefit is services and expertise, which is how we level up our country and a contribution to the global economy.
You might not like it, but the Caymans are absolutely known as a tax haven. You can’t really be arguing that people stash money in the Caymans “because of the transparency”…
“The Cayman Islands are considered a tax haven because the Caymans do not impose a corporate tax, making it an ideal place for multinational corporations to base subsidiary entities to shield some or all of their incomes from taxation. The Cayman Islands do not impose taxes on residents. They have no income tax, no property taxes, no capital gains taxes, no payroll taxes, and no withholding tax.”
Entities DO hide their money in tax havens to avoid paying taxes. They avoid paying taxes BECAUSE tax havens have low or no taxes. Those two definitions are defining two ends to the same thing.
The caymans have low or minimal taxes. The caymans are also used by entities to hide their money so they don’t have to pay taxes. Entities are not incorporating in the Caymans for any reason other than avoiding taxes.
And the actual definition of a tax haven specifically is “a country or independent area where taxes are levied at a low rate.”
True, but if you're looking to hide your money you want two things: 1) low taxes within the country and 2) low transparency as to who owns what in the country.
That's why Switzerland used to be a great place to hide your money decades ago - low taxes and numbered accounts where it was illegal to reveal the true identify of the account holder.
Based on DelaneyM's comment - Caymans has the 1st but not the 2nd.
My point is that the ability of a company to put money offshore for tax benefits is on the home/operating country, not the offshore location.
Cayman invests a lot of energy in sensible and globally integrated financial regulations. We specialize on that as a country. So when companies are moving money around globally we often feature in that. But we can’t be held responsible for what those funds transfers are used for.
We can be transparent (and we are exceptionally so), we can be responsive to global financial crimes queries (we are that as well). But what are we supposed to do about another country’s laws?
the home country is the Cayman islands, the operating country may be different, and either way, the motivation and ability to use the Cayman Islands as a tax haven derives from both countries
> Cayman invests a lot of energy in sensible and globally integrated financial regulations. We specialize on that as a country.
the reason the Cayman islands may have made all those investments is because that is what is expected of a mature tax haven
> we can’t be held responsible for what those funds transfers are used for
> what are we supposed to do about another country’s laws?
I mean, if you don't want to be a tax haven, you could raise taxes to be less favorable to businesses, but I'm not saying you should do anything, because this conversation is descriptive, not prescriptive
Companies are not putting money in Cayman to hide it.
Some companies put money outside of their operating or home country to minimize taxes, but Cayman has no part of that besides being “not their operating country”.
And it’s actually less often the tax treatment of funds which brings companies to Cayman, and much more often the simpler regulations. Operating globally often means a geometric growth in financial complexity. Cayman is a neutral third country, which simplifies things tremendously. Think of us like a financial cache.
By the way, Cayman has pretty substantial taxes. We operate a thriving country with no national debt and a great social safety net.
We just charge them differently. There’s an effective 22% consumption tax (with carve-outs for basics), levied on all imports and increased on luxuries. We have 7% taxes on all property transfers (for both income and to minimize house flipping). We have a ton of fees on any government interaction which aligns regulatory burdens with income.
I think it's actually more nuanced than you're making out to be.
If a customer has both a bank loan and a bank account, I think it is reasonable that the customer received some of the proceeds when their loan is sold off.
If your bank sells your mortgage to another bank, the second bank now owns that debt. If the first bank goes out of business, you very obviously (separately from the previous transaction) lose any money that isn't insured. I'm not sure what else you would expect to happen.
yes, and I am saying the first bank should have to use the assets it has tied to you to pay off the debt it has to you, before it can sell them in bankruptcy to bank #2.
And we're saying that's not how that works. When the FDIC takes over the bank, they pay out all of the insured deposits, sell all of the assets, and distribute the remaining funds, which in cases like this one are not enough to cover uninsured deposits.
yes, And I am saying that it is not unreasonable that the bank should have to pay back individuals with assets for sale before covering those without assets.
It all comes down to priority in asset recovery.
There is no moral, philosophical, or biblical truth that FDIC insured depositors must be paid out first. It is just as conceivable to have a system where customers with both bank assets and debts have higher priority to recovery, at least for to funds recovered from their assets..
Anyone using the bank signed a contract that defined how a failure affects them. There is absolutely a moral, philosophical, and biblical truth behind honoring that contract.
Galatians 3:15: "To give a human example, brothers: even with a man-made covenant, no one annuls it or adds to it once it has been ratified."
Proverbs 17:18: "One who has no sense shakes hands in pledge and puts up security for a neighbor."
Outside of that fact, the reason that the system is designed this way is to protect normal people from Rich people destroying these banks. If it were the way you're proposing, only the Rich people taking on the most risk and debt would get paid out, and every normal person using the bank would lose everything. We know this, because that's exactly what happened before the FDIC, which is the entire reason it exists.
I understand that there are legal regulations which generally specify these matters. However, to think that these are immutable is just wrong. Banking regulations change over time and jurisdiction.
To be clear, I'm not advocating abolition of the FDIC. Normal people wouldn't lose everything. The rich still would pay for FDIC payments, just like they now.
You would just see some individuals have less damage, specifically when bank assets in their name are commensurate with bank debt in their name. FDIC payouts would be slightly larger, but again, these are recouped by banking fees, largely paid by the rich
"In the case of a non-delinquent loan, the depositor might elect to “set off” the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit). In either case, no “offset” is possible unless the obligations are “mutual” – meaning that the borrower and the depositor must be the same person or legal entity acting in the same legal capacity."
> Some SVB customers told the Journal they have asked First Citizens if their loans can be set off with the deposits that the funds had in their Cayman bank accounts.
> In response to a query from the Journal, a First Citizens spokeswoman said a setoff “isn’t legally possible in this situation,” because First Citizens owns the capital-call lines while the Cayman deposits were with SVB Financial Group, the former holding company of Silicon Valley Bank.
>Presumably these loans were offloaded before the insolvency hit
No, that isnt what it is saying here. The loans weren't offloaded beforehand. First citizens obtained them as a result of the insolvency. First Citizens is claiming that they dont have to perform setoffs for some of the loans they acquired.
First citizens did perform setoffs for other unsecured customers in US branches, similar to how I described in my posts above, as required by law. Customers with accounts AND loans get their loans forgiven before the account balance goes to FDIC insured accounts. However, First Citizens thinks that due to the structure of their purchase and the SVB organization, they are not obligated to do the same for international branch customers with accounts and loans. For those, they get to hold the loan but not the setoff obligation.
Now the FDIC is in the position where they have to decide if they will claw back the loans from First Citizens and forgive them directly.
How do you think the bankrupt bank pays it's creditors/depositors? It sells all the assets in bankruptcy to bank #2 and then uses that cash to reimburse the people it owes money to in an orderly way. It doesn't go to each creditor and negotiate the debt separately. The entire point of bankruptcy proceedings are to ensure that the CEO doesn't make his golfing buddies whole by settling their debts and leaves everyone else out to dry.
Assets -> cash -> distributed according to the courts.
Assets -> cash -> forgive any loans to the people who had accounts -> payoff FDIC insured accounts -> distribute remainder according to the courts
This is what happened for US customers with both loans and unsecured accounts. bank #2 says they dont have to forgive the loans specifically for some customers.
FDIC takes over bank -> FDIC allows people to pay off their loans with the same bank using funds at the same bank -> FDIC pays off insured accounts and takes on debt from the bank -> Sells Assets -> Uses cash to pay itself back by being first in line with the courts.
If it gets to Bank #2, it's not their problem and they specifically don't have to. Also, this wasn't a US bank! It wasn't under FDIC control. That payoff happens before bankruptcy. If the FDIC doesn't take over your bank it doesn't apply.
>Also, this wasn't a US bank! It wasn't under FDIC control
That's the part that I disagree with. My understanding is that FDIC took possession and sold off the International loans to bank number two, but did not discount them by the international account balances.
It doesn't seem right to me that the FDIC can say "it's not my problem we don't have control“ while simultaneously taking and selling the international loans
Which they are, and FDIC now has to choose whether it's going to take back the loans it's sold off to pay the account holders.
This isn't about what happens to FDIC insured accounts, it's about how to apply pre-existing FDIC policy for handling non-insured accounts. The regulation is very clear on how not insured accounts get offset in some cases and the regulations are unclear or discretionary in other cases.
This goes full circle back to my original point that if the FDIC takes control of the International loans, but they should deduct the value of that counts from those loans, just like they did for the majority of the customers
That's the thing: the depositors are now unsecured creditors of SVB. The problem is that they don't want to be unsecured creditors. They want to be secured creditors.
They will get some of the proceeds of their loan, if there are any proceeds left over once secured creditors are paid. But that's where their complaints come in. There's almost assuredly not enough to recoup 100% of their deposits. Not only that, it could take a while before they receive anything. Time is money as they say, especially with today's interest rates.
If I have a bank and there are 10 secured customers who have deposited $100 each and 10 non-secured customers who have deposited $100 each and I can only cover $1,200 worth of deposits, the non-secured customers are going to be understandably upset. The 10 secured customers get made whole and then I have $200 left over. I can give each non-secured customer 20% of their $100 deposit.
These unsecured creditors will receive money in proportion to their deposits from what is left over. The questions are: is there anything left over and how much will it cover.
Yes, the deposits do become an unsecured claim on things like the proceeds of loans that are sold off (not the proceeds of their specific loan, but the proceeds of things sold off generally). The issue isn't that people are trying to deny that. The issue is that there's probably very little left over to recoup.
This is a pretty different issue than what you described. The analogy would be if you take off $100 loan from your bank, and have the $100 sitting in the bank account when the Bank goes bankrupt. Normal FDIC rules state that yes the bank can take your $100, but they also have to forgive your $100 loan. This loan forgiveness is exactly what happened to all of the unsecured account holders in the US. However, when it comes to the Cayman Island accounts, the bank #2 that received the loans is not forgiving the value of the accounts held.
Now the FDIC has to decide if it will repossess those loans from bank #2 and forgive them or not.
Cayman isn't really a tax dodge. I've structured a few hedge funds in the Cayman Islands, and FATCA/CRS regime to which it strictly adheres prevents it from being one. Companies set up foreign financial entities in Cayman Islands because it's a tightly regulated financial center with well known laws, and because foreign investors want it because it's perceived (particularly by Chinese investors) as a safe haven. If those investors invested directly through US entities, they still would not be taxed. What's also likelier here is that they were trying to avoid the US banking system so that funds could not be seized (so much for that).
I can't see the article since it's paywalled, but the bank would have required that a certain amount of funds remain on deposit for the borrower to get the terms. I've seen and facilitated an SVB loan agreement for a startup, and I can tell you that's exactly what it says. So the bank required you to park your money there, and then it lost the funds. In any normal business context, the money lost would come off of the balance owed. It sounds like the loan was received from one entity, but the deposits were placed with another, and none of the parties contemplated a bank collapse that would require the bank to forfeit a portion of the owed amount.
Yeah, it was the same when FTX went belly up. Crypto bros trying to use the U.S legal system(which they want to replace) in order to get their money back.
I get your point, but think of it this way - if you kept your money in a bank without deposit insurance, while also borrowing money from said bank, and then the bank went under, sure your money is gone, but is it fair for the bank to say "hey we lost your money, but we still expect you to pay us back the money you borrowed".
Maybe I can put it in a way that will seem fair (or at least necessary for banking to function; or at least the closest approximation of fairness).
Let's say that you deposit money with me and I tell you "if my house burns down, you won't get the money I'm holding in the house back." You agree. I lend you money and you say, "if my business fails, I won't repay the loan." I agree. My house burns down, but your business is doing fine. According to the terms that we both agreed to, you still need to pay me back the loan.
Let's say that you deposit the money with me and we say that if my house burns down, you don't have to pay back any loans to me. I refuse to lend you money because of that clause. You borrow money from Frank, my house burns down, and you're back in the same position.
Should people who had deposits wiped out, but had borrowed from other companies receive debt forgiveness? Should Frank be required to forgive your debt even though he had nothing to do with the failure of my bank?
If it worked the way you propose, banks would never lend money to people whose deposits they held (unless those deposits were externally insured). You'd deposit at SVB and have to get loans from another bank since SVB wouldn't lend to you as a depositor-customer.
When you take on a debt, you're saying you can pay that debt even with all the risks that exist in the world (including the risk that uninsured deposits might disappear). You're agreeing that if you can't pay the debt, that's your fault. We have processes like bankruptcy when people and companies can't pay their debts.
I think I'd update your quote to be "hey we went bankrupt so we don't have your money, but we still expect you to pay us back unless you're willing to declare bankruptcy yourself." I think that's a key change and highlights what they don't want to do. These VCs, private equity, and wealthy elites don't want to declare bankruptcy. They looked at the risks, accepted the risks, and now they're annoyed that the risks went against them. Most likely, they can all pay back those loans. They just don't want to since they took a big loss on their uninsured accounts.
Companies don't declare bankruptcy and wipe out their owners for fun. SVB's shareholders lost everything, over $40B. This isn't a fun technicality where the bank gets a happy ending on the backs of its depositors.
I'd also note that these depositors may not have lost their money. They're simply unsecured creditors. If the bank's assets can cover their deposits, they'll eventually get their money back (or a portion of it).
I think the key thing is that the act of taking the loan must be treated independently of the act of depositing money. When taking the loan, one must assess the risk involved. With an FDIC insured account, you can be pretty assured that you can repay the loan based on deposited funds. With an uninsured account, you know you are taking the risk that the deposited funds might not be there. That makes it seem fair to me. The alternative is that banks simply wouldn't lend money to their depositors since they'd have more rights on the loans of non-depositors.
It's fair, to me, because taking out a loan means accepting the risk that you might lose your job, your deposits might change within the regulatory framework on those accounts, etc. They accepted the risk that their deposits wouldn't be around to pay the loan - just as they would have if they'd taken the loan from HSBC while depositing at SVB. The decision to accept the risk of uninsured deposit account was the depositor's choice. Now the bank also accepted the risk that the borrower might default and declare bankruptcy just as the depositor accepted the risk that the bank might go under and their deposit would be lost. Then the issue becomes that the borrowers don't want to declare bankruptcy having acce...
That makes sense, however the main cause here, as described in the article, is that they kept their deposits in one bank, but borrowed money from another bank - a related one, but a different one.
This view of asset custody is uninformed, and it's designed to reinforce an ignorant worldview that would qualify as hate speech against any other group.
The reason these jurisdictions exist is because when you have pension funds that need to pay their members over a long horizon, you need to hold the assets in a place with a legal framework that has the incentives and protections to be able to make those payment guarantees. Sovereign wealth funds also need management, and you can't leave the money where some regime is going to loot the treasury to keep themselves in power instead of supporting the conditions that return growth.
If your understanding of money is something that you just debase yourself and accumulate resentments for, and then compensate for it by indulging in small acts of malice and deprivation, consider what you are putting out into the world before you complain about what you (or "the people") are getting back.
Perhaps I'm missing something here but if depositors were exposed to uninsured risk then why didn't they just purchase credit default swaps on SVB? Surely such people understand the basics of hedging?
> The title of the article makes it sound like some poor SVB "customers" are in a bad situation. The truth is that it's going to be venture capital, private equity, and some really wealthy individuals
These are folks that were trying to avoid US regulations and taxes via offshore accounts. But if you do that you also don’t get the protections that come with having a US bank account… like not losing your money. They got burned and are now crying. Most folks aren’t losing sleep over this.
AIUI if the loans and deposits had been with the same legal entity, any outstanding loan amount would be offset by the deposit balance.
But in this case, SVB used two different entities: one for loan accounts, and another for Cayman-based deposits.
Whilst this seems correct, it's also unintuitive.
I guess many people here have both a mortgage and a savings account that they got from the same bank.
Imagine you just had some sort of windfall (bonus, bequest, whatever) and your checking account temporarily had more than the FDIC limit. But then the bank collapsed, and some of your deposit is uninsured. No problem, you think, because you owe the bank more than that on your mortgage. But then you find out that your mortgage loan was sold soon after the bank originated it, so you mortgage is with a different entity. Now, under FDIC rules, your uninsured deposits cannot be used to offset your outstanding mortgage.
SVB had two entities (or more). A US one and a Cayman one. You could deposit money in the US one (and people did, those people are fine) but then you were subject to US rules and taxes. So some people borrowed money in the US, but kept their money in the Caymans. This was not some random happenstance where something outside their control caused cashflow issues causing them to lose money[0]. This was a conscious decision with risks.
I hope these people are not made whole.
[0] In practice, while not obligated to do so, the FDIC has always repaid people 100% in the situation you described.
>Those investment firms were stunned in late March when they found out their deposits weren’t protected, and the FDIC—acting as SVB’s receiver—had drained their bank accounts, The Wall Street Journal reported previously.
I don't really understand the reporting here. Really? The investment firms with funds in a tax haven were 'stunned' when they found out their deposits weren't protected? That doesn't sound credible to me. They're bloody investment firms! Figuring out how to manage money is literally their job, it's not credible to turn around and go "Gee, I'm just a simple guy trying to pay for groceries, I don't understand this complex banking stuff". Why write an article like this - other than you've been in contact with someone looking for a sympathetic write up to pressure regulators.
If they really are this stupid - and I don't believe they are - get a list of their names and send the IRS after them because there's no way they successfully structured their companies to dodge the tax.
It is an obvious propaganda piece but the average person believes whatever they read so why not?
These people are the opposite of stupid when it comes to money. Cunning, ruthless, underhanded, obsessed, win at all cost, win even at the expense of your own grandkids.
When we have no culture though beyond sports, video games and a wealth creation, net worth game, it is hard to imagine this not happening.
Presumably the assets from the loan still exist? If those were somehow deposited in SVB there might be a case. But if you buy a house with a mortgage and then a bank run wipes out your lender, you still own the house and could conceivably sell it to cover the cost of the loan. Frankly if you’re sophisticated enough to bank in multiple countries I would think you’d know that.
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[ 6.5 ms ] story [ 305 ms ] threadhttps://en.wikipedia.org/wiki/EDNS_Client_Subnet
See also, for example: https://twitter.com/archiveis/status/1018691421182791680?s=2...
The Pain of Silicon Valley Bank’s Collapse Is Being Felt by These Depositors: Customers that banked at SVB’s Cayman Islands branch have had their funds seized by the FDIC
https://www.wsj.com/articles/the-pain-of-silicon-valley-bank... (https://archive.is/Gzj06)
Posted back in May at https://news.ycombinator.com/item?id=35932002 and https://news.ycombinator.com/item?id=35968213 but not discussed.
This is literally what this thread is about, people's debt getting passed on from the bank to someone else
It doesn't work the other way around: if your end of it is a liability (your loan/mortgage/whatever), nobody wants to buy that from you, because it's worth a negative amount of money, it's a burden, a liability. Companies want to purchase the other end of the deal, because it's what makes them money: it has a positive value.
So depending on the the loan, you might be able to buy it so you can pay it off at a discount.
If the bank repossessed my house, for example, I would not continue paying my mortgage.
The same reason there is to pay any debt. Damaged credit, judgements, seizure of assets.
Edit: see this from the FDIC, which suggests this would be an option for depositors https://www.fdic.gov/consumers/banking/facts/borrowers.html
If it turns out to be a crime, I think I’ll take my chances with a jury trial where all have to agree to convict.
They deposited money in SVB's Cayman Islands subsidiary (a country that's a well-known tax haven). SVB goes under and the Cayman Islands have no deposit insurance so their deposits are wiped out. Now they want their money back or their debt forgiven. The SVB Cayman deposits didn't pay into the FDIC insurance fund so they shouldn't be given the protection of the FDIC.
The title of the article makes it sound like some poor SVB "customers" are in a bad situation. The truth is that it's going to be venture capital, private equity, and some really wealthy individuals (who were probably trying to dodge taxes). It's hard to feel bad for extremely rich people using a well-known tax haven losing some money. The WSJ is really burying the lead in this story. If you're trying to avoid US laws, regulations, and taxes, you can't come looking for US protections.
EDIT: In a previous article on the topic, the WSJ noted "The financial pain being felt by SVB’s foreign depositors could make investment firms that are incorporated or doing business in offshore financial hubs reconsider where they should put their money and what protections they have" https://www.wsj.com/articles/cayman-islands-regulator-explor...
We don't want to incentivize people to dodge taxes while thinking they'll enjoy all the protections paid for by taxes.
I never have more than a small amount held in cash, and even if I had a crazy windfall and made some billions, I wouldn’t keep more than a small amount in cash. For the patient folks, there’s equities… For the risk averse, there’s money markets, treasurys, real estate, etc.
Alternatively, you can also buy your own insurance from a 3rd party to minimize risks.
However, you can also get incentivized to ignore the risks and keep large sums at individual institutions. Which has the obvious downsides SVB customers are discovering.
They should take their losses.
see also COVID PPP loans
The point is that these other instruments don’t have the same risks as lending large amounts of cash to a bank, or even just holding large amounts of cash under your proverbial mattress.
If you’re chasing returns, you’ll need to take risks (and you probably won’t be interested in a 5% savings account in this sort of inflationary environment).
https://en.m.wikipedia.org/wiki/Icesave_dispute
This exactly. Either the deposits were insured or they weren't (as it seems in this case). Can't have it both ways, having cake and eating it too.
Ultimately, the FDIC is backed by "the full faith and credit of the United States government", which means if push comes to shove, it's backed by taxes.
Regardless of whether it really is taxes or not, it is an extra cost of doing business that the Cayman islands do not have, and therefore do not pass on to their customers. So reasonably, if one puts money in the Cayman Islands one is enjoying the benefits of looser regulation, i.e. lower costs. You can't then complain when that looser regulation includes not enforcing deposit insurance and you lose all your money.
Here's the lesson I want people to take away from this: only when the government gives money to ordinary people is it somehow a moral hazard. The wealthy will never say no to government money. Worse, they will expect it and lobby for it.
It's why student loan forgiveness is somehow a moral hazard but forgiving PPP loans isn't.
So here you have a bunch of rich people who wanted to avoid paying any US taxes and being outside the protections the US financial system offers. And they may well get burned. It won't stop puff pieces like this from the WSJ to somehow paint the problems of a Cayman Islands hedge fund manager being a slippery slope to the government seizing Iowa farms.
Sucks to suck.
(lede, not lead)
Not at all. The article gets right into it, immediately. It's not a surprise ending or afterthought. Sure the headline is slightly clickbait (but just slightly). The article reads just like you've summarized.
> SVB Cayman Islands … which had deposits from the bank’s clients in China, Singapore and other parts of Asia, including venture-capital and private-equity firms
A) non-Americans should never bank directly in the US given the option of the Cayman Islands because the US not a competitive jurisdiction in comparison to more competitive jurisdictions such as the Caymen Islands, its way more than just the tax rate. It requires complete indoctrination and hubris to assume the US is the most right and claims to the title to all capital. In this case, the US has onerous requirements levied on non-US persons in an effort to create a “tax person” that had no reason to be created, but its not about avoiding that status because there may be no tax event regardless, it’s about the mountain of paperwork. Its not based on an intention of Congress its just fallout from a nebulous regulatory environment.
B) The FDIC placed this subsidiary into receivership and made them unsecured creditors. In order to harbor your opinion, the FDIC most likely shouldnt have done that. It doesnt pay into FDIC insurance so FDIC shouldnt have taken it over. So its more like the US took funds it shouldnt have and the investors/depositors were correct to rely on the advances of the Cayman Islands but the US, once again due to nebulous regulatory quirks, chose to seize the parent organization and everything under it in a hurried mess, which maybe a more developed nation could do better.
C) The FDIC did pick winners in coordination with the Treasury and Federal Reserve, which undermines your stance on the people you denigrate under poor assumptions. There was actually no way to make everyone whole immediately, without the credit facility from the Federal Reserve to give a 100% LTV loan on treasuries, marked UP to a price nobody would pay on the market.
If any VC and PE funds were US based General Partners, then I would mostly agree with you, partially because even their offshore feeders can bank directly in the US. But the FDIC also probably should have just ignored that subsidiary either way, or not called them unsecured creditors.
It's pretty competitive when your couterparty goes bankrupt. If you opt out of US protections, congrats, you've opted out of US protections.
They opted out of US protection and got US receivership of the worst kind
Cayman is one of the most financially transparent, if not _the_ most financially transparent, location in the world. We fully comply with FATCA, CRS, and AEOI, to the extent that it takes even a native Caymanian multiple weeks to open a local bank account.
The reason most foreign investors use Caymanian intermediaries is actually just that transparency, particularly when they’re being scrutinized by foreign regulatory bodies and don’t want their money to disappear into a Delaware numbered company.
It is very, very hard to use Cayman to hide money from taxes. It is, however, a particularly easy place to keep global funds in a law abiding and transparent way. This is our whole regulatory strategy for continued national growth and prosperity.
I don’t challenge your conclusion that FDIC protection shouldn’t apply to non-regulated funds. Just don’t trash Cayman. If your country allows tax shenanigans that’s on your government and has nothing to do with us. Cayman will not aid or abet any tax evasion, and does not deserve the snide aside.
Those are just facts.
https://www.republicworld.com/world-news/rest-of-the-world-n...
Now if someone or some corporation's hiding money in Dubai, Cyprus or Liechtenstein or one of those dozens of other dodgy tax havens, then you can bet your ass there's something shady behind the scenes. My neighbor for a while in Dubai was a wanted criminal in the UK.
> It is, however, a particularly easy place to keep global funds in a law abiding and transparent way.
I don’t doubt that Cayman is strict for individuals like yourself opening bank accounts, but the regulations on companies are a different story. It’s a well-known tax haven on the global scene.
FTX chose The Bahamas.
If your country allows a company to locate money somewhere else and not be taxed on it, that’s on your county, not on us. The best we can do is make sure it’s visible, which we do.
You just can’t hide money in Cayman. You can put money in Cayman, when you need to put money somewhere safe and neutral, but not hide it. Nobody dodges taxes by putting money in Cayman.
There are some ways to save on some countries’ taxes by putting money here, but that’s on those countries, not on Cayman.
You appear to think that that near-ubiquitous reputation is because of some sort of misunderstanding?
Can you explain why you think the Cayman Islands does have that reputation? Is it the result of some sort of conspiracy? Angry people weaving tales to assail the reputation of the citizens of Cayman?
If your country allows companies or individuals to not be taxed on assets they locate overseas somehow, that’s on your country, not on us. And it has nothing to do with the money being here. All we can do is ensure that money flows are transparent and legal, which we do.
We put a lot of effort into being the world’s safest and best neutral third party location, and sometimes companies which are orchestrating tax mitigation schemes put money here while doing so. But they’re not putting money in Cayman to hide it, they’re putting money here because if you need to put money somewhere here is the easiest place to put it.
Who is blaming the Caymans? They Caymans is commonly used as a tax haven for US companies due to US laws. It's on the US to fix those laws. Correctly observing the Caymans is used as a tax haven does not imply the Caymans should change, and I'm not aware of anyone in the US calling for holding the Caymans responsible. I am aware of many calling for reform on the laws that make havening profits in a foreign country possible.
> The nation's low tax rates have led to it being used as a tax haven for corporations; there are 100,000 companies registered in the Cayman Islands, more than the population itself. The Cayman Islands have come under criticism for allegations of money laundering and other financial crimes, including a 2016 statement by former US president Barack Obama that described a particular building which was the registered address of over 12,000 corporations as a "tax scam".
Companies do not choose Cayman. They choose “not my home/operating country”, then as a well regulated and safe third party location many of them end up in Cayman. And you should be glad they do, because here they operate transparently and legally, and if it’s for tax benefits whatever tax loopholes exist in their home countries are closed they’ll have no choice but to richly comply. (BTW, In surveys the most frequent reason cited for being in cayman is regulatory neutrality, not tax mitigation.)
And if Obama has a problem with hundreds of companies sharing an address, I can’t wait until he finds out about Delaware. Or a post office!
I don't see where the Cayman Islands were criticized.
To a local, yes. To a wealthy local, and even more so a wealthy foreigner or foreign company, no.
Caymans in particular has a decent level of transparency around trusts and the like, but its banking system still records the de-minimus KYC it can get away with (including uneven FATF compliance).
If you keep money in the US, and the beneficial owner of that money is in Singapore/UAE/China/etc, then profits are taxed twice.
If you operate in USA but earn money globally, then you’re subject to at least double, but sometimes a polynomial combination, of reporting and filling obligations from combinations of jurisdictions.
Cayman is clean, simple, above-board, and safe. It’s like a global money cache.
Again, you literally state that it's for tax avoidance. Are you reading your own words?
It can be both - transparent, and a tax heaven. And it's one of the most well-known. Sorry, but in at least 2 countries where I lived, if you hear Cayman, you immediately think "tax evasion".
I get that you're offended though - when you see the Swiss - that somehow managed to turn their most shady banking system into a national pride thing - and admired but others too !
The Cayman islands are a well-known tax haven. Sorry to say.
Economists, in journals, routinely refer to the Cayman islands as a tax haven. Just a few examples out of many thousands:
https://www.nber.org/system/files/chapters/c14730/c14730.pdf
https://eprints.lse.ac.uk/56125/1/__lse.ac.uk_storage_LIBRAR...
If you want to know more this is a thorough review of the Cayman islands and their role as a tax haven: https://www.tandfonline.com/doi/pdf/10.1080/09692290.2016.12...
The main reason for having a subsidiary in the Cayman islands is to avoid paying taxes. In some cases this is legal tax avoidance, in others it is illegal. The ratio of the two is unclear because of secrecy laws.
One common way businesses legally avoid taxes (note that legal is not moral, many people think should be illegal) is through IP. They make money in country X, then their subsidiary in the Cayman islands has to be paid because it owns the patents involved, but that subsidiary is owned by the main company and sends that money back with zero taxes. In country X the profits look very small now because so much had to be paid in licensing fees.
Another way is through round-tripping money. Investing in the Cayman islands and then taking that money and investing it back into their country as a foreign investment.
There are countless other ways. The Cayman islands along with a few other tax havens play a nasty and selfish role in today's financial system that gives rich companies and rich people a massive advantage while hurting everyone else, while of course generously skimming something off the top for themselves.
This is where you demonstrate your ignorance and bias.
Yes, there are American laws which allow US companies to minimize their global tax burden, but those are on America, not Cayman. The best we can do is ensure the money is well documented and visible, which we do.
Cayman is used not because of tax friendliness, but because if you’re going to put money somewhere which isn’t a major economy Cayman is the easiest and safest place to do so. It’s a neutral third location.
It’s easy because we comply with every global financial interop and transparency regulation. It’s safe because we have a large and strong financial services industry with British law.
And Cayman does not “generously skim” for ourselves. We have pretty minimal fees and a local economy of professionals. The primary way we benefit is services and expertise, which is how we level up our country and a contribution to the global economy.
“The Cayman Islands are considered a tax haven because the Caymans do not impose a corporate tax, making it an ideal place for multinational corporations to base subsidiary entities to shield some or all of their incomes from taxation. The Cayman Islands do not impose taxes on residents. They have no income tax, no property taxes, no capital gains taxes, no payroll taxes, and no withholding tax.”
https://www.investopedia.com/ask/answers/100215/why-cayman-i....
You're using it (and your source) as "low or minimal taxes" are levied against corporations and people in the Cayman islands.
The grandfather's definition is "a great place to hide your money so you don't have to pay the taxes you're supposed to pay".
I would normally define "tax haven" as the second.
That's why Switzerland used to be a great place to hide your money decades ago - low taxes and numbered accounts where it was illegal to reveal the true identify of the account holder.
Based on DelaneyM's comment - Caymans has the 1st but not the 2nd.
Cayman invests a lot of energy in sensible and globally integrated financial regulations. We specialize on that as a country. So when companies are moving money around globally we often feature in that. But we can’t be held responsible for what those funds transfers are used for.
We can be transparent (and we are exceptionally so), we can be responsive to global financial crimes queries (we are that as well). But what are we supposed to do about another country’s laws?
> Cayman invests a lot of energy in sensible and globally integrated financial regulations. We specialize on that as a country.
the reason the Cayman islands may have made all those investments is because that is what is expected of a mature tax haven
> we can’t be held responsible for what those funds transfers are used for
> what are we supposed to do about another country’s laws?
I mean, if you don't want to be a tax haven, you could raise taxes to be less favorable to businesses, but I'm not saying you should do anything, because this conversation is descriptive, not prescriptive
Some companies put money outside of their operating or home country to minimize taxes, but Cayman has no part of that besides being “not their operating country”.
And it’s actually less often the tax treatment of funds which brings companies to Cayman, and much more often the simpler regulations. Operating globally often means a geometric growth in financial complexity. Cayman is a neutral third country, which simplifies things tremendously. Think of us like a financial cache.
We just charge them differently. There’s an effective 22% consumption tax (with carve-outs for basics), levied on all imports and increased on luxuries. We have 7% taxes on all property transfers (for both income and to minimize house flipping). We have a ton of fees on any government interaction which aligns regulatory burdens with income.
If a customer has both a bank loan and a bank account, I think it is reasonable that the customer received some of the proceeds when their loan is sold off.
It is a question of which debts a bank pays before its assets can be sold off to another bank.
In this case, I think it is reasonable that a bank use the assets it has to pay back depositors, before those assets can be sold to someone else.
https://www.fdic.gov/consumers/banking/facts/priority.html
https://www.fdic.gov/resources/deposit-insurance/faq/
It all comes down to priority in asset recovery.
There is no moral, philosophical, or biblical truth that FDIC insured depositors must be paid out first. It is just as conceivable to have a system where customers with both bank assets and debts have higher priority to recovery, at least for to funds recovered from their assets..
Galatians 3:15: "To give a human example, brothers: even with a man-made covenant, no one annuls it or adds to it once it has been ratified."
Proverbs 17:18: "One who has no sense shakes hands in pledge and puts up security for a neighbor."
Outside of that fact, the reason that the system is designed this way is to protect normal people from Rich people destroying these banks. If it were the way you're proposing, only the Rich people taking on the most risk and debt would get paid out, and every normal person using the bank would lose everything. We know this, because that's exactly what happened before the FDIC, which is the entire reason it exists.
To be clear, I'm not advocating abolition of the FDIC. Normal people wouldn't lose everything. The rich still would pay for FDIC payments, just like they now.
You would just see some individuals have less damage, specifically when bank assets in their name are commensurate with bank debt in their name. FDIC payouts would be slightly larger, but again, these are recouped by banking fees, largely paid by the rich
No, but it is US federal bankruptcy law. And it was when all the business relationships with SVB were made.
"In the case of a non-delinquent loan, the depositor might elect to “set off” the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit). In either case, no “offset” is possible unless the obligations are “mutual” – meaning that the borrower and the depositor must be the same person or legal entity acting in the same legal capacity."
> In response to a query from the Journal, a First Citizens spokeswoman said a setoff “isn’t legally possible in this situation,” because First Citizens owns the capital-call lines while the Cayman deposits were with SVB Financial Group, the former holding company of Silicon Valley Bank.
https://archive.is/1d4uw#selection-353.0-357.287 (paywall passthrough for original article)
Presumably these loans were offloaded before the insolvency hit.
No, that isnt what it is saying here. The loans weren't offloaded beforehand. First citizens obtained them as a result of the insolvency. First Citizens is claiming that they dont have to perform setoffs for some of the loans they acquired.
First citizens did perform setoffs for other unsecured customers in US branches, similar to how I described in my posts above, as required by law. Customers with accounts AND loans get their loans forgiven before the account balance goes to FDIC insured accounts. However, First Citizens thinks that due to the structure of their purchase and the SVB organization, they are not obligated to do the same for international branch customers with accounts and loans. For those, they get to hold the loan but not the setoff obligation.
Now the FDIC is in the position where they have to decide if they will claw back the loans from First Citizens and forgive them directly.
Assets -> cash -> distributed according to the courts.
Assets -> cash -> forgive any loans to the people who had accounts -> payoff FDIC insured accounts -> distribute remainder according to the courts
This is what happened for US customers with both loans and unsecured accounts. bank #2 says they dont have to forgive the loans specifically for some customers.
FDIC takes over bank -> FDIC allows people to pay off their loans with the same bank using funds at the same bank -> FDIC pays off insured accounts and takes on debt from the bank -> Sells Assets -> Uses cash to pay itself back by being first in line with the courts.
If it gets to Bank #2, it's not their problem and they specifically don't have to. Also, this wasn't a US bank! It wasn't under FDIC control. That payoff happens before bankruptcy. If the FDIC doesn't take over your bank it doesn't apply.
That's the part that I disagree with. My understanding is that FDIC took possession and sold off the International loans to bank number two, but did not discount them by the international account balances.
It doesn't seem right to me that the FDIC can say "it's not my problem we don't have control“ while simultaneously taking and selling the international loans
In any case, those people who complain should take it up with the FDIC.
This isn't about what happens to FDIC insured accounts, it's about how to apply pre-existing FDIC policy for handling non-insured accounts. The regulation is very clear on how not insured accounts get offset in some cases and the regulations are unclear or discretionary in other cases.
This goes full circle back to my original point that if the FDIC takes control of the International loans, but they should deduct the value of that counts from those loans, just like they did for the majority of the customers
They will get some of the proceeds of their loan, if there are any proceeds left over once secured creditors are paid. But that's where their complaints come in. There's almost assuredly not enough to recoup 100% of their deposits. Not only that, it could take a while before they receive anything. Time is money as they say, especially with today's interest rates.
If I have a bank and there are 10 secured customers who have deposited $100 each and 10 non-secured customers who have deposited $100 each and I can only cover $1,200 worth of deposits, the non-secured customers are going to be understandably upset. The 10 secured customers get made whole and then I have $200 left over. I can give each non-secured customer 20% of their $100 deposit.
These unsecured creditors will receive money in proportion to their deposits from what is left over. The questions are: is there anything left over and how much will it cover.
Yes, the deposits do become an unsecured claim on things like the proceeds of loans that are sold off (not the proceeds of their specific loan, but the proceeds of things sold off generally). The issue isn't that people are trying to deny that. The issue is that there's probably very little left over to recoup.
Now the FDIC has to decide if it will repossess those loans from bank #2 and forgive them or not.
I can't see the article since it's paywalled, but the bank would have required that a certain amount of funds remain on deposit for the borrower to get the terms. I've seen and facilitated an SVB loan agreement for a startup, and I can tell you that's exactly what it says. So the bank required you to park your money there, and then it lost the funds. In any normal business context, the money lost would come off of the balance owed. It sounds like the loan was received from one entity, but the deposits were placed with another, and none of the parties contemplated a bank collapse that would require the bank to forfeit a portion of the owed amount.
Not surprised the person "who has structured several hedge funds" is spreading misinformation about finances and taxes.
It's all fun and games until someone has to pay.
That doesn't seem fair to me.
Let's say that you deposit money with me and I tell you "if my house burns down, you won't get the money I'm holding in the house back." You agree. I lend you money and you say, "if my business fails, I won't repay the loan." I agree. My house burns down, but your business is doing fine. According to the terms that we both agreed to, you still need to pay me back the loan.
Let's say that you deposit the money with me and we say that if my house burns down, you don't have to pay back any loans to me. I refuse to lend you money because of that clause. You borrow money from Frank, my house burns down, and you're back in the same position.
Should people who had deposits wiped out, but had borrowed from other companies receive debt forgiveness? Should Frank be required to forgive your debt even though he had nothing to do with the failure of my bank?
If it worked the way you propose, banks would never lend money to people whose deposits they held (unless those deposits were externally insured). You'd deposit at SVB and have to get loans from another bank since SVB wouldn't lend to you as a depositor-customer.
When you take on a debt, you're saying you can pay that debt even with all the risks that exist in the world (including the risk that uninsured deposits might disappear). You're agreeing that if you can't pay the debt, that's your fault. We have processes like bankruptcy when people and companies can't pay their debts.
I think I'd update your quote to be "hey we went bankrupt so we don't have your money, but we still expect you to pay us back unless you're willing to declare bankruptcy yourself." I think that's a key change and highlights what they don't want to do. These VCs, private equity, and wealthy elites don't want to declare bankruptcy. They looked at the risks, accepted the risks, and now they're annoyed that the risks went against them. Most likely, they can all pay back those loans. They just don't want to since they took a big loss on their uninsured accounts.
Companies don't declare bankruptcy and wipe out their owners for fun. SVB's shareholders lost everything, over $40B. This isn't a fun technicality where the bank gets a happy ending on the backs of its depositors.
I'd also note that these depositors may not have lost their money. They're simply unsecured creditors. If the bank's assets can cover their deposits, they'll eventually get their money back (or a portion of it).
I think the key thing is that the act of taking the loan must be treated independently of the act of depositing money. When taking the loan, one must assess the risk involved. With an FDIC insured account, you can be pretty assured that you can repay the loan based on deposited funds. With an uninsured account, you know you are taking the risk that the deposited funds might not be there. That makes it seem fair to me. The alternative is that banks simply wouldn't lend money to their depositors since they'd have more rights on the loans of non-depositors.
It's fair, to me, because taking out a loan means accepting the risk that you might lose your job, your deposits might change within the regulatory framework on those accounts, etc. They accepted the risk that their deposits wouldn't be around to pay the loan - just as they would have if they'd taken the loan from HSBC while depositing at SVB. The decision to accept the risk of uninsured deposit account was the depositor's choice. Now the bank also accepted the risk that the borrower might default and declare bankruptcy just as the depositor accepted the risk that the bank might go under and their deposit would be lost. Then the issue becomes that the borrowers don't want to declare bankruptcy having acce...
The reason these jurisdictions exist is because when you have pension funds that need to pay their members over a long horizon, you need to hold the assets in a place with a legal framework that has the incentives and protections to be able to make those payment guarantees. Sovereign wealth funds also need management, and you can't leave the money where some regime is going to loot the treasury to keep themselves in power instead of supporting the conditions that return growth.
If your understanding of money is something that you just debase yourself and accumulate resentments for, and then compensate for it by indulging in small acts of malice and deprivation, consider what you are putting out into the world before you complain about what you (or "the people") are getting back.
I wonder if this is the case for YC[1] companies.
[1] https://www.ycombinator.com/blog/urgent-sign-the-petition-no...
[1] https://news.ycombinator.com/item?id=35114009 [flagged]
Reap what you sow.
But in this case, SVB used two different entities: one for loan accounts, and another for Cayman-based deposits.
Whilst this seems correct, it's also unintuitive.
I guess many people here have both a mortgage and a savings account that they got from the same bank.
Imagine you just had some sort of windfall (bonus, bequest, whatever) and your checking account temporarily had more than the FDIC limit. But then the bank collapsed, and some of your deposit is uninsured. No problem, you think, because you owe the bank more than that on your mortgage. But then you find out that your mortgage loan was sold soon after the bank originated it, so you mortgage is with a different entity. Now, under FDIC rules, your uninsured deposits cannot be used to offset your outstanding mortgage.
I hope these people are not made whole.
[0] In practice, while not obligated to do so, the FDIC has always repaid people 100% in the situation you described.
I don't really understand the reporting here. Really? The investment firms with funds in a tax haven were 'stunned' when they found out their deposits weren't protected? That doesn't sound credible to me. They're bloody investment firms! Figuring out how to manage money is literally their job, it's not credible to turn around and go "Gee, I'm just a simple guy trying to pay for groceries, I don't understand this complex banking stuff". Why write an article like this - other than you've been in contact with someone looking for a sympathetic write up to pressure regulators.
If they really are this stupid - and I don't believe they are - get a list of their names and send the IRS after them because there's no way they successfully structured their companies to dodge the tax.
These people are the opposite of stupid when it comes to money. Cunning, ruthless, underhanded, obsessed, win at all cost, win even at the expense of your own grandkids.
When we have no culture though beyond sports, video games and a wealth creation, net worth game, it is hard to imagine this not happening.