SVB chief pressed lawmakers to weaken bank risk regulations(levernews.com) |
SVB chief pressed lawmakers to weaken bank risk regulations(levernews.com) |
Long ago I and colleagues opened accounts at SVB for two different outfits with VC money. It was simply the thing to do when getting started converting that money into software that would then produce lots more money.
It was simply the thing to do. We didn't have CFOs. We knew darn well our deposits would exceed the household-banking FDIC insurance limit. It would have seemed a brutal waste of very precious time to do an independent background check on our banks.
Look, friends, the rule of law is what makes it possible to do business. If we lowly startup entrepreneurs can't trust institutions like banks reliably to provide their services, and we can't trust the government to do their part in maintaining that reliability, who can we trust? Are the next YC classes going to get their financing in Krugerrand gold coins? Are they going to need to look for safes on EBay along with the other gear they need to make the magic happen?
Lowly? Yeah. Compared to banks, governments, infosec certification people, even landlords and vendors? Yeah. Lowly. We have to be able to trust our environment at least a little bit to succeed.
This regulatory capture is freakin' ridiculous and has to come to an end.
It's not regulatory capture. It's plain and simple deregulation. It's the end result of all the people arguing that "federal regulations only slow innovation. Deregulate so we can be more efficient and profit."
There were regulations in place, there were a group of people who like to get rid of regulation. They obliged. They weren't captured, it's practically their platform.
At somepoint people will realize two things. We all live in a society together and thus need regulations to govern actions and interactions.
These regulations are societal insurance. Yes you pay a little bit yearly that you could've used elsewhere for your profit, but they are necessary to avoid the contaigen when disaster strikes.
At the end of the day, it's lobbyists, PACs and think tanks connected to specific business interests who are able to work the system, and get these marginal political beliefs converted into legislation (and court appointments).
That's how the term "regulatory capture" applies.
Finance is no different. There are no "safe" investments, only varying levels of risk and reward. Mitigating the risk of a single bank failure locking up your $2MM raise is a couple hours of work. Only you can say whether mitigating that risk is worth the effort.
Oh great, another entrepreneur crying "Woe is me".
Consider that your lowly regular employees have to make far more specific financial decisions every single year.
- We have to choose health plan options that will govern our and our family's literal lives over the next year
- We have to make specific retirement plan elections and understand market risks because our actual lives after retirement age depend upon them, since there are no such things as pensions any more
- We have to figure out the tax implications of all of the above, which intersect in odd and complex ways ways (Why is my health plan linked to a tax-free retirement account, again? Figure it out!)
- In addition to all this, if we ever happen to hold more than 250k in cash, we have to worry about the exact same thing here.
Seriously though, if you do actually think that figuring all this risk out is a waste of money as a founder, make sure you provide optimization guides for your employees that go into details about optimizing the complex financial decisions that you make them do every year. Working on that might open your eyes to also looking more carefully at the institutions you bank with.
> This regulatory capture is freakin' ridiculous and has to come to an end.
True. But this is also true of all the stuff I mentioned earlier, especially taxes. Regulatory capture hurts lowly employees far worse and far harder than it hits entrepreneurs. Fixing one will help fix the other.
An investor / board member back then said "don't worry about it" when I brought up FDIC coverage limits upon their advice to dump the money at SVB.
At any rate last Sunday the FDIC knuckled under to pressure from the Sand Hill Road folks and extended their insurance to all deposits, not just the first quarter megabuck owed to each depositor. SVB's shareholders are wiped out, and maybe some non-depositor people they owe money to will take a haircut. But the various startups will be OK.
There multiple products that would help in this situation, such as insurances and virtual accounts that split between multiple FDIC accounts/banks.
Bailing out these depositors would send the wrong message and encourage moral hazard, i.e., the belief that someone else will always bear the costs of risky behavior. Educating entrepreneurs and investors on the importance of diversification, due diligence, and risk management would create a more resilient and sustainable innovation ecosystem, where success is based on merit and hard work, not on cronyism or government intervention.
(Emphasis mine). According to other news [0] they did not have a formally appointed chief risk officer for eight months. While having a puppet CRO is obviously not a sufficient condition to ensure "strong risk management", having a well staffed and - as much as possible - independent risk management department is widely considered best practice [1]. In this instance such an internal body would get on high alert and run scenario upon scenario and stress test as soon as the inflation/interest rate environment changed.
[0] https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...
> In 2019, Becker was elected to serve on the board of directors at the Federal Reserve Bank of San Francisco. Becker left the board on Friday.
> This is normal. The CEOs of major regional banks are required by law/regulation to be a director at the regional fed. As he is no longer CEO of a regional bank (it no longer exists) he no longer has the seat.
This theft is made more difficult to efficiently regulate when a blacklist style bottom up approach to regulation is used. If I have to evaluate every investment strategy that calls itself a bank for hidden leverage, I'm guaranteed to miss some. Its a hard game to play, and investigators are humans with both the capacity to make mistakes and be corrputed.
This is further dynamically complicated by the fact that the government is the insurer of last resort in a lot of these cases. The FDIC was instituted in response to what happens in the absence of government intervention (the great depression), and it doesnt really stop there. The federal government has the authority to bail out overleveraged "banks" that fail, and banks know this, leading them to seek out even riskier (more correlated) investments.
If we cannot consistently identify hidden risk, we need to be taxing the shit out of leverage. We are the ones who are going to be on the hook when the dam breaks, and they file a claim. so we should set the price of the premiums.
• Lack of public financing for political campaigns.
• Lesser of two evils thinking, where each party gives their own politicians a pass because "the other side is worse".
• Corporate consolidation of the news media, where the culture and even the personnel of reporting and politics are interchangeable.
• "Success" (AKA greed is good) as a national ethos, with no pushback from religion, since the dominant US Christianity has somehow (is there anyone more anti-capitalist than Jesus?) been captured by amoral business interests.
The very paradigm of allowing these entities to lobby their way to private profits and socialized losses is indeed corruption.
"Around that time, federal disclosure records show the bank was lobbying lawmakers"
"Virginia Sen. Mark Warner (D), for whom Becker held a fundraiser at his Menlo Park, California, home in 2016, according to an invite obtained by The Sunlight Foundation and OpenSecrets. The bank’s political action committee also donated a total of $10,000 to Warner’s campaigns in the 2016 and 2018 election cycles."
The "insider input" is money.
In Europe, no single bank is allowed to have less than 100% collateral of deposits, not one, and yet they manage to make good money and profits nonetheless.
Okay, there is one meaningful difference: larger banks have higher requirements, and since the US banks tend to be larger, that means that the US tends to have higher requirements than the EU...
https://companiesmarketcap.com/banks/largest-banks-by-market...
SVB (probably) more than 100% deposit collateral. It just lost value very quickly.
IMO - almost all the leveraged finance in the last 20 years is already over-the-top and mostly "fake money".. who gets the axe first is politics. Supporting statement to this heresy? When the "real economy" tanked due to covid-19 lockdown, the paper tigers of Bloomberg continued to gain wealth, not a little, a lot. Where does that come from? ad sales alone? Oil and Gas Arab cash leveraged out into a hundred counter-parties with big names? Whatever the "technical" explanation.. lots of musical chairs games are up today. cheers
edit cannot help but pile on here.. Roku (who I have never heard of as a consumer) had two Billion USD in cash ? wtf
Totally agree, and this is what makes me so furious. On one hand, you have all these business leaders demanding fewer regulations because they're "costly", but then when shit hits the fan suddenly everyone, from congresspeople on both sides, to billionaire investors and tech leaders, is crying on Twitter how it's the "end of civilization" if they don't get a bailout.
The whole purpose of things like insurance and regulations is so that you can plan for disasters before they occur. If political pressure can ensure a bailout regardless if depositors are over the FDIC limit, than we should just drop the pretense of there being "uninsured deposits" and demand that depositors pay for insurance, regardless of their deposit amount, up front.
At the very least they need laws in place so they can claw back money from those who took advantage of loose regulations (or prosecute egregious cases). The CEO of SVB sold millions of stock 2 weeks before it collapsed. He better be first in line to return money to make depositors whole if there is a bailout.
So sick of this "heads I win tails you lose" BS.
This seems to be the way the financial system has operated in the last 20 years. So I’d expect a bailout.
Also, SVB depositors weren’t just random individuals, they are some of the wealthiest people and organizations in the country or even the world. They are going to leverage their power and influence to recover as much as they can as quickly as they can.
> where success is based on merit and hard work
That’s the lie we all want to believe, but reality is that people at the top are a small club that will always prefer their family/friends/network than some hardworking rando from “the outside”.
You are far more likely to be successful (money/career-wise), if you are born into a well off, well connected family, than if you are born poor but super hardworking.
All the more reason regular people need to be screaming to high heaven that those rich and powerful people will get eaten if they push for and eventually receive a bailout.
Not anymore!
this is naive and badly mistaken. This kind of criticism on a very large scale is exactly the driver the flavor of business today; constant, ruthless and formula-driven partnerships taking control and demanding new 'opportunities'.
what an insane standard. as a customer of any company I'm now supposed to investigate their lobbying activity? what else do I need to do due diligence on?
(The limitless extrapolation of HN never ceases to amaze)
And SVB didn't have products that would help you maximize FDIC insurance.
It wasn't exactly predatory, but they set everything up to leave everyone very exposed to SVB issues. I think on purpose, just to maintain power in the ecosystem.
It's the global economy way!
Hint: nothing will change, depositors and banks will get bailed out. Water is wet.
Depositors don't get bailouts. That's not what bailouts are.
Roku's been around for a very long time building decent streaming boxes for TVs that don't cost too much. I've been a customer since Netflix started streaming.
I had to work on third party software supporting their boxes nearly eight years ago.
They were a meme stock for a bit. I made a small profit since I bought a few shares after I first learned about them.
And some eng director there randomly added me on LinkedIn years ago.
I would have never encountered them as a regular consumer, because I don't watch TV or use any streaming services.
You have commented in threads that reference Roku many times over (e.g. https://news.ycombinator.com/item?id=29338658) so you will forgive me for not believing you.
Roku tends to get a lot of retail space, so if you've walked through any walmart electronic section, or bestbuy, or whatever you're guaranteed to see them.
Before smart TVs took off there was only Apple TV and Roku. No Chromecasts or Fire Sticks. Meaning if you couldn't pay the Apple tax, you went with Roku to get your Netflix.
This is arrogant. There are many billion-dollar businesses you haven't heard of, most of them in boring industries. For instance, have you heard of Vitol? Likely not...but they made $279bn in revenue in 2021.
Sure it takes decades but this was a startup financed by a small family loan, rather than true venture capital that could more realistically be considered "Other People's Money".
So they get to be private, start their exponential growth from a much more retarded point, and have to leverage other people's pipelines, ships, and barges or it wouldn't work.
Even in a capitalist market, enough strength can sometimes be built without other people's money, that it can be an unfair advantage compared to the capital-bound operators making up the majority of the market itself.
Entrepreneurialism != Capitalism.
With Roku I heard of it here and it turns out I had a pretty good idea about their streaming. But no further interest other than to see how they do financially over the years, as a spectator.
I'm hardly a consumer at all.
So definitely didn't find out about Roku as a consumer.
But before I knew it my brother got one, he consumes that stuff and now I'm more familiar than I wanted to be.
I would actually call it kind of boring myself.
It’s the archetypical story of financial history for thousands of years. You can tell that’s the case because we even have FDIC and it is able to shut down a bank on Friday and open it back up on Monday. Literally the oldest story in the book!
I dont know why they are downvoting you. Part of what has been happening for a while is precisely that - East coast 'old money' capital waging one on everyone else and also trying to take out the West coast 'new money' capital as a competitor in the process...
SVB wasn't.
> When the Fed implemented Basel III in October 2020, they took advantage of the fact that strictly speaking, the Basel Accords are only internationally agreed to apply to “large, internationally active” banks. While most jurisdictions apply the Basel rules to their entire banking system anyway, the US has a strong and powerful community bank lobby, and US community banks are usually quite aggressive in their use of the borrow-short/lend-long business model.
https://www.ft.com/content/c95e7708-b903-405d-a017-963844eb3...
Risk management would be asking the question "should I be putting all my eggs in a basket that seems very tied to the tech economy / northern California real estate market / low interest rates?". Diversification would be trying to get the money you use to pay your tech workers invested in something as far away from tech as possible.
* Buy expensive office equipment or put it in a bank
* Go on a hiring spree or put it in a bank
* Acquire another company or put it in a bank
* Put money in crypto or put it in a bank
Shopping for a bank might mitigate a bit more of your risk. Putting it inside of a bank is low risk compared to the many things you can do with money.
Hundreds of thousands of businesses store more than $250k in a bank and for most of them, the largest risk to their business is not their bank.
Supposedly, many countries in Europe require banks to have at least 100% collateral of deposits, this should mean resolution in the case of failure be much easier + bank runs less likely to happen, as people can feel safer that their funds actually exists in the bank is liquidity. Unless the bank is operating fraudulently that is.
US is also the investment capital of the world, so it's quite unsurprising.
1. Indirectly - which group do you value more: investors or depositors?
the exact opposite is true. excessive concentration means an oligopolistic or oligopsonistic sector that is holding everybody hostage: clients, employees and the political / regulatory system at large
adulation of "bigness", if not with ulterior motives, is naive
You also seem to be discounting the fact that plenty of people (for example influential people in SV) have spent a lot of time arguing that regulation is in general bad. That spreads here on HN quite frequently. This is the outcome of that rhetoric.
There is also a political part that champions it, they've and a large part of the voting public believes this. It's not just a few small lobbyists that twisted politicians arms on behalf of their clients. There are politicians looking for places where there are regulations so they can cut them as that's a key part of their platform. People suggest areas and they agree.
You keep making it sound like the concept of cutting regulations is political heresy across the board and lobbyists are having to sneak to get these done. It's widely promoted in a certain sphere and this is what it results in.
In reality, it isn't.
This wasn't aggressive regulation - it was removing regulation. Again, regulations would have helped.
The same things we've learned since the 1930s still apply. And when someone rolls back those regulations under claims it's "stifling profit or innovation" we end up in the same spot.
It may or may not be the right thing to do, but it most definitely is a bailout.
The biggest problem people have right now is time. Over time, everyone will probably get most of their deposits from SVB back from SVB assets.
What people (the ones who know what they're talking about, anyway) are asking for is closer to taxpayers covering the costs of getting that money back sooner. There's a definite cost, but it's not taxpayers writing checks to cover deposit values.
> What people (the ones who know what they're talking about, anyway) are asking for is closer to taxpayers covering the costs of getting that money back sooner. There's a definite cost, but it's not taxpayers writing checks to cover deposit values.
Except it's literally asking the taxpayer to cover the costs to cover these funds for some indeterminate period of time in the HOPES that SVB will "probably" be able to make their depositors whole, someday.
There's a cost, we don't know what it is. It's not as high as it sounds when you say "we should only let people get $250k liquid and everyone else should pound sand".
The cost to letting these companies keep their money tied up is a lot of people not getting paychecks. Which suddenly means no tax witholdings. And more unemployed people. And companies that can't pay vendors.
Doing nothing is not free. It might be cheaper, it might not. I get the instinct to hold the man accountable but it's not as simple as most people are suggesting.
Putting your company money in a bank account should be safe. We should regulate banks like SVB to make it more safe. We should also make sure when the regulations fail the people who use a bank, they can continue doing business.
So no, it's not a depositor bailout for everything greater than $250k.
It's also possible that the FDIC might sell the remnants of Silicon Valley Bank to a larger bank that will assume all deposits.
If you've got $25,000,000 dollars at SVB, you need 100 accounts. This is not rocket science. I really hope that they find a buyer to make depositors whole but if one cannot be found why should the public reimburse depositors for more than 250K simply because they were too cheap to hire a couple of accountants to manage it?
Every depositor has 1 account per account type per institution insured up to 250k.
If you had 100 accounts of the same type at the same institution, you're still only getting 250k back from the FDIC.
To do what you're proposing, you'd have to have 100 accounts at different FDIC insured institutions. The logistics there is vastly different, but meshes quite well with designing for fault tolerance/resilience.
But doesn't mean it is unreasonable to expect people with this level of cash funds not to have more than one egg basket. Split it in two, three or four. One goes down, you still have money locked up but can use other accounts to take care daily operations and possibly mitigate some of the issues.
If it was some small bank that was only impacting “regular people”, then probably the government would not do anything.
But that is not the case here. The depositors of SVB are very wealthy and powerful. Also the standard process of selling assets is too slow, and that delay could create a catastrophic domino effect. Famous investors are already calling for the government to fix the issue within 48hrs.
Maybe the government will step in as a temporary lender, letting depositors borrow against their deposits, which they will eventually get back.
But above that bucket, people/orgs are expected to know and appropriately manage the risks that they're taking with their money or have the float to pay someone who does.
Experienced money doesn't see large bank deposits as safe by nature because they never have been. It's only people new to wealth and chronically blind to tail risk (hello startup industry!) that assume a $5M portfolio can be treated as casually as their personal checking account.
SVB is a special case -- a bank focused on commercial customer base.