Kinda? I get that, and certainly think things like the Roku case are pretty irresponsible. https://www.cnn.com/2023/03/10/business/roku-svb-cash/index.html And sure, of course it'd be prudent to put most money somewhere else. But I think the general view of the modern banking system is (was?) that the 250k isn't there to say that 250k is…
But I think the general view of the modern banking system is (was?) that the 250k isn't there to say that 250k is safe and the rest isn't; it's there to short circuit bank runs, and make deposits safe in general. Ie, if most people don't have 250k, most people won't run on the bank, so there's no critical mass to create a run, and everyone's deposits are fully safe. I get that's not the letter of the law, but I don't think it's unreasonable for most depositors to basically view it that way. And in that way, SVB's failure is more on regulators than depositors, since regulators are the ones who would've been in a position to realize that the 250k limit didn't protect SVB from a run. (Obligatory matt levine citation that makes this point: https://newsletterhunt.com/emails/25336).
On the cozy thing, I think it's more laziness than coziness. I saw reports that VC would tell people that they should use SVB, or that using SVB had some sort of signal value. In my experience, none of that was really true. It was just that SVB was there, they marketed to startups, and most companies didn't give much thought as to who they banked with. And if they did, it was about bells and whistles, not because people were assessing a bank's creditworthiness.
"I don't think it's unreasonable for most depositors to basically view it that way."
I do. It's unreasonable and irresponsible. It's not like banks have never failed. And cash is the lifeblood of a startup, so I'm more than a little surprised that apparently up to 50% of the startup community were at risk from a single bank failure.
I'm not arguing that this is *all* the fault of the depositors, btw. And sure, I get it that founders are focused on other things and most startups don't have a finance pro on the team. But still! Depositors have a duty to be the best stewards possible of their money and should understand the risk. And VCs should, too. Little surprised they weren't more on top of this, but I'm learning that VCs are not nearly as sophisticated as they would like us to believe.
Of course, there is no riskless place to put your money. But there are well understood ways to reduce risk - all your money in one bank is not the way. I don't think this requires a degree in finance to understand.
Hopefully founders learn from this and get less lazy.
Also explicitly *not* arguing that depositors losing money is 'fair'.
Also not arguing that the government doesn't have some responsibility for this. We all know banking regs exist and few people have time to understand what they will and will not do to minimize risk.
But having no control over the bad decisions of bankers and government is all the more reason to be careful with one's money.
Yeah, and to be clear, for a depositor with $50 million, I'd expect them to treat that differently than someone with $500k. My point is mostly that I believe it's the intention of the FDIC to prevent runs in their totality, not to encourage people to split up money into 250k increments across a bunch of banks. (So, in intention, it's like to a quality control inspector, who checks a few products with the intention of being able to say they're *all* safe, not just the ones they randomly test. And it's not - again, in intention - like heath insurance, where your policy has a cap and the insurer couldn't care less about your losses over that cap.)
Obviously, it's prudent and responsible to treat the $250k limit as though it were that sort of cap. But that intention seems pretty clear, given that FDIC more or less confirmed it with this bailout.
And on fault, I put a bit on startups for being lazy, a bit on the regulators for not scrutinizing things a bit more - though SVB lobbied them out of the building, so - a good bit on VCs for herding so much money in and out of SVB, a lot on SVB for not realizing all their deposits were from companies that were over the limit and were easily herded, and a lot on - and this is my old man moment - social media, for making it possible that these panics can unfold in a day.
> My point is mostly that I believe it's the intention of the FDIC to prevent runs in their totality, not to encourage people to split up money into 250k increments across a bunch of banks.
Yes! I think this point is being missed by a lot of commentators. The FDIC was created to prevent bank runs, after the US government saw how often they had occurred during the Great Depression era. And tbh the 250k is, at this point, an arbitrary amount.
I don't have much confidence that the bailout is evidence that the FDIC's intention is to prevent bank runs. People with lots of money at stake and politicians must have had a ton of influence. The FDIC originally was not going to save the depositors as of Saturday.
Eh, I'm less cynical than that. I could really see that going either way. The twitter VCs who were freaking out about the FDIC not doing anything pushed the idea that the FDIC wasn't doing anything, but reporting like that Wapo article show that they were doing a lot over the weekend. Obviously who knows what would've happened had there not been public pressure for connected people, but it wouldn't surprise me if we would've landed in a similar place.
(Or, well, I'm not sure the pressure made the difference. I think the fact that SVB's client base was what it was made a difference)
Kinda? I get that, and certainly think things like the Roku case are pretty irresponsible. https://www.cnn.com/2023/03/10/business/roku-svb-cash/index.html And sure, of course it'd be prudent to put most money somewhere else.
But I think the general view of the modern banking system is (was?) that the 250k isn't there to say that 250k is safe and the rest isn't; it's there to short circuit bank runs, and make deposits safe in general. Ie, if most people don't have 250k, most people won't run on the bank, so there's no critical mass to create a run, and everyone's deposits are fully safe. I get that's not the letter of the law, but I don't think it's unreasonable for most depositors to basically view it that way. And in that way, SVB's failure is more on regulators than depositors, since regulators are the ones who would've been in a position to realize that the 250k limit didn't protect SVB from a run. (Obligatory matt levine citation that makes this point: https://newsletterhunt.com/emails/25336).
On the cozy thing, I think it's more laziness than coziness. I saw reports that VC would tell people that they should use SVB, or that using SVB had some sort of signal value. In my experience, none of that was really true. It was just that SVB was there, they marketed to startups, and most companies didn't give much thought as to who they banked with. And if they did, it was about bells and whistles, not because people were assessing a bank's creditworthiness.
"I don't think it's unreasonable for most depositors to basically view it that way."
I do. It's unreasonable and irresponsible. It's not like banks have never failed. And cash is the lifeblood of a startup, so I'm more than a little surprised that apparently up to 50% of the startup community were at risk from a single bank failure.
I'm not arguing that this is *all* the fault of the depositors, btw. And sure, I get it that founders are focused on other things and most startups don't have a finance pro on the team. But still! Depositors have a duty to be the best stewards possible of their money and should understand the risk. And VCs should, too. Little surprised they weren't more on top of this, but I'm learning that VCs are not nearly as sophisticated as they would like us to believe.
Of course, there is no riskless place to put your money. But there are well understood ways to reduce risk - all your money in one bank is not the way. I don't think this requires a degree in finance to understand.
Hopefully founders learn from this and get less lazy.
Also explicitly *not* arguing that depositors losing money is 'fair'.
Also not arguing that the government doesn't have some responsibility for this. We all know banking regs exist and few people have time to understand what they will and will not do to minimize risk.
But having no control over the bad decisions of bankers and government is all the more reason to be careful with one's money.
Yeah, and to be clear, for a depositor with $50 million, I'd expect them to treat that differently than someone with $500k. My point is mostly that I believe it's the intention of the FDIC to prevent runs in their totality, not to encourage people to split up money into 250k increments across a bunch of banks. (So, in intention, it's like to a quality control inspector, who checks a few products with the intention of being able to say they're *all* safe, not just the ones they randomly test. And it's not - again, in intention - like heath insurance, where your policy has a cap and the insurer couldn't care less about your losses over that cap.)
Obviously, it's prudent and responsible to treat the $250k limit as though it were that sort of cap. But that intention seems pretty clear, given that FDIC more or less confirmed it with this bailout.
And on fault, I put a bit on startups for being lazy, a bit on the regulators for not scrutinizing things a bit more - though SVB lobbied them out of the building, so - a good bit on VCs for herding so much money in and out of SVB, a lot on SVB for not realizing all their deposits were from companies that were over the limit and were easily herded, and a lot on - and this is my old man moment - social media, for making it possible that these panics can unfold in a day.
> My point is mostly that I believe it's the intention of the FDIC to prevent runs in their totality, not to encourage people to split up money into 250k increments across a bunch of banks.
Yes! I think this point is being missed by a lot of commentators. The FDIC was created to prevent bank runs, after the US government saw how often they had occurred during the Great Depression era. And tbh the 250k is, at this point, an arbitrary amount.
I don't have much confidence that the bailout is evidence that the FDIC's intention is to prevent bank runs. People with lots of money at stake and politicians must have had a ton of influence. The FDIC originally was not going to save the depositors as of Saturday.
Eh, I'm less cynical than that. I could really see that going either way. The twitter VCs who were freaking out about the FDIC not doing anything pushed the idea that the FDIC wasn't doing anything, but reporting like that Wapo article show that they were doing a lot over the weekend. Obviously who knows what would've happened had there not been public pressure for connected people, but it wouldn't surprise me if we would've landed in a similar place.
(Or, well, I'm not sure the pressure made the difference. I think the fact that SVB's client base was what it was made a difference)