The reality is that every startup/VC was happy to absorb that risk for benefits previously described.
They, in fact, should have hedged their exposure at the very least.
A quarter mil is a lot for a person. It’s not a lot for a business, and businesses were most of SVB’s clientele by asset amount.
SVB's clients will not lose all their money - their assets can cover most of it. You mostly just need the second bank to cover the period in which you may not be able to access your money.
You never know when some weird, once-in-a-lifetime stuff is going to hit your bank. Learned the lesson the hard way when I ended up stranded in the middle of nowhere without a working debit card for a damned IT outage.
There should be no reason not to run a company the same way.
But if you have more than one payroll, then you should consider that bank failures and other risks are part of the system and spread your capital across institutions so that no one failure wipes you out.
Risk management and "accountants that hate life" are some of the overhead costs of significant assets.
When the unimaginable happens, you can easily get bridging finance on the strength of your insurance (if your insurer is not responsive enough for your payroll dates)
There is some tail risk to any use of a bank over the FDIC limit, and everyone who parks a lot of money knows it. It would be reasonable to assume that "Silicon Valley Bank" would be overexposed to market fluctuations in Silicon Valley, just as Silvergate was overexposed to crypto.
Big SVB depositors probably won't lose a lot of their money anyway, but they may lose access to it for some time, which is a big deal for a short-term deposit account.
Despite a consistent history of periodic busts, the silicon valley culture behaves with absurd optimism. New entrants don't believe that the good times will ever turn and that catastrophic risk is a real thing to attend to, and old hands think they know how to win the hot potato game this time.
The potato is getting really hot now, and things will just get worse in the long run if you don't let the community learn that people get burnt and need to be more careful as they play the game.
People to folks with student loans: "You know what you were signing up for."
Why is it unreasonable to say: "You know that banks only protect up to 250K, why are you surprised? Do better next time."
If its reasonable to protect the customers of the bank above what FDIC already does, then I don't wanna hear the same folks complain about loan forgiveness.
Regulators are given a legal responsibility to oversee these institutions because they are (still) essentially trading on govt credit. That is why financial regulations exist: to give people confidence that bank failures won't happen.
95% of people are unable to perform the credit analysis necessary (and some banks don't even report this information publicly) to make lending decisions. And if regulators were unable to perform this kind of analysis in this case, I am not sure why people think savers will be able to.
So the way the system works is to accept that these kind of things will not achieve perfect outcomes in every single case, in order to create a system that secures funding for the place that employs you (this is what FDIC is, it is a massive insurance scheme).
If you are saying: why don't we have a system in which this doesn't happen? You are saying: why don't we have a system in which the economy is significantly smaller? And btw, in that system you will also never obtain the coveted short-term perfection.
And finally, unsecured creditors would be bailed out but shareholders would be written down to zero. I am not really clear if most people actually understand what happened in 2008. One of the narratives is that everyone wealthy got paid out, and things went on as normal...this didn't happen. Your point about "this wouldn't happen if people had the incentive"...okay, did regulators have the incentive? Everyone had the incentive, but sometimes people are wrong.