Comment by koolba | Hacker News Reader

Comment by koolba | Hacker News Reader

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> Imagine a 70 year old woman who just lost her husband and sold her house to downsize to an apartment. She has $1 million in her SVB account and plans to live off the interest in her retirement. Should this 70 year old widow take a $750k haircut because she hasn’t spent the last few years brushing up on SBV 10-k filings and calling up SBV’s board of directors to ask them how they plan to manage interest rate risk?

Making a sob story about a 70 year old granny doesn’t change the facts.

And she wouldn’t take a $750K haircut. She’d get $250K guaranteed and her share of the remainder which is not going to be zero. Probably much closer to 80+% of the balance above $250K.

> If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild?

If it’s going to be done with funds not allocated or aligned with FEMA then damn straight I’ll complain. Society does not have infinite money. If they want to increase funding for something then we have a process for that.

So you’re saying the government (taxpayer) will get back 80%+ of the funds it uses to backstop depositors. Isn’t that a small price to pay to avoid a total collapse of the local and regional banking system?

> So you’re saying the government (taxpayer) will get back 80%+ of the funds it uses to backstop depositors.

The government should get 100% of the immediate cash it provides to cover the $250K per account. Hopefully with interest.

> Isn’t that a small price to pay to avoid a total collapse of the local and regional banking system?

No that’s the type of bankrupt logic (pun intended) that would create an even bigger financial crisis due to incentivizing bad risk taking by banks.

And SVB paying out depositors $.80 on the dollar isn’t going to collapse the banking system.

Here's some smaller regional bank stocks over the last few days:

https://finance.yahoo.com/quote/PACW - Down 60% https://finance.yahoo.com/quote/FRC - Down 30% https://finance.yahoo.com/quote/SBN - Down 40%

Meanwhile huge bank stocks are up or unchanged

https://finance.yahoo.com/quote/JPM https://finance.yahoo.com/quote/WFC

Did these banks all make the same stupid decision as SVB? Unlikely but maybe. More likely though is the risk that people get spooked over SVB customers losing their deposits (even just 20%) and decide to move their money away from smaller banks like SVB to huge banks like Citi, Wells Fargo, etc. Personally if there were a chance I'd lose just 10% of my balance I'd make the switch, it's the only rational thing to do if other depositors are taking a haircut elsewhere. It's not going to collapse the entire banking system, just the local/regional one, which you see is already starting to happen.

I fail to see how burning most of grandma's life savings (and other innocent people who probably never experienced a bank run before) and allowing the collapse of regional banks is somehow better than backstopping depositors now and making much tighter banking regulation for smaller banks going forward to prevent this from happening again. Do we want the nation's banking infrastructure to consist only of 3 or 4 enormous banks or do we want the options that a lot of smaller local banks who are able to cater to the specific needs of their communities provides?

I don't think that's how the FDIC insurance works. I was under the impression that the 250k is after liquidation, the last resort. Anyway, SVB was really leveraged so I'm not sure how much of their asset book value is recoverable.

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