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Comment by logifail | Hacker News Reader

> The regulation of SVB doesn’t seem to have been particularly lacking. The shortfall is not very large and should be covered by asset sales and some fairly small industry levies. What exactly is the moral hazard here?

If regulation wasn't lacking, the shortfall isn't large, and (I paraphase) SVB and the sector can sort itself out, why would Yellen and POTUS need to hold press conferences?

If you hold cash in a bank and your balance exceeds the FDIC insurance limit, it's at some risk. This isn't new, yet seems to have come as a complete surprise to a whole bunch of people, many of whom really should have known better.

They've been loudly demanding a bailout for having been on the wrong end of their risky decision. Isn't that pretty much the definition of moral hazard?

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> and (I paraphase) SVB and the sector can sort itself out

That’s an inaccurate paraphrase.

It makes all the difference for the government to clearly indicate that they will intervene quickly and decisively to keep the system functioning rather than stand back and let depositors lose big sums, potentially triggering much wider fallout. By doing that they can minimise further costs/failures for everyone.

> If you hold cash in a bank and your balance exceeds the FDIC insurance limit, it's at some risk. This isn't new, yet seems to have come as a complete surprise to a whole bunch of people, many of whom really should have known better.

It’s just not a norm - something that people in startups or small businesses generally think about or talk about, as it’s antithetical to focusing all your efforts on building a product and pleasing customers.

I understand you’re saying it should be.

Ok, sure, maybe it should be. That’s a valid topic of discussion. It just raises a whole lot of new trade offs and costs, if suddenly every early stage startup founder now has to also be an expert in bank risk.

Further to this: I’m reading this thread [1] from Mercury’s CEO, Immad Akhund (disclosure: a friend from my YC days many years ago though we’ve not had contact for years), that their neobank product automatically spreads funds across a sweep network and delivers $3M of insurance.

That seems like a simple and effective way for companies to manage their deposit risk.

If the government/president came out and said “we’re going to protect the system now but we may not/will not in the future and all companies should put their funds in sweep network accounts to be safe”, then it would be reasonable next time to say “should have known better”.

I understand your position that startup founders should already "have known better"; it's defensible on pure technical grounds, but just impractical/inefficient given contemporary realities.

[1] https://twitter.com/immad/status/1635302598831112192

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