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Comment by hiddencost | Hacker News Reader

This particular type of response blows my mind... "They were hiding their behavior... Therefore we don't need regulation."

When regulation fails, we update it to cover what we learned. When someone hides from regulation, we update the criminal codes. Regulation's goal is to steer behavior, not be a Minority Report for balance sheets.

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Did the person you are responding to actually say "They were hiding their behavior... Therefore we don't need regulation?"

Does anyone say that?

That's not what I said, or meant to imply. What I meant was firstly - depositors being made whole, investors losing everything, and management (hopefully) going to jail is the kind of response we want. Bad banks should fail, and the job of regulation should not be to protect banks or people who own equity in the bank itself. It should protect customers and society.

The second point that needs to be refuted, loudly, is that this is the Trump administration's fault for lowering the reporting frequency for smaller banks - what should really be scrutinized is what those requirements actually are and how they can be improved.

So, I push back some on the depositors being made completely whole. Customers are choosing to put their money in the bank, and their putting money in the bank is what is allowing the bank to take the risks. It's not like depositors are completely faultless here. I'm all on board with the selling of the assets being used to make depositors as whole as possible, but anything the current sale price the assets couldn't cover, I don't see why depositors should be made whole.

What you say is true, but the point remains that the limits imposed by the government only work if some depositors (large ones) bear some risk of losing their deposits. The limits may simply be moved up to $2 million or $5 million for certain kinds of banks, but the rules imposed by VCs and related investors require companies to concentrate all their business with one bank; this increases risk and needs to be outlawed (this kind of sweetheart deal is one of the reasons the bad managers at SVB piled up so many deposits). The VCs share a good deal of the blame here. There needs to be some incentive for multimillion dollar depositors to both evaluate risk and to be able to reduce it.

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