chernevik

In this case, from assessments on other banks insured by the FDIC.

It can be reasonably presumed that these costs, like any other business cost, will somehow be passed on to those banks' customers.

A "bailout" is a mitigation of consequences, generally supported by an injection of cash or a guarantee thereof. It can apply to any class of interests in an enterprise. "Shareholders were bailed", "bondholders were bailed out", "depositors were bailed" -- these are all possible sentences.

Shareholder bailouts are the worst but there are negative consequences to all cases.

Then you aren't getting the concept.

This isn't equity funding for a business idea. It's basically buying a claim on a bank in receivership. It doesn't matter if that claim is held by nextbigthing.com or Apple. Those claims are backed by SVB's portfolio of T-bonds and MBS so they are very solid. The benefit to users is acceleration of receipt and certainty. It's hardly a lark.

The OP was planning to target this offering to startups, which are only fraction of SVB's depositor base.

Someone saw their community in distress and thought to use their connections to put together a solution, for a modest profit. Sounds fine to me.

I suspect your customer use cases would have begun in Week 2. Most depositors would be able to cover payroll with the first fraction returned in the early days. Then it's a question of managing cash flow within the tranches doled out by the FDIC as wind-down proceeded. That's when the companies that had cash needs in excess of the wind-down would emerge.

At which point I think you'd find that you could no longer buy at 90%. That number applies to the WHOLE deposit balance; but after the FDIC has paid out the initial (say) 30% to 50%, the deposit to asset ratio shrinks considerably. You might loan at that rate, but then you're ultimately secured by the depositor's corporate credit.

Not a lawyer but this always struck me as exaggerated.

One, the FDIC was always going to provide a meaningful fraction in days which would have covered payroll. Employees and vendors are going to understand a few days delay because of a bank failure. It's embarrassing and bad but not existential.

Two, I expect the law is written such that a payment failure for liquidity induced bankruptcy isn't going to reach directors/officers. It's California so who knows but a law that did would be very badly written.

Had precisely that vibe to me.

It was always going to be someone who noticed that SVB's idiotic investments had put a hole in its balance sheets, and that it was largely funded with hot money that would depart when that hole was noticed.

Blaming Thiel for being that someone is just saying he was more alert than anyone else.

The timing and optics on this are just awful.

That doesn't sound even remotely close to right.

If the client is the owner of record Mercury hasn't any claim at all.

There has always been a lot of groupthink in the downvoting and flagging here and they don't want to do anything about it.

Oh well.

No.

- The FDIC's risk is distributed across many bank balance sheets

- The FDIC is collecting insurance premium on these deposits

Structures like this have existed for decades.

[ETA: I've just seen a good bit in the WSJ that such structures do abuse deposit insurance, since they allow large depositors to avoid inspection of bank liquidity. So maybe I'm wrong.]

I expect these funds would have been available Monday, but I'm not a cash flow management expert and don't know the mechanics of how sweeps work.

> you would be able to access all your funds

How fast and how?

You might consider providing a "living will" document that keeps your clients up-to-date on where the $$$ are and how they access them. If I'm using something like this I would want to be sure I can make payroll the day after you vanish.

(Not a potential customer or cash management expert, prioritize accordingly.)

"Don't talk about downvotes" but I'm sorry, the obvious suppression of inconvenient opinion on this thread is HILARIOUS.

The HN community is all for free-thinking except when its own conventions are contradicted. And those conventions are quite self-interested.

I know this sort of meta-discourse is off-limits, but the effect is real and does deserve notice.

Yeah, why was that?

Oops, sorry, not supposed to ask such questions.

It sounds like a useful and important product (if perhaps duplicative of extant offerings) but I'm afraid the government has blown up your market.

All one has to do now is bank somewhere that "everyone thinks safe". So long as the community sharing this belief is sufficiently large and politically connected, the government will underwrite their belief. Questioning the groupthink is for risk nerds.

The point is that if you make a bureaucracy responsible for 100% of deposits it will be very risk averse in the loans it will let a bank make.

There are many ways a business can practically manage cash to avoid bank risk.

This has been pointed out so in the past 48 hours that I am beginning to think people are just willfully ignoring it.

> "the answer will almost certainly be far more stringent regulation on small banks"

And that regulation won't look kindly on lending to anything new, different or weird.

A lending model like SVB's won't be supported by regulators.

You can have your own private definition if you like, but people talking about financial failures having using the term "bailout" in connection with all sorts of stakeholders for decades.

The word games being played around this are just embarrassing.

Actually no. The FDIC was created to protect small depositors without the knowledge to protect themselves against bank failure. Larger depositors were expected to assess their banks or find ways of safeguarding themselves.

One argument against deposit insurance was that it would lead to complacency and businesses offloading their responsibility to the government. And, here we are.

100% deposit insurance sounds great until you realize it leads to government regulation of 100% of the lending. TANSTAAFL. That is a very very bad outcome, there's very little room in it for a model like the Silicon Valley Bank, but that's where we are headed.

I would add, it's just hilarious to see so many claim "it's not a bailout because shareholders were wiped out!" Everyone knows bailouts are bad, and that people shouldn't rely on them. But they want their money, so of course _their_ protection isn't a "bailout". It's just . . . depositors made whole!

Yah. A "bailout" is any injection that makes whole any interested party facing losses. As in "The depositors were bailed out".

The hypocrisy around this is really disappointing.

They're passing any cost on to the other banks, who will pass those costs on to their various customers.

It's been fun watching the special pleaders redefine "bailout", as if the term could only apply to equity or bonds.

It can apply to any interested party. As in "The depositors were bailed out".

It won't.

A bank will have to justify its investments to its regulators. And if those regulators have any helpful suggestions about "under-banked sectors" that could use additional capital, management will be very attentive.

It does not, as they are far too small to be "systematically important". If they fail and their assets cannot support their deposits, their depositors will get a haircut.

This will not go unnoticed by depositors.

It's one of the clearer unfairnesses of this bad decision.

As we've seen this week, the scrutiny of depositors is far more powerful than that of shareholders.

The basic analysis that the costs will ultimately fall on other banks' depositors is correct.

That's why it's a bailout.

And so the regulators are empowered to make a whole bunch of other decisions, such as asset and lending strategy.

I prefer to minimize regulators' control over decisions.

Perhaps you have noticed that regulators are at bottom politicians?

It's a bailout.

They're putting the cost, presently unknown and probably not huge, on the other banks. But the message to depositors everywhere, of every size, is "don't worry about your bank's solvency, we'll protect you".

So market scrutiny is removed as a discipline on bank asset strategy. That leaves regulation as the only control. That politicizes and bureaucratizes bank lending. And the general presumption that Big Government will protect you from yourself is extended just another smidge.

If you had the wit to think "hey, maybe I should be careful with $5 million" and bothered to put it in T-bills or an insured sweep, you're just a nerd who should know the Government will take care of such things.

It isn't the end of the world, but it's a sign of how corrupt and complacent we've become.