As somebody employed by a company which kept all their assets in SVB, I strongly support the FDIC bailout. Even a couple percent haircut would've resulted in many many second order economic implications. I think even for member banks, strong economic activity not realized through a systemic contagion is much better than slightly lower premiums.
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If we're not going to let economic signals tell companies to check who they're banking with before putting all their assets in one place, how can that happen? Regulations saying every small business needs to have a risk officer, and more regulations specifying how that officer has to make decisions?
Isn't the point of banking regulations that we are relying on the government to do that checking?
Relying on customers to check their bank, besides being fairly impractical for all but the largest and most sophisticated customers, is just going to trigger bank runs as soon as customers get any whiff of a problem.
I don't see the problem with unlimited FDIC provided the regulations are congruent with that. If you want to go the private route for better interest rates and take on the regulatory burden yourself, you can always go with an uninsured bank. If you just want a simple place to stash a few hundred million, why make you jump through hoops?
What I don't understand is why start-ups were apparently keeping millions of dollars of capital in a bank account rather than government bonds or other instruments, given that the FDIC limit was well known.
>If we're not going to let economic signals tell companies to check who they're banking with before putting all their assets in one place, how can that happen
The assumption that an operating company should understand fixed income pricing dynamics, have a POV on future FED interest rate moves, and dive into each potential banking partners' asset duration is an interesting one, especially when most of SVB's deposits were made during a period of perpetually falling interest rates, where duration mismatch helped banks.
Maybe not each company, but the VCs who encouraged their portfolio companies to put everything in SVB should have some inkling of the risks involved in doing that.