I can't believe we're on day 3 of this and it still has to be explained. SVBs depositors were mostly companies. Companies don't go to new banks every time their account balance reached $250k. If these deposits were not honored thousands of companies would not be able to make payroll.
The number of comments (including from high-profile people) that completely ignore the fact that deposit sweeps exist in the past few days has been astounding...
Is it really a desirable solution though? Seems like gaming the system, and if the end result will be that effectively all deposits are FDIC insured anyway, why not just get rid of the $250k limit?
It spreads the risk out among a bunch of different banks, thus drastically lowering the odds that the FDIC will have to pay out on the full amount deposited.
I would put it differently. SVB was a bankers' bank, i.e., venture capital. Venture capital now is systemically important, having initiated their own bank run.
Many banks offer ways to get around the $250k limit, sometimes it's as simple as to open an account in another version of the same bank chartered in a different state
There are a zillion ways to deal with this. Split up your cash. Buy private insurance. Whatever. They agreed to a particular contract---deposits insured up to $250,000, and then ex-post, when it turns out they should have done something different, they want special favors.
> Are you aware that SVB had exclusive banking clauses that preclude opening accounts with other banks?
That, in and of itself, ought to be a negative inducement to bank with them, and I think a good case could be made that such clauses should be prohibited by policy, as customer diversification across banks makes the financial system more resilient.
those clauses are a sign that SVB and the VCs are in bed together and if you take their money and agree to these terms you are complicit too. the VCs used SVB loans to their portfolio companies to magnify the effective size of their funds without themselves taking on that leverage. SVB got massive interest income.
I can't believe we're still on day 3 and people are still arguing with the strawman that you'd have to open an account per $250k to mitigate the risk. (You need to open two or three accounts total, and beyond that you're big enough to start buying your own T-Bills. And no, that doesn't mean you do that at $750k. Christ, it's a distributed systems problem, you guys should be able to figure this out.)
