There is a crime defined in German law as Insolvenz- or Konkursverschleppung to avoid those kind of things (not that it always works, of course). From the linked Wikiarticle linked, translated from German:
Delayed filing of an insolvency petition is understood as delay in filing for insolvency (formerly bankruptcy delay). Individual legal provisions determine when an insolvency petition must be filed. Internationally, insolvency delay is regulated very differently; in Germany, it is a punishable offense.
SVB lobbied hard to avoid being called a systemically important bank, and I think they won the argument. Being labeled a SIB comes with additional regulation and capital requirements, which I guess they avoided.
I hope they claw back the bonuses and throw the book at them for those equity sales in February – clear insider trading, if you ask me. I’m sure they knew they had to do a capital raise back then, and it was the news of the capital raise (and the failure to do so) that led to the run and collapse of the bank.
I took over this business a year ago. We have more than $250k in Signature. Not mega money (it really is a small business) but seven figures. I really don’t know how we would, practically speaking, keep less than 250 in one account/bank when we have transactions that large on a regular basis.
That is a problem for business, particularly for smaller businesses I would think. The FDIC exists for personal accounts for the average person, not for the accounts of businesses.
This is not a flaw in the system. The FDIC is not intended to protect you if you have that much money.
What should be protecting you is strict regulation of banks, along with the expectation that anyone with 7 figures to deposit has sufficient financial acumen to do a certain amount of due diligence on the banks that they use. But it’s very difficult to carry out that due diligence without complete transparency. This is the problem:
The 2010 Dodd-Frank Act established the Financial Stability Oversight Council (FSC), giving it the authority to label banks and other FIs SIFIs. The goal was to prevent a repeat of the 2008 financial crisis, which saw largely unregulated institutions such as American International Group Inc. require large taxpayer-funded bailouts…
The SIFI label imposes extra regulatory requirements and increased scrutiny. These include strict oversight by the Federal Reserve (Fed), higher capital requirements, periodic stress tests…
…in 2018, following a wave of complaints from smaller banks struggling to handle the costs of complying with enhanced regulation, Former President Donald Trump, who described the Dodd-Frank Act as “a very negative force,” signed into law a partial rollback. The bill increased the SIFI threshold to $100 billion and then all the way up to $250 billion 18 months later.
Note that SVB and Signature both fall into the size range for which Trump removed the Dodd-Frank requirement for stricter regulation and scrutiny.
This happens over and over again. Financial crisis > sensible banking regulation > a few years later complaints that government regulation is stifling profitability, idiots on the right who purport to be pro-business but don’t understand how markets work relax regulations > financial crisis.
Of course I know that. Mega millions lottery isn’t giving out trillion dollar prizes. I thought it was funny that it was used in a cash sense there, followed by something that directly contradicted it.
I’ll just quibble with that because a carpenter or electrician who runs his own business could easily find himself with >$250k in his business account and not be rich.
For an individual to have 250 is a lot of money. For a business it’s nothing.
Sure, but there is no general principle that accounts of any size should be underwritten by the taxpayer. What should be happening is that people should be scrutinizing the behavior of their banks, not just assuming that government underwrites them.
That should not require that a small business with $500k to deposit be highly sophisticated, just have basic financial common sense. So it requires regulations that make everything that banks do completely transparent to all of us.
All I can say is don’t vote for idiots who think that minimizing regulation makes markets free. Free markets thrive when they operate under fair and sensible and consistent rules. The complete absence of rules is not freedom.
But you can split $1M into four banks quite easily. $1B into 4,000 accounts is not practical.
Though in c1990s during my brief career in investment finance our firm offered a service where folks with $1-2M (real money back then) into multiple banks and ownerships that kept 100% it FDIC insured (limit $100k then).
If you are investing, sure. But not if you are running a business. And that’s as it should be - the intent of FDIC insurance is not to encourage a business with around $1 million to split its operating account between 4 banks. It is not intended to protect a business of that size at all.
Or, put amounts over $250k into money market funds and then wire money into the bank account as needed. I doubt a carpenter or electrician needs immediate access to more than $250k on a daily basis, and money can be available T+1 from a money market into a checking account.
I don’t think it should be the taxpayer’s responsibility, but I think most of us assume that the regulations mean banking is safe. If there’s no faith in the banks, there’s no economy.
This is the moral hazard problem. If everyone assumes that banks are completely safe, then they will just gravitate toward banks that give them the best terms of business, without any regard for whether the bank is run prudently. You see this problem with websites that screen banks for the best interest rates for small retail investors who will be protected by FDIC - just looking for the highest rate without any consideration of the credit quality.
As I wrote earlier in the thread, I think a good balance is that banking regulation should be tight enough that it is impossible for a depositor to lose more than ~25% in the worst possible failure. But that 25% should be at risk, so that we have an incentive to scrutinize the behavior of our banks. And that also requires that regulations make the behavior of banks completely transparent, so that we can all see exactly what our banks are doing without anyone having to be a financial expert.
I’m in pharmaceuticals. My background is biology. I wouldn’t begin to know how to tell whether a bank is prudent. This was the bank my predecessors used, and nothing gave me any reason to change.
To me, this is like saying (as a pharma guy) we should endeavor to make our drugs safe and effective, but at the end of the day you bear responsibility to understand how trials are run, pharmacokinetics, etc. etc. and make sure the drug is right for you. It’s not a reasonable burden to put on a non-expert.
But this is exactly the problem. You didn’t feel any incentive to think about it.
You have developed sufficient financial acumen that you’re running a business. The regulations should make banking sufficiently transparent that it is not a significant burden to someone with your capabilities.
If you’re not prepared to accept this, we should just abandon privately run banks altogether and have a single nationalized bank. You can’t have a free market in banking where the consumer has zero incentive to verify the quality of the product they are buying because they can just return it for a full refund if it breaks.
Every legitimate call. That includes calls above the insurance limit. The idea was that insuring ordinary depositors would prevent ruinous runs on banks. Which it mostly has.
EDIT: I may have confused the Emergency Banking Act of 1933 with the plain Banking Act of 1933. However, I will leave the post as I am sure they both were intended to stop bank runs.
Sure, but that’s just saying that preventing a bank from failing protects all depositors indirectly. It’s not saying that FDIC insurance is underwriting “every legitimate call”.
Not liking the tone some of the responses are taking, I surely empathize and I’m sorry for your situation. This genuinely sucks, you are quite correct: this is not your fault. You’re caught up in systemic risk that was excaberated by the Trump administration as cited above and that’s all there is to it. I hope you get through this, keep me up-to-date, and I hope, truly hope, things go well for you.