Published: 03/11/2023

Y-Combinator, a leading US private equity investment firm, is asking people (CEOs/Founders) to sign a petition to lobby the FDIC into backing the depositors of the SVB bank to ensure that they can access more then the $250,000 FDIC limit on deposit insurance.

This is worrisome to me because the FDIC limits insurance of bank failure to $250,000 per account. I thought this was a lucky, rich person problem until I read the YC call to action. I used to think this is a problem for dumb rich people with to much money. Welp, I was wrong. I didn’t consider that this rule applies to company / business accounts as well. That means if you work for IBM and their bank fails, you hope that IBM is banking with more than one bank and more than one account.

Silicon Valley Bank has more than 37,000 small businesses with deposits / accounts in excess of $250,000. If the FDIC does not ensure that these small businesses can access the amount in excess of $250,000 we could see a massive ripple effect on the US economy

But ADAM why should I care? I work for XYZ company, I’m not even in tech

I’m in tech and I’m concerned, but those who aren’t in tech, I would still write your congressmen and the FDIC, seeking them to help these companies. The reason why is if these companies can’t make payroll entirely, that leads to a cascade effect. The depositors include companies not just based in San Francisco or California. YC is projecting that 100,000 people could be affected by such a move. This cascade would lead to many of these 100,000 people not being able to make their mortgage or rent payments, buy food or other critical payments.

What the government should do long term

Considering there are thousands of companies that exceed the $250,000 deposit insurance limit, there needs to be new monetary policy. Options I see include:

  1. Raise the limit and restrict accounts to not exceed the insured limit. EG, raise the insured limit to $5,000,000 + inflation. This would prevent the vast majority of bank collapses to result in a condition that we find ourselves in; companies may not be able to pay there employee’s their rightfully earned salaries.
  2. Keep the limit, do not allow accounts to exceed the insurance limit
  3. Keep the limit but force banks and companies that exceed the limit to carry insurance
  4. Let all the banks fail and the people suffer

I see a lot of people online saying, let it burn, let the bank fail. I agree, let the bank fail and the bankers should go to jail. BUT heres a BIG butt. If you banked at SVB, you should not be punished, you in good faith put $300,000 of your companies revenues into your account (IT SHOULD BE SAFE) and that will let you pay your employees and bills for the next few months, the bank fails, you should not fail.

What the FDIC does will determine the fate of the US economy

If the failed bank cascades into companies not making payroll, I predict that the US will face a depression similar to the great depression or worse. I promise it will not be good for the US as a whole.

If the failed bank is resolved and companies can access their funds, it will trigger political backlash from all sides to whoever is in charge at the time and that it will lead to temporary changes in policy. I do not see long term changes in effect in a situation where the integrity is maintained. – Some a**hole will do something shady in 5-15 years and screw everyone over again.

Should this change how I manage my own money?

Yes and no. In the case of a system wide bank collaspe in the short term, most Americans will be protected. Most people have less then $250,000 in their personal accounts. I would advise people to keep some petty cash on hand $1000 or less, in case the entire system does crash (able to go buy food or whatever), but in general most people will be ok.

Should you change how you manage your money? Maybe. I put several thousand a month into investments and I’ve been backing off, a few years of negative earnings has me discouraged to keep investing. At the negative 14% to 30% rates of return I’ve seen, I’m starting to think it would be a better use of cash to save it, pay off my house or buy extra food or firewood (Or say F it and buy a fancy sports car).

My advice?