All modern economies use money. You have to put your money somewhere. Shouldn’t it be safe?
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The Federal Reserve thinks it should be, and I couldn’t agree more. Over the weekend, the Fed, Treasury and FDIC acted decisively to stop the banking crisis.
From Bloomberg:
The Federal Reserve brought out its bazooka Sunday, guaranteeing funds for any bank whose depositors might have been clicking “withdraw” over the weekend. The central bank saw clear potential for a systemic crisis in the closures of SVB and Signature Bank and acted to kill it before it got started.
Our government acted decisively and all US bank accounts are now protected.
So what’s the future for banking in America?
You have to put your money somewhere, right? And whether you’re an individual or a business, you have to assume that place is safe.
Let’s make regulation catch up with reality.
There should be no limit on FDIC insurance. Any person or business putting its money in a bank account should have peace of mind.
After all, $250,000 is a lot to an individual, but it’s not much for a business. That may not even cover a single payroll.
What’s at stake here is hard working Americans getting the paychecks they earned. No worker should be unable to pay her bills because a bank made bad decisions.
What’s more, individuals and businesses aren’t equipped to figure out how safe a bank is. That’s the job of regulators.
If the regulators fail to prevent disaster, we shouldn’t take it out on the depositors.
But isn’t this a license for banks to do anything?
Not with the right regulations. We should expand stress tests and tight regulation from just the biggest banks to all banks.
This could prevent another SVB.
We should also increase FDIC insurance premiums. Banks pay these premiums to get FDIC insurance.
With the insurance expanding, the premiums must also rise.
And what about the SVB executives and shareholders?
Screw ‘em. Let them lose their jobs and money.
They made bad decisions, and they deserve to pay, big time.
But you know who doesn’t deserve to pay? Hard working people counting on a paycheck.
Finally, what should founders do post-SVB? Create multiple bank accounts.
Perhaps 50% of your money goes into a startup-friendly product like Mercury. The other half can go in old economy but rock solid JP Morgan.
Splitting cash across several accounts, including one or more Big 4 Banks (JPM, BoA, Citi, Wells) is wise. Expect many VC’s to require it.
We dodged a very big bullet this weekend. Let’s celebrate!
More on tech:
Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)
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Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?’” by BrookingsInst is licensed under CC BY-NC-ND 2.0
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