Yellen, FDIC, White House backstop SVB depositors
What a difference 10 hours makes. Soon after Treasury Secretary Janet Yellen told “Face the Nation” on Sunday that the government would not bail out failed Silicon Valley Bank (SVB) owners and investors, Treasury, the Federal Reserve, and FDIC issued a joint statement late Sunday that after consulting with President Joe Biden the FDIC would government regulators would “complete its resolution of Silicon Valley Bank … in a manner that fully protects all depositors.”
“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” the statement continued.
We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
The Federal Reserve announced separately it would establish a loan program for banks “designed to buttress them against financial risks caused by Friday’s collapse of SVB,” the Washington Post reports:
The decision by Treasury to backstop all deposits at SVB and Signature — not just those up to $250,000 that are insured under federal law — rested on a judgment that it was necessary to avoid a wider “systemic” meltdown. The move will likely ignite a political firestorm over the decision to protect the assets of tech firms, venture capitalists, and other rich people in California.
Biden is expected to address the bank collapses this morning.
“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” the president said. “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
So he says. The problem is that, after the 2008 financial crisis, “again” was last Friday. Those responsible for the 2008 collapse faced no appreciable consequences under the Obama-Biden administration. Making things worse, as soon as Republicans held the White House, Donald Trump, with help from 33 House Democrats and 17 Senate Democrats, “signed the biggest rollback of bank regulations since the global financial crisis.”
Is it torches and pitchforks yet?
A second Washington Post report considers the political fallout from this latest banking crisis:
“Now is not the time for U.S. taxpayers to bail out Silicon Valley Bank,” Sen. Bernie Sanders (I-Vt.) said in a statement, per our colleague Tony. “If there is a bailout of Silicon Valley Bank, it must be 100 percent financed by Wall Street and large financial institutions. We cannot continue down the road of more socialism for the rich and rugged individualism for everyone else.”
Another potential flash point: SVB serves plenty of tech companies that are unpopular with both parties, and they are likely to benefit from the government’s maneuver, as will some wealthy Californians.
American Prospect Executive Editor David Dayen (“Chain of Title” and “Monopolized“) notes that there exists a private option for insuring deposits over $250k that SVB and its venture capitalist depositors (VCs) seem not to have used.
“There’s something called Insured Cash Sweep. It essentially cuts up your large account if you’re a business into insured pieces, $250k each. In the event of a run, those deposits over the limit are safe,” Dayen tweeted Sunday. For reasons unknown, these financial masters of the universe did not use it.
“OK Roku’s CFO should be told not to come in on Monday,” Dayen snarked. Roku had 26 percent of its assets, nearly half a billion dollars, at SVB.
“Insured Cash Sweep is good up to $150 million,” Dayen added. “Having half a billion dollars in one bank is the dumbest thing I’ve ever heard.”
But there will be no accountability, personal or otherwise, for them leaving their deposits (and investors) exposed. Uncle Sam will ensure Roku and other tech firms are made whole. The rest of you can eat cake.
Again: High rollers exposed to the bank failure screamed. Government heard them the way it did not hear mortgage holders who lost their family homes and equity in the wake of the 2008 meltdown. The class-preference in who the government believes merits a bailout and who gets rugged individualism won’t be lost on Americans not among the 1 percent, as Sen. Chris Murphy (D-Conn.) observed Sunday.
The crisis of confidence that Treasury, the Federal Reserve, FDIC, the president and Congress need to address is not just financial. Complicating resolution is that they are the ones behind it as much as financial elites to whose whims they cater.
UPDATE: Monkeys are more sensitive to unfairness than pols in D.C.