We do not need to, nor should we, bail out Silicon Valley Bank (SVB) depositors because this is primarily protecting “smart“ sophisticated, venture capital investors. To prevent contagion, it would makes sense for the FED to announce that GOING FORWARD they will increase the protection for deposits at OTHER BANKS while at the same time they revisit their reserve requirements.
The SVB bailout is estimated to cost $15 billion when all is said and done.
Biden says, “no losses will be borne by the taxpayers, the money will come from the fees that banks pay into the Deposit Insurance Fund.”
This is a lie. Who does Biden think will be paying these extra cost of all of the other banks?
SVB and it’s venture capital partners have publicly and financially supported Biden’s ESG and DEI initiatives then lobbied for looser risk limits claiming they did not present a systemic risk.
They used these less stringent requirements to invest in longer term securities paying higher interest rates.
The used these higher interest rates to offer higher returns to customers attracting unusually large cash deposits from venture capital backed early stage companies
Deposits are always short term, meaning customers can ask for their money at any time.
It is very common knowledge even among those with little financial knowledge, but especially among some of the “smartest“ people in the world managing venture capital, that borrowing short term (deposits) and investing in long-term creates a serious potential risk.
It happened. Interest rates increased, reducing the value of their longer-term investments, while at the same time funding for start ups dried up.
The bail out will primarily go to rich sophisticated venture capitalists.
A much smaller amount of the bail out will go to regular companies that may be caught in a bad situation.
This is a situation where the regulators/supervisors failed to regulate/supervise or even pay attention and the “smart” people managing venture capital funds took advantage of a situation and now we will all be asked to bail them out.
And for those who have heard it is all Trump’s fault, understand that even if the threshold for regulation had not been changed, the 2022 Fed’s stress test requirements only required a 2% interest rate which would not have affected Silicon Valley Bank.
And, for anybody interested, there’s a simple way for a bank to operate in a totally risk free way: Narrow Bank. The regulators just won’t let that happen. (1)
