With the end of Silicon Valley Bank, which collapsed due to its incompetence, there’s been a mad scramble to comb through its balance sheets to see how deep this hole goes. Will it lead to another 2008 financial meltdown? Will there be a bailout? How large will that relief package be, and will it have the votes on the Hill? The good part is that larger banks aren’t as heavily invested in the tech industry; SVB got torpedoed by the massive volatility. So, what has been proposed is not a bailout but also a bailout, and one that won’t cost taxpayers anything. I’m not kidding. They’re trying to sell that narrative. It's why Fox News' Brit Hume lambasted the Biden administration for following economic theories based on magic and wizardry. It also wouldn’t require congressional approval (via NBC News):
It seems this will be done at no cost to the taxpayers by the economic theory known as Magic. https://t.co/GXZYU4GSb7— Brit Hume (@brithume) March 12, 2023
Federal officials have announced they are guaranteeing all deposits at Silicon Valley Bank, the tech-focused lender that U.S. authorities shut down Friday in one of the biggest bank collapses in years.
In a joint statement Sunday, the U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. said the extraordinary measures they were taking to shore up SVB deposits would not come at taxpayers' expense. Asked whether the actions constituted a “bailout,” a senior Treasury Department official emphasized that point Sunday night.
The government also reiterated that only SVB depositors, as well as those at New York-based Signature Bank — a second institution it took over and shut down — would be made whole. Shareholders of the failed banks, as well as some bondholders, will “not be protected” by the actions, the agencies' statement noted.
Funding for the emergency measures will also come from selling off SVB's assets, said Morgan Ricks, a banking professor at Vanderbilt Law School. As a result, he said, taxpayer dollars will not be directly implicated in the backstop measure.
The cost of covering the deposits, including uninsured amounts in excess of the FDIC's $250,000 limit, will be paid for in part out of the agency's Deposit Insurance Fund — a reserve that is paid for by a quarterly fee on banks.
By designating their backstop measures as a "systemic risk exception" event, Washington regulators sidestepped a vote that would otherwise be required in Congress on whether to backstop the banks' depositors.
The "exception" designation required the approval of two-thirds of the Federal Reserve Board of Governors, two-thirds of the board of the FDIC and the Treasury Department in consultation with the president, Ricks said.
The Deposit Insurance Fund’s balance was $128.2 billion as of Dec. 31. According to filings, 89% of SVB's $175 billion in deposits, or about $156 billion, were uninsured.
Ricks said there is no way to know yet how much the federal backstop measure will ultimately cost, adding that it would depend in part on how much regulators can recover from selling the banks' assets.
So, there’s a good chance that we, the taxpayer, will be footing a portion of this relief effort, which shouldn’t happen since SVB collapsed for their poor decisions, not least being not having a risk assessment officer for nearly a year. They made a bet, they lost. End of subject. The American people are done bailing out big banks, even if this is the second-largest bank failure in American history. We’re done TARPing up these peoples’ mess.