Silicon Valley Bank Bailout: Did the government just bail out SVB and Signature?

A whisper of the word “rescue” is enough to send a shiver down anyone’s spine. For most people, it evokes specific, evocative memories of the 2008 global financial crisis, when the US government Intervened To keep financial institutions afloat using taxpayers’ money. In the popular imagination, it persists as an example of capitalist governance at its worst: the big banks took big risks, and everyone else paid for it.

Now, on the heels Silicon Valley bank collapse and government advertisement They will intervene to return money to depositors and support the US banking system again, and the term rescue is here again. But is that really what’s going on here? What’s the long and short is that it’s complicated, but basically, kind of yeah, even though this isn’t a re-2008.

To back up a bit in case you’re not up to speed, for the past several days a handful of US banks have been in shambles. (You can check out Vox’s answers to nine questions you might have about the disaster here.) Silicon Valley Bank, or SVB, a bank that caters largely to the technology sector, startups and venture capital, suffered a meltdown last week. The bank announced that it was in the midst of a cash crunch on Wednesday, March 8th, and by Friday, March 10th, regulators closed it down and the FDIC took over.

Heading into the weekend, there has been a host of speculation as to what will happen with SVB specifically. It had a lot of important clients (including Vox Media, which owns, and while many depositors were able to withdraw their money before it crashed, not everyone was able to. it was there Fears Companies, for example, will not be able to provide payroll with their funds trapped in SVB.

On Sunday, March 12th, the Treasury Department, the Federal Reserve, and the FDIC announce They were taking “decisive measures” to protect the economy and boost confidence in the banking system. They said they would make sure all SVB depositors would have access to their funds by the next day, not just the $250,000 guaranteed by the FDIC. Also on Sunday, New York regulators shut down Signature Bank, which had ventured into the digital currency space, and the federal government said depositors’ funds would also be secured. The Fed said it would also open a facility for Availability of financing to other financial institutions in the form of one-year loans to try to reduce contagion across the banking sector and fend off other bank operations, like what happened with SVB. Basically, the Fed wants to boost confidence so that people don’t panic and try to withdraw all their money at once.

The White House has been emphatic in emphasizing this This is not the situation in 2008. SVB and Signature will not be revived, and lenders and shareholders will not get any government money. Money will come to depositors from the fund into which banks pay, and Deposit insurance fundNot a taxpayer. (treasury You may have to support FDIC Fund or Fed Loan Program money, but that’s completely unlikely).

Treasury Secretary Janet Yellen said in an interview Face the nation Sunday. “The reforms that have been put in place mean we won’t do this again, but we are concerned about depositors and focused on trying to meet their needs.”

nothing Formal conceptual meaning or legal definition This is not a bailout the way we thought of it after the global financial crisis, said Josh Lipsky, senior director of the Center for GeoEconomics at the Atlantic Council. It’s not congressional approval, it’s not taxpayer funding. It is money given to secure a financial institution from the federal government, but the money is collected from other banks. From political consciousness how we got used to the word [bailout] Over the past decade, that has not been the case.

However, the government is stepping in to support the banking system and, in the case of SVB and Signature, depositors. The couple in question have it in over their heads, and now the money has to come from somewhere else to pay off the people and entities that keep their money there. There are other concerns Regional banks may be in troubletoo, and presumably, if one goes down, similar mechanisms will be used to support depositors as well.

Some say it’s a salvage no matter how you slice it. When I emailed Aaron Klein, a senior economist fellow at the Brookings Institution, to ask if he thought what happened amounted to a bailout, he replied, “Beyond all extremes.” Megan Green, chief global economist at Kroll, has drawn the distinction since 2008. “It’s a bailout, but it’s a bailout for a different group and it’s done in a different way.”

Matt Levin Blumberg wrote in a column on Monday One way to read the Fed’s loan offer and guarantees on uninsured deposits is developments that “somewhat amount to a bailout of the banks” (even if not the SVB, which has already failed). “If you were an uninsured depositor in a mid-sized bank that made some stupid bets on rates, there is no reason to move your money around now; the Fed has made it clear it will back that bank.”

some observers Note that some of the supposedly backed depositors among SVB clients are well-to-do, venture capitalists and tech leaders. In popular culture, they aren’t exactly the most sympathetic crowd. It’s a rescue. Not like 2008. But it’s a bailout for the venture capital community [and] Their portfolio companies (their investments). This is the depositor rule for SVB,” He said New York Times columnist Andrew Ross Sorkin in a tweet. He added that it was “the right thing to do at this time”, but that there would be ramifications and potential new regulations.

Mike Konzal, director of macroeconomic analysis at the Roosevelt Institute, a progressive think tank, emphasized the organizing point, noting that the Trump administration and a bipartisan group in Congress Relaxation of regulations around the banking industry in 2018. “This is a bad result. We didn’t want this to happen. We need our regulations to work better, and if we can’t do that with the regulations we have, we need new ones, because we don’t want to do that,” he said. “Here, the FDIC has used the emergency powers it has access to, but we don’t want them to use force regularly.”

It would be really nice to get a clear answer here as to whether the government’s announcements on Sunday amounted to a rescue, but the answer is really Depends on on from You ask. It also depends if you think this is a Moral risks, which means that it may lead to more banks behaving badly. In the zeitgeist, the term “rescue” has all kinds of historical (and largely negative) connotations that poison the well around the entire conversation.

The fact of the matter is, on Friday, a lot of companies went into the weekend wondering how they were going to run their operations on Monday, and a lot of workers wondered if they were going to get paid in the next cycle. The federal government stepped in with some pauses, for SVB and Signature depositors and for the banking industry in general. It’s not clear which, if any, banks would even try to get the Fed’s help — often, it’s enough for the Fed to say it’ll step in to do the trick.

As unsatisfying as it is, the response to whether this is a bailout is yes, and we’ll see what happens next.

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