On the weekend, the Federal government seized control of Silicon Valley Bank (SVB) and announced it would insure all deposits in the bank, which caters to high-tech start-ups and venture capitalists.
The move has prompted complaints that Federal authorities are bailing out the bank and its depositors amid intense risk taking.
Driving the news: The Federal Deposit Insurance Corporation (FDIC) will use its deposit insurance fund to reimburse account holders at SVB and also at Signature Bank, which focuses on cryptocurrencies, and was closed by state regulators on Sunday.
- The Federal Reserve has also opened an emergency lending facility to ensure banks have sufficient cash to meet depositors’ requirements. Banks can exchange U.S. Treasury bonds, agency debt, and mortgage-backed securities for low-interest loans rather than trying to sell these assets at a financial market discount.
- The collapse of SVB was the most significant bank failure since the 2008 financial crisis. The government’s response has raised questions about how far it is willing to go to support the private banking sector, leading to market upheaval.
What they’re saying: “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” the Treasury, Federal Reserve and FDIC said in a joint statement issued Sunday, adding that the same goes for the insurance money provided to Signature account holders.
- Joe Biden is pretending this isn’t a bailout. It is,” former UN Ambassador and presidential contender Nikki Haley said in a tweet. “Now depositors at healthy banks are forced to subsidize Silicon Valley Bank’s mismanagement. When the Deposit Insurance Fund runs dry, all bank customers are on the hook. That’s a public bailout. Depositors should be paid by selling off Silicon Valley Bank’s assets, not by the public. Taxpayers should not be responsible.”