Bank Bailouts—What They Are And Why Some Experts Say Signature Bank And SVB Didn’t Get One

Topline

Silicon Valley Bank and Signature Bank collapsed over the weekend in an uncanny echo of the 2008 financial crisis, and though many experts note the Treasury Department’s plan to save depositors doesn’t constitute a bailout because it draws from insurance funds paid by banks—and not taxpayer dollars—others worry the implications could ultimately fall to consumers through economic consequences like inflation.

Key Facts

Chief Critic

Peter Schiff, chief economist and global strategist at Euro Pacific Capital, argued in several tweets Monday that the expanded depositor insurance and bank loan fund are an ill-conceived bailout attempt that will still impact taxpayers. Schiff links to an article on his website explaining that, while Silicon Valley Bank is no longer operational, the government’s actions still constitute a bailout because the FDIC expanded deposit guarantees to types of deposits that aren’t usually ensured, like mutual funds, and banks are being given access to money they couldn’t get in the market. Though the Fed isn’t giving the banks cash directly, says Schiff, inflation will still rise when cash flows into the economy after banks trade in their devalued securities. Even if prices increase for only a year—the longest loan offered—taxpayers will pay the price.

Key Background

Silicon Valley Bank, the 16th largest bank in the nation by assets last week, was closed Friday after reporting a $1.8 billion dollar loss from the sale of devalued securities two days prior. Yellen, Biden and supporters like Ackman associate bailouts with charging taxpayers or decreased accountability for bank directors and managers who made poor investments. They argue the FDIC’s management of the situation doesn’t constitute a bailout because the banks were allowed to fail, senior management was fired and the depositor guarantee and bank loan fund won’t cost taxpayers any money. In traditional bank bailouts, like those in the financial crisis of 2008, failed banks are saved by FDIC and other financial institutions like the Fed and the Treasury. The FDIC, which usually insures checking and savings accounts up to $250,000, can increase the types of deposits they insure, while the FED and the Treasury Department usually help the failed banks get enough capital to guarantee their deposits. Bank bailouts from 2008 are often negatively associated with corporate greed because billions of dollars of taxpayer money were used to save banks some perceived to have invested unethically.

Big Number

$245 billion. That’s how much taxpayer money the Treasury Department, FDIC and Fed spent bailing out hundreds of banks that failed during the 2008 financial crisis. The institutions spent $200 billion investing in institutions like J.P. Morgan Chase, Goldman Sachs and Morgan Stanley. The FDIC guaranteed Citigroup and Bank of America’s debt and deposits from large corporate accounts to keep investors from leaving and companies from defaulting on paychecks.

Further Reading

FDIC Will Protect All Silicon Valley Bank Deposits After Sudden Collapse, Treasury Says (Forbes)

Biden Says Saving Silicon Valley Bank Helped Economy ‘Breath Easier’—-But Not All Experts Agree (Forbes)

Experts flag moral hazard risk as U.S. intervenes in SVB crisis (Reuters)

What To Know About Silicon Valley Bank’s Collapse—The Biggest Bank Failure Since 2008 (Forbes)