You must enjoy being wrong ......
But the money to reimburse those depositors — above the standard $250,000 per account — will come from the Deposit Insurance Fund of the FDIC:
This morning, MIT economist Simon Johnson told the Washington Post’s Jeff Stein: “Disingenuous: that’s the right word to describe anyone (Treasury official or not) who claims the DIF is not ultimately backed by the taxpayer.“
The Deposit Insurance Fund balance was $128.2 billion on December 31, 2022. Silicon Valley Bank said it had $212 billion in assets as of the end of last year; as mentioned above, Signature had $114 billion in assets. Not every asset is a deposit that must be reimbursed by the FDIC, but making the clients of SVB and Signature whole is going to eat up a huge chunk of that Deposit Insurance Fund. The fund will need to be built back up, by charging more for those assessments/insurance premiums on FDIC-insured institutions. When your bank gets a bigger bill from the FDIC, it’s going to look for ways to hike fees on customers — maintenance and service fees, overdraft fees, ATM fees, insufficient-fund fees, etc. So as a taxpayer, no, you’re not paying to help make the SVB and Signature customers whole. But as a person who uses a bank, you’re going to be paying to help make the SVB and Signature customers whole.
President Biden is going to speak about the banking crisis today, and he will insist to high heaven that this is not a bailout of these banks. But it is: The government set up clear rules that the FDIC would only protect the first $250,000 in a deposit. Every depositor, every business, every Silicon Valley venture-capital investor knew the risks, or should have known them.
(You could even have $500,000 in a bank and still be protected; the FDIC covers savings accounts and checking accounts separately
.) If you have more than $250,000 in an account, you are accepting a small but real risk and might want to think about opening another account in another bank.
And then, once the management of Silicon Valley Bank and Signature screwed up badly enough, the federal government decided, “Never mind. We’re going to protect every amount for every bank customer.” The Biden administration may not like people calling that a bailout, but that is indeed a bailout.
As our Phil Klein writes
, “In practice, it has created a huge moral hazard by signaling that the $250,000 FDIC limit on deposit insurance does not exist in practice. The clear signal it sends is that when financial institutions make poor decisions, the government will swoop in to clean up the mess.”
As the editors of the Wall Street Journal conclude
, “This is a de facto bailout of the banking system, even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about.”
I know Treasury Secretary Janet Yellen didn’t have a lot of clear answers when she appeared on Face the Nation
yesterday, but that raises the question of what the point is of sending the Treasury secretary out in front of the television cameras
to insist everything will turn out fine, while also insisting that she can’t talk about the banking crisis in any detail.
Suddenly, no one is all that certain about the financial health of regional banks in the United States.