That is generally a good policy. Deposit guarantee is a crucial way to prevent the spread of financial contagion and to ward off unnecessary bankruptcies. Roku might have been stupid to park that much money at SVB, but it would be insane if it were forced If regulators allow other banks and companies to fail because of one bank’s mismanagement, the scope of a relatively small banking crisis could increase exponentially within days. worst people in the world does not detract from a century of hard-won wisdom in fighting financial crises.
“The real outrage is that all this was necessary at all. If Congress hadn’t done its best to deregulate banks like the SVB, the SVB most likely wouldn’t be in this situation. In 2018, 17 Senate Democrats joined a unanimous bloc of Senate Republicans to repeal key capital and liquidity rules for 25 of the 38 largest financial institutions covered by the U.S. banking bill Becker and other major regional bank executives urged that the rules imposed in the wake of the 2008 financial reform were drafted were for multibillion-dollar giants, but companies with only $50 billion in assets were subjected to them.The swing state Democrats saw a political opportunity to raise money and helped the Republicans write a bill to get boys like him to help Becker, and then presented the public as a mama-and-lifeline pop operations.
Senator Mark Warner (D-Va.) wrote a down-home op-ed in the Tide water news claiming that the bill would remove “excessive regulations” that would “make it too costly and time-consuming for small banks and credit unions to serve consumers, farmers and small businesses.” Tim Kaine (D-Va.) called the bill a victory for “rural and underserved communities,” while senators Heidi Heitkamp (DN.D.), Jon Tester (D-Mont.) and Joe Donnellly (D-Ind.) stated that the bill “would provide mortgage and other credit to hard-working Americans, help them and their families grow and start businesses.” Trump agreed: “We are unleashing the economic potential of our people.”
These claims were ridiculous. The regulations involved included basic banking practices – how much debt banks could rely on and how much cash they should withhold to deal with an emergency. term profits from larger long-term risks, and it was tailored for banks with up to $250 billion in assets — not exactly a hard scrabble set.
When pressed on these points, bank-friendly Democrats pointed it out Barry Frank, the Massachusetts liberal who wrote the congressional response to the 2008 financial crisis. After retiring from government, Frank joined the board of directors of Signature Bank, a New York-based company that was worth about $40 billion at the time of assets managed. the bank was up to $47 billion, and Frank along with Becker and others decided to call for a reversal of rules he had written in Congress that would allow Signature to cross the $50 billion threshold without imposing stricter liquidity and capital requirements. cause.
Signature got a pretty good deal with Frank. They have paid him nearly $2.5 million since he joined the board in late 2015, when the bank almost tripled its balance sheet to $110 billion, with a particular focus on the cryptocurrency sector. On Sunday night, the FBI also took over Signature Bank. The bank’s involvement in the crypto world and the fear spread by the SVB’s bankruptcy had led to a run on Signature, and regulators were unwilling to risk more losses. Again, this is probably the right move to ensure that the government can take care of Signature depositors at the lowest cost possible.
But there is more to economic management than rescue deposits. Civil and criminal investigations are warranted here. Becker has paid more than $45 million since 2018, according to SEC filings, and he dumped $3.6 million in SVB stock on Feb. 27 as his company collapsed — not a traditional hallmark of good fiduciary stewardship. It’s extremely unusual for so many companies to keep so much money in one institution – especially when the VC kingpins they worked with also had very large accounts with the same company. It is essential that the government does not repeat the same mistakes it made after 2008, when prosecutors simply decided not to pursue clear cases of fraudulent activity. Anything illegal must be prosecuted – otherwise American democracy would be harmed.
The whole debacle also shows that the Fed has not paid enough attention to financial stability. Federal officials are not announcing bailouts on Sunday night if all goes according to plan. Jerome Powell has raised interest rates rapidly, ignoring the possibility that this could cause rapid replication of assets and trigger an event like the bankruptcy of the SVB.Regulatory errors do not excuse reckless bank management, but they are still failures.
In fact, there is a dissonance between the Fed’s recent bank bailouts and the announced inflation policy. By raising interest rates, central bankers deliberately impose higher borrowing costs on companies and limit lending. This forces companies to either cut back on labor costs or simply go out of business. The idea is to reduce the purchasing power of ordinary people, which will ultimately encourage retailers to lower prices. Voila, inflation has been conquered.
In theory anyway. So far, the technology sector has proved particularly sensitive to higher rates. After months of rate hikes, job growth in the economy as a whole remains very strong. Technology, on the other hand, is hurting badly, with more than 120,000 layoffs announced in 2023 alone.
This makes the rescue of the SVB a bit strange. With one hand, Powell and the Fed are laying off tech workers to curb inflation, while the other hand is bailing out tech workers to avoid a financial crisis. This is not a particularly effective way to run an economy. .
But whatever the Fed does next, it’s hard to imagine the technology landscape surviving in its current state for long. All of these layoffs and bank failures indicate that the venture-capital-oriented technology world was largely dependent on ultra-low interest rates. SVB crash certainly doesn’t inspire much confidence in the entrepreneurial wisdom of California’s investor class. They’ve already told us they can’t save themselves.
