It’s a busy weekend for Washington’s Plunge Protection Team, as they try to make sure that Friday’s lightning-fast collapse of Silicon Valley Bank (SVB), the 16th largest in the country, doesn’t go systemic. “The FDIC acted unusually fast,” CNN reported, jumping in Friday morning to put the bank in receivership before things got completely out of control. “The FDIC took over in the midmorning Friday – usually it waits until markets close.”
The news agency quoted Better Markets CEO Dennis M. Kelleher: “SVB’s condition deteriorated so quickly that it couldn’t last just five more hours. That’s because its depositors were withdrawing their money so fast that the bank was insolvent, and an intraday closure was unavoidable due to a classic bank run.”
The FDIC has announced it will cover all insured deposits at the bank (up to $250,000), but the London Economist reported that this applies to only 7% of all deposits at the bank. So, the question is whether or not the government will bail out the bank lock, stock and barrel – and if so, will they do the same when the next bank, or banks, go belly-up?
London’s Financial Times cut to the chase: “The question now is whether there will be a bail-out and, if so, how big it would need to be to make depositors whole. SVB `is the lifeblood of the tech ecosystem,’ notes Ro Khanna, a congressman from California’s 17th district, which includes some of the valley. `They can’t let the bank fail. Whether that means that it should be acquired by another company…or get assistance from or even a statement from the Treasury department so that the depositors feel secure—I will leave that to the experts.’
“Intervention would be unpopular,” the FT admitted, “but short of stiffing depositors it may be the only option… Larry Summers, a former treasury secretary, has said that so long as the state steps in, there is no reason to worry that SVB will harm other parts of the financial system. Lots of people will be hoping that it does, and that he is right,” the voice of the City of London admitted.
