Making depositors whole isn't coming from taxpayer money, it's coming from FDIC and potentially higher fees on banks if it's needed as a function of the end result of SVB liquidation.
But even if the only option was to use taxpayer money, clearly it would be need to be done. If depositors weren't made whole, this week would've been a disaster with multiple bank runs that could cause a huge systemic issue. Eventually the fallout from such an event would bite the economy and the average taxpayer very badly.
The amount of money required to make depositors in SVB whole is negligible compared to the potential damage not doing so would cause, so it doesn't really matter where that money comes from.
That sounds an awful lot like "too big to fail". Are we here again? Why do we still have companies that big?
Why do we let companies grow that large then? Or maybe the FDIC protection should be increased for everyone?
I don't disagree that what you say is right when the argument doesn't go beyond the short term. But I expect to see protest against this from tax payers whose wealth is lower than the FDIC limit. Again.
Their point entirely is the opposite - that a pull of deposits on Monday would have destroyed banks that are small. and deposits would get consolidated into the big 4 "too big to fail" banks.
If I can paraphrase: "the risk would have been that banks that are too small would have been emptied, because a clear delineation would have been set between those that are too big to fail, and those that are not. This hazard induced by the existance of too-big-to-fail banks makes it hard to have small banks. Therefore, the solution to declare small banks somewhat too-big-to-fail and bail them out beyond legal obligations is reasonable."
It is reasonable, you are not wrong! But this slope is getting slippier. Something needs fixing, even if this bailout is the right thing to do.
I don't want to argue against this bailout, I want to argue against a system that forces everyone's hands into bailouts every so often.
The 2008 financial disaster led to regulations on banks which largely seem to avoid the need for govt bailouts of the big banks, but these regulations only patched up the type of issue 2008 posed, in particular working for banks where the majority of holders have below $250K.
In the cases of SVB you have a totally different kind of bank with 90%+ of the capital in accounts well above $250K. And the size of the bank was right below where regulations kick in, so the issue here is not that the bank in itself was too big, if anything it was too small, it's that if this previously top notch regional bank failed in a way that hurt depositors, a slew of other regional bank runs would follow.
Not sure what the long term solution is, but there will probably be additional regulation to patch up this kind of issue and at the least any VC will ask startups to prove that their capital is diversified as a condition for investment.
Not sure what SVB's total assets were but in 2018 Congress changed up the asset size requirements in which Dodd-Frank regulations kick in [1]. Seems like the sensible thing to do is to rollback those changes and put Dodd-Frank back to its initial state.
I like this all upside, minimal downside method of business. How can I set up a nice company that will partially insure the money I get but ensure a bailout will cover the rest should the risks come to fruition?
Also, how do I make it hard for my customers to understand the risks they are taking on so that I can use compassion to ensure such bailouts?
But even if the only option was to use taxpayer money, clearly it would be need to be done. If depositors weren't made whole, this week would've been a disaster with multiple bank runs that could cause a huge systemic issue. Eventually the fallout from such an event would bite the economy and the average taxpayer very badly.
The amount of money required to make depositors in SVB whole is negligible compared to the potential damage not doing so would cause, so it doesn't really matter where that money comes from.