On Sunday, the Federal Deposit Insurance Agency (FDIC) announced that it would back all of Silicon Valley Bank’s (SVB) deposits, even those over the normal maximum insured value of $250,000. Such a move is unprecedented and could be a sign of much further intervention by Washington.
The statement says that Treasury Secretary Janet Yellen made the decision to insure all deposits after consultation with President Joe Biden and on the recommendation of the FDIC and Federal Reserve.
The FDIC, Department of the Treasury, and the Federal Reserve also stated in a joint statement that announced that Signature Bank would be placed into receivership.
The New York-based bank was closed by the state at the end of last week. The agencies announced that all depositors of that institution “will be made whole.” Furthermore, regarding both banks, the statement announced that taxpayers would not pay for either deposit bailout.
Some conservative critics fear that the developing bank crisis could lead to the state ownership of the nation’s bank. Such nationalization would be a far larger step than even in the early stages of the Great Recession.
There is some evidence supporting fears of more government control. The use of the FDIC in such a manner has not happened before.
Furthermore, the federal agencies announced that it would not be offering the same protections for “shareholders and certain unsecured debtholders.”
The statement also read that “senior management has also been removed.” The use of such power by multiple federal agencies could also be used on a number of other banks beyond the two that have failed over the past three days.
Crony capitalism & fear-mongering reign supreme in America. The FDIC only insures deposits up to $250,000. By selectively changing the rules after the fact for SVB, the U.S. government now incentivizes greater risk-taking by banks & depositors in the future, teaching large… https://t.co/hZ6E7aNnUx
— Vivek Ramaswamy (@VivekGRamaswamy) March 13, 2023
It is not clear whether or not the prospective government response will be larger than in 2008. The collapse and near-collapse of several of the world’s largest banks led to a $700 billion bailout. Significant voter opposition to such a bailout played a significant role in the rise of the conservative Tea Party movement in 2009 and beyond.