A) Banking is now officially a government-backed business, if it wasn’t before
By Doug Sheridan
Doug Sheridan
Andrew Ross Sorkin writes in the NYT, Feds on Sunday unveiled the most sweeping backstop for the US banking system since the 2008 crisis, to limit carnage from the collapse of Silicon Valley Bank. Too Big to Fail is as alive as ever—but now no bank is too small to fail as well.
Here's what you should know...
A) Banking is now officially a government-backed business, if it wasn’t before. Once the feds guarantee all deposits, the “business” of banking isn’t much of a business—it's a gov't agency activity. What a shame.
B) The VC community, a group that includes a vocal group of libertarians, was just bailed out. Yes, these investors do good by funding start-ups, but they have also long lobbied for fewer regulations and also benefited from the special treatment of carried interest. This all looks particularly egregious after some of them spent the weekend begging for gov't help.
C) If SVB was just a small regional bank that did not have ties to loud, politically connected venture capitalists and the tech community, it probably would have been allowed to die—and its customers, individuals and small businesses, would have suffered. Instead, because it is Silicon Valley, Feds swept in. How is that "fair"?
D) Regulators should have done a better job. Maybe they need to worry less about controlling what banks do to affect the climate in 2100... and more about what banks' balance sheets and risk profiles look like in the here and now.
E) Some of these institutions, including SVB, pushed back on more regulation, arguing that this wouldn’t allow them to compete with their bigger rivals. SVB wrapped itself in the flag, arguing that was supporting small start-up businesses. This mess is the result.
Our Take: We've become a nation of bailouts. We did it with Savings & Loans in the 90s, after the Sept 11 attacks, in the wake of the financial crisis in 2008, during the pandemic—and now we're at it again. No wonder so few strive for genuine excellence or resilience anymore—it's much easier to roll the dice and have gov't pick up the pieces... and the tab... when things go sideways. Unless, of course, it happens in East Palestine, Oh.
#banking #svb #bailout