Yes, The Latest Bank Bailout Is Really A Bailout, And You Are Paying For It

Silicon Valley Bank (SVB) failed on Friday and was shut down by regulators. It was the second-largest failure in US history and the first since the global financial crisis. Almost immediately, the calls for bailouts started to come in.

In fact, on March 9, even before SVB failed, billionaire investor Bill Ackman took to Twitter to insist a federal “bailout should be considered” if the private sector could not save the bank. Hours after SVB officially failed, Ackman was still at it, and in a 646-word panicky screed, he demanded that the federal government “guarantee SVB deposits” and essentially backstop the entire banking industry to keep failing, inefficient, and poorly managed banks afloat.

Now, many readers might be saying to themselves, “I thought bank deposits were insured!” That, of course, is correct, but deposits are only legislatively insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Given that most normal people keep less than this in their bank accounts, that means the majority of bank users are not going to lose any of their money should their banks fail. Moreover, it is extremely easy to acquire deposit insurance on much more than $250,000 by simply keeping money at more than one bank. That $250,000 limit applies to the deposits at each bank where a depositor keeps funds. For customers with high liquidity needs, the financial sector offers tools for dealing with the risk of exceeding FDIC limits.

In an illustration of the laziness and arrogance that so characterizes our modern financial class, however, many of the wealthiest depositors at Silicon Valley Bank couldn’t be bothered with managing their deposits, and they essentially ignored the deposit-insurance rules that even a ten-year-old understands when opening his first bank account.

As a result, many venture capitalists and other wealthy SVB customers stand to lose a lot of money. At least, they stood to lose a lot of money before Sunday evening, when the Federal Reserve announced its new “Bank Term Funding Program” (BTFP), which promises to flood the banking system with new money and shore up the personal finances of wealthy depositors.

This is part of a two-pronged effort to both make banks appear more financially sound, and to greatly expand FDIC payouts to depositors who have their funds in these banks.

The official propaganda coming out of the administration, and from the usual Fed fanboys, is that none of this is a bailout. That’s a lie.

More