How Silicon Valley Bank bailout will hurt US bank customers
The cost of bailing out two banks that cater to the tech industry will likely be paid by average Americans in the form of more fees, less service and possibly higher taxes — despite President Biden’s pledge, experts said Monday. warned
The grim predictions came as regional bank stocks tumbled on fears of further falls, with trading in more than a dozen halted amid a massive market selloff.
The extraordinary rescue announced Sunday night will use the Federal Deposit Insurance Corporation’s deposit insurance fund. Create all customers of Silicon Valley Bank and Manhattan’s Signature Bank, which dealt with tech startups and the cryptocurrency industry, respectively.
But the fund receives money in quarterly payments from FDIC-insured banks, leaving customers to bear the burden of any additional costs, said William Luther, director of the Sound Money Project at the American Institute for Economic Research.
“The deposit insurance fund is not really an insurance fund,” Luther told the Post. “It’s a rainy-day fund, drawn upon and replenished after a bank failure.”
Luther added: “Although the legal incidence of these taxes falls on the banks, they pass some costs to their customers in the form of higher fees and lower-quality services,” such as fewer tellers at each branch.
And if the banking crisis worsens and the fund runs out, American workers will have to pay it back because it is “ultimately taxpayer-backed,” said MIT economist Simon Johnson.
“That’s why you can have a $100 billion DIF backing, right now, $10 trillion in insured deposits. If DIF was short of money, the commitment is to go out and collect it from the banks and obviously from the bank customers and fill any gaps,” Johnson said.
“Government and taxpayers are the backstop, and it’s a very powerful backstop, but I won’t say — I don’t have the words to say — that Americans won’t be hit with the bill eventually.”
The specter of more bank failures grew as regional bank stocks fell Monday, with First Republic Bank shedding a staggering 72.9% of its value.
Follow the post’s coverage of the collapse of Silicon Valley Bank
PacWest Bancorp fell 63.5%, while Zions Bancorp and Regions Financial closed down 35.8% and 13.4%, respectively.
In a morning speech, Biden promised that “taxpayers will not suffer any losses” and that “every American should feel confident that their deposits will be there if they need them.”
“Today, thanks to my administration’s swift action over the past few days, Americans can be confident that the banking system is safe,” he said.
But Republican presidential hopeful Nikki Haley blasted Biden for Sunday’s signing of the plan by Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin Grunberg.
“Joe Biden is pretending it’s not a bailout. It is,” Haley said.
“Now depositors of healthy banks are forced to subsidize Silicon Valley bank mismanagement. When the deposit insurance fund dries up, all bank customers are on the hook. It is a public bailout. “
Rep. Thomas Massey (R-Ky.) said Biden and regulators face even higher inflation — and possibly a recession within six months — through Sunday’s deal to guarantee deposits at SVB and New York City’s Signature Bank. are doing, even if they exceed $250,000 federal. more and more
“They will argue that it is to everyone’s advantage to go all-in with their chips on the first few banks. That’s their argument: that they can stop the run on other banks if they cater to everyone here,” Massey said.
“The problem with that argument is that people are not stupid. They’re going to understand that you can’t do that at every bank.”
Rep. Lauren Boebert (R-Colo.) also accused Biden of bending over backwards for SVB because of the liberal-leaning tech startup’s customer base.
“If the First Bank of Midland Texas Oil & Gas fails, you can be sure Biden will not help bail them out,” he tweeted.
“This bailout is about protecting the Democrats’ donor base and making sure if you invest in DEI. [diversity, equity and inclusion] and ESG [environmental, social, and governance investing] You’ll be just fine!”
Other critics noted that while depositors, including top venture capital firms such as Andreessen Horowitz and Sequoia Capital, were bailed out, equity and bondholders lost everything because uninsured investors were denied protection under Sunday’s rescue plan. was
Losers include large mutual funds that run retirement accounts for typical working Americans.
Vanguard Group owns about 11% of SVB’s shares, followed by Alecta Pension Insurance Mutual with about 4.5% and Franklin Mutual Advisors with about 2%, according to public filings.
On the other side of the ledger, 98% of all political contributions from tech workers went to Democrats, according to the Center for Responsive Politics.
A GovPredict analysis of FEC data estimated that those living in Silicon Valley gave about $200 million to Democrats.
“You saved the Democratic donors but who are the equity holders?” A tech insider said. “It’s bought retirement funds…a lot of policemen, teachers, firemen just trying to retire.”
Another tech insider said that while most in the industry feel the feds did the right thing, “it’s a bailout … and the account holders they bailed out are Democrats.”
“Silicon Valley Bank is the Democrats’ bank…they’re taking care of their own,” the source said. “If it was a bank of mega, what are the chances of it being bailed out? Not a chance in hell. “
Additional reporting by Steven Nelson and Bruce Golding