Don’t Call It a ‘Bailout’: No One Is Buying the White House Spin on Silicon Valley Bank

The White House insists that the federal money used to support Silicon Valley Bank was not sufficient to create a new bank. “bailout,” However, the argument of the government is not being bought by many economists, politicians, or political commentators.

Karine Jean-Pierre, White House Press Secretary, stated Monday that “this is not a bailout,” During the morning remarks of President Joe Biden that day, he insisted that “no losses will be borne by the taxpayers.” Biden seems to be isolated by this interpretation of the extraordinary federal government actions that protected all bank depositors.

Sebastian Mallaby from the Financial Journalists Washington PostAndrew Ross Sorkin from the New York TimesEmily Stewart and? Vox All identified the government actions in question as bailouts. Interview with two economists NPR The same was said.

Both sides of the aisle came to an agreement on one thing: Biden’s actions were a bailout. Senator Bernie Sanders (I.Vt.) issued a statement saying, “Now is not the time for U.S. taxpayers to bail out Silicon Valley Bank,” While Sen. Cynthia Lummis, R., Wyo. In a Monday interview, Sen. Cynthia Lummis (R. Wyo.) said that the Biden administration’s “bailout” could “encourage risky behaviors by similar institutions down the road.”

The White House’s Word Games are believed to be a result of optics concerns. Politico It was reported Monday that Biden initially hesitated to place any order. “could be labeled a taxpayer-funded bailout,” It is worth recalling the political turmoil Washington experienced in 2009 after the passage of the Emergency Economic Stabilization Act (EESA) and Troubled Asset Relief Program, which provided liquidity and loans to financial institutions during the Great Recession.

However, after being urged by advisers, reportedly Gavin Newsom (D.), California governor, Biden, in words of one economistSet the course. “a crazy precedent.” Under the federal government’s emergency program, all of Silicon Valley Bank and Signature Bank’s depositors will have complete access to their deposits—even those above the $250,000 insurance limit covered by the FDIC. The Federal Reserve also created an emergency lending program—backed by taxpayer funds and unmentioned during Biden’s Monday remarks—to keep other financial institutions afloat should they run low on cash.

Richard Squire, a Fordham University law professor and banking expert, told NPR that “the venture capital firms and the startups are being bailed out. There is no doubt about that.”

Biden’s “rescue” It is “like if you pay a bond for someone to get out of jail, rescuing someone when they’re in trouble,” He added. “If you don’t want to use the b-word, that is fine, but that is what is happening here.”

“If your definition [of a bailout] is government intervention to prevent private losses, then this is certainly a bailout,” Neil Barofsky, the man who managed TARP in both the Bush and Obama administrations told NPR.

Critics claim that the actions of the federal government set a precedent for wealthy depositors to pay less attention to where their money is stored, also known by a “a” bank. “moral hazard.” Critics allege that an insurance limit exists because of a reason. If it is dispersed in panic, this raises questions about the purpose and validity of the insurance policy.

In short, Silicon Valley Bank and Signature Bank—and potentially other institutions, if they draw from the Fed’s emergency program—were bailed out. These banks would have gone bankrupt without the intervention of the federal government. Depositors with funds over the FDIC insurance limit would likely have suffered losses if the customers of the banks were sold.

Biden’s assertion that “no losses will be borne by the taxpayers” It is also speculative. Americans will be responsible for FDIC actions, except for the Federal Reserve’s emergency lending program. For banks to function, most states require federal insurance. They pay fees to a federal insurer. These costs are ultimately borne either by depositors, or those doing business with the vast majority banks. Both of these are taxpayers. The FDIC will also need to recover funds it used for depositors.

The FDIC’s deposit Insurance Fund is approximately $130 billion. This is far less than the $22 Trillion deposited in U.S. Banks. Insurance covers approximately 42 percent, or 42%, of all deposits in the United States. Should the FDIC’s fund run out, it would be up to the Department of Treasury—i.e., taxpayers—to make up the difference.