How Bad Was the Silicon Valley Bank Bailout?

NYT OPINION: How Bad Was the Silicon Valley Bank Bailout?

By Paul Krugman
Section: Opinion
Source: New York Times
Published Date: March 14, 2023 at 02:00AM

It may not have been necessary, but it won’t do much harm, either.

So the feds stepped in to protect all deposits at Silicon Valley Bank, even though the law says that deposits only up to $250,000 are insured and even though there was a pretty good case that allowing big depositors to take a haircut wouldn’t have created a systemic crisis. S.V.B. was pretty sui generis, far more exposed both to interest risk and to potential runs than any other significant bank, so even some losses for larger depositors may not have caused much contagion.

Still, I understand the logic: If I were a policymaker, I’d be reluctant to let S.V.B. fail, merely because while it probably wouldn’t have caused a wider crisis, one can’t be completely certain and the risks of erring in doing too much were far smaller than the risks of doing too little.

That said, there are good reasons to feel uncomfortable about this bailout. And yes, it was a bailout. The fact that the funds will come from the Federal Deposit Insurance Corporation — which will make up any losses with increased fees on banks — rather than directly from the Treasury doesn’t change the reality that the government came in to rescue depositors who had no legal right to demand such a rescue.

Read more at: https://www.nytimes.com/2023/03/14/opinion/silicon-valley-bank-bailout.html

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