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Bailouts and Bulls***: Fed Officials Claim ‘No Cost to Taxpayers’ in SVB Deal

Posted on | March 13, 2023 | Comments Off on Bailouts and Bulls***: Fed Officials Claim ‘No Cost to Taxpayers’ in SVB Deal

Less than 72 hours ago, Janet Yellen was saying there wouldn’t be a bailout of Silicon Valley Bank. Now there is a bailout, which everybody is nevertheless trying to pretend is not a bailout:

U.S. regulators took control of a second bank Sunday and raced to roll out emergency measures to stem potential spillovers from Friday’s swift collapse of Silicon Valley Bank, backstopping both firms’ uninsured depositors and making more funding available to the banking system.
Regulators announced Signature Bank, one of the main banks for cryptocurrency companies, was closed Sunday. The New York bank’s depositors will be made whole, officials said.
Officials took the extraordinary step of designating SVB and Signature Bank as a systemic risk to the financial system, which gives regulators flexibility to guarantee uninsured deposits. The Federal Reserve and the Treasury Department also used emergency lending authorities to establish a new facility to help meet demands for withdrawals.
Regulators announced the action in a joint statement from Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and Federal Deposit Insurance Corp. Chair Martin Gruenberg. The group said that depositors at SVB will have access to all of their money on Monday.
The government’s bank-deposit insurance fund will cover all deposits at the two banks, rather than the standard $250,000. Federal regulators said any losses to the government’s fund would be recovered in a special assessment on banks and that the U.S. taxpayers wouldn’t bear any losses.
In a separate statement Sunday night, the Fed said it “is closely monitoring conditions across the financial system and is prepared to use its full range of tools to support households and businesses, and will take additional steps as appropriate.”
The central bank said it would make additional funding available to banks to ensure they have “the ability to meet the needs of all depositors” through a new “Bank Term Funding Program,” which will offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities and other collateral. Up to $25 billion from the Treasury’s exchange-stabilization fund will backstop the Fed lending program.
Many of those securities have fallen in value as the Fed has raised interest rates, and the Fed said those securities would be valued at their original value.
Sunday evening’s announcement capped a frantic weekend during which regulators were auctioning the failed Silicon Valley Bank, according to people familiar with the matter. Regulators struggled to find a buyer on Sunday and pivoted to backstopping the deposits, according to a senior Treasury official, as they sought to announce a resolution to depositors by Monday morning.
Mr. Powell scrapped plans to attend a regular meeting of central bankers in Basel, Switzerland, on Sunday and instead stayed in Washington to manage the crisis response.
A U.S. plan that soothes nerves about access to uninsured deposits—most of the bank’s deposits are sizable enough that they exceeded limits on FDIC protection—could tamp down the crisis and limit any impact on the economy as the Fed has focused on combating inflation by raising interest rates.
At the same time, heavy-handed federal interventions could amount to an embarrassing coda for a rollback of post-financial-crisis regulations on small and midsize banks undertaken in recent years. Officials on Sunday signaled they were weighing tougher capital requirements and liquidity rules, reversing at least some of the steps taken during the Trump administration to ease restrictions on smaller banks.
Federal regulators are trying to balance their desire to prevent broader financial contagion while avoiding the damaging political optics of bailing out financial institutions at taxpayer expense.
Biden administration officials said repeatedly on Sunday that their moves were aimed at protecting depositors, allowing them to make payroll this week, and would come at no cost to taxpayers.

(Hat-tip: Instapundit.) Biden officials act like it’s all Monopoly money anyway, so why should anyone else take it seriously? This whole regime of no consequences and no accountability, where the politically connected are protected, obviously cannot go on forever.

William Devane could not be reached for comment.



 

 

Category: Economics

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