Over the weekend, a mix of Silicon Valley investors and California politicians called on the FDIC to make all depositors whole, including those without insurance. Saturday afternoon, California Gov. Gavin Newsom released a statement adding that he had been in contact with the Biden administration and other Washington officials about the SVB.
“Everyone is working with the FDIC to stabilize the situation as quickly as possible, protecting jobs, people’s livelihoods and the entire innovation ecosystem that has served as tent poles for our economy,” Newsom said. acted as.”
But Ricks said that in order for the FDIC to use public money to help uninsured depositors, it would have to declare a “systemic risk exception” — something that would require the approval of two-thirds of the Federal Reserve Board of Governors, the board Two-thirds is required. The FDIC, and the Secretary of the Treasury, in consultation with the President, to approve.
“I think it sounds very improbable,” Ricks said.
Ricks said that for the average person or business, the collapse of SVB sets a troubling precedent. While it never hid its financial issues, customers should have been more acutely aware of the problems for a bank of SVB’s size, scale and reputation to go under, a concept Ricks finds “ridiculous”.
“Most businesses don’t want to be in the business of evaluating the balance sheets of financial institutions — it’s not their comparative advantage,” Ricks said.
Going forward, he said, more firms and individuals are likely to take their business to too-large-to-fail banks, which they know will receive government support in a worst-case scenario.
“It’s unfortunate for our financial system,” Ricks said.
If you’re the kind of person who doesn’t plan on banking at a major bank going forward, Ricks said: Start trusting bank safety and soundness.
“That’s the whole principle of it,” he said. “I think it’s stupid – it’s a stupid way to manage our monetary system.”