From Breakingviews - Bank rescue buys stability at a high price
A sign for Silicon Valley Bank headquarters is seen in Santa Clara, California, U.S. March 10, 2023. REUTERS/Nathan Frandino/File Photo
NEW YORK, March 12 - The biggest U.S. banks are so tied up in regulatory red tape that they couldn’t cause a crisis if they tried. The 16th largest, though? That’s a different story, based on Sunday’s dramatic rescue of the financial system.Silicon Valley Bank’s failure has prompted a weekend intervention by the Federal Reserve, Department of the Treasury and Federal Deposit Insurance Corp.
The two-part package helps to resolve SVB and Signature, but also reassures nervous depositors that still-living peers are safe. First, the FDIC will reimburse all of the two banks’ depositors, not just those whose balances are within the $250,000 guaranteed limit. In the event that the bank’s assets, after a sale, are below the value of the deposits, that cost will be spread among all FDIC-insured banks. It’s unorthodox, but necessary.
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