President Biden is in danger of a catastrophic banking crisis, unless the U.S. government can orchestrate a deal to rescue Silicon Valley Bank depositors before branches open tomorrow.
If SVB's depositors aren't made whole by Monday morning, hundreds of billions of dollars of corporate deposits are likely to flow out of regional banks. Most would flow into a handful of so-called systemically important banks — if they're too big to fail, they won't fail. Some might go into other ultra-safe havens like Treasury bills.Every non-enormous bank in America is left to worry about whether it's going to be able to hold onto its corporate customers.
Investors are worried, too. Shares of First Republic fell 34% last week, Signature Bank fell 38%, and PacWest was down 55%.The Biden administration must find a well-capitalized buyer for SVB's commercial business, if not also its private bank, securities and U.K. units., and provide the sort of calm that discourages bank runs elsewhere.the uninsured deposits. That would be politically unpalatable, particularly for Silicon Valley Bank, but it's preferable to the alternative.
Treasury and the White House also have a role to play, by removing any regulatory obstacles to SVB being immediately acquired by the likes of a large bank such as JPMorgan or Goldman Sachs.. That, however, expired at the end of 2012. Had TAG or something similar been in place last week, SVB might still be alive today, and thousands of companies wouldn't now be worrying about their financial solvency.One of the reasons for the $250,000 cap on guaranteed deposits is that insuring more deposits is generally more expensive, both for participating banks and for the FDIC., if it causes more bank runs. In that sense, extending deposit insurance to include corporate transaction accounts could actually save the government money.
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