Over the weekend, a mix of Silicon Valley investors and California politicians called on the FDIC to make all depositors, including ones with uninsured amounts, whole. Saturday afternoon, California Gov. Gavin Newsom issued a statement saying he had been in touch with the Biden administration and other Washington officials about SVB.
“Everyone is working with FDIC to stabilize the situation as quickly as possible, to protect jobs, people’s livelihoods, and the entire innovation ecosystem that has served as a tent pole for our economy,” Newsom said.
But Ricks said that in order for the FDIC to use public money to help uninsured depositors, it must declare a “systemic risk exception” — something that requires two-thirds of the Federal Reserve Board of Governors, two-thirds of the board of the FDIC, and the Treasury Secretary, in consultation with the president, to approve.
“That seems to me extremely unlikely,” Ricks said.
For the average person or business, the collapse of SVB sets a troubling precedent, Ricks said. While it never hid its financial issues, for a bank of the size, scale and reputation of SVB to go down suggests customers should have been more acutely aware of the problems, a concept Ricks finds “ridiculous.”
“Most businesses don’t want to be in the business of evaluating financial institutions’ balance sheets — it’s not their comparative advantage,” Ricks said.
Going forward, he said, more firms and individuals are likely to take their business to too-big-to-fail banks that they know would receive governmental support in a worst-case scenario.
“That’s unfortunate for our financial system,” Ricks said.
If you’re someone who does not plan to bank at a major bank going forward, Ricks said: Start boning up on bank safety and soundness.
“That’s the whole theory of it,” he said. “I think it’s sort of silly — it’s a silly way to manage our monetary system.”
Source: | This article originally belongs to Nbcnews.com
