This bailout may not crush taxpayers, but we should never have been in this situation to begin with.
When a bank experiences a run by depositors, it's everything everywhere all at once. The government has only hours to take action before all the money is gone and the panic spreads to other banks. So it was with Silicon Valley Bank and Signature Bank, whose assets were taken over by the government this past weekend. |
Now that the fire seems contained, at least for now, it's time to look at what started the conflagration and how to keep it from happening again. In a guest essay, Senator Elizabeth Warren, Democrat of Massachusetts, argues that the recent bank failures "are the direct result of leaders in Washington weakening the financial rules." |
Warren calls for repealing 2018 legislation that rolled back some rules for banks such as Silicon Valley Bank, getting the Federal Reserve not to "tailor" its regulations, reforming deposit insurance and clawing back bonuses paid to failed bank executives. |
Krugman says it's not even clear that Silicon Valley Bank was insolvent — that is, had liabilities exceeding its assets. "That said," he writes, "on precautionary grounds government officials felt — understandably — that they needed to find a way to guarantee all of S.V.B.'s deposits." |
I agree with Krugman on that. In my newsletter, I argue that the rescue of all depositors — including those not covered by insurance from the Federal Deposit Insurance Corporation — was frustrating but necessary (alternatively: necessary but frustrating). I broach the idea that the F.D.I.C. should insure all deposits, not just up to $250,000 per account. That, I write, "would certainly lessen the number of panics such as the one that killed Silicon Valley Bank and Signature Bank, without giving banks carte blanche to behave irresponsibly." |
Bank runs are dangerous. Can we agree to stop them once and for all? |
Here's what we're focusing on today: |
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