Silicon Valley Bank Bailout: Ordinary Americans Protecting The Wealthy

When the Biden administration bailed out Silicon Valley Bank (SVB), it provided a lifeline for thousands of businesses, including prominent tech companies, liberal news outlets, and a Democratic politician’s vineyards. While Joe Biden insists this move was not a bailout intended to protect American workers and small businesses, the wealthiest clients will benefit the most, with 93% of the bank’s depositors holding more than $250,000 in their accounts.

The individuals and institutions directly benefiting from the bailout include California Gov. Gavin Newsom (D) and his wineries, BuzzFeed, Vox Media, and Black Lives Matter. The bailout, seen by many as benefiting the wealthy and politically connected, has led to accusations of inequity and protecting the rich at the expense of the poor, particularly as it covers uninsured deposits over the traditional FDIC coverage limit of $250,000.

Republicans are criticizing regulators for the bailout, arguing that the FDIC is using insurance premiums paid by smaller depositors to cover the deposits of the very rich. Rep. Thomas Massie (R-KY) expressed concern that the FDIC is using funds intended for the “little guys” to bail out wealthy clients. The Biden administration asserts that the FDIC’s insurance fund, which stands at about $125 billion, will cover all SVB depositors without additional taxpayer funding.

Dean Baker, a senior economist at the Center for Economic and Policy Research, argues that while there may be some additional costs if the FDIC raises premiums, these would be “very, very small” and over many years, with the losses likely to be “invisible” to ordinary account holders. He also disputes claims that SVB’s financial problems are tied to “woke” investing, attributing them instead to the bank holding US government bonds that lost value after the Fed hiked interest rates over the last year.

Nonetheless, the SVB bailout highlights the need for more stringent financial regulations. Leftist lawmakers, including Sens. Elizabeth Warren (D-MA) and Bernie Sanders (I-VT), have targeted a Trump-era rollback of provisions in the Dodd-Frank Act, which eased oversight over mid-size regional banks like SVB. As a result, SVB was no longer subject to stress tests, which could have gauged how the bank would perform under current financial conditions.

Warren argues that the passage of the 2018 rollback “made a bad situation worse,” allowing financial institutions like SVB to “load up on risk” without adequate oversight. President Biden has also referenced the 2018 law, calling for Congress and banking regulators to strengthen rules for banks and reduce the risk of such bank failures happening again.

The resulting risk of depositors moving assets away from smaller regional banks has led Zerohedge to warn: “If the Fed does not contain the regional bank collapse, there will be another great depression.”