SVB Bank: Too big to fail?

Back in the 2008 financial crisis, the US propped up a number of banks and financial firms that would otherwise have gone under. They were “too big to fail,” so large their collapse would do unacceptable damage, even if their bad judgment brought it on themselves. Critics said that gave the same companies a free hand to act without consequences — the government wasn’t going to let them fail, right?

And now we have Silicon Valley’s SVB collapse and the government’s promise to cover deposits way above the $250,000 federal bank insurance limit: “On a call with reporters, a Treasury official emphasized that the federal intervention would not bring SVB or Signature back to life, as the enormously controversial bank bailouts during the 2008 financial crisis had done for banks that were close to failing. Their executives would not retain their jobs. These new safeguards were aimed at protecting people and businesses who had made a reasonable decision to put their money into an accredited and regulated bank — not investors who bought risky securities.”

What reasonable? Everyone who has that kind of money should know they were putting in more than the limit; the idea they should get insurance anyway doesn’t work for me.

Republicans are screaming, inevitably, that the bank died because it was too woke, because they always scream that. Possible insider trading by bank management might have been a bigger issue, or the bank pushing for looser regulations. Fox News’ Jesse Watters claims SVB collapsed because of Pride Month. And here’s a goody the Wall Street Journal saying it’s because SVB didn’t have an all-white board.

The bank did a lot of business with venture capitalists and unsurprisingly venture capitalists were furious the government might not reimburse depositors. That includes (as noted at the link), a number of VCers who talk a lot about moral hazard and the dangers of things like student-loan forgiveness, but suddenly want the welfare state to prop up their industry.

Don’t get me wrong, I don’t think SVB is an outlier. We have a right-wing business group opposing tighter rail regulations in the wake of the Ohio disasters. Florida insurers have dealt with massive payouts in the aftermath of Hurricane Ian by rewriting damage assessments: ” “In one claim reviewed by The Post, a nearly $500,000 damage estimate on a house with a mostly tarped roof was reduced to about $13,000. In another, the desk adjusters blamed roof storm damage on past wear and tear, meaning it would not be covered.”

That the rot in American business is widespread does not, however, mean it’s excusable anywhere.