Observations on the Failure of SVB
Posted by Samira Rajan on Mar 16 2023
Several times a day our staff monitors Bk Coop’s cash availability, our member transactions, and any expected loan disbursements. Our whole job is to make sure we can meet the needs of our members – please rest assured that we are on point.
For members who hold deposits above $250,000, feel free to contact us to learn more about the best protection for all your funds.
Not that I wish any harm to the depositors – to be clear, they are mostly just people/small business-owners who needed a convenient bank account and perhaps also a lender they could borrow from on fair terms. Brooklyn Coop’s depositors want that too.
There also isn’t much point in second-guessing the investment strategy of SVB’s risk officers or their Goldman Sachs “capital consultants”. Definitely they did a lousy job. The strategy failed, it also bankrupted the whole business, the staff got fired and now the executives are under federal investigation. I’m moving on from that trainwreck.
The difficulty I have is with our public servants. Four days ago, maybe six people in a room decided that the United States government would offer retroactive, unlimited and universal deposit insurance. Wait, WHAT? This is HUGE! Does it cover credit unions? Does it cover foreign depositors? Are we inadvertently insuring the entire planet’s deposits? Do we suddenly now have a public banking system? Has anyone thought about this? Maybe the SVB failure merited this level of intervention, maybe it didn’t. But, for real, how come no Fed official, no Treasury official, no legislator, no state banking department — no one had a plan for a potential regional bank failure before March 12 2023?
We’ve seen enough financial crises in this country to know that they aren’t rare. We know what causes them. We know what is necessary to stop them. Yet these people behave every time as if something completely unexpected just happened, which therefore justifies extraordinary and irreversible measures, which they will invent in the space of 12 hours. There is no public debate, no conversation about what this means for ordinary Americans, no time for explanations.
And by the way, it is a bailout. The FDIC can make all remaining FDIC-insured banks share the costs, but likely that means the remaining banks’ depositors will pay since there is no way the banks are not passing the cost back to the American consumer. And if the remaining FDIC-insured banks don’t or can’t pay, the US Treasury already said it will backstop the depositors in full so there you go.
Universal deposit insurance has a lot of consequences. It implies a much, much stronger regulatory regime than Congress will ever impose – remember this is the same Congress that happily loosens regulations whenever banks complain. It requires transparent investment regimes, maybe even investments that need pre-approval in order to ensure there is no corruption at play. If Congress or the American people decide the implementation of responsible universal deposit insurance is not possible, does the FDIC reverse course? The European Union doesn’t even have deposit insurance, only individual member countries. They are still discussing it.
Truly, Monday morning we all woke up into a different banking system than we had on Friday. Incredibly, the politics are just the same.