The American government intervened to guarantee the deposits of bankrupt banks but has since sought to avoid any parallel with the bailouts of 2008, which had earned virulent criticism from George Bush and Barack Obama.
The US Treasury and the deposit insurance agency, the FDIC, decided on March 12 to cover all deposits at Silicon Valley Bank (SVB) and Signature Bank, both insolvent, beyond the ceiling theoretically set at $250,000, to reassure their clients and American depositors in general.
From the announcement press release, the authorities specified that the possible cost of the operation would not be “paid by the American taxpayers”.
“It’s not a rescue”, because the authorities “protect depositors, but not bondholders and shareholders”, argues David Smith, professor at the University of Virginia, “unlike the financial crisis” .
Between the fall of 2008 and the end of 2009, the American Treasury had injected more than 200 billion dollars to recapitalize American banks, without compensation. He has since recovered more than he invested.
The intervention relating to SVB and Signature Bank this time erased the entire market value of the two establishments, led to the dismissal of the managers and should lead to significant losses for the holders of debt issued by the two banks.
The US Department of Justice has opened an investigation into SVB’s failure, according to several media reports, and President Joe Biden on Friday called on Congress to “act to impose greater penalties on the heads of banks whose mismanagement contributed to the failure. of their establishments.
Only two bankers, mid-level executives, were prosecuted and convicted after the financial crisis in the United States.
The management of 2008 had aroused criticism, given birth to the Occupy Wall Street movement and fed the pre-existing resentment against the banks, now expressed by several elected Democrats on the left.
Who will foot the bill?
“People who call it a rescue are wrong”hammered, in an interview with the CT Insider site, the elected to the House of Representatives Jim Hines, among many Democratic parliamentarians to relay the speech of the government.
For Aaron Klein, of the Brookings Institution think tank, it is indeed a “bailout”, a rescue operation, with uncertain consequences.
“Clients like Peter Thiel (tech investor) or cryptocurrency entrepreneurs have received a government guarantee”argues the researcher, while they would probably have lost part of their deposits without it.
“We cannot continue with this paradigm which offers more socialism to the rich and rough individualism for everyone else”said independent senator Bernie Sanders, close to the radical left, castigating the helping hand given to clients with substantial deposits.
It is “inaccurate”, according to Aaron Klein, to say that the operation will not cost the American taxpayer anything. The takeover of SVB and Signature Bank will generate additional costs for the FDIC, which will be borne by the US government.
The US authorities explained that the possible cost of guaranteeing all deposits would be borne by the FDIC Assurance Fund, fed by mandatory contributions from all US institutions.
At the end of 2022, its balance amounted to 128 billion dollars, or 1.27% of the 10,000 billion in insured deposits.
If the use of this fund requires bailing it out, the banks will have to put their hands in the wallet, and “clearly, it is the customers who will end up footing the bill”, recognizes David Smith.
Former US Vice President Mike Pence called President Biden’s claim “dishonest”. “Every American is going to have to pay higher (bank) fees to be able to replenish the billions spent by the FDIC”claimed the Republican in a column published by the Daily Mail.
“Healthy bank depositors are being forced to subsidize Silicon Valley Bank’s mismanagement”commented, for her part, the candidate for the Republican primary Nikki Haley.
In the short term, the government’s initiative “made it possible to avoid contagion”, recalls Mark Williams, professor at Boston University.
“They didn’t overreact”believes David Smith, because it was necessary to contain “the fear of contagion, of major economic consequences”.
“Longer term,” however, “moral hazard has been fueled,” he says, a notion that neutralizing the consequences of an error in economic judgment encourages repeating it. “What effect will this have on the behavior of banks?”