Republicans are slamming the bailout of Silicon Valley Bank's customers, saying it's a giveaway to the rich
- Federal regulators bailed out Silicon Valley Bank depositors following its Friday collapse.
- Republican lawmakers criticized the bailout, saying it benefits the rich.
The abrupt closure and bailout of Silicon Valley Bank has one side of the aisle crying of inequity, with the federal government's actions protecting the rich at the expense of the poor.
Interestingly, that critique is coming from the right. On Sunday night, the Treasury Department, Federal Reserve Board, and Financial Deposit Insurance Corporation announced what amounts to a bailout for customers of the now-shuttered Silicon Valley Bank, saying that depositors will be made whole, including deposits over the traditional FDIC insurance limit of $250,000.
"We're basically bending the rules to help out, in this case, these large uninsured depositors," Dean Baker, a senior economist at the Center for Economic and Policy Research who predicted the 2008 housing bubble crash, told Insider.
The rapid collapse of SVB has sent shockwaves across the economy. As the dust clears, politicians are jostling to figure out what, if anything, needs to be addressed moving forward. And Republicans seem to be taking aim at regulators for the bailout.
"Understand what's happening at FDIC: They're taking the insurance premiums that were paid in to protect depositors under $250,000 (little guys) and using it to cover deposits of the very rich," Rep. Thomas Massie, a Republican from Kentucky, tweeted. "They argue it benefits everyone to go 'all in' on the first few banks."
The joint statement made from the Treasury, Federal Reserve, and FDIC noted that the bailout will not be funded by taxpayers — the FDIC's insurance fund, which stands at about $125 billion, will cover all SVB depositors.
Baker said that while it's certainly possible there may be some additional cost if the FDIC raises premiums, it would also almost certainly be "very, very small" and over many years. Whatever those losses end up being, if they end up existing, "it's almost certainly going to be invisible" to people who have accounts at banks.
"The idea there's going to be some huge assessment that we're all gonna be paying as depositors in banks, that's just not in the cards," Baker said.
"The negative of that is fairly little," he said. "It's not going to be money out of our pocket, or if it is, it's going to be so trivial. None of us are ever going to see it."
Meanwhile, Rep. Marjorie Taylor Greene tweeted about the Treasury's "sure fire economic method of saving banks who are divested in ESG and DEI." She also said that "the fools running the bank were woke and almost became broke, but the Democrats and the Fed swooped in to make sure their woke donors at SVB didn't go under," and predicted smaller banks would be caught in the crosshairs. Rep. Josh Hawley similarly hit out at SVB for "funding woke garbage."
But SVB's financial problems are more tied to the Fed's ongoing war against inflation than social issues. "The woke investing is a little bit nuts. I mean, the problem here was that they were holding US government bonds" that lost value on paper after the Fed quickly hiked interest rates over the last year, Baker said. Some of the companies that deposited with SVB might fall under whatever "woke" entails, by investing in things like clean energy — but they are making money from making those investments, Baker said.
"I don't know if making money's now woke," Baker said. "I mean, some of them might be doing it because they think it's good for the planet, but I mean they're doing it as profit making companies — and they are making profits."
Democratic lawmakers also aren't thrilled with the regulators' bailout — but for different reasons. Massachusetts Sen. Elizabeth Warren and Vermont Sen. Bernie Sanders have targeted a Trump-era rollback of provisions in the Dodd-Frank Act, which loosened oversight over mid-size regional banks like SVB.
Passed in 2010 following the 2008 financial crisis, the Dodd-Frank Act was created to protect consumers from abusive financial practices while increasing accountability over banks. But in 2018, Congress passed a rollback of some of those provisions, which left the majority of banks in the country under lessened scrutiny. That meant, as Baker explained, that SVB was no longer subject to the older iteration of the legislation's stress tests that would gauge how the bank would perform under the kind of financial conditions it has faced in the last few months.
Sanders said that SVB's fallout was a "direct result" of the Trump-era rollbacks, and Warren wrote in a Monday opinion piece that the bill's passage "made a bad situation worse, letting financial institutions load up on risk."
"Banks like S.V.B. — which had become the 16th largest bank in the country before regulators shut it down on Friday — got relief from stringent requirements, basing their claim on the laughable assertion that banks like them weren't actually 'big' and therefore didn't need strong oversight," she wrote.
President Joe Biden referenced the 2018 law in Monday remarks on SVB, saying that "we must reduce the risks of this happening again."
"I'm going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure will happen again and to protect American jobs and small businesses," he said.