The feds’ move to guarantee all deposits at the doomed Silicon Valley Bank was “clearly” a bailout, according to a former chairman of the Federal Deposit Insurance Corp.
William Isaac, who served as FDIC chair from 1981 to 1985 during the Reagan administration, questioned whether federal regulators went too far with their move to backstop depositors.
“Well, clearly it is [a bailout],” Isaac said during a Monday appearance on Bloomberg Television. “It’s not a bailout of the shareholders – they’re getting wiped out and that’s great, they should be, and the managers and the directors are losing their jobs. That’s fine, they should be.”
“I can’t criticize them for deciding to bail out all the depositors, because I’ve done that myself at the FDIC, but I really wonder whether there was something we might have done that was less dramatic and less of a bailout,” Isaac added.
Under normal conditions, the FDIC insures account balances of no more than $250,000.
Both federal regulators and President Biden insist that taxpayers won’t incur any extra costs from the measures. SVB’s shareholders and bondholders won’t receive relief.
The deposits will be covered by the FDIC’s Deposit Insurance Fund, as well as from the sale of assets from SVB and another shuttered institution, Signature Bank of New York.
Republican critics, including GOP presidential hopeful Nikki Haley, slammed Biden for avoiding the word “bailout” – and warned American taxpayers will eventually foot the bill for the intervention.
During a Sunday appearance on CBS, Treasury Secretary Janet Yellen explicitly said the federal government would not bail out Silicon Valley Bank.
“During the financial crisis, there were investors and owners of systemic large banks that were bailed out,” Yellen said. “And the reforms that have been put in place means that we’re not going to do that again.”
SVB’s collapse triggered widespread panic this week and prompted fears of a run on regional banks. Bank stocks plunged in Monday trading, only to rebound after the feds intervened to guarantee deposits.
“I’m not generally worried about banks. Most banks are sound and have been doing things the right way,” Isaac added.