Irresponsible Bank Policy
Banking is an inherently risky business. It's assets are mostly long term--loans, mortgages, and bonds. It's liabilities are mostly short term--checking and savings deposits. This timing imbalance relies on the faith of its depositors that the bank is sound. This faith can be shaken by the unwise or unlucky decisions made in how the bank invests the money entrusted to it.
This past week, the Silicon Valley Bank (SVB) suffered a loss of faith. Instead of investing $73 million of its deposits in income earning assets, it gave this money away to Black Lives Matter-related social justice groups. It made a major investment in the interest rate spread between short-term deposits paying fractions of a percent and long-term bonds paying 3%. When the Federal Reserve began raising interest rates the value of these long-term bonds decreased. More sophisticated depositors started withdrawing their money. The bank ran out of liquid funds to honor any more withdrawals and filed for bankruptcy.
The Federal Deposit Insurance Corporation (FDIC) only insures deposits of up to $250,000 per person. Accounts with larger balances faced significant losses. However, one of the more insightful uses of the bank's funds was to donate to politicians in a position to grant them potentially unlimited funds. These politicians included: President Joe Biden, Sen. Mark Warner (D-VA), Senate Majority Leader Chuck Schumer (D-NY), Rep. Maxine Waters (D-CA), Sen. Raphael Warnock (D-GA), Rep. Josh Harder (D-CA), and Rep. Gregory Meeks (D-NY). These donations paid off when Secretary of the Treasury Janet Yellen announced that "all SVB depositors will be made whole regardless of the FDIC insurance limit."
Yellen went on to declare that "other banks should not count on a similar bailout. SVG is a key player in the green economy that the President has made the central focus of his economic policy. As an embodiment of the environmental, social and governance (ESG) orientation this country is moving toward, SVB cannot be allowed to fail."
She went on to further justify this discriminatory treatment by citing "the precedent established during the pandemic when small nonessential businesses had to be sacrificed to fight the spread of the virus. Luckily, the big firms were able to meet all the consumers' needs. Our economy was able to survive without the 'mom and pop' firms then. It will be able to survive without the small fry local banks now. Eventually, there will probably be only one government owned and operated bank for all depositors."
In related news, Sen. Mark Kelly (D-Az), Sen. Chris Coons (D-Del), and Sen. Richard Blumenthal (D-Conn) all called for government to censor comments related to SVB and other banks with shaky financial stability, saying "the government has the responsibility and right to avert panic. One of the steps it might have to take is seizing bank deposits to ensure that essential government programs will continue to be funded in the event that Congress refuses to appropriate the needed money. We must not allow an excessive respect for freedom of speech or private property to impede whatever actions may become necessary to protect our national security."
