Breitbart Economics Editor John Carney said in an interview on Saturday on Larry Kudlow’s eponymously-named radio show that a government bailout of the collapsed Silicon Valley Bank (SVB) could deepen the panic.
Discussing Friday’s collapse of the Silicon Valley Bank, Carney said the Federal Deposit Insurance Corporation (FDIC) coming in and guaranteeing all of the deposits above the FDIC’s $250,000 limit has the potential to cause more panic and create more doubt in the market since it would look like the government is trying to brace for more significant problems.
“I think it might [cause more panic] because people would be worried that they were signaling something much worse was happening underneath. And frankly, I don’t think it’s necessary here,” Carney said. “I do think it would be a mistake to just declare, no, they’re definitely all paid off; it will give everybody cash right away. That’s not how the system’s supposed to work.”
Carney’s comments came just one day before the U.S. Treasury, the Federal Reserve, and the FDIC announced on Sunday that they would be taking “decisive actions to protect the U.S. economy by strengthening public confidence in [the U.S.] banking system” by effectively making deposits above the FDIC’s $250,000 limit available on Monday.
However, Carney explained that there are “very particular issues” unique to SVB, which had “huge concentration of very large deposits from startups and venture capital companies, that are all linked to one another” because they service tech startups in Silicon Valley.
“Because this bank’s customer base was Silicon Valley, and Silicon Valley power is quite concentrated in the hands of venture capitalists, when the venture capitalists said to their operating companies, ‘hey, you know, we’re worried about that bank, maybe pull some money out,’ you had, in one day, $42 billion of deposits come out of Silicon Valley Bank,” Carney further explained.
“That’s not something most banks can stand up against because you have to sell assets quite rapidly in order to try to pay the depositors… When you’re selling assets at a fire sale, you don’t get the best prices. So you take even bigger losses, which panics your depositors more,” he added. “Management should have anticipated the flight-prone nature of their deposits because they’re very different than a standard bank’s deposits. Most banks do not have 93 percent of their deposits at levels too high to be insured by the FDIC. So this is, you know, this is an extreme case.”
Despite Silicon Valley Bank being different than many of the other banks, as Carney explained, he was “worried” people would going to wake up on Monday, see that the bank collapse is front page news, and ask themselves if taking money out of a smaller bank and moving it a more prominent back in the best move.
“These things don’t always go in a logical order,” he added. “The problem with Silicon Valley Bank is not the same as the problem with the bank that failed earlier in the week, Silvergate.”
Additionally, regulators shut down Signature Bank on Sunday, stating all depositors of the failed financial institution will be made whole. “[N]o losses will be borne by the taxpayer,” the statement said, per Reuters.