This week Silicon Valley Bank (SVB) went down the drain. According to the Biden administration without costs to the taxpayer. But is that true?
Normally only amounts covered by the local deposit guarantee scheme are covered at a bankruptcy. In the case of SVB the government has decided to bailout the bank with avoiding the B-word. This after a twitter storm of some rich and famous, which would lose their money in SVB, the government decided different. Not only the assets secured by the FDIC are covered, but also assets far above the € 250,000.
The rescue operation will be covered by all the banks. According to the government the rescue of SVB not a bailout and will not be paid by the taxpayers. Is that so?
At the end of the day taxpayers will pay for this bailout. Not via the tax department but to their bank through higher banking fees. Banks and their shareholders are no charities and will pass these additional costs through to their clients.
Other negative side effect is that there seems no risk awareness in the market. Even after weakening regulation promoted by that same SVB. It looks nowadays more profitable not to use CDS’s to offset risk, because the government will always protect the rich.
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