No Tax Dollars To Save Bankrupt US Bank
Published in Der Standard
(Austria) on 13 March 2023
by Alexander Hahn (link to original)
The U.S. administration is doing the right thing by guaranteeing deposits with Silicon Valley Bank but not shielding its shareholders from losses.
The collapse of Silicon Valley Bank is becoming a stress test for the financial sector — and for the lessons learned from the global financial crisis following the bankruptcy of Lehman Brothers in 2008. Shock waves from the insolvent bank have been rocking the sector recently, and fear of global contagion is in the air. But that seems exaggerated this time because Silicon Valley Bank cannot be compared with Lehman Brothers. After all, it is a special institution that has concentrated on the technology sector and start-ups.
U.S. President Joe Biden’s call for stricter regulations seems only of limited use. Of course, some details may benefit from improvements, but regulations will never completely eliminate risk from the banking industry. Particularly not when the financial institution in question has specialized in an especially risky industry, like technology, and thus saddled itself with layer upon layer of risk — a weight that became crushing under rapidly rising interest rates.
It is the right thing to guarantee all deposits with the bankrupt institution to prevent a loss of trust in the banking sector generally. It is also important that this time, taxpayers do not need to back up those guarantees — instead, it should be first and foremost the shareholders in the collapsed bank, who in previous years had reaped gains from a risky business model.
The collapse of Silicon Valley Bank is becoming a stress test for the financial sector — and for the lessons learned from the global financial crisis following the bankruptcy of Lehman Brothers in 2008. Shock waves from the insolvent bank have been rocking the sector recently, and fear of global contagion is in the air. But that seems exaggerated this time because Silicon Valley Bank cannot be compared with Lehman Brothers. After all, it is a special institution that has concentrated on the technology sector and start-ups.
U.S. President Joe Biden’s call for stricter regulations seems only of limited use. Of course, some details may benefit from improvements, but regulations will never completely eliminate risk from the banking industry. Particularly not when the financial institution in question has specialized in an especially risky industry, like technology, and thus saddled itself with layer upon layer of risk — a weight that became crushing under rapidly rising interest rates.
It is the right thing to guarantee all deposits with the bankrupt institution to prevent a loss of trust in the banking sector generally. It is also important that this time, taxpayers do not need to back up those guarantees — instead, it should be first and foremost the shareholders in the collapsed bank, who in previous years had reaped gains from a risky business model.
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