Misinformation about the March '23 bank failures
"Money printer go brr" is annoying and harmful in this situation
On social media, you can find many people suggesting that taxpayers will be bailing out Silicon Valley Bank (or Signature Bank or First Republic Bank). One of those people is a U.S. Senator. Another is running for President.
That is not true.
Banks pay a quarterly assessment to the Federal Deposit Insurance Corporation (“FDIC”). These assessments fund the Deposit Insurance Fund (“DIF”). The DIF is used to:
1. Protect customers’ deposits up to $250K per account, and
2. Resolve failed banks.
The amount each bank pays into the DIF is based on that bank’s total liabilities (methodology available here).
FDIC has the discretion to do more than just the $250K and they are clearly exercising that discretion here. The “special assessments” Hawley ridicules are not being imposed or created by Biden. They are in the statute and have been in the statute since (based on a quick search) at least the ‘90s.
Additionally, the FDIC will sell assets held by SVB, Signature and FRB. These assets will be sold and that will help cover the bailout costs, as well.
The misinformation (lies?) is harmful because it suggests purposeful deception when there is not any. The misinformation is annoying because it creates a split in public opinion based on a falsehood.
P.S. A really fascinating history of the FDIC is available here. One thing that blew my mind: the concept of deposit insurance is tied to the Canton trade system. Hong merchants who held special charters to trade with foreigners were held liable for one another’s debts.
Quick Hits
If you want to quickly get up to speed on the March 2023 bank failures, start here:
Reuters - What Caused It?
Tech Crunch - Signature Bank Closes
CNBC - Biden: “That’s how capitalism works.”
Barrons - Why the market is worried
FDIC - A Brief History of Deposit Insurance in the United States: