SVB Response Shows Echo Of 2008 Collapse

The recent actions by federal agencies, including the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Treasury Department following last week’s collapse of Silicon Valley Bank (SVB) and Signature Bank, bear some strong similarities to the actions Washington took in response to the banking meltdown of 2008.

Following the collapse of SVB, then the 20th largest bank in the country, the federal agencies above moved swiftly to take control of the bank’s assets. The agencies backed depositors’ full amounts, above and beyond the statutory $250,000 limit.

The Federal Reserve also announced further lending to banks as a source of liquidity.

In particular, conservative critics point to the actions of the Fed and Treasury Department as an example of Washington choosing “winners and losers” within the banking system.

Treasury Secretary Janet Yellen spoke before the Senate Thursday, and under questioning signaled a conscious decision to bail out certain banks. Sen. James Lankford (R-OK) asked Yellen if deposits “in every community bank in Oklahoma, regardless of their size” are fully insured.

Lankford asked if such banks would “get the same treatment” as SVB or Signature Bank.

Yellen stated that “a bank only gets that treatment if a majority of the FDIC board, a supermajority of the Fed board and I, in consultation with the president, determine that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

The response bears a significant resemblance to the response to the 2008 banking crisis, namely the idea that certain banks were “too big to fail,” which has raised very similar criticism among conservatives.

Such concerns were echoed by Sen. John Thune (R-SD) this week. Thune was in the senate in 2008, and stated that “the question has to be asked” regarding “what went wrong?”

The governmental response to SVB and Signature Bank was followed up by nearly $30 billion in deposits in First Republic Bank from larger banks to prevent potential collapse. First Republic is currently seeking a buyer.