Is it a "bailout" if it doesn't cost the government anything to do it? And even if it is a "bailout", if it doesn't cost the government anything to do it is it still a bad thing to do?
Let's look at who is culpable in the downfall of SVB. It's easy to identify the first group of people, the management and board of directors who should have recognized that interest rates were not going to stay at zero and the purchase of any long term bonds without hedging was not a strategy for survival. The second group are the large depositors who started the bank run when they just could have sat tight. I do not pretend to know other than looking for yield why all of the sudden funds were pulled out of the bank. Did a group get together to conspire against the management (part of me thinks yes on this point).
Who is not getting 'bailed out'? Management, stockholders and likely bond holders as well. I hope the group that is unwinding the bank go after management for stock sales and bonuses when they knew the bank was on the ropes. Greed should always be punished, though often enough it isn't.
Depositors such as Roku and Etsy to cite two that I am aware of were victims here and the 'bailout' solves their problem of not losing cash reserves needed for payroll, investments, etc. This is as it should be. There should be NO expectation that depositors need to be cognizant of capital requirements, stress testing, SEC filings and financial statements as part of working with a bank. I post the 99% of all Americans' eyes would glaze over if you made this a common requirement of banking. This is the job of the regulators and Congress needs to insure that all banks regardless of size are under an appropriate regulatory regime.
There is another way to look at this. I have seen objections to the claim that the bailout "won't cost the taxpayer a penny" that run "yes, but all bank depositors will have to pay for this in the long run in the form of higher insurance premiums". That strikes me as right from a positive perspective ... and also from a normative one? If bank depositors shouldn't pay for deposit insurance, then who should?
Stepping back for perspective, in order to operate as an ongoing concern, it is necessary as a matter of arithmetic for a bank to earn more on its assets than it pays for its liabilities. According to orthodox financial theory, the only way to do this is to take more risk on the assets than is being sold in the liabilities. In principle, any bank must be subject to failure if its depositors withdraw their deposits in a coordinated way. The only way a bank has of controlling this risk is to break the possibility of coordination by diversification. This requires not only a large number of depositors but a large variation in their type. This runs counter to the specialization that, as you point out, makes mid-size regional banks viable.
I would like to know which end of this Baker is willing to sign on for. Would he prefer America to be banked by a small number of large national banks that charge a small deposit insurance fee? That is perfectly viable. Or would he prefer a larger number of more specialized but more vulnerable banks? That is also viable - with the support of more expensive insurance. But you can't have the benefits of both and the costs of neither.
I think it would be useful to step back a bit and look at comparable financial institutions to see how this can be prevented and resolved in the future.
In most every state, there is what is called a "Guarantee Fund" which is designed to protect the insured of a bankrupt insurance company. All insurance carriers must pay into the "Guarantee Fund". As a consequence, all insurance companies want regulatory oversight so they will not be assessed for someone else's failure.
I think Biden is correct to use the FDIC and its assessment process, and hopefully, when every bank pays into the fund, every bank will favor regulatory oversight.
Keep the penalties at the bank level and watch banks begin to demand more oversight.
I would also be interested in how other countries resolve these issues for both the banking and insurance industries.
Yep! "Serves them right" is not the way to think here.
By a quirk of my career I am very familiar with the history of small Midwest banks and their environment -- I am not sure if that is a problem to begin -- everybody knows each other and self polices and how many deposits would not be covered -- recall there are ways to expand your coverage through multiple accounts with permutations on titling . A simple low cap on bank size might help -- but again these banks seem fine as long as thru don't stray into crypto or some nutty thing. As an example I saw the nuttiness of the bakken shale oil stuff in western North Dakota .. the local banks didn't really bite on the craziness as far as I am concerned.
As the saying goes, if you're explaining you're losing. There are all kinds of systemic reasons that some soft of managed soft landing is necessary for the current condition of secondary banks, but the fact remains that if the common man receives a benefit like increased Medicare coverage or tuition loan forgiveness it takes months to years of arguing, financial impact statements, warnings of runaway inflation, Supreme Court cases, etc. On the other hand, if something inconveniences wealthy VCs the government turns on a dime to cater to their wishes. It reinforces the belief that whether run by Republicans or Democrats, the government is dedicated to the proposition that no billionaire should ever face financial discomfort. And that plays right into Republican hands as it takes a major issue off the table.
Perhaps the resentment is multiplied by uncertainty around the true policy. To go back to Measure for Measure, if no one believes the FDIC intends to "hang Barnardine", it becomes easy to be cynical.
Personally, I'd hope the bigger money depositors got shaved several percent not made fully whole. In bankruptcy cases don't bond holders often get shaved?
The important thing is that the shrehplfrrd are zeroed out