Former U.S. bank bailout administrator: Silicon Valley Bank is being bailed out The Biden administration has taken pains to avoid the word "bailout" in describing the effort to rescue Silicon Valley Bank depositors. Yet banking experts say it sure does look like a bailout.

The White House is avoiding one word when it comes to Silicon Valley Bank: bailout

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JUANA SUMMERS, HOST:

The Biden administration has been avoiding one particular word in describing its effort to rescue Silicon Valley Bank customers - bailout. Federal regulators say they are backstopping all deposits in the failed Silicon Valley Bank without using taxpayer money. But does that mean it's not a bailout?

NPR's Bobby Allyn joins us to discuss. And Bobby, the federal government has taken some pretty extraordinary measures to save these customers. Can you just start by explaining what exactly the regulators have done?

BOBBY ALLYN, BYLINE: Yeah, sure. So in essence, Treasury officials made the bank's customers whole. So regardless of how much money you have in your Silicon Valley Bank account, you are now guaranteed to get your money back. And this was a huge deal because federal deposit insurance is normally capped at $250,000. And you might think, Juana, wow, well, that sure is a lot of money to have in a bank account, right?

SUMMERS: Yeah.

ALLYN: And it is. But the majority of Silicon Bank - Silicon Valley Bank deposits had more than that since their customer base - you know, they were these, you know, very cash-flush tech startups and venture capital firms.

SUMMERS: OK. And so where is the federal government finding the money to do this?

ALLYN: Yeah. They're using this big bucket of money that is the Federal Deposit Insurance Fund. And regulators are now also trying to sell the bank's assets, and anything left over will come from additional fees from banks, which could ultimately be passed on to customers.

SUMMERS: OK. And that, of course, brings us to the bailout debate. So since there's no taxpayer money involved, the Biden administration says this is not a bailout. But what do experts say?

ALLYN: Well, I reached out to someone who knows a lot about bailouts - Neil Barofsky. During the 2008 financial crisis, Barofsky oversaw the $700 billion bailout of banks. I asked him, so did Silicon Valley just get a bailout? And he told me, if your definition is government intervention to prevent private losses, then yes, this is certainly a bailout.

I also talked to Richard Squire. He's at Fordham's law school and studies financial crises, and he said, yeah, investors and management are not being saved here. They are being wiped out. That's what most people think of when they think of bailouts, but...

RICHARD SQUIRE: Most of the money that is provided to SVB - that was provided it to enable it to operate didn't come from those sources. It came from depositors. And these are the venture capital firms and the startups, and they are being bailed out. There is no doubt about it.

ALLYN: OK. So I asked him, why then is the Biden administration so forcefully avoiding the word bailout?

SQUIRE: The term bailout has this connotation of rescuing fat cats - rescuing bankers. And so the government is desperate not to have that be the connotation here.

SUMMERS: OK. So bailout, no bailout - I mean, some people might just see this as a semantic argument. Why does that matter?

ALLYN: You know, Juana, it matters quite a bit politically. White House officials don't want to be seen as having propped up the mega-wealthy tech and venture capital class, right? It also matters for how history remembers these actions. Looking back five, 10 years from now, will we all remember this as a historic bailout of an industry or an emergency rescue effort that contained what could have been a meltdown of the entire banking industry? We shall see.

But, you know, the fact stands that the federal government came in, waived the rules in place to give special treatment to the customers of Silicon Valley Bank, and all the experts I talked to agree. They say, yes, there was no taxpayer money involved, but this is still a bailout.

SUMMERS: NPR's Bobby Allyn, thank you.

ALLYN: Thank you.

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