Sure, lots of people, from Mark Cuban to Bill Ackman to Janet Yellen, all say that the government isn’t bailing out the Silicon Valley Bank (SVB). But is that debate even the most important one?
Basically, by backing up all depositors, the federal government basically said that they will insure all money deposited into SVB. But you thought it was only up to $250,000 right? So did I. And similar to car insurance, you pay for a certain level of insurance right? So if you pay for the $1000 deductible, you have to pay at least $1000 if a tree falls on your car. But what if instead, you could just have the insurance agency pay for everything? Pretty generous right? All while paying the cheaper rate of the $1000 deductible! Well, that’s basically what the federal government just did. Banks pay insurance on up to $250,000 to the federal government. But if the government is willing to insure all of depositors’ money at SVB for the price of insuring $250,000 per account, why won’t that be applied to all banks?
Now again, while I feel horrible for all the stress that I’m sure smaller businesses and startups were feeling during this situation, and not push them aside, but it just makes an interesting debate for whether the FDIC rules should be adjusted.