Biden’s Bank Bailout Whoppers

The President offers assurances that markets don’t believe.

WSJ editorial. Excerpts:

"The Federal Deposit Insurance Corp. says it couldn’t find a private buyer for SVB, though a source tells us Treasury and the Federal Reserve favored one. FDIC Chairman Martin Gruenberg nixed it owing to hostility to bank mergers."

"Instead the regulators offered solutions that bail out even uninsured bank depositors and other banks at unknown costs that Mr. Biden isn’t acknowledging."

"Banks pay for this guarantee with insurance premiums, but the insurance fund isn’t intended to backstop deposits of bigger customers"

"Apparently, Silicon Valley investors and startups are too big to lose money when they take risks."

"But now the FDIC is guaranteeing a risk-free return for startups and their investors. Uninsured deposits normally take a 10% to 15% hair cut during a bank failure."

"The White House says special assessments will be levied on banks to recoup these losses. That means bank customers with less than $250,000 in deposits will indirectly pay for this through higher bank fees."

"But the Federal Reserve’s new emergency lending facility will ensure banks don't have to take losses liquidating their bonds to meet deposit redemptions."

"President also blamed the bank panic on the Trump Administration—in this case for modifying some 2010 Dodd-Frank Act rules."

"not even Barney Frank, the Dodd-Frank co-author, believes that is to blame"

"The 2018 law didn’t absolve mid-sized banks of the requirement to conduct quarterly liquidity stress tests to ensure they could weather “adverse market conditions” and “combined market and idiosyncratic stresses” such as interest-rate shocks."

"regulators failed to monitor this interest-rate duration risk."