'The uninsured depositors at [Silicon Valley Bank and Signature Bank] are receiving insurance that they never paid for, backed by the full faith and credit of the US government. In other words: the taxpayer,' Scott Ganz & John Mantus wrtite.
Anne Wilbur, right, and Jessika Harville enter a Silicon Valley Bank in Palo Alto, Calif., on Monday, March 13, 2023. The federal government intervened Sunday to secure funds for depositors to withdraw from Silicon Valley Bank after the banks collapse. Wilbur and Harville waited in line before the bank opened to withdraw funds for Wilbur Properties.
But, this number is likely far too small. First, the deposit insurance fund is below the 1.35 percent statutory minimum and well below the 2.0 percent target set by the FDIC. At these rates, the value of the bailout increases to $3.2 billion and $4.8 billion .that the government would insure all depositors at these banks also implied that they would do the same for uninsured depositors at all other regulated banks.
As of December 2022, there are $7.7 trillion in uninsured deposits in the United States at FDIC-regulated banks. At the current reserve ratio, the implicit subsidy to these depositors is $98 billion. At the statutory minimum, the subsidy increases to $104 billion. At the target reserve ratio, the subsidy grows to $150 billion.
The problem with implicit guarantees is that, if the market believes that they exist, they become very hard to reverse. In the coming days, expect administration officials to argue that their actions this past weekend did not set a precedent. But, put yourself in the shoes of a commercial depositor with a large, uninsured account at a regional bank.
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