GOP 2024 presidential candidate Vivek Ramaswamy has called for restraint by the federal government in its response to the swift collapse of tech-sector darling Silicon Valley Bank (SVB) over the weekend, amid calls against more taxpayer bailouts for bank failures.
Ramaswamy, an entrepreneur and biotech investor, suggested on Saturday night that the best way for regulators to handle SVB’s failure was to “let SVB fully fail.”
SVB, founded in 1983, built its reputation on financing Silicon Valley technology startups, eventually becoming the 16th-largest bank in the United States. The majority of SVB’s clients continued to be tech startups, including many devoted to climate change initiatives, as well as some companies from California’s wine industry. It also had significant exposure to crypto startups and crypto Venture capitalists.
But on Thursday alone, negative sentiment saw investors and depositors try to withdraw about $42 billion in a bank run.
Auctioning Underway
Then, on Sunday, regulators announced they were closing another troubled crypto-focused lender—Signature Bank.“There is no definitive figure for what will be available in facility lending; The goal is to meet bank liquidity demand as it arises. Banks intend to hold the majority of the securities in question until maturity.”
Officials said that the guarantees would mean that customers will have deposit access on Monday.
Ramaswamy said that while he supported the FDIC guaranteeing banks to prevent further bank runs due to negative sentiment, the guarantees should only go to other banks and be increased to $10 million. The current FDIC guarantee is meant to be for deposits of up to $250,000, but Treasury Secretary Janet Yellen has said that the guarantees announced did not have a specified upper-value limit.
“Smaller banks like SVB lobbied for years for looser risk limits by arguing that their failures would not create systemic risk and thus would not merit special intervention by the U.S. government, but Secretary Yellen’s announcement reveals that argument to be a farce. Very disappointing.”
“They’re skipping the fact that SVB’s situation is unique: a staggering *89%* of its deposits were uninsured (way higher than normal banks),” he wrote on Twitter. “And they didn’t hedge interest rate risk which is a cardinal sin given the portfolio they held. Their real ‘hedge’ was to spend $$ to become popular in the right influential circles of their own depositors, pledging $5 billion in 2022 to ‘sustainable finance and carbon neutral operations to support a healthier planet.’ Maybe that hedge will pay off for their depositors if the government bails them out, but that should rightly trigger an ‘Occupy Silicon Valley’ of historic proportions.”
“Crony capitalism & fear-mongering reign supreme in America,” he added.
Dems Blame Trump’s Roll Back of Dodd-Frank
Meanwhile, Democrats have blamed former President Donald Trump for the bank failures, saying the issue was his roll back of the Dodd-Frank Financial Reform Act, which was signed off in 2018.Trump’s “Economic Growth, Regulatory Relief, and Consumer Protection Act” increased the number of assets smaller banks could hold before mandatory oversight by the Federal Reserve was required to check on their exposure and management of risk. The threshold to trigger oversight was increased from a limit of $50 billion in assets set under Dodd-Frank recession in the wake of the 2008 to $250 billion in assets.
At the time, the reforms had support from many Democrats—17 from the Senate and 33 from the House—which helped get the bank regulation bill through Congress.
But the Act did also lift restrictions on some mid-sized and regional institutions.
SVB “dealt almost exclusively with tech firms, which usually rely on continuously rolling over large debts,” meaning that the firms are ”not paying off their debt but simply taking out new debt to pay off the old,” he said.
He also pointed to SVB’s disproportionate holdings of long-term Treasury bonds, which fall in value with rising rates. When SVB’s undiversified clientele decided that they “needed cash all at once,” liquidation of the bank’s devalued bonds triggered the failure, he said.
“SVB was a case of mismanagement that was made possible by the unrealistically low rates from the Federal Reserve.”
“Everyone on Wall Street knew that the Fed’s rate-hiking campaign would eventually break something, and right now that is taking down small banks,” he said.
“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” he added.
Across the Atlantic, British Prime Minister Rishi Sunak said that his government was working to limit ripple effects to British tech companies impacted by the fallout of SVB’s UK arm. He said that regulators were working to find a solution that will secure customers’ liquidity and cash flow needs.
Australian and New Zealand tech firms said that they had minimal exposure amid the crypto-sector fallout.
