Opinion piece

Fully reimbursing SVB depositors may prove to be a bad move (via CNN)

Reimbursing all SVB and Signature Bank depositors — even if their deposits are worth millions of dollars will have long-term impacts.

Publishing date
16 March 2023
Nicolas Véron

On Sunday, the US Treasury, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) jointly announced a package of actions to stop the turmoil from Silicon Valley Bank’s insolvency and Signature Bank’s near collapse. As details gradually emerge about the process that led to that decision, it appears likely that a primary motivation was to rescue Silicon Valley from what might have been a severe downturn.

On the face of it, these actions have been successful in the short term. The sense of panic has largely receded, there is no indication of an accelerating deposit run and market prices rebounded (though they’re down again due to shares of Credit Suisse crashing over ostensibly unrelated news). Startups that feared they wouldn’t meet this week’s payroll deadline have been reassured. Order is being gradually restored... (Click the link above to read more).

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