The Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation announced on Sunday that they will guarantee all deposits that were still held at the ill-fated Silicon Valley Bank when it collapsed last Friday. This is probably a good thing. SVB was the sixteenth-largest bank in the United States, with tens of billions in holdings still trapped behind its crumbling walls. Vaporizing that much money might have had dire implications for other parts of the American financial system—and for thousands of innocent customers who believed their money to be safe within SVB’s coffers.
The actions these government entities have undertaken on the bank’s behalf also seemed like a no-brainer to many Silicon Valley figures, who spent their weekends arguing and tweeting passionately for it to happen. One of them was David Sacks, a PayPal co-founder and prominent venture capitalist in the Bay Area. “Where is Powell? Where is Yellen?” he asked. “Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.”
But Sacks quickly found, via social media, that not everybody was so enthusiastic about a bailout for some of the richest people in the country. The Biden administration had to take pains to explain that no taxpayer dollars would be spent to guarantee SVB’s deposits and that the money would instead come from the FDIC’s insurance fund. While true in a technical sense, that fund is replenished by fees from banks all over the country, which in turn come from the fees that Americans pay to their banks all the time. In an indirect way, we all just bailed out Silicon Valley this weekend.