March 20, 2023
Barron’s recently published an article featuring Mark Williams, Master Lecturer of Finance, discussing this month’s collapse of Silicon Valley Bank and Signature Bank.
Taking extraordinary steps in recent weeks to assure depositors of failed lenders Silicon Valley Bank and Signature Bank, US authorities are avoiding parallels with bailouts of the 2008 crisis—which have been criticized. Shortly after Silicon Valley Bank collapsed this month, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation announced that its depositors, along with those of Signature Bank, would have access to their money. Officials were quick to note that no losses will be borne by the taxpayer. The intervention wiped out the entire market value of the two institutions, leading to the dismissal of their executives and is expected to result in significant losses for the holders of dept issued by the two banks. The Justice Department has opened an investigation into the collapse. Williams states, “In the short-term, the government’s efforts helped prevent contagion, but a longer-term cost is that moral hazard has been increased.”