Republican 2024 presidential candidate Vivek Ramaswamy has called for the federal government to step back and allow the collapsed Silicon Valley Bank (SVB) to “fully fail.”
Ramaswamy is calling for restraint by the feds in its response to the swift collapse of tech-sector darling SVB over the weekend.
His comments come amid calls against more taxpayer bailouts for bank failures.
On Saturday night, Ramaswamy, an entrepreneur and biotech investor, suggested that the best way for regulators to handle the bank’s failure is to “let SVB fully fail.”
“No depositor amnesty for SVB depositors,” he said on Twitter.
“FDIC [Federal Deposit Insurance Corporation] should get out of the way & let whoever wants to acquire SVB to actually do the deal.”
Here’s the right answer:
– No depositor amnesty for SVB depositors: let SVB fully fail.
– FDIC should get out of the way & let whoever wants to acquire SVB to actually do the deal.
– Monday morning: increase FDIC guarantee to [$10mm] for all banks. This prevents a run on other…
— Vivek Ramaswamy (@VivekGRamaswamy) March 12, 2023
SVB, founded in 1983, built its reputation on financing Silicon Valley technology startups.
It eventually became the 16th-largest bank in the United States.
Its failure marks the second-largest bank crash in U.S. history.
The majority of SVB’s clients continued to be tech startups.
It also included many devoted to climate change initiatives alongside some companies from California’s wine industry.
It also had significant exposure to cryptocurrency startups and crypto Venture capitalists.
But the negative sentiment surrounding SVB triggered a bank run last week.
On Thursday alone, investors and depositors tried to withdraw about $42 billion.
Federal regulators intervened to shut down SVB on Friday.
The move forced the biggest bank failure since 2008’s Great Recession with Washington Mutual.
According to a Bloomberg News analysis, 93 percent of SVB’s $161 billion in deposits was not insured by the Fed’s emergency lending authority, the FDIC.
On Sunday, regulators announced they were closing another troubled crypto-focused lender— New York-based Signature Bank.
Regulators said that the FDIC would guarantee all deposits in SVB and Signature Bank.
They ruled out a taxpayer-backed bailout of the bank’s owners and investors.
In the announcement, regulators said that the FDIC would cover the risks in SVB and Signature Bank’s portfolios by auctioning off their assets to repay depositors for their uninsured funds.
“The primary goal of the new program is to reassure bank depositors that their funds are secure … to alleviate the type of near-term pressure that banks face as a result of run dynamics,” finance news aggregator Financial Juice said of the Federal Reserve officials’ decision.
“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 he supported the FDIC guaranteeing banks to prevent further bank runs due to negative sentiment.
However, he added that 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.
“By selectively changing the rules after the fact for SVB, the U.S. government now incentivizes greater risk-taking by banks & depositors in the future, teaching large depositors at smaller banks that they can simply throw money at risky banks without diversifying or conducting diligence (just like many tech startups did here),” Ramaswamy said of the decision.
“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.
Earlier, Ramaswamy had explained why he did not see a more widespread risk to the U.S. financial system, outlining his view on the triggers that led to the failure of SVB.
“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.
Other Republicans joined in the criticism of the Fed’s “crony capitalism.”
Most elected Democrats are openly advocating for crony capitalism right now. They want government to bail out millionaire depositors above the $250,000 FDIC limit.
— Thomas Massie (@RepThomasMassie) March 13, 2023
In a post on Truth Social, President Donald Trump, who is also a 2024 GOP presidential candidate, blamed the bank failures on President Joe Biden’s economic policies.
“With what is happening to our economy, and with the proposals being made on the LARGEST AND DUMBEST TAX INCREASE IN THE HISTORY OF THE USA, TIMES FIVE, JOE BIDEN WILL GO DOWN AS THE HERBERT HOOVER OF THE MODRRN [SIC] AGE,” Trump said.
“WE WILL HAVE A GREAT DEPRESSION FAR BIGGER AND MORE POWERFUL THAN THAT OF 1929.
“AS PROOF, THE BANKS ARE ALREADY STARTING TO COLLAPSE!!!”
Meanwhile, Democrats have blamed former President Donald Trump for the bank failures, saying the issue was the Dodd-Frank Financial Reform Act that he signed off on in 2018.
The Dodd-Frank reform 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 in the wake of the 2008 recession 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.
“When the president signs this, we put community banks back in the mortgage lending business, which is really exciting for me,” Sen. Heidi Heitkamp (D-ND) told CNBC at the time.
But the Act did also lift restrictions on some mid-sized and regional institutions.
EJ Antoni, a Heritage Foundation research fellow in regional economics, told FOX Business on Saturday that while some may blame Dodd-Frank, he saw the collapse as the result of an “unusual confluence of events.”
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.”
Ed Moya, a senior market analyst at Oanda, said much the same on Friday.
Moya explained that broader contagion was unlikely, although “smaller banks that are disproportionately tied to cash-strapped industries like tech and crypto may be in for a rough ride.”
“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.
On Sunday, Biden said of the unfolding crypto-sector financing crisis, “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
“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.