Fiscally sound banks will probably sue the Federal Deposit Insurance Corporation (FDIC) for charging them higher fees to offset the bailout of fiscally unsound banks, Breitbart Economics Editor John Carney said in an interview Wednesday with Fox Business host Larry Kudlow.
In a speech Monday to the American Bankers Association, Treasury Secretary Janet Yellen expanded the government’s guarantee of all deposits beyond just those of the recently failed Silicon Valley Bank (SVB) and Signature Bank to now include the deposits of any financial institution facing the threat of a bank run. Such a promise will likely warrant an increase in the fees the FDIC charges member banks to fund the Deposit Insurance Fund (DIF) that it uses to cover the deposits of failed banks.
“I think there’s going to be a lawsuit about this,” Carney asserted. “Because if you are a Texas bank that provides credit to oil [and gas companies] and you’re getting charged bigger fees now because they bailed out Silicon Valley Bank, you are going to sue the FDIC because you’re going to say, ‘Why am I paying for your big bailout?’”
“That’s the whole point,” Kudlow added. “Yellen says if we have to, we’re going to guarantee all these deposits. What she doesn’t say—and what she lies about—is that it’s a taxpayer bailout, right? The banks have to increase [their fees]. The bank’s fees support the FDIC. Who supports the bank’s fees?”
“It’s all of us who support the bank’s fees,” Carney replied. “A sound bank is going to object to this. I guarantee there will be a lawsuit that says, ‘Why am I paying more to support the unsound banks of Silicon Valley when I am a sound bank in Texas lending to oil and gas.’”
Unlike the hypothetical Texas oil and gas company, Silicon Valley venture capitalists who banked at SVB were able to offset their risk management onto the banking system that is now bailing them out, Carney noted in last Tuesday’s Breitbart Business Digest:
The [Silicon Valley] venture capital community was able to avoid paying the costs of managing treasury risk by concentrating deposits in a single institution. When the bank went belly up because those same depositors rushed to withdraw their funds en masse last week, the costs were absorbed by the broader banking system.
“Do you think the banking crisis is over?” Kudlow asked Carney.
“It’s not over,” he said. “This is what we saw in 2008, where you realize, okay, maybe we solve the problem at one bank because we bailed that out, but then that just moves the focus to the next bank. And I think that’s what we’re going to keep seeing because this is a problem. The unrealized losses at banks are tremendous because of the rapid rate that the Fed had to raise interest rates. And, again, I don’t blame the Fed for doing that. It’s because of the inflation that the Biden administration caused.”
“Which the Fed accommodated,” Kudlow interjected.
“Absolutely accommodated, yes,” Carney agreed.
Indeed, Carney explained this in the Breitbart Business Digest on the Monday after SVB’s collapse:
There is a clear through line from the spendthrift Biden administration policies to the current crisis. The $1.9 trillion American Rescue Plan overstimulated the economy, pushing inflation up to the fastest pace in four decades. Excess savings flooded the banking system, pumping banks like Silicon Valley Bank (SVB) full of what we now see are flight-prone supersized deposits.
The Fed accommodated the Biden administration’s reckless fiscal policy by holding interest rates near zero even after the economy had begun to recover from the pandemic and lockdowns. Massive quantitative easing held down bond yields not just for Treasuries but for mortgage-backed securities as well.
Kudlow closed the discussion by commenting on the risks still inherent in the banking system.
“You’re talking about loan losses,” he said. “You’re talking about government bonds and mortgage-backed securities. What about the loan portfolio with phony Silicon Valley startups and maybe, more important, commercial real estate. Property values have gone way done. That’s going to be an issue.”