Banking experts reject Biden denial of Silicon Valley depositor bailout: 'This is certainly a bailout'

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Biden defends US banking system after Silicon Valley Bank's historic collapse

President speaks from White House on health of America's banks.

Banking experts say that the federal government's move to reimburse Silicon Valley Bank depositors was a bailout despite the Biden administration's avoidance of the term.

Neil Barofsky, who oversaw the Troubled Asset Relief Program that resuscitated the banking industry during the 2008 financial crisis, told NPR, "If your definition is government intervention to prevent private losses, then this is certainly a bailout."

Following the collapse of the Silicon Valley Bank, federal regulators devised a plan to backstop $175 billion in deposits. Federal government officials have waived the federal deposit insurance (FDIC) threshold of $250,000 and plan to release cash from the insurance funds paid into by banks.

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A customer stands outside of a shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California. Silicon Valley Bank was shut down on Friday morning by California regulators and was put in control of the U.S. Federal Deposit Insurance Corporation. (Justin Sullivan/Getty Images)

According to the Federal Deposit Insurance Corp., officials are in the process of auctioning nearly $200 billion of Silicon Valley Bank assets. Deposit reimbursement that does not come from the auction or the insurance fund will be shored up by special assessments, a tax placed on larger banks in the U.S.

Fordham University School of Law Professor Richard Squire said that when Biden administration officials claim there is no bailout, they mean it is simply not a bailout for the bank's management.

"The venture capital firms and the startups are being bailed out. There is no doubt about that," Squire said.

Squire also claimed that the White House's avoidance of the word "bailout" is an attempt to avoid being "brushed with the tar of the 2008 financial crisis."

The White House does not want to be associated with "the connotation of rescuing fat cats, rescuing bankers," he added. "If we use a different term, we're serving the interest of those who want to obscure what is really happening here."

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President Joe Biden is 81 years old. He served as representative to the state of Delaware for 36 years before becoming the 47th President.  (Alex Wong/Getty Images)

University of Michigan's Amiyatosh Purnanandam, a corporate economist who studies bank bailouts, said that when a single bank's depositors are backstopped by insurance and bank fees, that cost will eventually fall on bank customers across the U.S.

"When we make all the depositors whole, it's akin to saying that only one person in the family bought auto insurance and the insurance company is going to pay for everyone's accident. In the long run, that's a subsidy because we are paying for more than what we had insured," he said.

Purnanandam also rejected the Biden administration's claim that the move is not a bailout, saying, "If it looks like a duck, then probably it is a duck. This is absolutely a bailout, plain and simple."

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US President Joe Biden speaks to members of the media before boarding Marine One on the South Lawn of the White House in Washington, DC, US, on Friday, Feb. 24, 2023.  (Will Oliver/EPA/Bloomberg via Getty Images)

Over the last several days, 5,000 CEOS and founders signed a petition with a "simple ask," writing, "Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout."

President Biden and Treasury Secretary Janet Yellen also insisted that their move to help the bank's depositors was not a bailout.

"No losses will be — and this is an important for point — no losses will be borne by the taxpayers. Let me repeat that, no losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund," Biden said on Monday.