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- The federal rescue of SVB depositors means all bank deposits are guaranteed, Roger Altman said.
- If that’s the case, “should the taxpayer allow the shareholders to realize the benefit of that?”
- He also told CNBC that SVB’s demise signals fragility in finance as well as out-of-date policies.
The federal government’s decision to guarantee all Silicon Valley Bank deposits indicates such backing will extend to the rest of the industry, Evercore founder Roger Altman said.
The bank’s collapse demonstrated the “fragility” of finance in an era when people can move millions of dollars with their smartphones as well as the obsolescence of bank regulations and deposit insurance, Altman told CNBC on Monday.
And when the Federal Reserve, FDIC and Treasury Department announced Sunday a mechanism to back all SVB’s deposits, even beyond the typical $250,000 limit, it set a precedent, he added.
“The banking regulators decide to guarantee the deposit base of the entire US financial system, which is certainly what they just did,” he said.
The rescue has other long-term implications, including whether guaranteeing all deposits will eventually lead to less disciplined behavior by bank managers, he said.
It also raises the question on whether federal backing for deposits will limit shareholder returns. “If the taxpayer is guaranteeing the key liability, should the taxpayer allow the shareholders to realize the benefit of that? I hope so,” Altman said.
The crisis was suddenly sparked last week when SVB — a regional bank with close ties to venture capital firms and startups — abruptly sold a bond portfolio at a $1.8 billion loss to cover rising withdrawals. That set off a bank run and stock crash, sinking an attempt to raise more capital and leading regulators to shut the bank down.
“It would have been preferable if [SVB] could have been sold, because it would have been effectively a private market solution,” Altman said.
His remarks follow dire warnings from others in the financial world about what the SVB rescue means.
On Monday, “Shark Tank” star Kevin O’Leary said he would never buy a bank stock again and characterized the SVB regulatory action as effectively nationalizing the banking industry.
And Citadel’s Ken Griffin told the Financial Times that the government’s aid to depositors was a danger to the nation’s economic identity.
“The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” he said.