On Monday’s “CNN Newsroom,” Deputy Assistant Secretary for Financial Coverage on the Division of Treasury throughout the Obama administration and Brookings Establishment Senior Fellow Aaron Klein acknowledged that there have been bailouts of the depositors of Silicon Valley Financial institution (SVB) and Signature Financial institution utilizing taxpayer cash as a result of “when the FDIC loses money, it hits the government’s debt and the government’s balance sheet.” And that the bailouts of “large corporations” who had deposits with SVB come within the wake of the Federal Reserve failing to train its regulatory energy.
Klein mentioned, “The bailout[s] that happened for Silicon Valley and Signature Bank were really about bailing out large corporations that had built up huge exposures at a bank that was not like your normal Main Street bank. Look, most banks of Silicon Valley’s size have about 1,000 branches. Silicon Valley Bank had 16 branches. This was a business bank, not a people bank.”
Co-host John Berman then requested, “Why do you keep calling it a bailout?”
Klein answered, “So, the first thing is, one, there’s taxpayer money here. The Deposit Insurance Fund that the FDIC uses, it is true it is an assessment on banks, it is also true…that this is on the government’s balance sheet. This is government money. When banks — when the FDIC loses money, it hits the government’s debt and the government’s balance sheet. And so, you have to be honest with the American people. It’s not politically popular. Nobody’s in support of a bailout until they’re on a boat that springs a leak. And so, all these businesses who had uninsured deposits, and they knew they were uninsured, they’re very thankful that the government bailed them out for a bank that was really in a lot of trouble. And this is the same government, the Federal Reserve who regulates this bank [was] completely asleep at the switch in letting the bank fall and find itself in this position. But you have to be honest here, and these are taxpayer funds going to uninsured bank depositors, usually large businesses and companies, that otherwise might have taken a small loss because they were uninsured creditors. And instead, Uncle Sam is going to make them whole.”
He added that SVB was “a massive failure of bank supervision. So, during the financial crisis, we had so many different regulators in America and they all pointed fingers at each other saying it was in this part of the company and that part of the company, etc. Silicon Valley Bank was regulated head-to-toe by the Fed. They had tons of authority, authority granted to them in the Dodd-Frank bill that we worked on in the Obama administration, and they botched it. And there were clear red flags, huge asset growth, … hot money institutional uninsured depositors who are flight risks, massive exposure to unhedged interest rate risks in buying treasuries and cheap mortgages a couple of years ago. And it just — it remains to be seen — I really hope people are held accountable here, particularly the regulators, the Federal Reserve who supervised this bank, and it was hardly a gold standard bank.”
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