Congress Shouldn’t Compound Silicon Valley Bank Collapse with Bailouts and Bad Ideas

The Silicon Valley Bank collapse has spurred some terrible policymaking ideas in Congress, exacerbating bad decisions by the bank that has led to its collapse. CEI experts warn against bailouts and regulations that destroy incentives banks and other businesses have to avert disaster.

John Berlau, CEI Senior Fellow and Director of Finance Policy

“Silicon Valley Bank seems to have done business with everyone from billionaires and celebrities to woke ‘green’ energy firms with little regard for risk management in the past few years. Now, the Biden administration has decided that all their customers will have their millions and possibly billions in the bank completely covered by the government far in excess of the $250,000 limit for each depositor under law. This broad bailout will create expectations that will likely lead to future risky bank practices and ensuing bailouts as even wealthy depositors have less incentive to perform due diligence on banks they deal with and assume everything will be covered by the government.

“Meanwhile, prudent banks suffering the fallout from SVB should not be punished by a flood of counterproductive red tape. The Consumer Financial Protection Bureau’s proposed price controls on credit card late fees and curtailing of optional overdraft services will sap revenue from community and regional banks working to maintain financial stability. And as I testified before the House Financial Services Committee last month, approval of financially sound new banks and credit unions is crucial for overall resilience in American finance, as ‘a lack of new entrants in the banking sector increases the chances a large bank failure could severely curtail the supply of credit and availability of financial services’. That in turn sets the stage for a continuing cycle of government bailouts.”

Related analysis: CEI’s John Berlau Testifies Before House Financial Services Committee: Hearing: “Revamping and Revitalizing Banking in the 21st Century”

Wayne Crews, Fred L. Smith, Jr. Fellow in Regulatory Policy

“Panic makes for terrible policymaking, which means the urge to rush into the Silicon Valley Bank failure with quick ‘fixes’ could saddle the industry and consumers with bad policies for years to come. This is the fourth financial shock of the 21st century, each of which results in a permanent expansion of government. That’s why the time is now to stop Congress from exploiting crises, current and future, in a way that does more to grow government than help people out of a jam. Congress needs to be proactive, not reactive. Now more than ever we need an Abuse-of-Crisis Prevention Act.”

Related analysis: CEI Report Proposes Legislation to Stop Future Congresses from Exploiting National Crises to Grow Government