The Bank Term Funding Program: Responding to the SVB Collapse and the Threat of Moral Hazard
On March 17, 2023, the US government took drastic action to respond to the collapse of Silicon Valley Bank and Signature Bank. A bailout of some $250k+ account depositors was proposed, though one adviser argued that this would create “moral hazard,” enabling more irresponsible behavior. To avoid this, the Federal Reserve created a new facility, the Bank Term Funding Program (BTFP), to offer eligible banks loans for up to a year against US Treasuries and other assets at their original value. This move was designed to prevent any financial contagion from spreading to other banks, unlike 2008. With over 4 decades of experience in providing startup funding to those who would have had difficulty accessing it, SVB has been a major asset to the startup environment, discovering new and mostly rewarding means of doing so. SVB's products and services have adapted to keep up with the quickly evolving tech industry in order to meet the current needs. The presence of SVB was essential for the development of the ecosystem, playing a major role in its maturation and expansion. This model proved valuable well beyond the geographic confines of Silicon Valley, as SVB had a major presence in the tech communities of Israel and Europe. The bank's fund of funds enabled it to have large investments in many of the top venture capital firms, thus granting SVB knowledge of the current trends in investing. Though this bailout may have been necessary, it is important to recognize the implications of removing the $250,000 cap on deposit insurance and the threat it poses to the rest of society.
0. “Why Silicon Valley Bank was bailed out” Vox.com, 14 Mar. 2023, https://www.vox.com/policy/2023/3/14/23639455/silicon-valley-bank-bailout-fdic-credit-suisse
1. “If It Looks Like a Bailout and Walks Like a Bailout It’s Probably a Bailout” SchiffGold, 16 Mar. 2023, https://schiffgold.com/commentaries/if-it-looks-like-a-bailout-and-walks-like-a-bailout-its-probably-a-bailout/
2. “Bank failures conjure up the dreaded ‘b-word': Bailout” CNN, 15 Mar. 2023, https://www.cnn.com/2023/03/15/business/bailout-silicon-valley-bank-signature/index.html
3. “The wrong way to think about moral hazard” Econlib, 15 Mar. 2023, https://www.econlib.org/the-wrong-way-to-think-about-moral-hazard/
4. “Silicon Valley Bank's Focus on Startups Was a Double-Edged Sword” HBR.org Daily, 17 Mar. 2023, https://hbr.org/2023/03/silicon-valley-banks-focus-on-startups-was-a-double-edged-sword