Chris Hughes, Columnist

SVB Backstop Revives the Specter of Moral Hazard

When bad things happen in banking, limits on deposit insurance turn out to be meaningless.

March 13, 2023 at 10:03 AM UTC

Chris Hughes is a Bloomberg Opinion columnist covering deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.

Silicon Valley Bank headquarters in Santa Clara, California, US.
Photographer: Philip Pacheco/Bloomberg

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This is no time for lectures on moral hazard, former US Treasury Secretary Lawrence Summers said ahead of the raft of US policy initiatives announced on Sunday to stabilize the financial system in the wake of the collapse of Silicon Valley Bank. Maybe, but might we at least be allowed a brief lament?

Depositors in SVB are to be made whole even if their cash holdings with the failed lender are above the $250,000 cap that’s meant to apply to US bank deposit insurance. As in the financial crisis of 2008-2009, the authorities have stepped in to ensure that depositors don’t lose money.