RISKLESS CAPITALISM

Did uninsured depositors in the failed Silicon Valley Bank (SVB) need to be saved? The University of Chicago’s Raghuram Rajan and Luigi Zingales answer this question in an article for the upcoming June edition of Finance & Development Magazine.

The argument is that even though everyone knew that deposits over $250,000 were uninsured, if uninsured depositors had not been made whole, panic would have coursed through the banking system. But if large depositors are always protected in the name of financial stability, why—ask Rajan and Zingales—aren’t they at least charged the insurance fee that burdens the insured deposits?

The authors contend that the government decision was made after immense lobbying, including many cries for help from venture capitalists.

“We need to develop better metrics based on political influence to limit the political power of firms.”