The Alliance’s Julian LaRosa’s latest piece in Jacobin. Silicon Valley Bank’s collapse was no aberration: hundreds of private banks in the US have failed since the Great Recession. For a more stable financial system that actually meets ordinary people’s needs, we need to expand public banking.
One of the great philosopher-artists of the 2000s and 2010s (though maybe not so much in recent years) once said, “No one man should have all that power,” and this nugget of wisdom has been ringing in my head over the past two weeks. In a Slack chat among prominent VCs and startup execs, Silicon Valley venture capitalist Peter Thiel orchestrated the beginnings of a bank run against one of the most influential banks and the financial backbone of the Bay Area tech scene, Silicon Valley Bank (SVB), ultimately bringing the bank to its knees within days.
What happened with Silicon Valley Bank? Because banks don’t keep all their deposits on hand — deposits are used to provide loans or to buy various securities like bonds — they rely on depositors not all coming for their bags at once. But occasionally, a wave of withdrawals leads to banks panicking and liquidating their assets to cover newly withdrawn deposits — sparking further hysteria as everyone races to get their money out. Then down goes the bank, sending shockwaves across the economy.
This is more or less what happened to Silicon Valley Bank after Thiel advised his portfolio companies to pull their deposits out of SVB. Over the weekend, the Federal Deposit Insurance Corporation (FDIC) intervened, closing the nation’s sixteenth-largest bank and forcing it to liquidate its assets and make depositors whole. In a couple days, we saw the largest bank failure since the Great Recession and the collapse of Washington Mutual.
Following the collapse of SVB, spooked depositors at Signature Bank rushed to withdraw $10 billion, triggering a federal closure of both banks to contain the potential contagion. Stocks across the financial sector then plummeted throughout the United States and across the pond. The year had already been a rough one for Credit Suisse, its stock price slumping even before the SVB-induced crash. But once the heat turned up and depositors started fleeing, the Swiss Central Bank stepped in to provide a $54 billion bailout to keep Switzerland’s largest bank afloat.
In the subsequent days, the press watched the situation like a hawk. Who would be next? Were we in for another Great Recession? Would workers be able to get their next paychecks?
Yet the corporate media missed a key point: banks, when left to their own devices, will fail. SVB certainly wasn’t the first, and it won’t be the last. Since the Great Recession over 560 banks have failed in the United States, often followed by Wall Street titans swallowing up their assets. Banks that were too big to fail in 2008 have grown still larger as the financial sector becomes more and more concentrated. Regulations meant to constrain financial chicanery have proven too weak to the task.
So the question is, what do we do moving forward? Do we continue to let the vultures prey on their dying competitors? Will the government keep having to bail out reckless banks?
Continue reading in Jacobin.