The biggest bank failure since 2008 happened this week. Silicon Valley Bank is done. And the fallout — both financial and philosophical — is moving fast.
If you haven’t been following: SVB collapsed after a classic bank run. They’d loaded up on long-dated bonds, interest rates rose, the portfolio cratered in value, depositors panicked, and within about 48 hours the whole thing unraveled. The FDIC stepped in. The UK entity is reportedly going to see an announcement tomorrow morning — most likely a sale, with Bank of London, HSBC, and Barclays rumoured as front runners.
It’s a mess. But the REAL debate isn’t about what happened. It’s about what happens next.
The Moral Hazard Problem
Here’s where I land on this: the bailout conversation is already going sideways.
On one hand, you’ve got thousands of startups and tech companies who kept their operating cash at SVB. Payroll accounts. Vendor payments. These aren’t speculators — they’re businesses that need to make payroll on Friday. Letting them collapse because their bank made bad bets on bond duration? That’s a terrible outcome for the economy.
On the other hand — and this is the part nobody wants to say out loud — bailing out uninsured depositors sets a moral hazard. If you’re a company sitting on $50M in a single bank account, well above the FDIC insurance limit, you SHOULD be thinking about counterparty risk. That’s just basic treasury management. Some companies clearly were paying attention to this. Some CEOs moved fast, cleared accounts, and got out before the real trouble hit. Good for them. That’s leadership.
But plenty didn’t. And now the question is whether taxpayers pick up the tab for that lack of diligence.
What Taxpayers Actually Deserve
Here’s what I think most people are missing in this conversation: if the government steps in to make depositors whole — especially uninsured depositors — that’s not a freebie. That’s a bailout. And bailouts should come with strings.
I’d actually take a version of this deal: the government provides the backstop, but in exchange, it takes a stake in the companies it’s saving. In one move, taxpayers become stakeholders in promising US tech companies. The startups get to keep going, keep building, keep hiring — but their cap tables adjust to include a position for a US government trust.
That’s actually the LEAST taxpayers deserve for a bailout.
Think about it. We did something similar-ish with TARP in 2008. The government took positions, set terms, and — this part gets forgotten — actually made money on most of it. The precedent exists. The mechanism exists. We just need the political will to use it again, and to use it properly this time.
The Bigger Question Nobody’s Asking
There’s a deeper conversation here that I think is worth having: is this kind of bank risk even something we should tolerate in a modern financial system?
Unless taxpayers collectively agree that concentrated bank risk is just NOT a modern risk anymore — that we’re willing to eliminate certain categories of bank failure in exchange for significantly higher compliance requirements and monitoring on bank operations — we’re going to keep having this same conversation every decade or so.
And maybe that’s the discussion we actually need to have. Not “should we bail them out” but “should we redesign the system so bailouts aren’t necessary?”
Higher compliance. More monitoring. Stricter requirements on how banks manage duration risk and liquidity. In exchange, depositors get broader protections. That’s a trade worth exploring.
What Should Actually Happen Now
If you can’t manage your business and you need a handout, it should come with a cost. A charge. A stake. Or maybe senior management pays 75% taxes for ten years. I’m not totally serious about that last one — but I’m not totally NOT serious either.
The point is: there needs to be a precedent set. Consequences for poor risk management at the executive level, AND a mechanism that makes taxpayers whole when they’re asked to step in.
The companies who had good leadership, who watched the signals, who moved their money before Thursday — they’ll be fine. The ones who didn’t? They deserve to survive, probably. But not for free. Not without accountability.
We’ve seen this movie before. The question is whether we’re finally ready to write a different ending.
