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After reviewing the circumstances leading to the failure of SVB and historic parallels, we discuss the merits of the regulators’ decision to invoke the Systemic Risk Exception and protect all SVB deposit accounts, notwithstanding the $250,000 FDIC insurance limitation, alternate approaches that regulators might have considered for protecting uninsured funds, and the Fed’s creation of the Bank Term Funding Program to make available additional funding to eligible depository institutions. We also discuss the impact of the mark-to-market accounting standard on bank liquidity and the role of the Fed’s monetary and regulatory policies in SVB’s failure. Finally, we discuss how the regulators could stop further runs on banks by temporarily covering all deposits, regardless of amount, or guaranteeing the full amount of demand noninterest-bearing transaction deposits and certain other accounts as the FDIC did during the recession of 2008-09.
Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, leads the discussion, joined by Scott Coleman, a partner in the firm and member of the firm’s Banking and Financial Services team and the Distressed Financial Institutions and Counterparties component of the firm’s Distressed Assets and Opportunities Initiative.
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