Reject Bailout for Silicon Valley Bank
12 March 2023
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Commenting on the collapse of Silicon Valley Bank, IEA Economics Fellow Julian Jessop said:
“It may be hard not to feel sympathy for businesses who are facing financial disruption through no fault of their own. But the Chancellor should do the bare minimum necessary – and no more – to protect UK customers of Silicon Valley Bank (SVB).
“Fortunately, SVB’s UK subsidiary appears to be well capitalised and solvent. The government should simply ensure there is enough short-term liquidity to meet operational and cashflow needs – which seems to be the plan. Even then, that liquidity could come from private sources.
“The threat of wider contagion also seems limited. But even if the crisis does worsen, it would still be a mistake to bail out the larger customers of SVB or any other bank.
“There is a stronger case for state guarantees for small accounts, especially those held by retail investors who may not be as financially savvy. But other customers should be expected to manage their own risks in order to minimise the problem of ‘moral hazard’. Private businesses should certainly not expect taxpayer bailouts just because they happen to be cash-rich start-ups, or operate in the tech sector.”
ENDS
IEA spokespeople are available for live and pre-recorded broadcast
Contact: media@iea.org.uk / 07763 365520
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
“It may be hard not to feel sympathy for businesses who are facing financial disruption through no fault of their own. But the Chancellor should do the bare minimum necessary – and no more – to protect UK customers of Silicon Valley Bank (SVB).
“Fortunately, SVB’s UK subsidiary appears to be well capitalised and solvent. The government should simply ensure there is enough short-term liquidity to meet operational and cashflow needs – which seems to be the plan. Even then, that liquidity could come from private sources.
“The threat of wider contagion also seems limited. But even if the crisis does worsen, it would still be a mistake to bail out the larger customers of SVB or any other bank.
“There is a stronger case for state guarantees for small accounts, especially those held by retail investors who may not be as financially savvy. But other customers should be expected to manage their own risks in order to minimise the problem of ‘moral hazard’. Private businesses should certainly not expect taxpayer bailouts just because they happen to be cash-rich start-ups, or operate in the tech sector.”
ENDS
IEA spokespeople are available for live and pre-recorded broadcast
Contact: media@iea.org.uk / 07763 365520
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
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