The federal government’s bailout of banks caught up in the Silicon Valley financial crisis prompted Oklahoma Attorney General Gentner Drummond to lead several other attorneys general in urging the FDIC to reverse its course.
Just a week after Drummond announced Oklahoma would perhaps file the largest lawsuit in state history in seeking billions over the 2021 Winter Storm Uri costs to consumers, he stepped up to the plate on the bailout of the Silicon Valley Bank (SVB) and Signature Bank.
“Americans living in rural Oklahoma, Idaho, Louisiana, Mississippi, South Carolina, South Dakota, Tennessee, Texas, and Utah should not be forced to pay the bill for wealthy national and foreign elites and tech investors, who are savvy enough to assume their own risks,”‘ said Drummond in a letter to the Federal Deposit Insurance Agency.
“Just as Main Street should not bail out Wall Street, Red River Valley should not bail out Silicon Valley. Instead, the wealthy investors and uninsured depositors of SVB and Signature, as well as those institutions and their parent companies, should bear responsibility for the consequences of their risk-prone decision making.”
Drummond said President Biden and the federal government’s decision to invoke the systemic risk exception of the Federal Deposit Insurance Corporation for the bailout was arbitrary and reckless.
“The banking industry and the public at-large should not be forced to subsidize the federal government’s own mishandling of a crisis of their creation,” Drummond wrote in the letter sent to FDIC Chairman Martin Gruenberg.
“It is fundamentally unfair to pass on special assessment costs to other banking institutions who engaged in responsible business practices, unlike SVB and Signature.”
Drummond noted that the assessment would ultimately be paid by average Americans.
“The Proposed Rule will also burden the entire banking industry, as well as American taxpayers who will ultimately bear the brunt of the special assessment fees,” Drummond wrote. “The special assessment may not be directly levied against them, but those costs will ultimately be passed on to taxpayers.”
The coalition is urging the federal government to re-evaluate its actions and correct course to improve the baking industry moving forward. If the FDIC is unwilling to reverse course, Drummond said, at a minimum, the special assessment should be shouldered only by the firms and entities directly responsible for, or benefitting from, the bailout.
Oklahoma’s letter was joined by Idaho, Louisiana, Mississippi, South Carolina, South Dakota, Tennessee, Texas and Utah.
Defenders of the FDIC decision contend the move by federal regulators saved thousands of small tech startups and prevented what they said could have been a catastrophic blow to a sector that relied heavily on the lender.
But as Fortune Magazine reported last month, the decision to guarantee all accounts above the $250,000 federal deposit insurance limit also helped bigger companies that were in no real danger. Sequoia Capital, the world’s most prominent venture-capital firm, got covered the $1 billion it had with the lender. Kanzhun Ltd., a Beijing-based tech company that runs mobile recruiting app Boss Zhipin, received a backstop for more than $900 million.