SVB collapse | Andrew Ross Sorkin says US 'bailout plan' is fine for now, but ...

While the Silicon Valley Bank (SVB) collapse news has kept global stock markets on edge, startups have turned more cautious and governments are looking to combat the impact of the tech-focused lender’s fallout, New York Times columnist Andrew Ross Sorkin said United States’ “bailout plan” will have ramifications.

“It is a bailout. Not like 2008. But it is a bailout of the venture capital community + their portfolio companies (their investments). That’s the depositor base of SVB. It is the right thing to do in the moment, but there will be ramifications + new regs. VC’s should say thank you,” he tweeted.

The remark of Sorkin, author of Too Big to Fail, came soon after the Joe Biden administration in the US announced that depositors of the failed Silicon Valley Bank will have access to their money from March 13.

Following the recommendations from boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, and consulting with President Biden, Treasury Secretary Janet Yellen on March 12 approved actions enabling the FDIC to complete its resolution of the Santa Clara, California-based SVB in a manner that fully protects all depositors, according to an official statement.

The government also reiterated that only SVB depositors, as well as those at New York-based Signature Bank — a second lender it took over and shut down — would be made whole. Shareholders of the failed banks, as well as some bondholders, will “not be protected” by the actions, the agencies' statement noted.

While the US has said depositors will have access to all their money starting Monday (March 13), and no losses associated with the resolution of SVB will be borne by the taxpayer, Sorkin explained that the depositor base of SVB comprises venture capital companies and not the common man as such. And that, unlike 2008, that witnessed bailouts of financial institutions, the current one is a bailout of the venture capital community, which forms the customer base of Silicon Valley Bank.

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and the reforms that have been put in place mean that we’re not going to do that again,” Treasury Secretary Yellen clarified on CBS before the emergency measures were announced.

Funding for the emergency measures will also come from selling off SVB's assets, Morgan Ricks, a banking professor at Vanderbilt Law School, told NBC News. As a result, he said, taxpayer dollars will not be directly implicated in the backstop measure.

In line with Sorkin’s argument, the NBC News report explained that this is the key difference from the congressionally approved bailout of the US financial system authorities approved in the fall of 2008. That legislation, called the Emergency Economic Stabilization Act, earmarked $700 billion to create the Troubled Asset Relief Program to purchase toxic assets from banks.

For the current backstop measures against the "systemic risk exception" event, US regulators needed the approval of two-thirds of the Federal Reserve board of governors, two-thirds of the board of the FDIC and the Treasury Department in consultation with the president, Ricks said. As per the report, regulators have sidestepped a vote that would otherwise be required from Congress on whether to backstop the banks' depositors.

Ricks told NBC News that if there are losses (assumption), the costs of the guarantee of all depositors will be borne by banking customers — in other words, the wider public. In such a scenario, "part of it should be expected to fall on bank customers indirectly."