March 18, 2023. By Trinity Tran, Truthout. 

The recent collapse of Silicon Valley Bank (SVB) and Signature Bank — the second and third largest bank failures in U.S. history respectively — has laid bare the vulnerability of the private banking sector.

With over 563 federally insured banks toppling between 2001 and 2023, it’s impossible to ignore: The status quo is unsustainable. Amid this financial turbulence, the need for public banking has never been more pressing. It’s high time we seriously consider public banking as a stable, transparent, and accountable alternative that would firmly anchor public interest at the heart of the financial system. After all, banking should be a public utility that benefits everyone, not a high-risk game played by bankers trying to score big profits.

The failures of SVB, Signature and Silvergate banks can be traced back to poor management decisions and high-risk strategies. SVB invested in long-term government securities amid concerns about rising interest rates as well as the volatile venture capital industry, while Signature and Silvergate banks ventured into speculative cryptocurrencies. All three banks shared one common problem: massive uninsured deposits from a handful of ultra-wealthy customers.

When the banks teetered on the edge of collapse, the Biden administration, FDIC, and Treasury swooped in with a bold bailout. They created a “systemic risk exception” to protect all deposits, even those beyond the $250,000 threshold. Ironically, all depositors were “made whole” from the Deposit Insurance Fund — the very fund that Silicon Valley Bank had previously lobbied against, arguing that increased contributions would hurt their bottom line.

This intervention raises a crucial question: If the government is ultimately responsible for ensuring the banking system’s stability, why not opt for public banks designed to serve the public interest from the start?

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