“All animals are equal, but some animals are more equal than others.”―George Orwell, Animal Farm
The nation’s deposit insurer (FDIC) let slip the other day which large depositors were bailed out when Silicon Valley Bank (SVB) failed last spring. SVB banked the nation’s tech illuminate.
Its failure exposed fractional reserve banking’s Achilles heel when a bank run was initiated via social media and carried out with depositors moving money on their cell phone apps. The bank’s assets were primarily government or government-backed securities, unfortunately purchased when interest rates were near zero.
Fortune.com reports:
A document from the Federal Deposit Insurance Corp., which the agency said it mistakenly released unredacted in response to a Bloomberg News Freedom of Information Act request, provides one of the most detailed glimpses yet into the bank’s big customers.
Bank deposits are insured up to $250,000, except in the case of SVB, which was termed a “systemic risk exception.” President Biden commented at the time that covering all deposits, “protects American workers and small businesses, and keeps our financial system safe.”
Small businesses? Ha! Depositors bailed out included: Sequoia—the firm famous for backing iconic companies including Apple, Google, and WhatsApp—had $1 billion at SVB. Kanzhun, which had $902.9 million in deposits with SVB. The company—which was heavily backed by Chinese giant Tencent before it went public on the Nasdaq in 2021—was among the largest Chinese companies to IPO in the US that year. Altos Labs Inc.—a life sciences startup that works on cell regeneration—had $680.3 million on deposit with the bank. The privately-held company had raised billions from billionaires including Jeff Bezos and Yuri Milner, as well as Mubadala Investment Company and other investors.
Payments startup Marqeta Inc. had $634.5 million at the bank. IntraFi Network, which provides deposit services to financial institutions, had $410.9 million worth of deposits at the bank, according to the document. Crypto stablecoin company Circle Internet Financial Ltd. was SVB’s biggest depositor with a balance of $3.3 billion. Streaming set-top box maker Roku Inc. had $420 million on deposit. Fintech company Bill.com had $761.1 million deposited.
SVB’s top 10 depositor accounts held $13.3 billion total.
Last month, Duncan, Oklahoma-based bank—First National Bank of Lindsay—failed. The Office of the Comptroller of the Currency (OCC) stepped in, believing the bank was “an unsafe or unsound condition to transact business.”
Bankingdive.com reported that $7.1 million of the Oklahoma bank’s $97.5 million in total deposits were uninsured. Oklahoma—being a long way from Silicon Valley and without boldface business titans as deposit clientele—received no special treatment from the government. Rajashree Chakravarty reported, “The FDIC said it would make 50% of uninsured funds available to depositors Monday, adding that the amount could rise as the FDIC sells the failed bank’s assets.”
First Bank & Trust bought Bank of Lindsey’s insured deposits and just $20 million of the failed bank’s loan portfolio. Thus, the uninsured depositors will have to wait until the FDIC sells the failed bank’s loans to see how they come out on the other half of their deposits. They shouldn’t hold their breath.
Murray Rothbard explained:
“Deposit insurance” is simply a fraudulent racket, and a cruel one at that, since it may plunder the life savings and the money stock of the entire public.
As for fractionalized banking, “the entire fractional-reserve system is held together by lies and smoke and mirrors; that is, by an Establishment con.” The con continues for Big Tech. For Oklahomans, not so much.
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