Worried about the political fallout, people now involved in SVB's rescue hesitate to call it a bailout, noting the bank’s shareholders and bondholders will not be relieved of their losses.
Of course, it is essential to protect the banking system at any cost and step in aggressively at the first sign that confidence is under attack, so regulators are acting appropriately. But the moral hazard problem will not go away, and it will become a serious one if, like after the 2008 financial crisis, there are little if any consequences for reckless behavior and any serious push to strengthen supervision succumbs to industry pressures.
somewhere in the system, as history shows. The amount of corporate bonds is now, by far, the largest in U.S. history and, until recently, also as a % of GDP. The collapse of SVB could be the first sign that a new one is unfolding.Such crises happened at various points in the past. It seems that when private non-financial debt rises beyond some point, lenders tend to become nervous, liquidity dries out and some headline-grabbing disaster erupts where few are looking.
Headline should say 'Confidence crisis' ..