Nobel laureate Paul Krugman says bailing out SVB was sensible but annoying - and calls for tougher rules to prevent more bank failures
Paul Krugman has called the US government's rescue of Silicon Valley Bank a sensible but frustrating decision, and pushed for tighter banking regulations to prevent future failures.because it invested customers' deposits in long-duration bonds that plunged in value as the Federal Reserve hiked interest rates from nearly zero to upwards of 4.5% over the past 12 months.
on Tuesday that SVB was uniquely vulnerable, and letting its large depositors lose some money probably wouldn't have threatened the wider banking system. However, he emphasized that the risks of allowing SVB to fail greatly outweighed the dangers of intervening. Moreover, Krugman flagged the risk that the government guaranteeing deposits might result in people parking their money in banks without questioning whether it's safe, or how the lender is using their cash. Banks might also feel safe making high-risk loans or investments, if they believe their depositors will be made whole if they lose everything, he continued.vocal cryptocurrency skeptic
"I don't believe that SVB's depositors were making careful, rational calculations about risks and likely policy responses, because I don't believe that they understood how banking works in the first place," he said."For heaven's sake, some of SVB's biggest clients were in crypto. Need we say more?"
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