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Sheila Bair, who chaired the Federal Deposit Insurance Corp. (FDIC) during the 2008 financial crisis, said the Biden administration’s decision to guarantee all deposits at the failed Silicon Valley and Signature banks was an “overreaction” during an appearance as part of “The Washington Post Live” series . 

Silicon Valley Bank’s (SVB) failure earlier this month was the second largest bank collapse in the country’s history, involving $212 billion in assets. Most of the bank’s deposits were above the $250,000 limit that the FDIC insures, meaning that without government intervention the money would be lost. 

A majority of SVB’s clients are tech executives and venture capital funds and the bank’s collapse sparked concerns about greater ripples in the financial system. The Treasury Department and Federal Reserve decided to guarantee all deposits at SVB, even those above $250,000, in order to minimize market impacts, the organizations said. 

Bair called the Biden administration’s decision a “bailout,” despite the administration refusing to call it such. The costs of insuring all deposits will be paid out of a fund that is maintained by fees on all banks, even well-run community and regional banks, Bair said. 

Proposals to increase the insured deposit limit are also an overreaction, Bair said. 

“We need market discipline to complement the supervisory process,” she said. “Unlimited insurance, it would be very expensive to do, it would be assessed on the banking system backstopped by taxpayers and would primarily help very, very wealthy people.”

The SVB and Signature Bank collapses did drive down stock prices of most banks in the country; however, the sector has partially recovered in recent days. Despite falling consumer confidence, community and regional banks are often run better and more safely than larger banks, Bair said.

“The vast majority of banks are safe and stable,” she said. “Overall, the system is fine. The biggest thing we have to fear now is fear itself, incentivizing people to make irrational withdrawals of deposits when it’s just not necessary.”

Republicans have blamed environmental, social and governance investing (ESG) and “woke” policies for the bank’s collapse, but Bair and other financial experts said that the bank was simply poorly managed. 

Bair said the bank held government bonds knowing it could not afford to hold them until maturity. That sparked a wave of withdrawals from large clients causing a bank run and leading to its collapse. 

“This was more human error than regulation,” she said. “Auditors should have seen this.”

Following the turmoil, some Democrats have called on the FDIC to initiate clawbacks of SVB executives’ pay and bonuses as a punitive measure. That’s within the power of the FDIC, but is a long process which requires extensive litigation, Bair said.

“There should be strong repercussions out of this,” she said.

The Justice Department, Securities and Exchange Commision (SEC) and the Federal Reserve have all launched separate investigations into the bank and its executive’s actions before its collapse. 

Bair also said Sen. Elizabeth Warren’s (D-Mass.) calls for Federal Reserve Chairman Jerome Powell to resign are too far, but said the Fed should take banking stability more seriously when considering monetary policy.