The FED Just Did A MASSIVE Bailout | Government Bailout For Banks Explained

So, hey guys. Should the Federal Reserve be bailing out banks right now? That's the question that I want to tackle and talk about on this video. And I'm going to give you some information about what's happened and let you decide. Is this a bailout or is it not a bailout? In my opinion, it's a bailout. And I'm going to explain to you why. I'm also going to give you some information and details on this bank term funding program that was set up by the Federal Reserve to help flailing banks and cover banks in case there's some type of run on a bank. So, as you guys know, there's been a bank crisis going on right now in America, really around the world. And we had the Silicon Valley Bank that went bad. Then we had, just a couple days later, the Signature Bank of New York that failed as well. Then you had another bank or two that's been purchased by other banks. And one of those banks, First Republic, has actually seen its share price go up a lot since it was purchased and helped by other banks. But we have to talk about the elephant in the room. Now, the elephant in the room that's sort of hiding there under the rug, but we all can see what's going on, is this awkward guarantee by the Federal Reserve, the U.S. Treasury, and the FDIC to cover depositors' money above and beyond the $250,000 that is normally insured by the FDIC. So, what does that mean for future banks that may fail down the road or smaller local banks that may be having problems on their books now as well? What's going to happen if there's a run on their bank? So, here's what happened. The very first bank to fail was Silicon Valley Bank. It collapsed on a Friday. Now, when that bank collapsed, immediately, the U.S. Treasury, the FDIC, and the Federal Reserve got together and said, basically, what can we do to make sure we quell all the fears and the possible run on banks? And what can we do about this possible contagion where people get fearful and scared and all of a sudden there's a run on a ton of banks? And that obviously could cause some type of major disaster in terms of the banking system, right? So, they said, how do we make sure we stop this immediately? And they got with the Biden administration and said, first, let's make sure we cover all depositors in the two banks that failed, Silicon Valley Bank and Signature Bank of New York. Let's cover the $250,000 but let's go above and beyond that and let's make sure that all depositors who had money in those two banks is going to be covered and will have access to their full amount. If you had $10 million in that bank, then guess what? We're going to make sure your full $10 million is available to you. Now, that brings up a lot of questions, right? First, is it a bailout? Second, what's going to happen to all these other banks that could possibly fail and their depositors? Are we getting rid of the $250,000 limit on all banks or just these two banks? So, let's first talk about the word bailout, right? There's no clear-cut definition in the banking world or the world of government help that clearly defines what bailout really means, right? But we do know that when we mention the word bailout, it sort of sends shivers up the spines of a lot of people because they think back to 2008-2009 when a lot of financial institutions were bailed out by the federal government. And so, it kind of sparks some polarization right down the middle. Some people go way over here and some go way over there and say, you know what? It's wrong. It's wrong. Others say, it's right. We needed it. So, the word bailout can become sort of a polarizing term. But the fact is that we know that back in 2008-2009, the federal government stepped in and bailed out these financial institutions to keep them afloat and they used U.S. taxpayer dollars to do so. Now, given what's happened with these two banks recently, these two collapses, the U.S. government has now sort of made what some would call similar moves. Not the exact same move because things are different. The situation is different. Who they're helping is different also. So, it's not exactly the same but it's similar. And many people are obviously concerned because it looks like the government is bailing out very wealthy venture capitalists who had lots and lots of money at Silicon Valley Bank, for example, and at Signature Bank in New York. Of course, Silicon Valley Bank was filled with a lot of tech investors, tech startups, venture capitalists who funded tech startups, and then Signature Bank didn't quite have that same clientele but there's still a lot of wealth that's being protected by what the Fed, the U.S. Treasury, and the FDIC is doing here. So, two days after Silicon Valley Bank failed, the U.S. Treasury, Federal Reserve, and the FDIC announced to the world, that was a Sunday, that they were taking some really decisive actions. Now, keep this in mind, guys. They want to take decisive actions very, very fast because the dollar is not really backed by anything except our confidence, right? So, it's very important that they don't cause some really widespread fear amongst the American people because if the American people and American businesses all run to get their money out of the banks, that's going to cause a huge, huge problem that they really don't want to face. So, to stop all the fears, they all got together and said, look, we're going to make some decisive actions and let's announce it to the world what we're doing for these two banks. What they did was they wanted to make sure all of Silicon Valley Bank and Signature Bank in New York depositors had access to all of their money above and beyond, as I said earlier, the $250,000 that's normally FDIC insured. And the Fed said it was going to open up a facility to make funding available for other financial institutions as well in the form of one-year loans from the Fed to banks that may be in trouble. And the whole point of that was to limit some of this contagion that they saw that could easily happen when everybody gets fearful. Guys, do me a favor, smash the like button, subscribe to the channel, and drop me a comment below. I want to know what your take is on whether or not you think this is a bailout. So, the Fed said, basically, to support the American businesses, American households, we're going to make this additional funding available to eligible depository institutions to make sure banks have the ability to meet all the depositors that deposit money in their banks' needs and can pay them if they have to pay them in some sort of emergency. So, in their statement, they came out and made this grand statement, this public statement, that says, we want to safeguard all the deposits of the American people and the American businesses. And, the Fed said, we are prepared, basically, to address any concerns of liquidity that's going to arise from banks. And they said that all the funding that they were going to provide for banks to insure this was going to be made available through what they call the Bank Term Funding Program, BTFP. And so, basically, out of thin air, all of a sudden, they created a new lending program for banks. And that lending program is to offer one-year loans to savings associations, to credit unions, to banks and other lending institutions who would pledge things like U.S. Treasuries, mortgage-backed securities, and other qualifying assets that they mapped out as collateral to the Federal Reserve. So, now, the Federal Reserve jumps in and says, we're going to go ahead and lend money to banks for up to a year who need help with their finances and their ability to pay their depositors. And they got the backing of the U.S. Treasury, the Biden Administration, and also the FDIC to actually create this new lending program that's going to loan money to banks for up to one year to actually cover any potential run on any potential eligible depository institution, meaning most banks. So, basically, all banking institutions would be eligible for these one-year loans from the Federal Reserve. The Federal Reserve just said, hey, this extra lending program would just be an additional source of liquidity for these banks that sort of eliminates any bank's need to quickly sell off securities in a panic. We're just going to be there to cover them just in case, is what the Fed said. Now, on top of that, with the approval of the U.S. Treasury, the U.S. Treasury themselves would also make available up to $25 billion from the Exchange Stabilization Fund, which already exists as another backstop to this bank term funding program that the Federal Reserve created. Now, they also went on to say that the Federal Reserve doesn't anticipate that it's going to be necessary to draw on the funds from the Stabilization Fund from the U.S. Treasury. But the Fed said, hey, it's there just in case. So, what the Fed and what the U.S. Treasury, FDIC, what they're all trying to do is quell the fear, right? Because they want to make sure everything doesn't go haywire. And so, they're acting in haste to make sure. Now, some people would say, hey, they're acting too hastily. They're going too far. But the whole point is to make sure that the American people aren't in fear. Now, this is interesting because, you know, a lot of times they try to make the American public in fear and now they're trying to make sure the American public doesn't have fear when it comes to the money. But I want you guys to understand that the U.S. dollar and the banking system in general is really only backed by the American people's confidence in that system. Just like the dollar itself, right? There's no gold or no silver that backs the American dollar. So, the American dollar only has the strength of the confidence of the people that use the dollar give it. And the only thing that would take that away is your fear and lack of confidence in that dollar. And then the dollar, all of a sudden, means nothing. So, the big question is, does this mean that the $250,000 that the F.D.I. insures for every depositor in every bank or in every lending institution in America, is that no longer in play? Is that no longer the case? Is now the amount that each person is insured at every bank unlimited? Now, that's still sort of unclear. And that's the real long-lasting question that's going to matter in six months, in two years, in four years. Does every banking institution all of a sudden have carte blanche and do what these banks did and not watch the books the way they should have been watching the books and making sure they had a balanced portfolio that wasn't overly leveraged in long-term bonds that were purchased at a cheaper rate? We want to make sure that other banks don't get into this type of trouble based on mismanagement of their assets. So, the question becomes, is everybody now covered or not? Now, of course, the Federal Reserve and the U.S. Treasury, they're not going to say this is a bailout. But it looks and feels sort of like a bailout. But the only difference now, as opposed to 2008, is they're bailing out depositors. And some of these depositors could be millionaires, billionaires, venture capitalists, large businesses. But these are depositors that are being bailed out this time, as opposed to the entire lending institution. But what does it mean that they're going to cover all depositors at all banks above and beyond $250,000? Is the Fed and the U.S. Treasury going to all of a sudden, if there's 10 other runs on banks, are they going to all of a sudden print a whole bunch of more money somehow to cover it when the money that they have in these programs run out? That's the question. Because if that's the case, then the whole idea of a run on the bank doesn't even exist anymore. Because the U.S. Treasury and the Federal Reserve are saying, hey, we're going to cover everybody, no matter what you have in the bank. And therefore, this whole idea of a run on the bank is now null and void. It's a moot point because it can't happen anymore if all of everybody's money is covered in a bank. So for me, it looks like and feels like and sounds like a bailout to an extent. A bailout for depositors. Not necessarily the lending institutions. I mean, the executives and vice presidents and CEOs and CFOs and they all lost their jobs, right? They don't have jobs anymore. Now, don't get me wrong. They got really hefty bonuses on the way out the door. And some of them were making some incredible salaries, even though they were sort of mismanaging the assets that the banks had. But again, shareholders, bondholders, executive directors of these banks, those people are out of luck, right? They're not being bailed out. But if you had your money in this bank and you had a million dollars or ten million dollars at the Signature Bank of New York, you are getting bailed out because all of your money is going to be there even though there was a law in place that said the FDIC is only going to cover $250,000 per account. Bottom line, guys, there's no real definition for what a bailout is. So you can make your own decision what you think. Now, just so you guys know and just so we're clear, the FDIC has what they call Depositor Insurance Fund, the DIF. And it's funded through quarterly assessments on insured banks funded by the banks as well as some interest on funds that are invested into government bonds. And that's how your $250,000 FDIC insured amount comes about and guarantees your money. But now that the FDIC and the Federal Reserve has agreed to go above and beyond that, that's when you have those other programs that are coming into play. And that DIF fund from the FDIC has about $100 billion in it right now. And they're thinking that that's plenty enough to take care of the Signature Bank of New York and Silicon Valley Bank. But then again, the question becomes, what if there's more runs on more banks? Are they just going to keep printing money out of thin air, making these loans? I don't know. Too much gray area that really hasn't been fully explored or explained fully in terms of the long-term ramifications on other banks. So guys, you make your own decision about whether you think this is a bailout or it's not a bailout. Again, in my opinion, it's a bailout. It just doesn't look like the bailout that we've seen before. Again, drop a comment below. Let me know what you think. Subscribe if you're not a subscriber. Smash that like button for me, guys. It helps the algorithm push this video out to more and more folks. And stay tuned to this channel for more U.S. economy updates. And check out these recent videos right here for more on what's happening in the U.S. economy today. Guys, the best person to take care of the old you is the young you. Take care of yourself and take care of other people. Until the next video, peace!