Bailing out retail or commercial banks is bad business for central banks

REGULATORY reaction to Silicon Valley Bank’s (SVB) troubles has revived fears of moral hazards and may have permanently expanded the government’s role in the pricey business of deposit insurance. Those are reasons for markets to be worried.

On Mar 12, the US government was forced into an effective bailout of SVB Financial Group, SVB’s parent, by offering to make uninsured depositors whole. It made a similar promise to depositors of Signature Bank.

On Mar 16, Swiss banking giant Credit Suisse Group received US$54 billion in support from its central bank.