Simon Johnson: recommendation

Transcript context

…Many of us used to have this notion that if we only split up the banks, made them smaller, stopped them from becoming large, they would be in a position where they’re allowed to fail. It now seems there’s no size where we can let that happen. So, should we give up on the idea of splitting up the banks? No, actually, I think Sheila Bair nailed this. She nailed it in the Silicon Valley Bank weekend, if you like. And she wrote about it last week in the Financial Times, which is, what you could have done was have the Silicon Valley Bank uninsured deposits take a haircut. The assets of that bank were mostly high-quality, long-term government bonds that were underwater, but only because of the interest rate increase. They probably would’ve got about 90 cents on the dollar by reasonable estimates, Tyler, and the FDIC also pays out about half of what they owe in that recovery process in cash after just a few days. So, they would’ve had cash. They would’ve had a haircut. But then, Tyler, I think the key point that Sheila makes is, you should have insured all the other banks so that, in other words, uninsured deposits at Silicon Valley Bank would’ve had losses. That would’ve addressed some of the moral hazard issues that we’re now very worried about, and all the other banks would’ve been insured, so you wouldn’t get the contagion. Insured above $250,000, you mean?…

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