Customers of Silicon Valley Bank were terrified following its failure on Friday. The Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corporation had announced over the weekend that each client would be made whole, even beyond the $250,000 insured by the FDIC, so on Monday, they could finally breathe a sigh of relief.
While the unexpected action pleased account holders, other people questioned why the FDIC relaxed its policies for SVB and its clients.
According to Lynette Khalfani-Cox, CEO of AskTheMoneyCoach.com, there is some moral hazard in this situation since banks may take on greater risk if they believe they will be bailed out.