Peter Morici, former chief economist for the U.S. International Trade Commission, said the failures or closings of Silicon Valley Bank and Signature Bank are neither a replication of the the 2008 financial crisis nor an "oops scenario" among the banks' board of directors.
"It's inherent in the nature of banks," Morici said Monday on Newsmax's "John Bachman Now." "Banks can take deposits so that they're borrowing short, and then lending long. If their creditors call back the money, namely their depositors, they don't have assets to pay ... this is the nature of banking."
Regarding any 2008 comparisons of sub-prime mortgages or poor banking practices that hindered the U.S. economy, or even tinges of the bank panic depicted in the classic Christmas movie, "It's A Wonderful Life," Morici offered a more nuanced explanation.
"It smells like [2008] in the sense of, whenever you have a lack of confidence — and banks are based on confidence — you have the potential for people to take their money out, hide it under the mattress," said Morici, an economics professor at the University of Maryland.
However, Silicon Valley Bank "wasn't doing shady stuff with other people's money," said Morici. "It wasn't buying derivatives, it wasn't making third mortgages at 140%" of people's incomes.
"The problem is, when interest rates go up, [banks' treasury values] temporarily go down in the secondary market," said Morici, while adding if the banks patiently "hold until maturity, they get their money back."
Morici said the Federal Reserve isn't giving an unprecedented break to Silicon Valley Bank or Signature Bank. Instead, the government is giving bank receiverships of the funds to buy securities to make the customers' bank accounts whole again — and they'll also collect money on the interest.
"It's not a bailout, in that sense," said Morici. "If the Fed had done on Thursday what it's doing today, this crisis wouldn't have happened. The bank could have corrected its portfolio and then moved on."
Also, Morici didn't seem fazed by speculation of the federal government only being able to guarantee bank-closure funds up to $250,000. His reasoning: Major corporations would never be able to function with efficiency, if it had to spread around maximum accounts of $250,000 through the U.S. and around the world.
"We need banks, because we need a place for people to store their money," Morici said.
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