London Daily

Focus on the big picture.
Friday, Oct 24, 2025

Banking system on the verge of a 'Bear Stearns moment': Former FDIC chair

Banking system on the verge of a 'Bear Stearns moment': Former FDIC chair

Bear Stearns was one of the first banks to collapse during the 2008 mortgage crisis
While some observers fear federal officials' actions following the collapse of Silicon Valley Bank and Signature Bank will fuel a"moral hazard," one former Federal Deposit Insurance Corporation chair cautions the U.S. banking system is nearing another "Bear Stearns moment."

"I think this is more of a Bear Stearns moment. I think a lot of people, including me, said when they bailed out Bear Stearns, they increased moral hazard. They created an expectation of further bailouts," former FDIC Chair Sheila Bair said Friday on "Cavuto: Coast to Coast" Friday.

The Treasury Department, Federal Reserve, and the FDIC said in a joint statement Sunday that they were taking "decisive actions to protect the U.S. economy by strengthening public confidence in our banking system" following the implosion of SVB. Depositors of the SVB would have access to all of their money

Bear Stearns collapsed during the mortgage crisis in 2008. Leading to a larger industry and market crash, Bear Stearns' risky investment strategies had more detrimental consequences than expected. Six months later, Lehman Brothers failed, and Merrill Lynch was forced to merge with Bank of America.

Bear Stearns avoided bankruptcy by its sale to JPMorgan at a 93 percent discount for $2 per share, but eventually agreed to $10 per share. The sale was also supported by the government, and its involvement sent an unprecedented message that the government would help bail out banks.

"There's no doubt in my mind Lehman Brothers would have solved its own problems earlier on," Bair explained. "It would have sold itself, raised more capital, all the above, if they hadn't thought in the back of their minds, 'They wouldn't dare not bail us out. We're bigger than Bear Stearns.' That's the problem. That's the expectation that you create. Then you don't do a bailout, and…you really have the system seizing up, as we saw when Lehman Brothers went into bankruptcy."

As the markets respond to the bailout of SVB and Signature Bank as well as the rescue of First Republic, Bair noted that fear is starting to mount for the banking system and uncertainty is spreading.

"Fear is sitting in; fear, not rationality. And I think the problem was that they did bailouts of these two mid-sized banks, very tiny parts of the overall system, in the name of systemic risk, and that created a lot of uncertainty," she said.

Bair added that the "immediate problem" posed by the situation in the banking system is "if people start to panic and take deposits out of a perfectly healthy bank, they're going to force that bank to close."

"It's the classic Jimmy Stewart problem," she told host Neil Cavuto. "We deposit money into a bank, they lend it out, they invest it in securities, it's not all sitting in a vault. If you try to get all the money out at once, you're going to force the bank to unnecessarily fail."

According to Bair, actions taken by the government have created "mass confusion" that could cause efforts to support the banking system to backfire. Acknowledging there are some banks with problems, she also emphasized that only a small percentage of the overall banking system has issues.

"[The government is] trying to imply that all uninsured are protected, which they don't have legal authority to do, frankly, and this is putting pressure on community banks," she said. "It's really troubling."

As the former head of the FDIC, Bair shared her thoughts on what the right course of action would have been to handle the SVB and Signature Bank collapse.

"I think the better way to communicate would have been to handle these two bank failures with the regular FDIC process, which would have involved the uninsured depositors getting sizable dividends this week," she said. "Remind people there are deposit insurance limits, remind people that some banks can and do fail. They need to be vigilant and leave it at that."

Since the SVB and Signature Bank bailout, First Republic was hit with collateral damage from the collapse. Customers yanked billions in deposits out of First Republic, prompting the bank to shore up its finances with additional funding from the Fed and JPMorgan. That first cash infusion gave the bank — which boasts $213 billion in assets — roughly $70 billion in unused liquidity.

On Thursday afternoon, major banks swooped in to provide a $30 billion deposit to First Republic amid fears of a larger financial crisis.

JPMorgan Chase, Citigroup, Bank of America and Wells Fargo will each contribute $5 billion; Goldman Sachs and Morgan Stanley will deposit about $2.5 billion each, according to a news release from the banks. Truist, PNC, U.S. Bancorp, State Street and Bank of New York Mellon will provide about $1 billion apiece.

With a delicate banking system, Bair warned the government may need to temporarily continue bailouts to ensure market activity doesn't cause additional banks to fall like dominoes.

"As much as I hate to say it, [the government] may need to do more bailouts, not less through the system. If it's systemic, then provide a blanket guarantee temporarily."
Comments

Oh ya 3 year ago
The government screwed up when they changed the Glass Steagall Act. They need to get back in place.. But the government does everything for their friends in big money and to hell with the common person

Newsletter

Related Articles

0:00
0:00
Close
Microsoft AI CEO: ‘We’re making an AI that you can trust your kids to use’ — but can Microsoft rebuild its own trust before fixing the industry’s?
China and Russia Deploy Seductive Espionage Networks to Infiltrate U.S. Tech Sector
Apple’s ‘iPhone Air’ Collapses After One Month — Another Major Misstep for the Tech Giant
Graham Potter Begins New Chapter as Sweden Head Coach on Short-Term Deal
Ecuadorian President Daniel Noboa Alleges Poison Plot via Chocolate and Jam
Lakestar to Halt External Fundraising as Investor in Revolut and Spotify
U.S. Innovation Ranking Under Scrutiny as China Leads Output Outputs but Ranks 10th
Three Men Arrested in London on Suspicion of Spying for Russia
Porsche Reverses EV Strategy as New CEO Bets on Petrol and Hybrids
Singapore’s Prime Minister Warns of ‘Messy’ Transition to Post-American Global Order
Andreessen Horowitz Sets Sights on Ten-Billion-Dollar Fund for Tech Surge
US Administration Under President Donald Trump Reportedly Lifts Ban on Ukraine’s Use of Storm Shadow Missiles Against Russia
‘Frightening’ First Night in Prison for Sarkozy: Inmates Riot and Shout ‘Little Nicolas’
White House Announces No Imminent Summit Between Trump and Putin
US and Qatar Warn EU of Trade and Energy Risks from Tough Climate Regulation
Apple Challenges EU Digital Markets Act Crackdown in Landmark Court Battle
Nicolas Sarkozy begins five-year prison term at La Santé in Paris
Japan stocks surge to record as Sanae Takaichi becomes Prime Minister
This Is How the 'Heist of the Century' Was Carried Out at the Louvre in Seven Minutes: France Humiliated as Crown with 2,000 Diamonds Vanishes
China Warns UK of ‘Consequences’ After Delay to London Embassy Approval
France’s Wealthy Shift Billions to Luxembourg and Switzerland Amid Tax and Political Turmoil
"Sniper Position": Observation Post Targeting 'Air Force One' Found Before Trump’s Arrival in Florida
Shouting Match at the White House: 'Trump Cursed, Threw Maps, and Told Zelensky – "Putin Will Destroy You"'
Windows’ Own ‘Siri’ Has Arrived: You Can Now Talk to Your Computer
Thailand and Singapore Investigate Cambodian-Based Prince Group as U.S. and U.K. Sanctions Unfold
‘No Kings’ Protests Inflate Numbers — But History Shows Nations Collapse Without Strong Executive Power
Chinese Tech Giants Halt Stablecoin Launches After Beijing’s Regulatory Intervention
Manhattan Jury Holds BNP Paribas Liable for Enabling Sudanese Government Abuses
Trump Orders Immediate Release of Former Congressman George Santos After Commuting Prison Sentence
S&P Downgrades France’s Credit Rating, Citing Soaring Debt and Political Instability
Ofcom Rules BBC’s Gaza Documentary ‘Materially Misleading’ Over Narrator’s Hamas Ties
Diane Keaton’s Cause of Death Revealed as Pneumonia, Family Confirms
Former Lostprophets Frontman Ian Watkins Stabbed to Death in British Prison
"The Tsunami Is Coming, and It’s Massive": The World’s Richest Man Unveils a New AI Vision
Outsider, Heroine, Trailblazer: Diane Keaton Was Always a Little Strange — and Forever One of a Kind
Dramatic Development in the Death of 'Mango' Founder: Billionaire's Son Suspected of Murder
Two Years of Darkness: The Harrowing Testimonies of Israeli Hostages Emerging From Gaza Captivity
EU Moves to Use Frozen Russian Assets to Buy U.S. Weapons for Ukraine
Europe Emerges as the Biggest Casualty in U.S.-China Rare Earth Rivalry
HSBC Confronts Strategic Crossroads as NAB Seeks Only Retail Arm in Australia Exit
U.S. Chamber Sues Trump Over $100,000 H-1B Visa Fee
Shenzhen Expo Spotlights China’s Quantum Step in Semiconductor Self-Reliance
China Accelerates to the Forefront in Global Nuclear Fusion Race
Yachts, Private Jets, and a Picasso Painting: Exposed as 'One of the Largest Frauds in History'
Australia’s Wedgetail Spies Aid NATO Response as Russian MiGs Breach Estonian Airspace
McGowan Urges Chalmers to Cut Spending Over Tax Hike to Close $20 Billion Budget Gap
Victoria Orders Review of Transgender Prison Placement Amid Safety Concerns for Female Inmates
U.S. Treasury Mobilises New $20 Billion Debt Facility to Stabilise Argentina
French Business Leaders Decry Budget as Macron’s Pro-Enterprise Promise Undermined
Trump Claims Modi Pledged India Would End Russian Oil Imports Amid U.S. Tariff Pressure
×