SHOCKS TO THE SYSTEM: Workers Shouldn’t Pay for Banking Crisis

by Ashley Rogers

This article is from the April 2023 edition of Socialism Today, the paper of the Independent Socialist Group. Subscribe today to receive each edition in print and read the articles before they’re published online!

A bank run on Silicon Valley Bank (SVB) in mid-March led to its collapse. It’s the second-largest bank failure in US banking history behind the collapse of Washington Mutual during the 2008 “great recession.” As panic from the collapse of SVB rolled through the system, the federal government closed Signature Bank in New York, resulting in the third-largest bank failure in US history. 

First Republic Bank, the 14th largest bank in the country, obtained emergency funding out of fears that it could topple too. Credit Suisse—one of the most important banks to the global financial system—was forced into a merger with fellow Swiss bank UBS after Credit Suisse announced the largest losses sustained since the 2008 financial crisis. As capitalists and politicians scramble to stop the falling dominoes, working people are left facing the impact of the capitalists’ financial gambling—and the possibility of a recession on the scale of 2008.

Some politicians and commentators try to paint SVB’s collapse as simply a result of panic. Yet the reality of SVB’s balance sheet tells a story of financial gambles made with customer funds that didn’t pay off. The bank was a big beneficiary of the massive investment in tech startups during the pandemic, growing from $61bn in deposits at the end of 2019 to $189bn at the end of 2021. Much of this money was put into long-term investments like bonds—which promise a certain percentage return on investment at the end of a given period (often five or ten years). 

But as interest rates rose and interest in risky investments like tech declined, deposits from its tech clientele decreased, and withdrawals increased. This meant that SVB had to sell those long-term investments to cover these withdrawals—selling at a loss because its bonds were now far less valuable than the newer high-interest bonds following the rate hike. 

Before the collapse, SVB had $1.8bn in losses from selling these investments, with another potential $15.9bn in losses if it had to sell the rest of its portfolio. It announced plans to raise $2.2bn from investors to cover its losses on March 8th, alerting depositors to the dire financial straits the bank was in. 

Venture capitalists urged the tech companies they invested in to pull their money out of the bank, withdrawing $42bn on March 9th alone. This forced the bank into insolvency, and it was taken over by the federal government the next day. 

SVB Collapse Prompts Economic Crisis

Following the SVB collapse, some politicians and parts of the corporate media called for more regulation in the banking sector. Democrats attempted to credit the collapse to the rollback of certain Dodd-Frank provisions under Trump’s presidency—though Dodd-Frank before the bipartisan deregulation wouldn’t have prevented this collapse either. 

It is worth noting that Barney Frank, of the weak “Dodd-Frank Act” fame, is on the board of directors of SVB and a lifelong Democrat. It’s estimated he’s made over $2 million from his position. We may see token attempts for additional state involvement and oversight in the banking sector, especially if a movement develops around this collapse similar to Occupy Wall Street in 2011, but no regulations can change the nature of capitalist banks. 

Banks are profit-driven financial institutions; their goal is to make as much money as possible by making financial bets with their deposits. When working people deposit money in a bank, they have to trust that the bank is making “safe” bets and they can count on that money still being there when they need it. 

But under capitalism, all these banks compete with each other, and the bank that can make the riskiest bets without losing money will out-compete those that make “safer” bets. These incentives push financial institutions to the brink of how much risk they can take on, meaning that sudden market changes can bring it all crashing to the ground. 

Talks of recession have been floating around for years as the pandemic triggered a financial crisis that had been simmering under the surface. The FDIC reports there were $620 billion of “unrealized losses”—losses that have come from an investment dropping in value but haven’t yet been made “real” by selling that investment at the now-lower price— in the US banking system at the end of 2022, compared to $2.1 trillion in total equity. Some estimates have put the unrealized losses far higher, as much as $1.7 trillion. If only half of the uninsured depositors in US banks decided to withdraw, an estimated 186 banks would collapse

Capitalist responses to SVB have tried to attribute the collapse to a failure of management, hoping to make SVB appear as a one-of-a-kind incident resulting from leadership that didn’t know what kinds of bets to make. But far from simply being the result of mismanagement, SVB did what everyone else was doing; its close ties to the tech sector just made it the first to experience so many withdrawals.

The collapse of SVB set in motion a crisis in the banking sector, as customers rushed to withdraw their deposits and capitalist regulators moved to prevent the “contagion” of SVB’s collapse from causing a collapse of the banking system as a whole. The government closed Signature Bank soon after, and billions were being prepared as bailouts for other at-risk banks. A plunging share price and $70 billion worth of withdrawals from First Republic Bank prompted a $30 billion bailout from other large banks, temporarily stabilizing the large retail bank. 

Yet the crisis continues to spread. The SVB collapse hit the massive Swiss bank Credit Suisse as it was already suffering from financial difficulties. The Swiss government attempted a $54 billion bailout, but it was too late, and the bank was pushed into a forced merger with rival Swiss bank UBS as it collapsed. Deutsche Bank, another massive international bank in Germany, has seen its stocks tumble over fears that it might be “the next Credit Suisse.”

Workers Forced to Pay for Capitalist Crisis

The ruling classes worldwide are putting massive amounts of money into bailing out the banks. The US government has guaranteed all deposits at SVB and Signature Bank, a bailout in all but name, and is considering the possibility of doing the same for many more banks. US banks have borrowed over $300 billion from the Federal Reserve over the last few weeks. 

Yet this is only buying time until further collapse. The Federal Reserve and other central banks around the world raised interest rates to “cool off the economy”—attempting to lower inflation by making it harder to get credit. This means many corporations must slow their chronic borrowing as loans become more expensive. Corporations will also spend less on expansion and cut jobs and wages, making workers pay the price for chasing ever-expanding profit rates. 

Attacking jobs, wages, and working people’s purchasing power, if done on a large enough scale, will most likely cause a recession. Sections of the capitalist class, including the decision-makers at the Federal Reserve, are enthusiastic about a recession if it lowers inflation and makes it “cheaper” to buy loans. With some sections of workers able to demand higher wages during and after the pandemic as labor in some sectors has been in shorter supply, these capitalists hope that a recession and the resulting unemployment will help drive wages back down.

Biden has claimed that the taxpayer will bear “no losses” from the banking collapse. While the bailout money comes from a fund maintained by the FDIC and not directly from taxpayers, the FDIC is using billions meant to protect working people from losing their deposits in a bank collapse to bail out corporations instead. Regardless, working people, aka “taxpayers,” will be hit with the consequences of SVB’s failure, facing layoffs and lower wages as the bankers at fault get off scot-free. Workers will pay for the collapse in lost jobs, savings, and homes!

By attempting to prevent a financial crisis while continuing to raise interest rates, the capitalist class is trying to “have their cake and eat it too.” Parts of the ruling class are pushing to hold off on raising interest rates, while others see a recession as the best possible scenario. 

Ultimately, neither solution can solve the global capitalist system’s overall crisis. The problems are fundamental to the “boom-and-bust” capitalist economy itself. Sacrificing workers and the environment to maximize profits is business as usual for capitalism. There are always billions for war and bailing out banks, but only pennies for working people’s wants and needs.


  • Bailouts for working people, not corporations! Compensate working people, small investors, workers’ organizations, and retirement/pension funds for losses. 
  • Immediate price controls on key goods, including food, fuel, and utilities. Open the books of companies and banks to union and community scrutiny. For democratically elected committees of representatives from unions and community groups to enforce price controls.
  • Rent, mortgage, and credit card debt freeze for working-class bank customers, including forgiveness of back payments. 
  • Unions and public sector employers should immediately withdraw pension funds and other money from financial gambling schemes.
  • No mass job cuts. Use the billions of bailout dollars to instead fully fund universal healthcare, public education, housing, and transit, forgive all student debt, and invest in a Socialist Green New Deal, including mass jobs and investment programs. 
  • Take lessons from the Occupy Wall Street movement and escalate to organizing a mass workers’ movement in the streets! Unions, socialist groups, and community organizations need to come together and build democratic decision-making bodies, mobilize their members, and organize mass protests.
  • Both the Democratic and Republican parties defend the capitalists and their profits. Working people, unions, and social movements need to build our own party that can fight for good living standards, overturn anti-union laws, and build a mass workers’ movement capable of seriously challenging the capitalists and their for-profit system. 
  • Take banks and big businesses into public ownership with compensation only for small investors based on proven need. Operate the banks and nationalized sectors democratically, run by committees of working-class people directly elected and subject to recall. Plan the economy for full employment for all, with good wages, benefits, and union rights.