Easing all those cumbersome bank regulations was the idea, right? Stress-testing, living wills, etc. 10 years after the last financial crisis, I guess it seemed like banks weren’t really a concern anymore. At least the smaller, regional ones weren’t.
Remember this? And 33 House Democrats supported the rollback, as well as 17 Democrats in the Senate.
I’m certainly not in a position to draw a straight line between this easing of regulations and the SVB failure. The issue is complicated. Undercapitalization leads to asset withdrawals, which make the situation worse. End the end, it was a failure of confidence, complicated by rising rates that put stress on those competing for capital.
Banking regulations are there to give confidence to investors and depositors by providing some measure of protection for their assets. Even if it would not have helped in this specific situation, strong regulation builds confidence in the system. Having a more stable system is a good thing. Regulations promote a more conservative approach.
There was concern that the regulations were expensive for the banks they covered. But if all banks are covered, that really isn’t a competitive problem, is it? I’m sure a lot of us would take a slightly lower interest rate in exchange for knowing that the bank is stable.
And now we see calls to have government intervene and cover deposits above the FDIC limit. I’m guessing that a lot of those calls are coming from the same crowd that pushed to reduce the regulations to begin with. Privatize the profits, socialize the losses.
Sale of the SVB assets may ultimately cover most of the funds on deposit. But if it doesn’t, I’d rather see the investment go into restoring regulations that promote system stability rather than buyouts after a bank failure. Just my opinion. This is a learning opportunity.
Cheers.