The Collapse of Silicon Valley Bank: Unchecked Financial System and Regulatory Failure
The collapse of Silicon Valley Bank (SVB) in March of 2023, is a reminder of the dangers of a financial system gone unchecked. SVB’s assets had quadrupled in five years and a large portion of its deposits were uninsured above the $250,000 FDIC limit. This, combined with the banks' concentrated investment in one sector of the economy, were clear warning signs that went unheeded. Regulatory failure, both at the federal and state levels, was a major contributing factor to the collapse.
The Trump administration’s penchant for installing regulators who are opposed to regulation, combined with the already existing architecture of banking and securities regulation, made it easy for banks and financial institutions to shop for the least restrictive regulations. The OTS (Office of Thrift Supervision) was the only one of the four main regulatory agencies that was ultimately shut down, while the others remained.
The roots of regulatory failure, however, run deeper than the Trump administration’s actions. There is a learned governmental helplessness when it comes to regulation, with an ingrained fear of stepping in and making demands. President Joe Biden’s appointees have begun to take steps to make the economy safer and more equitable, but more needs to be done.
To prevent future crises, banks should be required to raise capital and increase rates on savings accounts, so that customers are not tempted to flee. Regulators must also be more candid about their worries and concerns, and be willing to step in and exercise their powers when necessary. Only then can we ensure that our money is safe.
0. “Silicon Valley Bank: Here’s a timeline of the bank’s failure” TechCrunch, 16 Mar. 2023, https://techcrunch.com/2023/03/16/svb-crash-timeline-what-happened
1. “So Where Were SVB’s Regulators?” The Atlantic, 17 Mar. 2023, https://www.theatlantic.com/ideas/archive/2023/03/silicon-valley-signature-bank-collapse-regulator-culture/673423/
2. “What Silicon Valley Bank Collapse Reveals About Regulation” ProPublica, 17 Mar. 2023, https://www.propublica.org/article/silicon-valley-bank-failure-fdic-fed-failure
3. “Banking crisis? How worried should I be?” BBC, 18 Mar. 2023, https://www.bbc.com/news/business-64951630