The United States saw its largest bank failure since the 2008 financial crisis on March 10, following the collapse of Silicon Valley Bank. With this being such a significant bank failure, it has appeared to be largely contained. The Federal Deposit Insurance Corporation (FDIC) stepped in swiftly to take over the banks’ balance sheet, and NPR notes how regulators decided to guarantee all deposits at the bank, in addition to Signature Bank who subsequently failed. How was this collapse contained, was regulation adequate, and who should be held accountable? 

This collapse brings about an important point about the necessity for and efficiency of banking regulation for both big and small banks. Big banks remained largely untouched by this failure due to the stricter restrictions that they have compared to smaller banks. New York Times particularly notes on the diversification of assets that bigger banks have that Silicon Valley Bank lacked. Silicon Valley Bank primarily works with tech start-ups. Containing itself to one industry where start-ups can be very risky has positioned itself in an already unstable environment. Thus, it becomes clearer why they were more drastically impacted by rising interest rates. 

This failure might bring about more strict regulation for regional banks. It is important for regulators to consider how the types of assets institutions involve themselves with, will open them up to more or less risk as interest rates rise. Diversification is as significant for smaller banks as it is for larger ones, and I hope this failure forces regulators to consider this. 

While I agree that this crisis has been contained rather quickly before creating widespread panic, it still is important to consider how things could have gone more smoothly. Following the 2008 crisis, the United States implemented regulations through the Dodd-Frank Act that worked to measure and mitigate systemic risk, increasing capital requirements, in addition to creating more accountability for banks and more transparency in their transactions with other economic agents. The New York Times notes how regulation of regional banks had been loosened under the Trump administration and considers whether this failure would have occurred if Silicon Valley Bank was more strictly regulated. 

NPR also considers how the Federal Reserve could have prevented this collapse. They discuss Federal Reserve vice chairman Michael Barr’s claims that the Fed had been warning the bank since October 2021 about the risk they were taking on. As the bank’s failure has unfolded before us, it is obvious that warnings are not enough. When the Fed needs to step in to enforce action by banks is something they should consider going forward. It seems that while containment has appeared to be relatively strong, preventive measures by the Fed and policy needs to be stronger if we want to avoid failures like this entirely. 

In times of financial crisis, it is important that bank executives are held accountable for their decisions that have laid the foundation for collapse. The FDIC has acquired assets in order to make whole deposits up to $250,000 and First Citizens plans to buy the banks loans and deposits in order to make whole on even larger deposits. Even though regulators stepped in along with a potential buyout from another bank, Silicon Valley Bank executives should still face consequences if their decisions contributed to the threatening of its clients’ finances.

NPR notes “that executives at Silicon Valley Bank sold stock and received bonuses shortly before the bank’s collapse.” It is not just how businesses and livelihoods are put in jeopardy at the hands of bank executives who are unscathed and, in some cases, better off. Selling stock before its collapse is also an obvious sign that the bank knew its fate, and rather than targeting its energy towards borrowing funds to meet obligations, they focused on themselves. Regardless of the bonuses, there should be repercussions that hold banks accountable to ensure that other banks do not follow.