Regulators did the right thing stepping in

As a former federal bank examiner, graduate of the Assistant Bank Examiner School in Washington, D.C., and trust officer, as well as a retired attorney and CPA, I think I can respond with some knowledge on this issue.

First, let me state that with respect to our banking system, to quote Franklin D. Roosevelt, “You have nothing to fear but fear itself.” It is stable and diverse in its risk taking. Second, although we don’t have all the facts, it appears from at least two of the banks that their problems were unique to them. SVB had concentrated risks in technology and bio-science. That required enhanced capital protection, which appears it did not have.

It then compounded the problem with concentrating its investments in long-term government bonds. So when the Fed started to raise rates to combat inflation, the value of the bonds rapidly decreased. The banking authorities did not address the problems quickly enough.

With respect to Signature, its “risks” were not concentrated in its loans, but its depositors — very wealthy individuals who had their funds in the bank itself instead of some sort of a trust department relationship which could better protect the funds. So when things went south, it simply did not have the resources to save the institution.

So, you ask, why step in and save these banks? That’s what capitalism is all about — risking your capital. The answer is that when the contagion of a bank run happens, you can’t stop is once it spreads — short of an FDR bank holiday.

So government officials made the right call here: They nipped it in the bud before it got out of control.

There are changes that can be made that are beyond the scope of this response. But I say to all of you who are reading this: Relax and take a deep breadth. Your funds are secure. We are not turning into a socialistic state. And, as always, life will go on as it always has.