We need to be able to trust the system

I am far from an expert on the banking industry, but from what I have learned, the reason for the failure of Silicon Valley Bank (SVB) appears to be gross incompetence on the part of the bank’s management. Also culpable are the regulators charged with oversight of the financial health of the bank who were asleep at the switch.

Specifically, SVB did not hedge its investments against the possibility of an interest rate increase and got caught short. Really? Interest rates might go up? Duh! This is Banking 101!

The banks’ incompetence was hiding in plain sight. Their careless actions were published in their financial disclosure months earlier. Regulators should have caught this before the meltdown. Regulators need to be much better at alerting us to unsound practices to avert future disasters.

Unlike other industries, the banking industry only works if there is trust in the system. When trust is jeopardized, fear spreads like a contagion to the entire system. For this reason, government “rescues” of banks are sometimes needed to keep the whole system from failing. Tough medicine, but allowing the system to fail would be much worse.

Bailouts like the 2009 auto industry bailout are in a different category and less supportable. For decades, GM and Chrysler had been ignoring consumer preferences, let quality slip and lost market share to smarter competitors. Letting them fail would have been very painful to the economy and cause terrible hardships for their workers, but not as critical to the overall economic infrastructure as failures in the banking industry.

I place the blame on the SVB issue at the feet of the regulators. The Fed has been raising interest rates at a historical rate, hardly a secret. The criminally stupid decisions

on the part of the bank’s management should have been caught immediately by regulators had they simply read the bank’s public records.

Regulators failed us. SVB officials violated their fiduciary responsibilities and should be prosecuted.

Bill Loeber, Del Cerro