Business Standard

Year after SVB crisis, struggle over what needs to change

- ROB COPELAND ©2024 The New York Timesnews Service

A year ago, the government and America’s largest banks joined forces in a rare moment of comity. They were forced into action after Silicon Valley Bank collapsed on March 10, 2023, quickly followed by two other lenders, First Republic and Signature Bank. Faced with the threat of a billowing crisis that could threaten the banking industry — the worst one since 2008 — rivals and regulators put together a huge bailout fund. Eventually all three ailing banks were declared insolvent by the government and sold off.

The biggest banks emerged from the period even larger, after picking up accounts from their smaller rivals. But they have also grown more confident in challengin­g regulators on what went wrong and what to do to prevent future crises. Indeed, many bankers and their lobbyists now rush to describe the period as a regional banking crisis.

One reason for the increased tensions is that government officials are proposing rule changes that lenders argue will crimp their businesses, and would not have done much to stem Silicon Valley Bank’s collapse. Regulators point to the increasing risks in the commercial and residentia­l real estate markets and the growing number of so-called problem banks, or those rated poorly for financial, operationa­l or managerial weaknesses.

In just a few days last March, Silicon Valley Bank went from a darling of the banking world to collapse.

The lender, which catered to venture capital clients and start-ups, had loaded up on what was assumed to be safe investment­s like Treasury bonds and mortgages that were turning sour in an era of higher interest rates.

Soon after, two other lenders — First Republic, and the cryptocurr­ency-focused Signature Bank — also shut down, felled by bank runs of their own. Together, those three banks were larger than the 25 that failed during the 2008 financial crisis. Per standard procedure, government officials auctioned off the failed banks, with losses covered by a fund that all banks pay into. Silicon Valley Bank was purchased by First Citizens Bank.

Many of Signature’s assets went to New York Community Bank , and First Republic was absorbed by Jpmorgan Chase, the largest bank in the country.

No depositors lost money, even those with accounts that would not ordinarily have qualified for federal insurance. Many banking overseers at least partly blame the industry itself for lobbying for weaker rules in the years before 2023.

Regulators say they are now paying closer attention to midsize banks, recognizin­g that problems can quickly spread between banks with diverse geographic footprints and customer bases in an era when depositors can drain their accounts with the click of a button on a website or app.

Regulators plan a variety of measures to clamp down on banks. One part of that is an internatio­nal accord called “Basel III” that will require large banks to hold more capital to offset risks posed by loans and other obligation­s. Last week the Fed chair, Jerome H Powell, signaled that regulators could scale back or rework that initiative.

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