The Washington Post

If banks want to be rescued, they should accept regulation


Question: What is a socialist? Answer: A libertaria­n tech bro who had money in Silicon Valley Bank. There is nothing funny about the second-biggest bank failure in the nation’s history, which has roiled financial markets at a time when the economy is already unsettled. It is richly ironic, though, to hear luminaries of the tech sector, after years of complainin­g that “big government” was the problem, suddenly clamoring for massive federal interventi­on and largesse.

I’m talking about people such as David Sacks, an entreprene­ur and venture capitalist who is a member of the so-called Paypal mafia, a group of founders and early employees that includes bombastic anti-government billionair­es Elon Musk and Peter Thiel. On Twitter, Sacks has railed against “profligate spending and money printing coming out of Washington” and the evils of what he calls “Bidenomics.”

But on Friday, Sacks was franticall­y calling for big government to come to the rescue of Silicon Valley Bank. He tweeted: “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.”

And I’m talking about people like another Musk confidant, investor Jason Calacanis, who was tweeting along the same lines on Saturday, but in all caps: “YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW – THAT IS THE PROPER REACTION TO A BANK RUN & CONTAGION. @POTUS & @Secyellen MUST GET ON TV TOMORROW AND GUARANTEE ALL DEPOSITS UP TO $10M OR THIS WILL SPIRAL INTO CHAOS.”

Shorter version: I want my biggovernm­ent rescue, and I want it now.

Federal Reserve Chair Jerome H. Powell and Treasury Secretary Janet L. Yellen acted decisively on Sunday, assuring the failed bank’s depositors that they would have immediate access to all of their funds, not just the $250,000 guaranteed by the Federal Deposit Insurance Corporatio­n.

It was the right move and with a suite of other measures has been successful — so far — in preventing what could have been a catastroph­ic run on regional banks. But these steps could only have been taken by a great big government with enormous resources and the willingnes­s to use them for the common good. It turns out that “profligate spending and money printing” aren’t always such bad things after all.

And neither is prudent, effective government regulation. In 2010, following the financial crisis and the Great Recession, President Barack Obama signed into law the DoddFrank Act establishi­ng a comprehens­ive set of new rules for how banks could operate and how they would be scrutinize­d. In 2015, Greg Becker, the chief executive of SVB — which he was until last Friday, when the bank collapsed and he was fired — joined lobbyists asking Congress to weaken mandated safeguards for “mid-sized” banks such as his. Congress complied by passing a deregulati­on law signed by President Donald Trump in 2018.

In a letter to Becker this week, Sen. Elizabeth Warren (D-mass.) wrote that if the original Dodd-frank rules had still been in place, the SVB crisis might not have happened. The bank “would have been required to maintain stronger liquidity and capital requiremen­ts and conduct regular stress tests that would have required SVB to shore up its business,” Warren wrote.

Becker had years earlier told Congress that SVB should be relieved from having to undergo annual stresstest­ing by federal regulators because the bank had hired “highly skilled risk profession­als” to detect any signs of trouble on the balance sheet. But for eight months before to the bank’s collapse, according to Warren, SVB did not even have a chief risk officer. Whatever kind of risk analysis the bank might have performed, it was obviously inadequate.

Dodd-frank mandated the strictest scrutiny, including annual stress tests, for banks with assets of more than $50 billion. The 2018 deregulati­on act raised that threshold to $250 billion — meaning that SVB, which had assets of roughly $200 billion at its collapse, was exempt.

In hindsight, from Becker’s point of view, which would have been better for SVB: Bearing the extra expense and hassle of a yearly risk exercise by federal examiners, who might have seen the problem with the bank’s long-term bond holdings before it became an acute crisis? Or speeding blindly toward the cliff until it was too late to stop?

These are rhetorical questions. Congress should quickly restore the more stringent Dodd-frank oversight regime, which would give our financial system a better chance of recognizin­g the next hidden financial land mine before it explodes.

The moral of this story is that when individual­s are being menaced and buffeted by forces beyond their control, it is the duty of government to step in and help. Which is what progressiv­es have been saying all along.

Steps taken to reassure depositors could only have been taken by a great big government with enormous resources and the willingnes­s to use them for the common good.

 ?? Benjamin Fanjoy/ap ?? Security guards let people enter Silicon Valley Bank’s headquarte­rs in Santa Clara, Calif., on Monday.
Benjamin Fanjoy/ap Security guards let people enter Silicon Valley Bank’s headquarte­rs in Santa Clara, Calif., on Monday.

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