Although President Biden didn't say it in this morning's statement, I will: Blame Trump. And the Fed's higher interest rates.
Remember, after the 2008 crash, banks holding certain amounts of money in deposits were subject to "stress tests" by federal regulators. What does that mean? It was designed to ensure those banks were liquid enough to provide depositors their money, should the amount of withdrawals increase above a typical amount.
Guess who did away with the stress tests? President Hotel Concierge, who saw his job as simply handing his donors whatever they asked for, without regard to the long term risks.
Forbes columnist Mayra Rodriguez Valladares explains here:
Anyone who doubted how detrimental Trump administration policies would be should analyze the damage unfolding for those trampled by Silicon Valley Bank’s collapse. On May 24, 2018, Trump signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Reform Act”). This was a regulatory relief bill for regional and community [banks] bill, which bank lobbyists and numerous politicians had fought hard for.
The argument at the time was that many of the provisions in the Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) were ‘one size fits all.’ Despite any proof, those lobbying for the EGRRCPA argued that capital, liquidity, and stress requirements for regional and community banks would be detrimental to the economy. In a number of Forbes columns, I argued that the weakening of bank regulations under Trump would be the seeds for the next financial crisis.
Do tell. Is there more?
Just by EGRRCPA changing the asset size, banks like Silicon Valley Bank were no longer designated as systemically important. Only those $250 billion or larger would now receive the systemically important designation. EGRRCPA supporters ignored the fact that while a failing or failed bank may not destabilize the entire national banking system, it sure can destabilize a region. Just ask California how things are going now with the SVBVB -3% management-caused chaos.
Short version: SVB had too much money in non-liquid assets to cover a bank run. Oops! Why did they have too much money tied up in bonds? Fed rate hikes.
Hopefully, the silver lining is that Jerome Powell is going to be too spooked to keep raising the interest rates.
