'Throughout the Trump presidency, his appointees eviscerated banking regulation. The collapse of Silicon Valley Bank was the predictable result.' Column by hiltzikm:
Demands by the tech industry’s most vocal libertarians for a government bailout of Silicon Valley call to mind the old saw: The goal in business to privatize profits and socialize losses., were issues that “have the potential to pose significant risk to the safety and soundness” of the bank, could cause “significant consumer harm,” were repeat complaints, or that deviated from the law. MRA notices involved problems that needed correcting, but only over time.
Powell’s rule change cut boards out of the loop. This had a subtle but important effect, for it eliminated the only internal layer of oversight of management activities. Just as important, it eliminated a crucial avenue of contact between supervisors and boards. Just as a reminder: SVB’s fundamental problem was that it had a huge number of skittish depositors, most of whose money was uninsured by the FDIC and could be withdrawn on demand, and had invested those deposits in treasuries and bonds that were generally safe, but wouldn’t mature in less than 10 years. After a series of interest rate hikes, the bonds were showing immense losses on paper.
Another initiative by the Fed, FDIC, OCC and other federal regulators also cut the legs out from under the supervisors. This was a joint notice stating that “supervisory guidance” — the process used by examiners to force banks to rein in risky activities — couldn’t be used unless they could identify a specific law or regulation that the activities violated.
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