SVB failure means tighter bank regulation is needed: Nobel-winning economist
The run on Silicon Valley Bank — on which nearly half of all venture-backed tech start-ups in the United States depend — is in part a rerun of a familiar story, but it’s more than that. Once again, economic policy and financial regulation has proven inadequate.
The worst pain would be reserved for members of marginalized and vulnerable groups, like young nonwhite males. Their unemployment rate is typically four times the national average, so an increase from 3.6% to 5% translates into an increase from something like 15% to 20% for them. Powell blithely calls for such unemployment increases with nary an appeal for assistance, or even a mention of the long-term costs.
New technology also makes the old $250,000 limit on federal deposit insurance absurd: some firms engage in regulatory arbitrage by scattering funds over a large number of banks. It’s insane to reward them at the expense of those who trusted regulators to do their job.
Do the right thing After an anguishing weekend for those potentially affected throughout the country, the government finally did the right thing — it guaranteed that all depositors would be made whole, preventing a bank run that could have disrupted the economy. At the same time, the events made clear that something is wrong with the system.
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