Who’s to Blame for America’s Latest Banking Crisis?
Regulators can’t eliminate failures. But they can do much more to protect the financial system and the economy.
Bank failures will happen. Panics don’t need to.
Photographer: Justin Sullivan/Getty Images
America’s first banking crisis in more than a decade has regulators facing a very public reckoning: To what extent are they to blame for a rash of failures that has shaken confidence in the financial system? And how can they make things right?
The recent turmoil has been a study in bank mismanagement. For most of 2022, Silicon Valley Bank (the first lender to run into trouble) had no chief risk officer. Other executives willfully ignored glaring vulnerabilities: An extreme reliance on flighty uninsured deposits, combined with investments in long-term government bonds that declined in value as interest rates rose, effectively guaranteed steep losses if the bank were forced to sell. Despite repeated warnings from regulators starting in 2021, the bank did nothing until it was too late.