Step Change for U.S. Banking Oversight
This rapid, decisive public intervention centers on the recent collapse of Silicon Valley Bank, which has become a major crisis in the United States alongside Signature Bank and Silvergate. The events have forced American economic authorities and regulators to confront notable gaps in how the banking system is supervised. In response, regulators are rethinking standards and regulations amid a heated political fight between Democrats and Republicans over who bears responsibility for the turbulence and how to prevent a repeat.
The Federal Reserve has opened an inquiry into its own audit practices related to Silicon Valley Bank and has signaled it will learn from the episode. Reports indicate the Fed is considering tougher capital and liquidity requirements for midsize institutions like the California bank, aiming to strengthen resilience across the sector.
There is also talk of expanding stress tests to banks with assets between 100 billion and 250 billion dollars. This would widen the field of institutions subjected to annual resilience checks, extending beyond the 2018 threshold that originally focused on those with assets above 250 billion and labeled as systemically important. Broadening the scope reduces the size of the excluded group when evaluating stability post crisis.
A Transformational Shift in Regulation
For the Fed, the situation marks a notable shift in the debate over the Dodd-Frank Wall Street Reform and Consumer Protection Act, a law enacted to tighten controls after the financial crisis. The act established stronger safeguards for banks with substantial assets and introduced mechanisms to curb risky operations and to ensure robust loss coverage for deposits.
Why SVB Collapsed and Could It Happen Elsewhere?
The question of responsibility has sparked considerable discourse. Jerome Powell, who became Fed chair in 2017 after confirmation hearings in the Senate, supported a loosening of some regulatory constraints during his early tenure. The policy direction led to debate about the balance between easing regulatory burdens and maintaining financial safeguards. The nonpartisan Congressional Budget Office has warned that some changes could raise the probability that a large firm with 100 to 250 billion dollars in assets could fail, a view shared by both supporters and critics from different political camps.
2018 Law and the Political Battle
Opinions diverge on whether the loosening of controls under the 2018 law contributed to the current turmoil. Some politicians argue that reductions in oversight played a role, while others contend that the broader financial landscape and risk exposures were the real drivers. The debate has drawn attention to the Fed’s internal governance, including oversight led by senior officials, and the impact of legislative choices on risk management across the system.
Lehman Parallel or Different Path?
Experts offer varied assessments about whether the SVB situation mirrors past crises like the Lehman Brothers collapse. Some observers, such as financial reform advocates, see only modest connections, while others point to vulnerabilities such as a large share of uninsured deposits and geographic or sector concentration that can pose heightened risk in stressful periods. The SVB case is frequently cited for illustrating how deposit structures and regional focus can influence stability during rapid shifts in interest rates and liquidity.
The political debate continues to frame the crisis. Some Republicans emphasize alternative explanations tied to policy shifts or broader macroeconomic trends, while Democrats emphasize the importance of robust safeguards and ongoing reform to prevent future crises. The division across Congress makes it difficult to reach a unified response, even as the industry and the public seek clarity about what went wrong and how to fix it.