What Are the Policy Implications of SVB’s Collapse?March 16, 2023
Last Friday, financial regulators took over Silicon Valley Bank after a liquidity shortfall shuttered the firm and rocked the banking industry. Fears over widespread loss-of-confidence have provoked concerns that SVB’s collapse poses a “contagion” risk for similarly situated mid-sized banks. Were SVB’s problems due to a lack of regulatory oversight? Should we treat this as a simple market correction? As regulators, policy experts, and industry professionals look for answers, here is how some free market voices have analyzed the recent events:
- MI senior fellow Nicole Gelinas blames SVB's failure on 15 years of easy money.
- Professor Charles Calomiris, of Columbia Business School and the University of Austin, argues that FDIC deposit insurance has disincentivized market discipline and increased the likelihood of future crises by encouraging riskier depositing strategies.
- MI senior fellow Allison Schrager writes in City Journal about the importance of rising interest rates to SVB’s collapse, connecting it to why Silicon Valley may be declining as the engine of global innovation.
- Citadel CEO Ken Griffin criticized the government’s decision to make all SVB depositors whole: “The US is supposed to be a capitalist economy, and that’s breaking down before our eyes.”
- David Sacks, founder of Craft Ventures, and Vivek Ramaswamy, GOP candidate for president and founder of Strive Capital, debated the merits of bailing out the SVB depositors on The Megyn Kelly Show earlier this week.
- Joakim Book at Reason argues that the Federal Reserve’s aggressive measures to control inflation under pressure from Congress helped create the conditions that led to SVB’s eventual collapse.
- While some are pushing for more oversight, CATO Institute scholars Norbert Michel and Nicholas Anthony point out that current regulation already covers banks like SVB and that more rulemaking will not, and cannot, guarantee financial safety.
- Former CKE Restaurants CEO Andy Puzder argued that SVB was distracted from its core banking mission by pushing DEI and ESG initiatives and warned firms against moving away from “merit-based hiring.”