By Miriam Raftery
Photo: CC by NC-ND
March 13, 2023 (La Mesa) – Two failed banks have been taken over by federal regulators. The Federal Deposit Insurance Corporation (FDIC) has taken control Silicon Valley Bank on Friday and Signature Bank on Monday. That’s sent ripples of concern through the financial community, also prompting La Mesa’s Treasurer to assure residents that at least 99% of the city’s assets are safe.
How did the bank failures happen?
The failures are tied to the Trump administration’s rollback of Dodd-Frank banking regulations, an action that eased restrictions on banks with under $250 billion in assets. That measure passed Congress in 2018 with overwhelming Republican support, though a few Democrats also backed the regulatory rollbacks. Both failed banks had under $250 billion in assets and would have been subject to stress tests and other regulatory scrutiny before the rollback of regulations.
Silicon Valley Bank got in trouble when many of its tech industry and business start-up customers needed money and made large withdrawals. So SVB had to start selling assets, mainly bonds, at a loss to free up funds for those withdrawals until its losses became too high, fueling a bank run by customers fearful of losing their money. That prompted the FDIC to take action. Like SVB, Signature Bank had over 90% of its deposits that were unisured, over the federally insured amount. Now, the federal government is stepping in to help restore funds for investors -- but will not bail out the banks, leaving shareholders and holders of unsecured corporate bonds to absorb the losses.