In the years leading up to Silicon Valley Bank’s recent collapse, federal regulators granted the bank a special exemption from a key rule put in place to prevent banks from engaging in risky investments.
Run-ins with regulators, financial troubles, and a highly publicized penchant for dangerous risk was what Silicon Valley Bank was best known for in the decades before its collapse this year. So why was it allowed to grow so big, and so unregulated?
The spectacular collapse of Silicon Valley Bank was caused by corruption, financial recklessness, and poor decision-making. With its bailout echoing 2008’s eager bailouts for the rich, it begs the question: How much longer will Americans put up with this?
After Silicon Valley Bank’s near collapse, commentators rightly focused on the unfairness of state intervention for an institution that had acted irresponsibly. But little attention was paid to the role that banks like SVB play in financing US militarism.
The news of Silicon Valley Bank’s recent collapse is dominating headlines. Just eight years ago, SVB’s president pushed legislators to exempt more midsize banks — including SVB — from regulations passed in the wake of the 2008 financial crisis.
Federal regulators bailed out Silicon Valley Bank after its historic collapse. But they offered no such rescue to the low-income communities to which the bank had pledged an $11 billion community benefits agreement.
In 2021, the Fed approved a merger application from Silicon Valley Bank with Boston Private Bank and Trust, believing that the newly enlarged institution presented no danger to the financial system. After SVB’s collapse, the Fed is changing its tune.
Silicon Valley Bank’s collapse was no aberration: hundreds of private banks in the US have failed since the Great Recession. For a more stable financial system that actually meets ordinary people’s needs, we need to expand public banking.
Five years before customers fled Silicon Valley Bank en masse, federal regulators acknowledged that the nature of the bank’s deposits made it especially susceptible to such bank runs — but did nothing to reduce the risk.
The capitalist system may be turbulent, inequitable, and antisocial. But there is no “iron law” of capital standing in the way of a program of economic planning for sake of the climate.
Since Silicon Valley Bank’s collapse, some commentators have been waking up to the need for a socialization of deposit-taking banking. They’re right — but the same logic leads to a more radical conclusion: a fully socialized capital market, with no private banks.
In the months before Silicon Valley Bank’s collapse, the bank’s lobbying groups fought a proposal requiring financial institutions to increase payments into the Deposit Insurance Fund that protects depositors from bank failures.
Republican representative Patrick McHenry is staunchly defending a bank deregulation law passed under Donald Trump just days before leading an inquiry into the collapse of Signature Bank — which is his top donor.
After bailing out Silicon Valley Bank, the federal government is considering the rescue of First Republic Bank. But just two months ago, First Republic pressured regulators not to adopt rules to minimize the risk of government bailouts for insolvent banks.
Martin Wolf, chief economics commentator for the Financial Times, recognizes that the neoliberal model he once celebrated is in deep crisis. But Wolf can’t get to the heart of the problems with contemporary capitalism or offer a meaningful solution for them.