Below is the introduction to the report. Read the full report here.
Two years ago, Silicon Valley Bank (“SVB”), Signature Bank (“Signature”), and First Republic Bank (“FRB”) failed, caused a banking crisis, and got bailed out by taxpayers. These were three of the four largest bank failures in U.S. history and directly cost Americans more than $40 billion in bailouts, but really cost much more due to insuring uninsured deposits, contagion, credit contraction, and as much as 1% lost GDP. This resulted from, first and foremost, dangerously bad banking practices, egregious conduct, and failures of the banks’ executives and directors, as well as from multiple shocking failures by regulators, supervisors, and policymakers. Unfortunately, few of those causes have been meaningfully addressed.
As a result, our financial system, economy, and the American people remain vulnerable to bank failures, contagion, and potentially catastrophic crashes. Policymakers need to act now with as much urgency to prevent the next crisis as they do when bailing out banks when a crisis hits. Regulators bailed out the banks in 2023 with tens of billions of dollars in a matter of hours, but now—two years later—only a few, grossly inadequate changes have been made to specifically address the causes of the 2023 crisis. Meanwhile, the banking regulators and policymakers have ignored or failed to make even obviously necessary changes that would actually make the financial system safer and more resilient before the next crisis hits, such as:
- Improve and Strengthen Regulatory Capital Rules,
- Increase and Enhance Planning to Prevent Bank Failures and Bailouts,
- Adopt Improved and Enforceable Accountability and Risk Management Guidelines,
- Hold Bank Executives Accountable,
- Increase the Speed, Impact, and Visibility of Enforcement Actions, and
- Increase the Power of Supervisory
What happened to spark the 2023 crisis, why it happened, and what to do about it are not mysteries (as detailed here and discussed below). Those risks and causes were long-standing, well-known, and ever-present which is why bank regulation, supervision, and regulators exist: because of the pressure to generate profits, the outsized compensation incentives to take risks, and the consequences of bank failures, independent and expert regulators are supposed to protect the public interest by making sure that bank boards as well as executives and staff follow the law and properly oversee and manage, respectively, the bank and the risks they are taking.
During the first Trump administration, banking regulation and supervision were severely weakened. Regulation and supervision are meant to work in tandem to protect Main Street and American families from the dangerous activities of big banks and the inevitability of bank executives irresponsibly increasing risk which can lead to higher often short-term profits and large bonuses, while significantly increasing the risk of problems at a bank and potentially of a needed taxpayer bailout. However, between 2016 and 2020, dozens of deregulatory rulemakings were implemented, as detailed in Appendixes 1 and 2 in this document. These actions made the entire banking system even more vulnerable to bankers’ greed and recklessness. That laid the groundwork for the 2023 bank failures. Those failures should have been a warning, especially to regulators, of the vulnerabilities that exist in the banking industry and should be used as a roadmap for the urgent changes that are required to make the banking system safer. Unfortunately, however, very few changes were actually made. Moreover, the deregulatory actions that have already begun under the current Trump administration, and the expectations for additional actions will only benefit Wall Street and further endanger Main Street.
This report reviews the causes of the 2023 crisis, identifies what has been done to address them, and details what still needs to be done to properly protect Main Street families, the banking and financial systems, and the economy.
Read the full report here.
