How about some more federal laws to fix banking?

By Dann E. Kroeger

What? We don't have enough banking laws on the books already?

If management of a bank have found a sweet way to grow and increase profits, they, or succeeding management, just might become complacent (or continue the game for their benefit) and not watch their portfolio all that closely. It happens. So where is Uncle Sam? Does not the federal government have some fiduciary responsibility here? SVC seems to be a recurring theme, going back to 1929 and before.

In 1933, the Banking Act (Glass-Steagall) was made law. To help protect depositors, the Federal Deposit Insurance Corporation (FDIC) was created. It allowed the government to back depositor accounts up to a specified amount (currently $250,000). It is one of three government agencies charged with the responsibility to monitor bank capital, asset quality, management, earnings, liquidity, sensitivity to market risk, information technology, compliance, and community reinvestment. The other two agencies are the Office of the Comptroller of the Currency (OCC) and the Federal Reserve System (Fed). Wow — can government agencies actually perform all of these tasks?

Since 1933 and up to and including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress has passed 45 banking regulation bills into law. That's an average of one new bill into law every two years. Who can keep track?

SVC's bank management were and are most at fault. Those quickly pulling major funds out of SVC are probably next in line for being the bad guy. Since runs on banks are so very dangerous, however, those responsible for overseeing the bank's behavior must also be held accountable.

This is where things get really messy. Who are the real persons (agents) responsible for looking at SVB's balance sheet? How did they perform their tasks? How often? What banking background did they have? Didn't they know that SVB didn't have a CRO (Chief Risk Officer) for the last eight months of 2022? Wouldn't this person be a regular contact for them? Didn't they see that 97% of all SVB accounts exceeded $250,000 in deposits as not normal? Didn't they know that SVB had payrolls exceeding their normal reserves? How could they miss all the red flags?

Instead of looking at its own failure to act, Uncle Sam will try to buy its way out with taxpayer or fiat money...and maybe try to add a few new laws to settle the matter.