☆ Opinion: Less gov’t interference key to preventing further bank collapses

Economist Mike ter Maat spoke to SCC Libt voters this past November about his privatized approach to solving local concerns. In this Opp Now exclusive, ter Maat unpacks why government regulation contributed to the Silicon Valley Bank failure, and where the private sector can step in from here.

As a financial economist working primarily in the banking industry from 1983 to 2010, I can tell you: The reason Silvergate Bank and Silicon Valley Bank failed is that government regulation made too many people feel safe depositing large sums without paying attention to the banks’ financial health. When that shallow confidence was undermined, depositors ran quickly.  We need to replace government regulation with a system in which private-sector analysts publish warnings on bank risks, capitalization, and portfolio concentration.

By the way: Government guarantees to keep uninsured depositors whole are a needless bailout that will pressure government officials toward further bailouts in the future. The worst part about bailouts is that they preclude the market from holding banks accountable, which is the only way to keep the system healthy in the long run.

Also, by the way: One big reason these banks were so concentrated in high-tech related assets is that bank regulators discouraged banks generally from getting involved in these areas. Had regulators not been involved, there wouldn't be such concentrations in such a small number of banks and the system would be safer on the whole.

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Image by Tony Webster