Ashwin Prabaharan ’26

Opinions Editor

Silicon Valley Bank, the 16th largest bank in the United States, failed on March 10th, 2023. The speedy collapse of the tech-startup banking center was the second-largest failure in American history. Over 3 days, SVB ceased all banking operations and was placed under the control of state and federal regulators from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury Department. SVB’s failure sent shockwaves throughout Wall Street, dramatically hitting the stock prices of market players across the spectrum, from corporate titans to newly minted start-up businesses. The deposits of SVB clients are now guaranteed by the federal government after Treasury Secretary Janet Yellen, FDIC Chairman Martin Gruenberg, and Reserve Chairman Jerome Powell reached an agreement to stem the impending fallout from affecting the overall health of the banking industry. 

SVB’s collapse came as very surprising and unexpected to the market, which has led many to express concern for even larger banks that may have underlying debt and losses that could spell failures on massive levels. SVB had its best-performing year in 2022 in terms of profitability, successfully bringing its market value to over $200 billion. However, the bank poured its profits into Treasury bonds, which many consider a safe and reliable investment. The Federal Reserve over the last several months hiked up interest rates, leading SVB to incur severe losses on those bonds coupled with declining consumer deposits. Prominent political figures including Massachusetts Senator Elizabeth Warren have called for federal investigations into the bank’s failure and management’s handling of the situation to uncover any wrongdoing or negligence on the part of senior executives. Analysts and consumers alike continue to grapple with the financial earthquake caused by SVB’s failure, and many are anxiously awaiting further bank failures or signs pointing to an impending recession. Inflation stands steadily at 6% as is, and the worsening health of the market suggests tides are not yet prepared to turn for the better. 

This situation, however, may ring familiar bells for Americans that experienced the brutal realities of the 2007-2008 Housing Crisis, a recession brought on by the bursting of the housing market bubble. Corruption, negligence, greed, and outright wrongdoing rest on the minds of Americans who suffered from the worst economic crisis in the United States since the Great Depression. Millions lost their homes, jobs, and livelihoods, and Washington underwent a complete 360 with the ascension of Democratic control of the federal government. Wall Street benefited from a major bailout financed by the taxpayer, billed at $700 billion to avoid a massive economic depression. However, true accountability failed to materialize. Executives took off with massive payouts, banks helped themselves out with the federal government effectively guaranteeing their livelihoods, and the Justice Department failed to committedly act on a single criminal referral it received. That cannot happen this time.

The Senate and House Banking Committees, charged with managing congressional oversight of the banking industry and its functions, must exercise their full powers to ensure that banking executives are held at fault for any negligence or mishandling of situations that spur negative financial effects for consumers. Bailouts must be readily dismissed as mechanisms to restore stability in the market unless those negligent officers are held accountable for their mistakes. President Biden and his administration have made this a clear point in their response, which as a fiscal conservative I admire. The American people are worn out, tired, and irate after having to watch corporations and banks be bailed out with their own money for actions completely within the control of those company executives. Banks are an essential part of the American and global economy, but that does not guarantee them a lifeline at any time they deem convenient or necessary. Taxpayers are not expendable to the whim of the government and the market, and ought to be treated as the last resort for any course of action.

Featured image courtesy of Governance Now