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A Senate panel explores the current crisis in the banking industry


A textbook case of mismanagement.


That is how a top government regulator describes the meltdown at Silicon Valley Bank this month. Now, today, a Senate panel explores what went wrong at the bank, also why warnings from government supervisors were ignored and how to prevent similar bank failures in the future.

MARTIN: NPR's Scott Horsley is with us now with a preview. Scott, thank you so much for being here.

SCOTT HORSLEY, BYLINE: Good morning, Michel.

MARTIN: So the Silicon Valley Bank collapse was the second-biggest bank failure in U.S. history. What do we know about what went wrong?

HORSLEY: It was a collision of some very old-fashioned banking mistakes with the fast-moving tech that Silicon Valley is famous for. The bank more than tripled in size in the last three years, and with that rapid growth, it didn't manage its risks very well. The bank invested a lot of money in government bonds that lost value when interest rates rose. Now, none of this came out of the blue. Government supervisors flagged problems at the bank in 2021 and again last year. In fact, when Federal Reserve officials were briefed last month about the hole that rising interest rates were putting in some bank balance sheets, Silicon Valley Bank was singled out as a poster child. Nevertheless, Fed Chairman Jerome Powell says the problems were not addressed until it was too late.


JEROME POWELL: The supervisory team was, apparently, very much engaged with the bank repeatedly and was escalating. But, you know, nonetheless, what happened happened.

HORSLEY: And what happened was a massive and surprisingly rapid run on the bank. Ninety percent of Silicon Valley's deposits were uninsured, and when customers got wind of the problems through text messages and social media, they pulled money out faster than anybody expected.

MARTIN: But, Scott, if government supervisors were aware of the problems, why weren't they fixed sooner?

HORSLEY: I'm sure there's going to be questions about that during today's hearing. The Fed itself is looking at how effective supervisors are and whether they have the tools they need. The Fed also says it's looking at its own culture to see if it's adequately supporting bank supervisors. Dennis Kelleher, who heads the watchdog group Better Markets, says for the last five years or so, the culture at the Fed has leaned towards deregulation and a light touch on bank oversight.

DENNIS KELLEHER: In fact, The Wall Street Journal had a big headline in 2018 that said "Banks To Get Kinder, Gentler Treatment Under Trump Regulators" (ph), and the entire story was about how the Fed people in Washington were beating up on the supervisors to go easy on the bankers.

HORSLEY: Now, it may be that some stronger legislation comes out of this mess, but that's a pretty tall order in a divided Congress. What's more likely are some new rules and maybe some more aggressive bank oversight.

MARTIN: So there's certainly going to be a call to do something because remind us just of how costly this was, right?

HORSLEY: Right. The FDIC estimates that backstopping all the deposits at Silicon Valley Bank is going to cost the government's insurance fund $20 billion. Now, that's not coming from taxpayers, but it will come from an assessment on other banks. And there's likely to be debate about how much deposit insurance should be available. Deposits are typically only insured up to $250,000, but Silicon Valley's top 10 customers had a combined $13 billion in the bank. Most customers at main-street banks don't have anything like that. And Anne Balcer, who's with the Independent Community Bankers, say they don't want to shoulder the cost of insuring bigger, riskier banks. Now, the FDIC does have some discretion in how the insurance bill is divvied up, and it's expected to make some recommendations in about a month.

MARTIN: That is NPR's Scott Horsley. Scott, thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Michel Martin is the weekend host of All Things Considered, where she draws on her deep reporting and interviewing experience to dig in to the week's news. Outside the studio, she has also hosted "Michel Martin: Going There," an ambitious live event series in collaboration with Member Stations.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.