A year on from the US regional banking crisis, what’s changed?

It was almost exactly one year ago when Silvergate Bank — a small bank located in La Jolla, California, known for working with various cryptocurrency companies, including FTX — let regulators, investors, and customers know that after a run on deposits over the course of several months, it would be throwing in the towel and shutting down.

The closure represented a drastic downturn in fortunes for Silvergate, which had become the preeminent bank for crypto companies and had grown significantly since its founding in 1988. Briefly, the bank’s shares valued the company at about $7 billion — today, pink sheet shares value Silvergate at $10 million.

But Silvergate was only the beginning of the regional banking crisis and it actually turned out to be the easiest and simplest to clean up. As is becoming more and more clear by the day, the regional banking crisis of 2023 didn’t end when the calendar year turned over.

Read more: Crypto banking giant Silvergate is no more following NYSE delisting

The real crisis begins

On the same day that Silvergate announced its voluntary closure, another California bank, Silicon Valley Bank, made some dire announcements about selling off distressed assets, taking out loans, and the emergency sale of stock. This, inevitably, led to a bank run, and days later, a collapse.

But this collapse came with threats and warnings from venture capitalists and tech companies that had kept far more than the insurable $250,000 in their accounts. They suggested that if these deposits weren’t essentially insured by the Federal Depositors Insurance Corporation (FDIC), there would be a knock-on effect for regional banks across the country.

While the FDIC did decide to insure all depositors’ accounts up to any number at Silicon Valley Bank, it didn’t stop the VCs and companies from fleeing the bank in droves — and, in fact, despite the FDIC agreeing to bailout all the depositors, many other regional banks began to instantly feel the pinch.

Only days after the rescue of Silicon Valley Bank, Signature Bank in New York — another crypto-friendly bank — faced any bank’s worst nightmare, namely, a run on customer deposits in the wake of the turmoil. Similar to the promises made with depositors from Silicon Valley Bank, the FDIC promised that everyone would be made whole, regardless of the $250,000 limits on insurance.

California remained the epicenter for the crisis, with First Republic and PacWest Bancorp failing and being acquired, respectively, by mid-2023.

And then everything… just went on.

Read more: The show goes on: How Signature Bank’s bailout saved Broadway

Trauma without wisdom

So a year on from the crisis, the question remains: “What has been learned and how has the system changed?” The not-too-shocking answer is that, collectively, the American public, investors, and businesses have learned nothing and the system has refused to change.

A moment that could’ve been seized by banking critics and optimists alike was instead squandered. It was used as an opportunity to whinge about poor banking business practices and Federal Reserve rate hikes, instead of addressing depositor insurance policies and poorly thought-out hedging decisions.

A very real, very troubling crisis wasn’t truly averted — it was left to linger and fester, like a wrapped wound without antibiotics — and today we’re paying the price.

Only yesterday, New York Community Bancorp, one of the banks to purchase assets from the now-defunct Signature, was given a billion dollars to keep operations going. This private bailout comes after the stock plummeted 75% from recent highs.

In essence, what’s been learned yet again by the public, banks, and politicians is that fixing a leaky roof is unnecessary until a roof completely falls in on itself — that worthwhile practices and obvious changes don’t need to be instituted, even after times of crisis. It is unfortunate that regulators and politicians couldn’t see the forest for the trees and that even as another regional bank reached the teetering edge of failure the issues continue to go unaddressed.

Perhaps, when the pain is a little worse, when more depositors are hurt, and the FDIC can’t continue useless policies like $250,000 caps for insured accounts, action will be taken to stop wasteful and stupid banking and finance policies. But until then it’s business as usual.

See you at the next bank run.

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