Are Our Banks Secure?

In light of the Silicon Valley Bank collapse, many people are wondering how stable the American banking system is. Should we worry? When Silicon Valley Bank (SVB) collapsed, it was part of three US Bank failures. The other two banks to fail were Silvergate Bank and Signature Bank. SVB and Signature Bank’s collapses represented the second and third biggest bank collapses in American history, respectively.

These bank collapses spooked the markets and people in general. Some wondered if this was an ominous sign for the coming year. It was concerning that a slight increase in interest rates was all it took to cause a bank run and the collapse of SVB. Are the structures of America’s banking system fundamentally unsound? Raising interest rates is often a remedy for high inflation. Considering the high inflation America has, isn’t it concerning that raising interest rates slightly could lead to such a big bank collapse?

Beyond these questions was the anger that many people felt about saving the banks in question. Many say that doing so provides no incentive for caution with people’s money. If banks know they will be bailed out, they have less incentive to pursue prudence. Many were understandably frustrated at big money banks being bailed out while the ordinary person is not. Are the incentive structures and protections inverted?

The American banking system has seemed to stabilize since the initial shock of SVB. But momentary stabilization doesn’t indicate that all is well. It would be wise for the powers that be to keep a close eye on the actions of the banks. It was heartening to see so many people come out against simple bail outs for any bank that goes bust. This led to the depositors being bailed out, not management or stockholders. Hopefully this pattern stays consistent if and when another major bank flops.

People who are more comfortable naturally lack the sense of urgency that people less comfortable have. This needs to be fixed, so that potential problems are addressed before they become actual problems. For the sake of the common person, urgency needs to happen right now. America is also the financial and economic hub of the world, even accounting for China’s rise. If there is a major bank collapse in America, the entire world will be negatively effected.

We have had our scare, our wake up call. Let’s use this wake up call to preemptively do something now. Proactive, not reactive, work, is the best work to do. Time to get on it and make sure America’s banking system is secure.