There is one real culprit behind the collapse of Silicon Valley Bank and Signature Bank, writes Zachary Karabell
Inside Money: Brown Brothers Harriman and the American Way of Poweror the past year, the Federal Reserve has raised short-term interest rates at the fastest pace since the early 1980s in an attempt to curb the hottest inflation since the early 1980s. But in its zeal to tame inflation, the Fed has been seemingly indifferent to all the ways that sudden sharp shifts in the economic wind can have unintended and potentially severe side effects.
, the stock plummeted and federal and state regulators stepped in and took over. Two days after that, regulators seized New York-based Signature Bank, which had over $100 billion in deposits. The collapse of the two banks created an immediate panic in financial markets, with shares of a nearly a dozen regional banks plunging on fears that customers would flee to the safer havens of the large money center banks such as J.P. Morgan Chase and Bank of America.
It may well be true that the management of Silicon Valley and Signature failed in their risk controls. It is undeniably true that the assets they held, U.S. government bonds, were about as vanilla as possible. In fact, the Federal Reserve and other banking regulatorssince the 2008-2009 financial crisis that banks that held a significant reserve of U.S. government bonds were to be viewed more favorably and as better inoculated against possible problems.
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