In recent weeks, the failure of Silicon Valley Bank (SVB) has sparked concerns over the contagion effect and the possible risks to other banks. However, as more facts have emerged, it appears that SVB’s heavy bets on long-term US Treasury bonds and its delayed decision to shift away from them have triggered a run on the bank, as was pointed out by Roslyn Layton.
Despite the likelihood of the Federal Reserve’s monetary policy playing a role in SVB’s collapse, critics have pointed out that weak senior management at the bank and social media-enhanced panic in Silicon Valley don’t seem like credible ingredients for a global financial meltdown. Nevertheless, defenders of the administrative state, such as Senator Elizabeth Warren, have rushed to capitalize on the fear surrounding SVB’s failure.
Warren wasted no time in publishing an opinion piece in the New York Times, in which she blamed the failure of SVB on a lack of regulation. She conveniently ignored the fact that the toxic asset at the heart of SVB’s collapse was actually US Treasuries.
Meanwhile, the Securities and Exchange Commission (SEC) announced that it was investigating whether securities laws were violated by SVB, which reminded many of its heavy-handed response to the collapse of the former top crypto exchange, FTX.
Many have accused SEC Chairman Gary Gensler of using enforcement as a means of regulating crypto, rather than setting clear rules for digital assets that everyone can understand and comply with. They argue that regulation by enforcement is a way for the administrative state to get courts to grant an agency power that Congress hasn’t given it.
If Gensler’s investigators manage to find a single SVB position related to digital assets, he is expected to sue the bank and its executives into oblivion to enhance his power. However, this approach does little to help the depositors and investors who lost their money in SVB’s collapse.
