It’s clear that regulators missed something at Silicon Valley Bank before its collapse — along with its investors, depositors and others. To prevent similar bank failures, President Joseph Biden has already pledged to push Congress and the Federal Reserve to strengthen banking rules. But in fact, the rules already in place could have been used better and more actively.
The obvious thing Congress could do is reverse the 2018 legislation that raised the balance-sheet size threshold where tougher rules kick in for banks that pose a systemic threat. Had this limit not been increased, both SVB and Signature Bank, closed by New York regulators over the weekend, would have been subject to mandatory stress testing and rules designed to help banks survive sudden deposit outflows.
