OPINION: America’s state-based banking regulation system tries to balance innovation and easy credit, relegating prudential supervision to an afterthought.
is the title of its primary state-based regulator – the California Department of Financial Protection and Innovation.
In essence, this is a high-innovation, high-credit-availability banking model. Supervision takes a back seat. The stress testing that Australian banks take for granted clearly did not exist in California.How else to explain the fact that the unrealised losses on Silicon Valley Bank’s liquid securities would have wiped out virtually all of its Tier 1 common equity?
Just because the US tolerates a system that allows regional banks to collapse does not mean it makes sense. “It’s not hard to fix, either. Banks can quickly enter swap contracts to cheaply alter their exposure to interest rate risk without selling the whole asset portfolio.”
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