More Banks ‘Will’ Collapse, Former FDIC Chief Predicts

More banks in the United States are going to “fail” after the recent collapses of Silicon Valley Bank and Signature Bank, according to a highly worrying prediction by a former federal banking regulator chief.

Dreadful ‘Domino Effect’ Forecast

The collapse of two relatively large banks over the past weekend sent shivers through the banking system and the public, sparking fears of a banking crisis or even a full-fledged financial crunch of the 2008 type.

Silicon Valley Bank, the go-to bank for tech companies and startups, practically collapsed in 48 hours, following a client run.

On Friday afternoon, the 16th largest bank in the United States, whose assets used to be worth over $200 billion, was taken over by the Federal Deposit Insurance Corporation (FDIC).

The New York-based Signature Bank, which in December had assets worth $110 billion, suffered the same fate two days later. After the latter bank’s collapse, reports emerged it had been investigated by the federal authorities for money laundering.

Unfortunately, a former top US bank regulator official believes Silicon Valley Bank and Signature Bank will not be the only two banking institutions to collapse in 2023, SonsofLibertyMedia reported.

The prediction that “more banks will fail” belongs to William Isaac. He was the head of the Federal Deposit Insurance Corporation between 1981 and 1985, serving under then-Republican President Ronald Reagan.

In an interview with Politico, Isaac said he expected more bank failures, adding the new collapses would be partly due to a “domino effect,” i.e. the fallout from the collapse of Silicon Valley Bank.

While declaring there was “no doubt” in his mind that more banking institutions would share SVB’s fate, the former FDIC chief did not venture a forecast as to how many and how big those would be.

Two ‘Wake-up Calls’

The same article with Isaac’s prediction also cited comments by another former FDIC chair, Sheila Bair, who was in charge of the federal regulator from 2006 until 2011. As such, she oversaw the bank failures during the global financial crisis of 2008.

Bair didn’t make apocalyptic forecasts, but emphasized that what happened with SBV should serve as a “wake-up call” to all banks in the United States, as far as the potential factors for collapse are concerned – such as assets and loan quality.

The report noted the fact that Silicon Valley Bank was too focused on the tech industry and such a narrow focus is deemed a “rarity among banks” by experts.

In her warning, Bair pointed out a second “wake-up call” from the SBV’s downfall, namely, that a bank ought to watch out for its liabilities, since “institution money” that seeks higher “yields” couldn’t be “stable.”

The report puts forth the overall warning that a “big crash” of banks could happen if “the masses” begin to panic, following the fate of SVB and Signature Bank.

It is noted that after it took over Silicon Valley Bank, the Federal Deposit Insurance Corporation set out to find a way to repay the institution’s uninsured deposits worth roughly $150 million.

SBV’s failure has so far been the largest banking collapse in America since the 2018 crash.

This article appeared in The State Today and has been published here with permission.