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The collapses of Silicon Valley Bank and Signature Bank this past weekend were the end point in an all-too-familiar cycle: first the boom, then the breathtakingly speedy bust and then the bailout. We are now at the postmortem moment — when everyone wonders where the regulators were.
Silicon Valley Bank has already become notorious for how obvious its red flags were. Perhaps the most telling was the rapid growth of its borrowing from the Federal Home Loan Banks system. Banking experts know this Depression-era group of government-sponsored lenders as the second-to-last resort for banks. (The Fed is, as always, the lender of last resort.) At the end of last year, Silicon Valley Bank had $15 billion of FHLB loans, up from zero a year earlier.
“That’s the type of flag that says you need to look closely,” Kathryn Judge, a Columbia law professor who specializes in financial regulation, told me. But there’s no sign the loans triggered any regulatory attention.