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Bank runs used to take several days or even weeks before they toppled an institution. But accelerated by social media and online banking, SVB imploded in roughly 24 hours, forcing regulators to quickly step in.
It has long been understood that deposit guarantees and too-big-to-fail (TBTF) policies create a moral-hazard problem they incentivize banks to take on too much risk by shielding depositors and shareholders from losses in excess of equity (“left-tail” outcomes) in American banking.1 Congress passed the Federal Deposit Insurance Corporation Improvement Act (FDICIA) in 1991 to mitigate the moral-hazard problem by restricting forbearance and implicit subsidies for undercapitalized banks.
Among the mysteries surrounding the collapse of Silicon Valley Bank, finance experts have fixated on the California lender's failure to practice basic risk