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European Regulators Condemn US ‘incompetence’ in SVB Collapse

FT | March 16

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Europe’s financial regulators are furious at the handling of the Silicon Valley Bank collapse, privately accusing US authorities of tearing up a rule book for failed banks that they had helped to write.

  • While the disapproval has yet to be conveyed in a formal setting, some of the region’s top policymakers are seething over the decision to cover all depositors at SVB, fearing it will undermine a globally agreed regime.
    • One senior eurozone official described their shock at the “total and utter incompetence” of US authorities, particularly after a decade and a half of “long and boring meetings” with Americans advocating an end to bailouts.
    • Europe’s supervisors are particularly irate at the US decision to break with its own standard of guaranteeing only the first $250,000 of deposits by invoking a “systemic risk exception” — despite claiming the California-based lender was too small to face rules aimed at preventing a rerun of the 2008 global financial crisis.
    • A former senior UK policymaker who helped negotiate global standards for bank resolution described the SVB handling as a “disaster”.

See:  Superintendent of Financial Institutions took further action on the Silicon Valley Bank Canadian Branch

  • While the Federal Reserve is now considering tougher rules for midsized lenders, Congress voted in 2018 to give it and the Federal Deposit Insurance Corporation discretion to exempt banks below $250bn from the toughest strictures. The watchdogs followed up a year later with a more relaxed regime for banks with assets ranging from $50bn to $250bn.
    • The US was a key proponent of such policies, according to people who took part in talks. However — unlike EU and UK lenders of a similar size — US banks with balance sheets below $250bn, including SVB, are deemed too small to have to comply with global standards on capital, liquidity and resolution.

Nicolas Véron, a regulation expert at the Washington think-tank the Peterson Institute:

From a financial stability perspective, they really killed a fly with a sledgehammer. Designating SVB as systemic was, Véron added, a “very questionable” decision that set a dangerous precedent for further bailouts of uninsured deposits.

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