NEW YORK, NEW YORK - APRIL 24: A sign for a First Republic bank branch is seen in Manhattan on April ... [+]
The takeover of First Republic by the FDIC and the sale of the bank to JP Morgan Chase that was announced today is the latest impact of the collapse of Silicon Valley Bank. But there could be more to come in the days ahead.
A top priority when managing a crisis is to do what can be done to prevent the situation from getting worse. But, depending on the nature of the crisis, there may be limits as to what can be accomplished, and it is impossible to control the reactions of others to those efforts. You never know what will happen when you throw the dice.
A good example is today’s sale of First Republic.
“While markets have since calmed [since SVB’s failure], a deal for First Republic would be closely watched for the amount of support the government has to provide,” Reuters observed on Saturday.
More To Come?
NEW YORK, NEW YORK - APRIL 24: A sign for a First Republic bank branch is seen in Manhattan on April ... [+]
There might be more in store, however, as the ripple effects of the original crisis last month continue.
“It remains to be seen whether regulators would have to [insure all depositors] at First Republic…They would need approval by the Treasury secretary, the president and super-majorities of the boards of the Federal Reserve and the FDIC,” Reuters said.
And then, of course, there’s Congress and President Joe Biden.
Within days of SVB’s collapse, Biden urged federal regulators to implement reforms to protect the nation’s banking system.
Legislation
Additionally, Sen. Elizabeth Warren (D-Mass.) and Rep. Katie Porter (D-Calif.) have introduced legislation to repeal part of a Trump-era bank regulation rollback law.
“The bill, called the Secure Viable Banking Act, would put banks with at least $50 billion in assets back under strict Federal Reserve oversight and Dodd-Frank Act stress tests,” The Hill reported.
“A bipartisan 2018 bill to loosen Dodd-Frank raised that threshold to $250 billion, which exempted Silicon Valley Bank and dozens of other banks from the strictest federal oversight, "according to the newspaper.
Other Reforms
Rep. Ro Khanna (D-Calif.) represents the district that’s home to SVB, He said on Face the Nation yesterday that there should be clawbacks on some of the compensation the heads of failed banks have received. Khanna also called for greater oversight of the banking industry and said that the $8 trillion in uninsured deposits in large banks should be insured by the FDIC.
Speaking on the same program, Gary Cohn, vice chairman of IBM and former president of Goldman Sachs, said, “ I don't agree with Congressman Khanna that we want unlimited FDIC insurance. I think that to me is a bit of a race to the bottom.”
Cohn said, “Part of me feels like we need to get a simpler, more coherent set of rules so the bank regulators can actually enforce them and they know what the important rules are…do you want to create more and more rules when you can't enforce the one you already have?”
Takeaway
If there’s one thing that business leaders should learn from the SVB/First Republic crises, it’s never to take anything for granted. What appears to be rock solid and secure today could collapse like a house of cards tomorrow.
Which is all the more reason why all companies and organizations should have crisis management plans in place, and keep them updated to account for new dangers, threats—and the unexpected.
