Congressman Barney Frank: Making Sense of Turmoil in the Banking Sector
The past month has been a volatile one for the banking sector, and its impact has been felt across the entire global economy. On Friday, March 10, the Federal Deposit Insurance Corporation seized control of Silicon Valley Bank after a run on its deposits left it insolvent. The next domino to fall was crypto-friendly Signature Bank, which shut down on Sunday, March 12.
While Credit Suisse has also since been absorbed by UBS, many lawmakers have criticized U.S. federal agencies’ actions and pointed to rollbacks of consumer protections in the Dodd-Frank Act of 2018 as a primary contributor to the banks’ collapse. The rollback lessened scrutiny for banks with less than $250 billion in assets, meaning the landmark, post-financial crisis law would only apply to a handful of big banks.
In today’s episode, Representative Barney Frank, the chief architect of that regulation, joins us to cast light on the current situation.
Congressman Frank served in Congress for over 30 years until 2013. He spent four of those years as Chair of the House Financial Services Committee. As one of the co-authors of Dodd-Frank, Frank earned a reputation as one of the most outspoken members of Congress and authorities on financial regulation. He also happened to serve on the board of Signature Bank when it collapsed, and before taking on this role, he personally advocated for the $250 billion threshold adjustment.
Listen along as Congressman Frank discusses the events of the past month, why he believes they did not represent a systemic failure, and why he believes business leaders need not adjust their banking approaches in the future.
ABOUT BARNEY FRANK Democratic Representative Barney Frank of Massachusetts served in Congress for over 30 years, and retired in 2013. He spent four of those years as Chairman of the House Financial Services Committee. As one of the co-authors of the iconic Dodd-Frank Act of 2010, Frank earned a reputation as one of the most outspoken members of Congress and authorities on financial regulation. Representative Frank also served on the board of Signature Bank when it collapsed.
We make decisions every day. While some of them are small, others can have a huge impact on our own lives and those around us. But how often do we stop to think about how we make decisions? Welcome to Deciding Factors, a podcast from GLG. I’m your host, Eric Jaffe. In each episode, I’ll talk to world-class experts and leaders in government, medicine, business and beyond, who can share their firsthand experiences and explain how they make some of their biggest decisions. We’ll give you fresh insights to help you tackle the tough decisions in your professional life.
The past month has been a volatile one for the banking sector and its impact has been felt across the entire global economy. On Friday, March 10th, the Federal Deposit Insurance Corporation, FDIC, seized control of Silicon Valley Bank after a run on its deposits left it insolvent. The next domino to fall was crypto-friendly Signature Bank, which shut down on Sunday, March 12th. While the famous Swiss bank Credit Suisse has also since been absorbed by UBS, many lawmakers have criticized US federal agencies actions and pointed to rollbacks of consumer protections in the Dodd-Frank Act of 2018, as a primary contributor to the bank’s collapse. The rollback lessen scrutiny for banks with less than $250 billion in assets, meaning the landmark post-financial crisis law would only apply to a handful of big banks. I can think of few people better positioned to help us contextualize these events and address the rollback concern than the chief architect of that regulation.
And also its namesake, former representative Barney Frank. Congressman Frank served in Congress for over 30 years until 2013. He served four years as chair of the House Financial Services Committee. And as one of the co-authors of Dodd-Frank, the congressman earned a reputation as one of the most outspoken members of Congress and authorities on financial regulation. He also served in the board of Signature Bank when it collapsed. And before taking on his role there, personally advocated for the $250 billion threshold adjustment. Listen in as we hear the congressman’s advice on how to think about the events of the past month. Why he believes they did not represent a systemic failure, and why he thinks business leaders may not need to adjust their banking approaches in the future. I am delighted and honored to have with us today in Deciding Factors, Congressman Barney Frank. Congressman, welcome to the show.
So I thought we could just start by level setting around what happened with Silicon Valley Bank because it is still so recent and there are different explanations. I thought you could provide a summary of, in your view, what happened with Silicon Valley Bank and what do you think the main story is?
Well, first I think it is becoming increasingly clear that what happened to Silicon Valley Bank happened to Silicon Valley Bank and did not have broader implications. It had one unfortunate one with an impact on me, which was the failure of Signature Bank on whose board I chair. But I think it becomes clearer and clearer, we were collateral damage. We did not have a serious problem, but for various reasons we felt the backlash. But Silicon Valley, apparently, I read now, regulators were concerned about some of what they had. There are a couple of factors. First of all, they had a very large number of uninsured deposits, that is the deposit insurance limit is 250,000. Most banks try to have a balance, and especially when you have retail, depositors, average citizens, et cetera. If they have less than $250,000, they’re guaranteed that their deposits will be good no matter what happens.
But if you have more than 250,000 and the bank fails, you are theoretically at risk. Now, that’s a particular problem for businesses, and I think it’s something we need to change going forward. And it’s again, a case where a technical change, a technological change has been about. 20 years ago, if you wanted to take your money out of a bank, there was a physical act. You might have had to go down to the bank and withdraw it. Today with the information technology, you can literally with a push of a button, take money out of one bank and put it in another bank. Other words, your deposits have become instantly volatile. And so what happened to Signature Bank is for some reason, those people who had uninsured deposits in the bank became nervous about whether or not the bank was going to continue, and you had a classic bank run.
The fact is, as I said, the technology has made bank runs much more vicious in a way. So Silicon Valley Bank was experiencing bank runs. Now, there have been discussions that say that regulators saw problems with the bank over the past couple years and didn’t move quickly enough to stop them. Basically, for instance, one said they should have stopped the growth. Maybe they should have been trying to get more diversity in deposits. The other issue that hurt them was being in Silicon Valley and at the forefront of technology, they had a heavy involvement with cryptocurrency. And I think one of the things that’s clear now was that many of the regulators have become nervous about cryptocurrency. So for whatever reason, Silicon Valley Bank was expanding very quickly. It was associated and was dependent to some extent on the continued value of cryptocurrency that made people nervous and they took advantage of the ability to instantly move their deposits.
And by the way, when they move the deposits from one bank to another, it’s not that the second bank has the ability legally, that the deposits are legally guaranteed, but the bigger banks people think are less likely to go under. So there has been a significant movement, not just Silicon Valley, but across the board, although I think it’s being contained by people moving their money out of medium banks into the biggest four, the Bank of America, JP Morgan, Chase, Wells Fargo, and Citi. So Silicon Valley Bank was the victim of a technologically enabled instant bank run because of nervousness about its exposure, I think in part to crypto.
It seemed like in the immediate aftermath of what happened with Silicon Valley Bank, there was a narrative that regulators would need to modify their regulation in order to prevent something like this from happening in the future. As we get farther away from it, it seems like perhaps the story is instead, “Hey, the system did work. The depositors were made whole, the contagion was mostly contained.” Is that the right way to interpret what occurred?
Absolutely. Writing an article now at the invitation of Wall Street Journal, and one of the points I’m about to make is that, look, we worry about the dominoes falling. That’s the contagion. Well, in this crisis, we have had exactly two and a half dominoes. Frankly, that’s not a very big chain. I mean, if you had a demonstration of domino falling and it only lasted two and a half, you wouldn’t get much of an audience. There has been no contagion, and it’s part because the regulators use powers that we had, in fact, given them or reaffirmed in the 2010 Dodd-Frank Act. Most importantly, they said that the uninsured portion of deposits from Silicon Valley Bank and Signature Bank would be protected under authority that they have and that they were given in the statute. Secondly, with regard to all banks, what we have now, 15 years ago in the crisis, 2008, the problem was that the banks had bad assets.
The banks had made loans to people for mortgages who couldn’t repay them. Those were then packaged into securities that turned out were not going to be able to be sustained because they were based on bad mortgages, and those in turn were insured by something called credit default swaps, a form of derivative, which was supposed to compensate you if the security you bought failed. But the people who had sold those didn’t have the money to back it up. So you had banks that were essentially insolvent because of all the toxic practices, and that caused this real domino chain. Today that is not the issue. What we didn’t do in 2010 was first of all, to prohibit the two most toxic practices we passed as part of the Dodd-Frank Act, restrictions on making mortgages with people who couldn’t repay the mortgage. I mean, that sounds kind of simple-minded, but that’s the problem.
Banks for giving people mortgages who couldn’t repay them, they did that because they would not be responsible for the lack of repayment. They packaged those mortgages into mortgage backed securities and then sold them. So what happened was banks made loans and they didn’t have to worry about whether they could be repaid or not. All they had to worry about was whether if they packed them, they could be sold. And so those securities were sold. The people who bought the securities were able to buy them with some assurance probably because they had insurance in the form of credit default swaps. Although it turned out that the people who had sold them this form of insurance didn’t have the money to pay it off because of the rules. Insurance is mostly state run for property and casualty and life, and nobody can sell you insurance for any of those things unless they have proven to the state that they have the ability to pay off on their claims, literally to put their money where their mouths were.
But this new form of financing called credit default swaps was a form of insurance not subject to those rules. It was just brand new and we didn’t have rules for it. So people bought insurance that was worthless. And so when the mortgages weren’t repaid by the people who were taking them out, and therefore the securities that had packaged them together became worthless. The credit default swaps that was supposed to compensate those security owners didn’t pay off. As a result, the banking system was shot through.
As a result, the banking system was shot through with bad assets. That’s not the case now. Even in the case, I will tell you this from Signature, no one argued that we were insolvent. We did have a bank run because of the panic generated by Silicon Valley, but the worst thing about banks today is that they are illiquid because of bank runs, but not insolvent. So the other thing that the regulators were able to do with authority given in 2010, or reaffirmed in 2010, was to set up a facility, the Federal Reserve did, in which they lend money, and this is the key, to banks that are illiquid but solvent. And that’s the difference. Fifteen years ago, there were lot of insolvent financial institutions and they crashed into each other. Today, the problem is a panic because of the ease in which you can move deposits, and to some extent the fear about crypto, but the banks… arguably Silicon Valley might have had a solvency problem, but nobody else seems to.
So by, as I said, guaranteeing the deposits of the two banks that failed above the limit, and by providing a facility that lends money to banks that are facing liquidity crisis, they’ve stopped the contagion. Take this, we are now about two weeks into this crisis, two weeks and three or four days, at a comparable time in 2008, things were metastasizing. They were getting worse and worse and worse. The market was tanking and people were losing money. Today the reverse is happening. The stock market has stabilized, there do not appear to be any more dominoes, and the banks are stable.
It sounds like you think the contagion has been contained, if you will. You think it’s a very low risk of this spreading to other regional banks at this point?
Absolutely. In 2008, the contagion was based on real problems. What happened was banks were owed money by people who didn’t have the money to pay them off. It was not a temporary thing. There was just a lot of paper in there that was worthless, and banks were owed money by people who couldn’t pay them off, and that was the problem. That’s not the problem today. There is not a whole lot of bad paper, as we call it, throughout the system. What you have is a purely more easily run bank runs, and that’s under control. And, as I said, so far there have been two banks that were shut down by the regulators and a third, First Republic, which is the subject of some rescue operation, and that’s it. That’s not a very large set of dominoes.
You mentioned two ways, I think, in which this crisis was somewhat unique as it relates to technology. Number one, consumers’ ability to move deposits is pretty much instantaneous, and then the speed at which information travels is significantly accelerated by Twitter and other forms of technology. What do we do with that information? Are there regulations that need to be put in place, or is that simply business as usual now and we have to adjust to it?
Well, two things. First of all, I think a lot of this, if you go back, I think a lot of this was precipitated by the FTX collapse. The banks that have been most heavily affected, Silicon Valley, Signature, First Republic, we had in common a heavier than average investment with crypto. In the case of Signature Bank, by the way, our crypto exposure was a very safe one. Signature Bank did not accept large numbers of crypto deposits. We weren’t investing any of our own money in cryptocurrency. We did what a bank is supposed to do, which is to provide a platform for businesses that want to deal with each other. That function is one of the important bank functions. You lend people money, but you also facilitate the transfers. So what Signature said was, if two customers of our bank want to deal with each other in crypto, we will handle that. We will provide that platform. So they would be exposed to the fluctuations in the value of crypto. If you accepted payment crypto and it collapsed, that’s your problem. But we, the bank, were not an issue there. We got a fee for facilitating the exchange.
But the fact is that the failure of FTX and then the failure of Silicon Valley, which was more heavily involved in crypto in ways that exposed them to risk, that generated this concern. So there are two things that have to be done. First, we have to complete the regulation of crypto. And that, by the way, is done not so much by the banks, but by the Securities Exchange Commission and the Commodity Futures Trading Commission. There’s a dispute going on now. If someone sells you crypto, is that really like cash or is like a security? Clearly there is a volatility in the dollar value of crypto, and the question is how do you deal with that?
One thing that has to be done is the securities regulators, again, the Securities Exchange Commission and the Commodity Futures Trading Commission, which has jurisdiction here, because some of this takes a form of is crypto a commodity? They have to complete the regulation. To the extent that people have more confidence that whatever they bought crypto at or accepted crypto at is going to retain that value, that lessens the fear.
The second thing is, we have to deal with the unchangeable fact of the increased, the instantaneous nature of deposits. And there’s a debate going on. I believe that we should be increasing deposit insurance well above 250,000, not for all accounts, but for what we call transaction accounts. That is, if we’re talking about a personal account, somebody’s individual money, I don’t think we need to protect a million dollars in pocket change for a rich person. They can find other ways to do that.
The problem is, what about a business that has a payroll to meet on a monthly or weekly basis, and has vendors to pay, material they have to buy. No business can function with a $250,000 cash limit. So businesses have to have transaction accounts. What I believe we should do is to say if a business demonstrates that it has say a two-month requirement for a certain amount of cash to run its business, to meet its payroll, et cetera, then that amount should be guaranteed so that if there’s a problem at the bank they have a couple of months. That’s opposed by a couple of groups. Frankly, we tried to do that in our version of the bill in the House in 2010. We were opposed by three groups. One, some of my friends on the left, who I think mistakenly said, “Oh, no. If someone has millions of dollars, they don’t need a guarantee. Don’t do that for the rich.” But the fact is, we weren’t talking about protecting the depositor itself. We were talking about protecting their employees in the turmoil of the crisis.
Two of the leading Democrats in the financial regulation area, two very able and socially minded leaders, Representative Maxine Waters and Senator Sherrod Brown, were very concerned about the effect on workers, on payroll. And I think, as I said, we should protect them. But there are people who oppose that on the left. That’s gone now. Senator Warren, who’s obviously the leading spokesperson, I think, on the left on financial matters, agrees that we should guarantee transactional accounts so that businesses can get insurance above $250,000, and so their employees are protected in case of a bank failure that they had no responsibility for. That opposition from the left seems to have gone.
You still have opposition from conservatives. Their argument is… First of all, many of them don’t like deposit insurance at all. They think it’s government interference. And so when you ask, well, what about a business? How does the business protect itself? And the answer is, it was, for instance, in an oped in the Wall Street Journal, I think last week by Charles Calomiris, who is a leading serious intellectual on the conservative side, on the financial system. He said, “No, don’t do that. Instead, require a depositor who has more than $250,000 to carefully select the bank she uses, because that’s a form of discipline on the banks.” The argument here is you can’t just rely on the government regulators. We want the customers to choose carefully in picking the banks in which they deposit more than $250,000, and that’s a form of discipline. A bank that has not been prudent will lose deposits.
The problem with that, I think, is that, frankly, businessmen, particularly medium businessmen and women, we’re not talking about the largest Fortune 500 corporations, they’ve got enough to do trying to run a business. Making them have also to be authorities on bank soundness, particularly when they don’t, frankly, have some of the powers to get the information necessary, I think that’s a mistake. But there are people on the right who say, “No, we don’t want to extend deposit insurance, because that will remove a check that comes from depositors need to due diligence.”
Finally, there’s an important political influence that I ran into when we tried to expand the deposit insurance limit in 2010, and that’s the beneficiaries from the fact that people are worried that their deposits will be forfeit in case of a failure. And that’s Bank of America, JP Morgan Chase, Wells Fargo, and City Corp. Those are the four biggest banks, maybe Goldman Sachs to some extent. They profit maybe Goldman Sachs to some extent. They profit when people are nervous. Over the last couple weeks, there has been a significant transfer of deposits above $250,000 from medium size and small banks to the four biggest banks. So for that reason, I expect the Senate probably will increase the deposit guarantee, but I don’t think it gets through the House with the Republicans in control.
And by the way, my final argument for increasing the deposit guarantee is three times in the last 15 years in the face of a crisis, one of the ways in which we prevented greater harm was to increase the deposit insurance guarantee. The Fed did it in 2008 with the great crash, and then we did it in 2021 or 2020 to deal with the pandemic, which caused obvious financial problems. And we just did it again. Well, when you have three times had to do something to cope with the impact of a crisis, I think that’s a good argument for doing it permanently so that you avoid a crisis rather than having to deal with it.
So as I said, it’s just to summarize that long answer. We need better regulation of crypto. We need people to be reassured that the crypto they buy will retain its value and make people less likely to panic if an institution is heavily involved with crypto. And secondly, I think we should make permanent what we’ve done three times as a crisis response and increase deposit insurance for those businesses that can demonstrate that they have the need for operating cash for say a two-month period, and then give them a chance to move out. The alternative that we make every depositor with more than $250,000 an expert bank examiner as a way to enforce discipline, I think is just unrealistic.
I’d love to hear your thoughts on the potential political impact. It’s always hard to predict the future in politics, but if anyone’s qualified to do it. It’s you Congressman. The crisis that occurred in 2008 is obviously now that we’ve heard your description quite different than the one from today. However, the political impact of the financial crisis in 2008 was widespread, far-reaching, and endorsed to today the creation of the Tea Party Movement, et cetera. Now, while the current financial crisis you’re describing perhaps is not a crisis, there is the potentially concerning optic, if you will, of tech executives who have been made whole or had their money protected by the government. Do you think that that is something that will be political fodder or have a significant political impact in the coming years?
We did have to respond in 2008 in which the Bush administration and Democrats in Congress, it was a great example of bipartisan cooperation, and we passed the program known as the TARP, the Troubles Assets Relief Program. And that ultimately, about $400 billion was used. 700 was authorized to prevent further massive domino effect of bank failures. And it worked. I have to say, having been at the center of that, the TARP, the program to advance money to banks was one of the most successful and simultaneously most unpopular things the government ever did.
Actually, the money that we advanced to the banks in the TARP was paid back with interest. The federal government made a profit off that part of the TARP. The hundreds of billions that went to the banks, they had to repay an interest and we took warrants that allowed us to also participate in the profits. About 80 billion was not recovered. But interestingly, that was the most popular part of the TARP because TARP funds were used to keep General Motors and Chrysler in business. They were threatened with bankruptcy, and it was TARP money that kept them going. And they couldn’t repay it. So the one area where we lost federal money was also the one that is most popular. And by the way, that worked too because we have a thriving auto industry now that we would not have had.
Interestingly, by the way, Ford, which by its own financial management, was not facing a collapse, supported keeping their two competitors or their two American competitors alive because Ford said, “Look, if Chrysler and GM go under, there will be no more supportive industry for us in America. And we can’t survive as the sole automaker in an area where there is not the kind of supply chain.” So this time you’re not having that. There are going to be no hundreds of billions. The guaranteed for deposits will be funded by the Federal Deposit Insurance Corporation Insurance Fund, and that is not general taxpayer money. The deposit insurance is paid for by the banks that receive it. There is a formula whereby you pay into the Federal Deposit Insurance Corporation Fund to ensure your deposits. And in fact, as part of the bill in 2010 at the initiative of a Congress from Chicago, Luis Gutierrez, we changed that formula, frankly, to make it more progressive. We shifted about a billion dollars total from the big banks to, from the smaller banks of big banks. So there will not be any general taxpayer infusion of funds. And even then, the infusion will be less than 10% at most of the billions we are talking about.
Finally, with regard to the executives, whether there is some talk of penalizing them, remember that the entities protected at Signature and Silicon Valley were the depositors. The shareholders have not been protected. Now, over recent years, I know this is true of signature, a significant part of the compensation of executives has been in stock. And also, I will tell you personally of directors. And the executives and directors of those two banks are taking a financial loss, in some cases, a very significant one because of the devaluation of their stock. So it is by no means the case that those who were running the banks are getting themselves personally billed out the value of their compensation and stock. We’re talking about past compensation. People said, “Well, let’s call it back.” In fact, at least I know this of Signature. As long as you’re an officer, there was some requirement to keep a certain amount of the stock in your account. So there has been a significant financial penalty levied on the officers and directors of both of those banks in the form of a significant loss from the devaluation of their stock.
If you were advising a business leader today, would you tell them to move their money into one of the Big four if they currently had it with a regional bank?
Well, that’s a very good question, a very tough one. From the public policy standpoint, from the overall macroeconomic standpoint, that’s not a good idea. But I suppose if you have a fiduciary responsibility of other people’s money, that’s one of the things you have to consider. On the whole, though, I would tell them, no, don’t move it because I think the federal government has made it clear they will stand behind those deposits, at least for now. That is, if another bank were to fail, they would, I believe, get the same treatment that Signature and Silicon Valley got.
But I will say this, if the prognosis is that there’s going to be no change in the law over the next five or so years, then people responsible for other people’s money, you have to consider moving it. The alternative is to say to them, okay, you don’t have to move your money, but become an expert amateur bank examiner. And before you keep your money in a bank or put your money in a bank, fully understand the safe and soundness of that bank. And let’s face facts, it’s a lot easier just to move it.
So we’re clearly in a very different operating environment than when Dodd-Frank passed, and we already talked about the role of Twitter and amplifying and spreading information. Do you think that that information environment is well understood in Congress today?
Nobody is more impacted by the instant communication in the internet than someone who runs for office. They get bombarded with that. Frankly, I don’t think that’s… It’s not constructive because I’m not sure what would’ve happened if we had had Twitter, whether we could have passed the TARP. What your hope is? If you’re in office, okay, I’m going to take this step, which will be initially unpopular, but by the time it’s taken effect and it’ll have a good effect, the anger will soothe. But at this point, the reaction is instantaneous. If you do something which is immediately unpopular, you get the negative reaction before anybody has had a chance to see how it worked. So, yeah, members of Congress are very, very much aware of that, and I think that’s one of the considerations. Again, the counterargument to the impact of this is, well, two things. First of all, it will be very helpful if by the end of the year there has been an agreement on a set of rules there has been an agreement on a set of rules for crypto that take away the fear of extreme volatility and that could be helpful. But otherwise absent an increase in the guarantee, I don’t see any response. The people understand that it’s volatile. I’m getting to round about here. I guess the answer is this. People on the left understand that like Elizabeth Warren. But on the right, their view is, yes, if you believe that the fear of losing deposits is spurred to bankers to be more prudent. And if you believe that depositors are capable of arriving at mature, serious judgments about the relative soundness of banks, the fact that it’s now more reasonably… It’s now easier to act on those judgements, I suppose, is a good thing. If you think this is a form of discipline, it’s quicker discipline. Obviously, as I said, I think that’s wholly unrealistic.
And just to be clear, the change in the operating environment, it sounds like you’re saying there’s no implication for regulators.
Well, there’s the technical change in the operating environment. But there’s also the introduction of crypto. A quick recap of American regulatory financial history. What we have is, we have at any given moment a system of rules for the financial system. And then an innovation comes, there’s a great change in reality. And it takes time for the… And by definition, that innovation is not regulated because it’s outstripped the old system, and it takes a while for the government to catch up. And during that period, because you have an unregulated activity, there can be trouble. And what’s important is to try and adopt new regulations for that very quickly. So for instance, in 1870, there were no national economic entities, so there were no national economic rules.
By 1900 there were steel, and oil, and railroads. So the job of Theodore Roosevelt and Taft and Wilson was for the first time to make national economic policy, the Interstate Commerce Commission, the Federal Reserve, the Federal Trade Commission, to regulate national entities. That in turn meant that the stock market was important because you had these big businesses, but there were no rules regulating the stock market. And so that led to problems. So Franklin Roosevelt, the New Deal it imposed regulations on the stock market. And that worked very well until the first technical innovation came, which was computers. And secondly, an inflow of capital from other countries, Asia, the oil countries to America. So by the seventies in America, you had these large amounts of capital coming in and very new sophisticated ways of dealing with it.
You couldn’t have had derivatives and credits or false swaps and mortgage backed securities like that without computers, you couldn’t have done that by hand. So from a period beginning in the ’70s until the great crash, you had large flows of money, easily maneuvered, and no rules for it. What we did in 2010 was to provide new rules for that. Now, we are in a position where 20 some odd or 15 years later, there’s another set of innovations, an improvement in social media for moving the money. It used to be that the institutions had these great computerized skills. Now individuals have them. But secondly, you’ll have crypto. And crypto has not been satisfactorily regulated, so that’s relevant to the regulators and to Congress. There needs to be the adoption of rules that restore confidence in crypto.
People didn’t have confidence in the stock market until the New Deal and then could have it. We need to do that for crypto. And we also have to react to the fact that the information technology which enabled new practices by the institutions in the ’60s, ’70s and ’80s, that’s now trickled down to the individual. And we have to react to that, I said I think, by increasing the guarantee. But it’s also the case, if you look at the role of crypto in making people nervous this last time. There’s been an argument that, well, let’s have crypto that’s fixed in dollar value. If there had been no uneasiness about crypto triggered, I think, most recently by FTX, I don’t think you would have had the failures. You certainly wouldn’t have had a signature, and I doubt you would’ve had it at Silicon Valley.
Perhaps the last question for you, there seems to be a debate between executives, some of whom during the early days of the Silicon Valley Bank, in particular that first weekend, were loudly and persistently calling for action, and bringing lots of attention to what was happening. On the one hand you might say they were appropriately warning regulators, government officials, and consumers to the significant impact of what could happen and therefore encouraging them to act quickly. On the other hand, some executives took a more private course of action, preferring not to stoke public concerns. Because those public concerns in extreme could have had a really negative impact on the economy. Is the responsible thing in a situation like that to handle these concerns privately, or do you say, everything’s out in the open, just kind of voice your concerns on Twitter and we’ll figure it out?
It would be nice if you could have kept some of that quiet. I don’t think that was possible. I was for more public discussion. In fact, I will say this with regard to action. And I know this from a fact as a former director of Signature Bank. If the Federal Authorities had done on the Friday, what they later did on Monday with regard to deposit guarantees and on liquidity facility, Signature Bank would not have had any problem. If we’d been allowed to open again on Monday rather than be shut down, we wouldn’t have had a problem. No, I think if they had acted on both of those things, the deposit guarantee and liquidity early on, there would not have been a crisis. And I think today, for the very reasons we’re talking about communications, et cetera, the notion that you can minimize the problem by keeping it quiet, that ship has not only sailed, it’s gone into orbit.
Eric Jaffe: And what’s your understanding of why they didn’t act on that Friday, other than it was just emerging and they were trying to figure out what to do?
Friday afternoon turned out to be a bigger… Like I said, Signature Bank Friday morning was not in serious trouble, but we lost billions of dollars in deposits in the afternoon. I think the thing just moved too quickly.
Congressman, thank you so much for joining us on Deciding Factors. We really appreciate it.
It was an interesting conversation and I thank you.
That was Congressman Barney Frank, the former head of the House Financial Services Committee and architect of Dodd-Frank, the most important piece of banking legislation of the 21st century. We hope you’ll join us next time for a brand new episode of Deciding Factors featuring another one of GLG’s network members. Every day, GLG facilitates conversations with experts across nearly every industry in geography, helping our clients with insight that leads to true clarity. Feel free to leave us a review on Apple Podcast. We’d love to hear from you. Or, email us at firstname.lastname@example.org if you have feedback or ideas for future show topics. For Deciding Factors in GLG, I’m Eric Jaffe. Thanks for listening.
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