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SVB crisis: It’s time to let a bank go bankrupt

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SVB crisis: It’s time to let a bank go bankrupt
Opinion SVB crisis

It’s time to let a bank go bankrupt

Bank failures are not just an industry problem, they are a system issue, says WELT editor Cornelius Welp

Bank failures are not just an industry problem, they are a system issue, says WELT editor Cornelius Welp

Those: HC Plambeck

The SVB case shows that banks do not protect themselves well enough to cushion interest rate increases, for example. Instead, they still blackmail the state. Bank rescue before fighting inflation? It finally takes more courage to enforce the existing rules.

Es feels like 2008. A medium-sized bank in the US is struggling and the Fed jumps in immediately: The US Federal Reserve, which has just been praised for its consistent anti-inflation action, quickly launches a support program for the financial sector and will probably say goodbye by further from their monetary policy tightening course.

At the same time, President Joe Biden explains that money in bank accounts is safe, recalling a promise made by Chancellor Angela Merkel and Finance Minister Peer Steinbrück at the height of the financial crisis to stabilize German savers’ confidence.

Even if Biden emphasizes that he does not want to spare shareholders and bondholders and that he does not want to spend tax money, the signals from the USA are tantamount to capitulation. States can be blackmailed. Still.

After the financial crisis, politicians swore that the events of that time should never be repeated. In Germany alone, the rescue of supposedly systemically important banks cost taxpayers around 60 billion euros.

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The social damage weighs almost even more heavily: after all, bankers in particular had insisted on restraining themselves with government regulations and letting market forces prevail. The crisis showed that many had used the freedom to maximize their own income in an increasingly absurd way.

The fact that the state had to pick up the shards of their risky business has plunged the market economy and liberalism into a legitimacy crisis. Only very few people in Germany are bothered by the fact that state intervention has since become more and more the rule.

You should take a chance

Bank failures are therefore not just an industry problem. They are a system issue. Politicians and supervisors have so far shied away from this: in the wake of the last crisis, they devised an extensive range of instruments for handling crises in larger banks, but have never used them in practice.

It would be time to finally show more courage and, when in doubt, to take a chance. Otherwise, all the carefully thought-out instruments remain part of a threatening backdrop that is becoming increasingly implausible.

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The SVB collapse sends another signal: Strict regulation of the sector is still essential: Smaller banks in the US had successfully pushed for easing, and institutions in Europe have also been pushing for more easing for a long time.

Deutsche Bank, for example, has vehemently opposed European regulators slightly tightening the requirements in the business with risky loans to highly indebted companies. And savings banks keep complaining about excessive interventions in their security system, whose questionable efficiency has been shown in the difficulties of several state banks.

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Many institutes are demonstrating again that it is not enough to rely on their alleged expertise in risk management. Many banks have hardly or not at all protected themselves against the by no means far-fetched risk of a rapid increase in interest rates, and high losses are the result. Trust is therefore no better. Unfortunately.

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