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Just there is Gresham’s law, (Bad money drives out good money.)

There is, what we might call “Bob’s Law” (Sometimes bad banks drive out good banks.)

As such, even anti-regulation person such as myself agree that if a banks are to have a “level playing field” then certain regulations are necessary. ( Bank = any institution that has access to secondary banking markets, certain facilities from the Fed, FDIC etc.)

EX:

  • In 2020 the Fed reduced reserve requirements, which recently was 10%, to ZERO (yes you read that right) The big banks keep about 2% in reserve.

  • Silicon Valley Bank (SVB) charge high-risk borrowers the “going rate” plus 2%. Right now the market standard is approx 3%. Many years ago the market standard was 3.5% 3.5%. Putting in some kind of minimum might be reasonable.

  • 50% of SVBs assets were in government bonds but
    – Nearly all of them were recently issued long term bonds, and
    – SVB had zero insurance (swaps) on those bonds
    – Jay Powell announced 12 consecutive times that rates will go up (meaning people should dump their long term bonds) and SVB did nothing. They bet the house on a Fed pivot
    :point_up:Presumably regulations could be enacted to prevent any of those practices :point_up:

  • There has been a lot of discussion about SVBs gov’t bonds, but the fact is SVB had a whopping 35% of its assets in illiquid commercial loans to high-risk tech start-ups.
    :point_up:Presumably a regulation could be enacted to prevent that too. :point_up: