Dodd-Frank had reforms that could have prevented SVB’s sudden collapse

Second, beyond the specific regulations, S2155 was a “stand down” order to regulators and examiners, both from Congress and the Federal Reserve. The law was created and executed to deliberately say that mid-sized regional banks such as SVB could not produce systemic risks, panics and runs that required costly and extreme interventions. What regulators are going to risk their necks and try to do their jobs well given this?

Third and last, it’s not just that stronger regulations would have made failure less likely. Maybe SVB would still be around with these regulations, and maybe not. But these regulations would have made it easier for the bank to fail well — in a way that minimizes panic and allows the FDIC to handle the failure better. Even a marginally stronger SVB going into receivership could have found a buyer, or otherwise not opened up the wider panic we’re seeing. Producing those kinds of “good failures” is exactly how capital requirements and FDIC tailored the heightened regulatory approach, and exactly what lawmakers cut off in 2018.

So, what should we do? We need to re-examine our system of deposit insurance — if only their limits, if not their nature — and consider how extensive this form of social insurance should be. In the same way the Fed creates new monetary tools and ideas to deal with an era of low-interest rates, we probably need some new ones for an era of higher interest rates. But most immediately, the Fed should move to reinstate the enhanced regulations for banks of this size. And Congress needs to know that systemic risk can appear anywhere in the financial sector, not just at the top.