"Due to Trump Deregulation"...This Year's Bankrupt Bank Assets Larger Than 2008

Total Assets of 3 Major US Banks Reach 713 Trillion Won

Amid the acquisition of the US First Republic Bank, which was on the brink of bankruptcy, by JP Morgan Chase, it has been revealed that the assets of the three US banks that went bankrupt this year exceed the combined assets of the 25 general banks that failed during the 2008 financial crisis.

On the 1st (local time), The New York Times (NYT) reported, citing statistics from the Federal Deposit Insurance Corporation (FDIC), that the combined assets of the three banks that went bankrupt this year?Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank?amount to $532 billion (approximately 713.412 trillion KRW).

This is more than the $526 billion in current value, adjusted for inflation, of the total assets of the 25 banks that failed at the peak of the financial crisis in 2008.

The FDIC statistics exclude assets of investment banks (IBs) such as Lehman Brothers, which failed in 2008 but were not covered by deposit insurance. Among the 25 banks that failed at that time, Washington Mutual Bank grew its assets to $430 billion through aggressive lending to subprime borrowers.

Washington Mutual Bank remains the largest US commercial bank to have failed to date. To reduce the burden on the FDIC, the government pressured JP Morgan Chase to acquire it. The remaining 24 banks were mostly small and regional banks, with a combined asset size of $94 billion.

[Image source=Reuters Yonhap News]

Among the banks that failed this year, First Republic Bank had the largest assets at $213 billion, followed by SVB ($209 billion) and Signature Bank ($110 billion). Although smaller than Washington Mutual Bank, the largest bank failure in US history, these banks are significantly larger than other general banks that failed during the 2008 financial crisis.

The reason relatively large banks collapsed is attributed to the deregulation of banks during the administration of former President Donald Trump.

To prevent a recurrence of the 2008 financial crisis, the Obama administration enacted the Dodd-Frank Act in 2010 to strengthen financial regulations. However, the Trump administration significantly eased regulations on small and regional banks, excluding large banks, in 2018, allowing SVB, Signature Bank, and First Republic Bank to escape regulatory oversight.

In particular, the threshold for banks required to undergo annual stress tests assessing their soundness was raised sharply from $50 billion to $250 billion, resulting in many small and regional banks falling outside the financial authorities’ surveillance.

SVB, with assets of $209 billion, also benefited from this deregulation, and there has been strong criticism that the essence of the SVB crisis lies in this regulatory relaxation. Although the Federal Reserve (Fed) has regulatory authority, including stress tests for banks with assets over $100 billion under current law, the government and regulators feel this is insufficient.

The Fed is considering strengthening supervision of banks that were previously excluded from regulation. Fed Vice Chair Michael Barr acknowledged that while the SVB failure was due to poor management, there were also issues with Fed oversight. He described the bankruptcy as a "textbook case of mismanagement" and stated that regulations for small and regional banks of similar size to SVB would be reevaluated.

This content was produced with the assistance of AI translation services.