Banking Crisis: One Year Later

Fifteen banks have failed since November 2019, with the most recent one occurring on Jan. 30.

Morgan Stanley will have to pay $2 million for failing to flag trading in First Republic Bank by its former CEO. The transactions happened in the lead-up to the regional bank's collapse.

A sharp decline in bonuses led to a decrease in median bank CEO pay last year.

Former executives from two banks that collapsed within two weeks of each other spoke Tuesday about lessons to be learned from the crisis.

Total direct compensation for the CEOs of large and midsize banks declined by 6.6% in 2023, and annual bonus payouts tumbled by 30%. The decreases came as banks grappled with the fallout from last spring's banking crisis.

New York Community Bank's acquisition of the failed Signature Bank helped with its liquidity. But there were other considerations that decisionmakers overlooked in allowing the transaction to take place.

There were significant red flags that regulators overlooked when allowing New York Community Bank to acquire Signature Bank. Those include the fact that the company was still integrating the Flagstar Bank transaction.

On both sides of the Atlantic, regulators have failed to live up to their promises about how they would approach bank failures. Until they do, the industry operates in legal limbo.

The Federal Home Loan Bank System stepped up advances by 37% or more to Silicon Valley, Signature and First Republic banks ahead of their failures, the GAO says in a post-mortem on last year's banking crisis. The findings add to the debate about whether the system should be a lender of last resort.

Larger banks are responsible for a special assessment to cover the costs of the failures of Silicon Valley Bank and Signature Bank. The price tag has ballooned by $4.1 billion, and trade groups are criticizing the FDIC's process, arguing that it lacks transparency.

Sen. Bill Hagerty, R-Tenn., and Sen. Elizabeth Warren, D-Mass., sent separate letters to banking regulators on the anniversary of the failure of Silicon Valley Bank, with Hagerty questioning the Federal Deposit Insurance Corp.'s sale of Signature Bank's assets and Warren urging the regulators to tighten capital and liquidity requirements.

Midsize lenders have largely defied the most dire predictions following Silicon Valley Bank's demise. But the nation's largest banks still have structural advantages, and the regionals remain hampered by their real-estate heavy portfolios and the continuing impact of high interest rates.

During the March 2023 banking crisis, company executives had to calm panicked customers, shore up liquidity and reassure investors after two other regionals failed. Key decisions during a critical seven-day window likely averted disaster.

Ken Vecchione, leader of Western Alliance since 2018, grew up listening to his parents talk business strategy around the dinner table. He called on those lessons and his more than 30 years of experience to steer the regional bank through last year's turmoil.

Bipartisan legislation is ready for consideration in the Senate, but even if that fails, regulators have the tools they need to rein in excessive risk taking.

Bill Demchak, in a panel hosted by Brookings on Tuesday, said that last year's bank failures wouldn't have happened if the Office of the Comptroller of the Currency had been the supervisor.

Lawmakers on both sides of the aisle pulled back from criticizing the Federal Home Loan banks, seemingly taking off the table the idea of changing the system's role as a lender to troubled banks.

Like the three regional banks that failed last spring, New York Community grew quickly over a short period of time. One analyst said there's now "permanent damage" to the "investor psyche around growth banks."