Detroit Today: How the collapse of Silicon Valley Bank impacts the US financial system

Last week, Silicon Valley Bank — known as a favorite in the tech industry — became the second largest bank to fail in American history. Notably, it is only one of three banks taken over by the U.S. federal government since Wednesday, raising concerns in the financial sector of consumer panic.

New York Times reporter Stacy Cowley, Cornell Law School professor Robert Hockett, and Brown University professor Wendy Schiller joined Stephen Henderson on Detroit Today to discuss how it happened, the current state of financial markets, and where regulation fits into these concerns.

Listen: How the fall of Silicon Valley Bank impacts our financial system

Guests

Stacy Cowley is a finance reporter for the New York Times. She says a combination of the bank’s unique exposure to rising interest rates, combined with nervous depositors attempting to remove their money at the same time, caused the Silicon Valley Bank collapse.

“Tech folks tend to move with the herd,” says Cowley. “So, when a couple of venture capitalists sent out warning signals and started telling people they were concerned, it sparked this enormous immediate run on the bank in a way that you might not have seen had that been a bank that specializes in serving some other industry.”

Robert Hockett is a law professor at Cornell Law School. He says the federal policy should focus more on the working class to curtail inflation instead of interest rates.

“What we have to do is two other things that are not within the Feds’ domain,” says Hockett. “The first is to go after price gouging, to go after excess profit, hiking and the like.”

In addition, we can do more of one very good thing that we’ve been doing over the last couple of years. And that is to invest heavily in bringing back American manufacturing, which I’m guessing is probably going to be a popular suggestion in Detroit.”

Wendy Schiller is a professor and chair of political science at Brown University. She says Democrats in Washington may suffer at the ballot following this event if they do not improve their messaging.

“They didn’t have any time to prep anybody for what they were about to do,” says Schiller. “And yes, you obviously can’t have a ripple effect, where big businesses will pull all their money from banks. But there were underlying decisions about investments made here (by) the Democrats and the Republicans.”

“In politics, if it takes more than 10 seconds to explain, you’re in big trouble,” warns Schiller. “I really believe this could be an Achilles heel for the Democratic Party.”