*Elizabeth Warren is a federal senator from Massachusetts.
We all need to understand the cause of the series of events in the U.S. banking system over the past few days. The bank's bankruptcy is the result of Washington political circles and regulators loosening financial regulations.

After the 2008 financial crisis, the U.S. Congress enacted the Dodd-Frank Act. The intent of the law was clear. It protects consumers and prevents big banks from ever again irresponsibly rolling money and plunging the economy into a tailspin and ruining the lives of millions of people. Wall Street chief executives, law firms, and lobbying firms abhorred the Dodd-Frank Act. Those who poured millions of dollars into stranding the law finally released millions of dollars, this time to limit its effectiveness, and to neutralize various regulations.

Greg Becker, CEO of Silicon Valley Bank (SVB), is one of the prominent financiers who actively lobbied Congress to weaken the Dodd-Frank Act. And the banks finally won a meaningful victory in 2018. President Donald Trump has signed a new law that cripples a key part of the Dodd-Frank Act. Both Democrats and Republicans voted in favor of the law. Regulators have allowed financial institutions to continue to take risks, increasing the problem. Federal Reserve Chairman Jerome Powell is also hard to escape responsibility.

Until the government decided to close the bank, Silicon Valley Bank was the 16th largest bank in the United States by assets. However, Silicon Valley Bank made an absurd claim that can only be laughed at now. They argued that they could hardly be considered large banks in fact and should be exempted from the strict regulations imposed by the government (for large financial institutions). The claim itself is absurd, but it is even more puzzling that it has been accepted. In fact, Silicon Valley banks didn't have to meet the strict requirements set by regulators.

I fought hard to keep the banks' demands for deregulation from going through in Congress. The day before the 2018 deregulation bill passed the Senate, I was clearly warned.

"Right now, Washington regulators are trying to make risky transactions easier for banks to do without much restraint. It puts our constituents, the American people, at risk and shakes the economic foundation of our families. The money that accumulates in the bank is only used by executives to buy newer, more luxurious charter planes and to build more luxurious headquarters."

Having said this, I hoped that my prediction would be wrong. But on Jan. 10, Silicon Valley bank executives were pumping out bonuses to employees until hours before the Federal Deposit Insurance Corporation (FDIC) rushed to take over the bank's bankruptcy management. In the meantime, many startups and nonprofits that have deposited money in banks have become blocked overnight, unable to pay their employees or pay their bills.

The irresponsibility of the management who made one risky decision after another and the authorities who did not properly supervise it led to this incident. First of all, Silicon Valley banks were too dependent on large customers, such as tech companies with large deposits. As a result, the proportion of deposits above the amount protected by the U.S. Federal Deposit Insurance Corporation was too high. This led to structural weaknesses that worsened the financial health of the bank as a whole if a particular sector slowed down.

Silicon Valley banks have instead used large deposits to buy long-term bonds with long maturities, such as U.S. Treasuries, in an effort to compensate for or address these structural weaknesses. A long maturity means that if a customer tries to withdraw their deposit all at once, they may run out of money to pay. In other words, Silicon Valley banks were not prepared for rising interest rates. Silicon Valley Bank's business model was perfect in the short term. In fact, operating margins have increased by 40% in the past three years. But now we're seeing the hidden costs of this risky business model.

When Silicon Valley banks went bankrupt, there were concerns that the banks were going bankrupt, and regulators immediately intervened. The government also decided to close the doors of Signatrue Bank. New York-based regional bank Signature Bank has been actively attracting customers by claiming that it is a deposit insured product of the Deposit Insurance Corporation, and high-risk virtual asset companies were on the bank's list of key customers.

It would have been different if Congress hadn't repealed the strict management and supervision provisions of the Dodd-Frank Act, and if the central bank (Fed), the parent body of commercial banks, had done more thorough oversight. If so, Silicon Valley banks and signature banks should have secured higher liquidity and had more money to withstand financial pressures such as the financial crisis. In addition, if they were subjected to periodic so-called stress tests and found structural problems or vulnerabilities, they would have been sanctioned such as business restrictions or fines. But after virtually removing all such regulations with their own hands, the so-called old-fashioned bankrun (mass withdrawal of deposits) led to the collapse of Silicon Valley banks. Signature Bank followed shortly after.

Last Sunday night, the government quickly moved forward. The government would guarantee that all deposits deposited in the two bankrupt banks could be recovered. While it's fortunate that clients like small businesses and nonprofits don't lose their money, their savings have all been preserved by multibillion-dollar conglomerates, crypto investors who have been risk-wracking themselves, and venture capital firms that have ignited bank runs. For the government, it was most important to prevent banks from going bankrupt, so this is an unavoidable measure.

In doing so, the government drew a clear line. The tax would not bail out the two banks. In other words, the cost of paying customers' deposits first by the government must ultimately be paid by the banks that caused the problem. We'll have to wait and see if that really happens. But people have not blinked an eye to forgiving or bailing out student loans that have spiraled out of control, and have lost confidence in the system itself, which will allow multibillion-dollar virtual asset companies to get back their deposits without losing a penny.

silverThe fear that the row might go bankrupt was preventable from the start. Even now, we must act to prevent something similar from happening again.

First, Congress, the White House, and financial authorities must immediately revive the financial regulations that President Trump has loosened. Congress should reverse the 2018 law that drastically eased regulations that local banks such as Silicon Valley banks must follow. Similarly, Fed Chairman Jerome Powell should acknowledge that the entire U.S. economy is in trouble because banks keep doing dangerous things in line with deregulation, and he should implement the necessary regulations immediately.

Financial authorities should take this opportunity to take a closer look at whether there are any other dangers lurking across our financial system. A number of elected officials, including Republican senators, pressured Chairman Powell not to imprison banks for regulation until days before the Silicon Valley bank abruptly closed. If you really want voters, what you need to ask financial authorities is not deregulation, but stronger regulation, governance and oversight.

Second, regulators need to reform deposit insurance regulations. In other words, funds used for the company's day-to-day financial operations, such as paying workers or paying for goods, must be protected under any circumstances. It should also specify that the cost of protecting deposits that exceed the usual protection limits is borne directly by the financial institution that actually makes the decision to take risks. It should never happen again that large corporations leave huge sums of money in banks that are not even in deposit protection regulations and expect the government to look after them if something happens, or actually give guarantees to them.

Finally, to prevent this dangerous thing from happening again, we need to tear down the current crooked structure in which those responsible are not held accountable but instead take huge rewards. According to the government's announcement, shareholders of Silicon Valley Bank and Signature Bank will not receive any compensation. But the bank's management must also be held accountable for making risky decisions. Becker, the CEO of Silicon Valley Bank, earned a total of $9.9 million (13 billion won) last year. This includes a $1.5 million bonus for leading the bank's excellent performance. Of course, the risk posed a risk by operating funds between the regulations and the damage, but that was not reflected in the bonuses.