[Soup] His warning, "This is a big deal," he warned, but what should I do now?

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If you look at disaster movies, there are characters that appear like clichés. Whether it's a terrifying epidemic with a high fatality rate, a tsunami, or a meteorite falling to earth, he diligently warns of catastrophe to come. Usually, the scientist plays this role, but in the movie, the scientist's warnings are usually ignored and people laugh at him. When disaster actually strikes, according to the official double track, the people of the world in the film often look for someone who showed foresight.

Last week, Silicon Valley Bank (SVB), the 16th-largest bank by assets in the United States, and Signature Bank, a smaller but fast-growing regional bank in New York, began bankruptcy proceedings two days apart.

It wasn't the dramatic disaster you might see in a movie, but the news that could freeze the entire U.S. financial market has left many people anxious. Fortunately, the government quickly intervened and announced that it would guarantee all deposits deposited by customers, putting out the fire in a hurry, but there was a lot of analysis and discussion surrounding the cause of the incident.

When it comes to financial regulation and consumer protection in the financial sector, Senator Elizabeth Warren has a similar stature to the scientist in a disaster movie. Warren, who studied and taught bankruptcy law and the common people's financial system in law school before entering politics, served as a special adviser to the Consumer Financial Protection Bureau and began her political career in earnest in 2012 when she ran for and won the Massachusetts Senate at Harvard University, where she was a professor. In 2020, he jumped into the Democratic presidential primary, where he once topped the polls, but lost to Biden.

As Senator Warren, who has warned since the 1 financial crisis that tightened financial regulations are removed and loosened one by one, "this is going to be a big deal," when two seemingly fine banks suddenly close because they ran out of money, people are recalling the words of Senator Warren. But Senator Warren herself wrote a column for the New York Times. Thank you for saving me the trouble of looking up past remarks, but it's like, "So what did I do?" It seems to be a tree. First of all, I translated the column.

▶Read the New York Times column: SVB is ruined. We Know Who Is Responsible

Now that what Senator Elizabeth Warren warned about has happened, this is probably the time when Senator Warren has the most voice. But even if not necessarily time-framed, his warning that it would be foolhardy to withdraw the safeguards put in place after the terrible crisis of 2008 when there are still risks is logically flawless.

Of course, some readers may find the nuances demonizing large corporations and large financial institutions in the middle jarring. But on the flip side, the media demonizing all regulation seemed rather modest compared to what the media was saying pointing at Senator Warren and the comments and expressions that Wall Street people I met about Senator Warren.

Vulnerabilities created by incapacitated regulations

You've probably heard a lot about how Silicon Valley Bank and its signature bank specifically got their asset management wrong in the domestic media. There is also an article on the soup, and it was covered in detail on SBS News. Here, as Senator Warren pointed out, we will look at whether regulation could have prevented that mismanagement of assets.

Silicon Valley Bank's main clientele, as the bank's name suggests, was mostly Silicon Valley tech companies. Silicon Valley's booming tech startups have fared far better than other sectors such as manufacturing and distribution throughout the COVID-19 pandemic. Silicon Valley banks, which have many high-performing corporate clients, are also seeing a surge in deposits. Banks usually set different rates of interest on deposits and loan interest on loans of money.

This margin is an important source of income for banks. But when the economy was good, Silicon Valley tech companies had little reason to borrow money from banks to build their own companies. There was a line of people willing to invest in well-to-do companies. So Silicon Valley banks, which have nowhere to lend at higher interest than the interest on deposits, invest most of their deposits in some of the safest assets in the world. They bought government-issued government bonds or government-guaranteed long-term bonds.

But when you invest in Treasuries or long-term bonds, you're betting that interest rates will remain low for a long time. If interest rates go up, bond prices will go down. You would have thought that would happen, but when it does, it catches people. As we all know, when record inflation occurred, the Fed quickly raised interest rates. As the Silicon Valley economy cools, companies that find it difficult to find investors are looking for deposits in banks. But Silicon Valley banks used that much money to buy government bonds or bonds that had to mature for a long time, so they didn't have the money to take out to customers who came looking for deposits.

That's what Senator Warren pointed out was caused by deregulation. The causes of the 2008 financial crisis were different, but one of the problems pointed out was that banks were hoarding too much money.

That's why the Dodd-Frank Act stipulates that banks and large financial institutions must accumulate and transact with a certain amount of capital and have liquidity to draw money when needed. According to the law, periodic stress tests were carried out, and failure to pass the test was subject to various sanctions.

In the immediate aftermath of the financial crisis, banks that had been pushed by public opinion to accept regulation gradually deregulated it, culminating in the Deregulation Act signed into law by President Trump in 2018. Under the Dodd Frank Act, the bar for highly regulated financial institutions has been raised from $100 billion in assets to $2 billion.

Silicon Valley banks (with less than $500 billion in assets) and signature banks are finally free of regulation. If regulations hadn't been lifted, some of the money deposited by corporate customers would have been held by banks instead of buying bonds, and there would have been no bank runs.

Federal Deposit Insurance Corporation's coverage limit of $25,<>

According to the deposit insurance plan provided by the Federal Deposit Insurance Corporation in the United States, up to $25,25 of the money deposited by a customer in the bank is covered even if the bank fails. $3,25 is more than 25 million won, and it's not easy for an individual to save this much money.

For corporate customers, by the way, it's a different story. For a business customer, $25,<> isn't that big. Silicon Valley banks, whose customers were mostly corporate customers, naturally had many customers with deposits well over $<>,<>. A high proportion of customer money received as deposits was not covered by the deposit insurance system. (Signature Bank had even higher percentages.)

Among the stress tests under the Dodd-Frank Act is a provision that requires you to increase your reserve requirement ratio or gain liquidity if you receive a large number of deposits larger than $<>,<>. Once again, Silicon Valley banks and signature banks were excluded from regulation because they were "not big banks," and as a result, they collapsed helplessly when the crisis hit.

The government has said it will first preserve the deposits through the Deposit Insurance Corporation's funds and ultimately refill them with the assets of the two banks, but it remains to be seen whether it can really do so and hold them accountable.

I'm not going to talk more about the bonus feast of bankrupt bank executives that Senator Warren pointed out in her column. While the wage gap between executives and workers in the United States is an important indicator of extreme income inequality, this topic will have a chance to be addressed at some point.

Faded Silicon Valley needs to change its perception of regulation

The Silicon Valley economy, which seemed to be on the verge of a permanent boom, has been going through ups and downs since last year when tech giants whose names you know laid off more than 10,<> people. Now, with even the iconic banks of Silicon Valley suddenly demising, the illusions surrounding Silicon Valley, which seemed like a bastion of innovation for the American dream and the future, have certainly faded.

Of course, this won't hurt Silicon Valley from losing its momentum of innovation and growth. However, I hope this will be an opportunity for Silicon Valley and tech companies to correct some skewed opinions about government regulation. That's what Sam Altman, CEO of OpenAI, the creator of today's most popular chat, tweeted after hearing about the bankruptcy of a Silicon Valley bank.