I have been following the Globe’s coverage of the current banking crisis. Senator Elizabeth Warren argues that the 2018 roll back in regulation was the direct cause of the current crisis (”Warren blames collapse on Dodd-Frank shift, pushes to tighten rules,” Page A1, March 14). However, regulators had sufficient information to see this situation developing and chose not to take action. In particular, the Federal Reserve has been steadily increasing rates to fight inflation, and the Federal Deposit Insurance Corp. knew that unrealized losses of US banks had ballooned to over $620 billion. By the end of 2022, after record-setting rate increases and poor market performance, these regulators were aware of this dangerous situation.
The FDIC and the Fed are “prudential” regulators, meaning that they already have broad powers to question risk management practices of all these institutions, require stress testing, and ensure that banks are effectively managing assets and liabilities. These oversight bodies already have the tools and authority to oversee these institutions. The question we should be asking is why they didn’t take action to avert this unnecessary crisis.
David B. Weden
The writer was a senior specialist in asset management at the Federal Reserve Bank of Boston until March 2013.