The banking meltdown over the past week has left us with more questions than answers. The stunning collapse of two American banks and the loss of investor confidence in Credit Suisse led to wild market swings and put Wall Street on edge.
During CNN’s primetime special, “Bank Bust: Inside the Collapse of SVB,” experts weighed in on how to best understand what’s happening in a rapidly developing and confusing environment for financial institutions.
CNN’s chief business correspondent Christine Romans says this is not a repeat of the 2008 global financial crisis, because banks aren’t carrying toxic assets.
“They’re not allowed to anymore,” Romans explained. “They don’t have all that garbage, that junk on their balance sheets anymore. They have to have better capital set aside, and the big banks have to undergo stress tests.”
However, Romans noted that smaller banks like SVB don’t face quite the same regulatory scrutiny as their larger peers.
“The verdict is out on the controversy about whether some of these smaller banks were allowed to not partake in all of the … regulations, and maybe that left them more exposed,” Romans said.
Some context: Those regulations passed in the wake of the Great Recession laid out stricter rules for the banking industry. But small and mid-sized banks — those with assets below $250 billion, like SVB — were exempted from some of the rigorous capital requirements applied to larger institutions, and from the obligation to undergo tests of their ability to withstand financial stress by the Federal Reserve each year.