They Learned Nothing from 2008

A decade later, Washington repeated every mistake it once swore off.

Small-bank relief was the costume. A Wall Street payout was the show.

In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act arrived with a friendly story about Main Street.

The script said Dodd-Frank rules were choking small lenders, so lighten the load and credit would flow. The marketing worked.

The results tell a different story. The law lifted the SIFI threshold from 50 billion in assets to 250 billion. Twenty-five of the 38 largest banks slipped out of tougher supervision and stress tests.

The windfall was concentrated where power already lived. The documents point to a massive 2.6 trillion in balance-sheet capacity unlocked, with the largest firms capturing the bulk of it. Community banking made a nice backdrop. The capital went to the giants.

JPMorgan Chase was modeled to free up about 39 billion in capital. Analysts projected a 31 percent jump in earnings per share and a 7 percent lift in return on equity.

A capital optimization strategy packaged as populism.

The money did not sit idle. It supported lending, yes, but also flowed into high-growth bets like AI and data-center buildouts. And it juiced shareholder payouts through dividends and buybacks. Deregulation reliably finds its way to activities that please investors first.

Then March 2023 arrived. Silicon Valley Bank and Signature failed. SVB lived in the newly tailored tier, the very band that enjoyed lighter scrutiny between 100 and 250 billion in assets. Interest-rate risk was mismanaged. Unrealized losses piled up as rates rose. When withdrawals went digital and accelerated, the balance sheet could not keep pace.

A Federal Reserve review found the regulatory standards for SVB were too low. Lax supervision let obvious risks grow until a run made them catastrophic. Liquidity rules for this cohort were not built for a world where panic moves at push-notification speed.

Read the primary document: Federal Reserve review of SVB.

Policy is now walking back the experiment. The Basel III Endgame proposals aim to re-tighten capital and expand tougher standards to banks above 100 billion in assets. Resilience is taking priority over capacity. That reversal will blunt much of the headline 2.6 trillion gain, which increasingly looks theoretical rather than durable.

Good explainer: CRS brief on Basel III Endgame.

Financial safety is not a nuisance to be waved away. It is a cost of doing business in a system that fails loudly when corners get cut. Dress a subsidy for the largest players in Main Street clothes and the bill eventually lands on everyone else.

Deregulation sold as relief shifted risk into a space that supervision no longer covered, then feigned surprise when predictable failures hit. The new rules will rebuild buffers, but the impulse to chase capacity over stability is still there, waiting for the next friendly narrative.