European lawmakers are quietly muffling U.S. regulators over SVB's collapse

March 27, 2023: U.S. regulators made in failing to prevent the collapse of Silicon Valley Bank and different financial institutions; the lawmakers in the European Union believe this is a moment for some European self-assessment.

Silvergate Capital, a bank focusing on cryptocurrency, was the first to fall, saying on March 8 that it would cease operations. Shortly after, Silicon Valley Bank is not successful after a run-on deposit. Signature Bank, which focused on real estate firms, saw deposit outflows leading regulators to stop the bank, preventing contagion.

Since then, First Republic Bank has received support from other banks despite fears of a broader shock to the fiscal system. And in Switzerland, a non-member of the European Union, authorities are rescuing Credit Suisse by asking UBS to step in with an acquisition.

Therefore, regulators and European Union officials have been nervous about potential contagion to their banking sector. After all, it’s not long since European banks were in the depths of the international financial crisis.

“There is no direct read all over of U.S. events to euro area huge banks,” Andrea Enria, the European Central Bank’s supervisory board chair, said on Tuesday. Like him, many officials have tried to stress that the European banking system is in a much better share compared to 2008.

This reinforces the idea in the EU that the U.S. should learn from a few of the regulations put in place in the euro area from the financial situations.

“You need stronger norms in that sense; the U.S. is lacking a few controls,” Paul Tang, a lawmaker and a people of the European economic committee of the Parliaments, said.

When asked if U.S. regulators made a few mistakes, thus failing to prevent the recent banking turmoil, he said. “I think so; you need to have scrutiny. That was the message from 2008.”

In the centre of European policymaking, in Brussels, an official, who is not wanting to be named because of the politically sensitive nature of the topic, said that several meetings among EU officials in the latest days “stressed the failures of regulation, especially when compared with the EU.”

One of the keys is that the U.S. has a more relaxed couple of capital rules for smaller banks.

“The main distinction is the Basel III requirements,” Stéphanie Yon-Courtin, someone from the European Parliament, said. “These banking rules,” she further stated, “apply to very few banks. This is where the problem lays.”

Basel III is ready for reforms that strengthen banks’ supervision and risk management and has been developed since 2008.

It applies to the extreme European banks, but American lenders with a less than $250 billion balance sheet can follow them.