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The banking sector ETF (XLF) ended the first quarter of the year down nearly 6% after the failures of Silicon Valley Bank and Signature Bank. Investors continue to consider the implications the banking crisis may have on markets and the Fed’s fight against inflation. Yahoo Finance’s Jennifer Schonberger sat down with Rohit Chopra, Director of the Consumer Financial Protection Bureau, to discuss the recent bank failures. Chopra blamed in part the rollback of provisions from Dodd-Frank saying “…there’s no question in my mind that several years ago there was deregulation that occurred, assuming that banks of a certain size would not create risks to the entire economy, and that fundamental assumption was wrong…” You can see more of the interview with Chopra here. Key video moments: 00:53 On the safety of deposits 01:50 On causes of banking crisis 03:40 On banking safeguards needed 04:50 On role of social media in bank crisis 6:00 On possibility of raising the level of deposit insurance
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The collapse of Silicon Valley Bank (SVB) earlier this year has sent shockwaves through the banking industry, with many questioning whether appropriate regulations were in place to prevent such an event from occurring. However, recent comments from Consumer Financial Protection Bureau (CFPB) Director, Rohit Chopra suggest that assumptions made about the risks associated with banking regulation may have been wrong.

Chopra, speaking recently at a hearing before the Senate Banking Committee, said that SVB’s collapse revealed that there was much to be learned about the effectiveness of banking regulation. He noted that prior to the collapse, many regulators had assumed that the risks associated with banking regulation were relatively low, particularly when it came to tech-focused banks such as SVB. However, the collapse of SVB has shown that these assumptions were incorrect.

According to Chopra, the risks associated with banking regulation are greater now than they have ever been due to the proliferation of technological innovation within the banking industry. He said that the rise of fintech and other non-traditional financial service providers had made it more difficult for regulators to keep up with the various risks associated with modern banking practices.

While Chopra’s comments may seem alarming, they highlight the need for regulators to take a closer look at the risks associated with banking regulation. In particular, they underscore the importance of regulators being proactive in their efforts to identify potential risks and vulnerabilities within the banking industry, rather than simply reacting after a collapse has occurred.

To this end, Chopra called for greater collaboration between regulatory agencies and the financial sector, as well as increased transparency when it comes to the risks associated with banking regulation. He also suggested that regulators should take a more data-driven approach to identifying potential risks and vulnerabilities, using technology to better understand the various factors that contribute to bank failures.

Overall, the collapse of SVB has raised important questions about the effectiveness of banking regulation and underscored the need for a more proactive and data-driven approach to managing risk within the banking industry. While there is no magic formula for preventing banking collapses, the comments of the CFPB Director suggest that there may be room for improvement when it comes to identifying and mitigating the risks associated with modern banking practices.