2023 Banking Turmoil in Retrospect

Single-name credit default swaps help investors manage risk, but the 2023 financial crisis showed how these opaque derivatives can suddenly throw financial markets into turmoil. Randy Priem argues that mandatory central clearing, which some authorities have suggested as a solution to managing this risk, is not the holy grail solution they believe it to be.

Looking back at the March 2023 collapse of Silicon Valley Bank and the subsequent banking crisis, Stephen G. Cecchetti and Kermit L. Schoenholtz highlight two lessons that should guide the reform of bank regulation.

The 2023 banking crisis that took down four banks, including Silicon Valley Bank, by all appearances appears to have been resolved by public intervention. Yet, Viral Acharya and Raghuram Rajan argue, this leaves many of the underlying weaknesses that contributed to the bank failures unaddressed. Moreover, while the authorities’ temporary fixes have stopped the panic, the system will have to absorb more unrecognized losses over time.