From WSJopinion: Losses at SVB, Signature and other banks reflect the risk from borrowing short and lending long, write Charles W. Calomiris and Phil Gramm
It’s natural to look to the 2008 subprime crisis for insights about why our banking system is at risk. But that crisis was a housing finance collapse driven by government policies encouraging banks to take enormous default risk in the mortgage market to promote housing policy. The 1980s offer a better perspective on our current banking instability.
Between 1980 and 1994, 1,617 banks and 1,295 thrifts either were closed or received government assistance. For thrifts, the story began with a government mandate forcing them to specialize in long-term mortgage loans funded with deposits. As the Federal Reserve raised rates, funding costs rose and many thrifts became insolvent.
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