A few weeks ago, I watched “Wall Street,” directed by Oliver Stone and starring Charlie Sheen, and “Wall Street: Money Never Sleeps” for my fraud accounting class. In light of recent events in the financial industry, I have been thinking more and more about key lessons and takeaways from these movies. 

A few weeks back, Silicon Valley Bank (SVB), the 16th-largest U.S bank with over $210 billion in assets, was seized by regulators after depositors rushed to withdraw funds over concerns the bank might become insolvent. This is the second largest bank failure in U.S history and the largest since the Federal Deposit Insurance Corp. (FDIC) was forced to take control of Washington Mutual in 2008. As a result of SVB’s collapse, clients with deposits exceeding the FDIC’s $250,000 deposit insurance limit withdrew funds from other banks, heightening concerns about possible bank runs at other financial institutions. 

Multiple other banks including Signature Bank and Silvergate Capital also were taken over by regulators. The FDIC covered costs of depositors using the fees that banks have contributed to the agency’s deposit insurance fund over the years. 

SVB failed due to leveraging too many long-term investments, which lose value with rapid Federal Reserve interest rate hikes. As interest rates surged and the economy slowed, the bank burned through their cash and drove down bank deposits. When looking at SVB alone, it shows how the bank poorly prepared for changing economic circumstances compared to the rest of the financial industry; however, looking at Signature Bank’s failure tells a different story. As recently as March 9, the company touted a “strong financial position,” yet its collapse visualizes how quickly panic can grip banking customers and deplete a bank of liquid assets. 

Regulators have touted that the overall U.S banking system is safe, and bank industry analysts have also expressed similar confidence. However, I think back to a quote from the character Gordon Gekko in “Wall Street: Money Never Sleeps,” where he defines the term “moral hazard” as a “situation in which somebody takes your money and is not responsible for it.” 

Banks and investment firms hold the money of common Americans and use it to generate a return for themselves, albeit passing some onto the depositor/investor, and continue to grow their own return. The recent bank closures illustrate the negligence and level of moral hazard that modern commercial and investment banks have. 

The closing of Signature Bank in the span of a few days based primarily on the panic/fear of bank closure from another bank highlights that there is really no bank “too big to fail.” 

Throughout all of American history, banks have failed — many due to their own moral hazard and others out of the shear demand and impacts of common investors and depositors. If a bank is well leveraged and has a strong financial position and yet can close just days later, it speaks to the power of the American investor and to how susceptible our financial industry is.

Every time a financial crisis occurs, the Treasury Department, Federal Reserve and FDIC (in more recent history) work to mitigate the damage caused by the banks. Politicians tighten regulations for a few years until lobbyists slowly work to loosen and repeal bank regulations until the next crisis. This cycle has been ongoing since the Great Depression, and loosened banking regulations is currently cited by banking industry analysts as a notable cause of SVB’s and Silvergate Capital’s collapse. The industry needs to rethink regulation of the industry, its own moral hazard and the implications of its decisions on average depositors and investors. 

History has proven time and time again that there is no such thing as “too big to fail.” Hopefully the FDIC, political leaders and other financial industry leaders can calm public concern and ensure more stringent regulation of the industry before these bank collapses and bank runs spiral out of control. 

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