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Event Recap – How Banking Instability Affects Housing Affordability

The failure of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank raised concerns about a larger financial crisis, as well as potential spillover effects in the housing market. On March 30, the Terwilliger Center Twitter Space conversation with Center Executive Director Dennis Shea and two prominent economists: Mark Calabria, senior advisor at the Cato Institute and former director of the Federal Housing Finance Agency, and Aaron Klein, a senior fellow in Economic Studies at the Brookings Institution. A transcript of the event is available here.

Both economists were confident the current instability in the banking sector is different from the circumstances that led to the 2008 financial crisis. “We’re in a different economic environment than we were in September 2008,” Calabria explained, referencing the economy’s strong job growth. Calabria described the three recently failed banks as uniquely troubled outliers. Klein concurred, adding that Signature and Silvergate were unusually exposed to fluctuations in the cryptocurrency market, while Signature had a large unhedged portfolio.

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However, both Klein and Calabria warned a mortgage credit contraction may be on the horizon. “I think…we’re going to see more regulatory scrutiny of regionals, and even some larger community banks,” Calabria said. He foresaw credit restrictions for multifamily construction loans and some individual mortgage loans tightening. Klein agreed there will likely be a credit contraction, but his concern was that depositors will move money out of the banking system into money-market mutual funds, “tilting the playing field of credit away from small businesses, away from consumers, and to government and large businesses.”

Calabria and Klein decried the Federal Reserve’s lack of proper oversight over Silicon Valley Bank. Klein described regulators as “completely asleep at the switch,” and said there were “deep structural problems” at the San Francisco Federal Reserve, where the CEO of SVB was a board member. But Calabria was wary of the need for federal intervention at this stage. He described himself as “very skeptical that [SVB] was a systemically important institution.” He continued stating, “Ultimately, what we need to have is a system where an institution like Silicon Valley Bank can go down without a problem.”

Calabria was pessimistic about the possibility of legislative reform in a divided Congress. He said any new legislation would most likely increase the deposit insurance limit, which worried him. Without uninsured depositors pushing to close failing banks, he said, regulators may move too slowly. Klein noted the Biden administration did call for legislation to increase claw backs and penalties, but agreed that raising the deposit insurance cap would be a mistake. “98% of Americans are already covered,” he said. “As a proud progressive…FDR was only interested in protecting the ordinary American family here, not corporations.”

You can follow Dennis Shea, Mark Calabria, Aaron Klein, and the Bipartisan Policy Center on Twitter, or visit for the latest updates on the Terwilliger Center. To learn more about how to make affordable homes accessible for every American family, please consider attending our 2023 Summit on Housing Supply Solutions in June. You can register here.

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