The turmoil touched off by the collapse of Silicon Valley Bank has demolished much of what the Federal Reserve, political leaders and investors thought they had learned from the global financial crisis of 2007-09.
They assumed complex securities, too-big-to-fail banks and shadowy, lightly regulated lenders were the weak links in the system. Instead, the weak links were its mundane, ostensibly safe parts—government bonds, smaller banks and deposits.
Perhaps this will blow over with few consequences for the broader economy. But if it doesn’t, two unappetizing paths loom: Smaller and regional banks, newly exposed as fragile, may struggle to survive on their own; or the federal safety net will expand, creating new risks down the road.