Big Banks Are Supposed to Fail Without Causing Panics. Is That Even Possible?

livemint.com:

Global regulators spent more than a decade trying to ensure that a large bank could fail without any government support. Despite this year’s bank failures, they are still working on it. Global regulators are reviewing the March failures, including Credit Suisse’s collapse and Swiss officials’ decision to push UBSto acquire its rival in a deal with billions of public money, people familiar with the probe said.

Swiss officials chose to sidestep the postcrisis plan for global megabanks, under which Credit Suisse would have been wound down by regulators or restructured into a new entity. In the U.S., regulators are considering new rules as soon as this month that would force midsize banks to add to their financial cushions in case of insolvency, people familiar with the plans said. The March failures of Silicon Valley Bank and another midsize bank prompted officials to take extraordinary steps to promise depositors they could access their money.

The tumult was far less severe than the financial crisis of 2007-09, when hundreds of banks went under and Washington injected hundreds of billions of taxpayer dollars to keep the system afloat. Still, the bank failures in the U.S. and in Switzerland have exposed gaps in the regulatory regime built up after the 2008 bailouts, some officials say.

“It is shocking to me that after 15 years of costly reform efforts, we still couldn’t resolve even a $200 billion bank like SVB without extraordinary government support," said Jonathan McKernan, a Republican member of the Federal Deposit Insurance Corp. Other regulators have expressed skepticism about the post-2008 plans for winding down failed megabanks. “We really need to look at these closely to see if they’re realistic," Rohit Chopra, the