Bank failures in 2023 such as Silicon and Signature banks were most likely due to ineffective risk

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Bank failures in 2023 such as Silicon and Signature banks were most likely due to ineffective risk management. According to the U.S. Government Accountability Office both of these banks took on a significant number of uninsured deposits that accounted for large portions of their total assets, whereas banks relative to their size had about half of this amount.(U.S. GAO, 2023)To put it plainly the banks took on too many risky assets and could not insure or guarantee these assets which caused them to lose a large amount of liquidity which is important for banks in general. By not being liquid in combination of rising interest rates the banks cannot meet the demand of depositors. If situations like this continue where banks take on more uninsured assets and depositors want their money the banks will dissolve due to not being liquid.

After 2007-2009 financial crisis where we saw the biggest bank failure in history in Washington Mutual,the U.S. GAO stated that even though the regulators identified these issues the corrective actions they took either did not work or came too late to prevent failures such as SVB and Signature. In order to correct these issues from happening in the future Congress needs to order that the banks can only take on a certain threshold of uninsured assets. This can help solve things such as what happened with both of the banks mentioned above. Also current ratio tests should be conducted on banks quarterly to test the liquidity of the banks. By doing this it can resolve issues such as liquidity due to the banks taking on unnecessary risk just to do more business.

The auditors here eventually did their jobs, but it was too late. Due diligence should be done on banks regularly. This should include current ratio tests, uninsured assets being monitored on a regular basis, and finally auditors should be giving reports on the overall health of the banks in order to make sure situations like this do not happen again. The ethical responsibility for the banks is simple. Make sure that you are liquid enough to disburse all deposits that have been made. Silicon and Signature proceeded to take on more and more uninsured assets than they could handle, so when it came time to disburse depositors money they could not due to not being liquid. To me both of these banks were acting unethically to pad their financial statements. The banks have an ethical duty to the people who deposit money in their institutions to be able to have their money on command if needed. I believe that all banks need more regulations for cases like this and for future issues that will almost certainly occu

Directions: For your response posts, address the following, based on the details provided in your peer's post above:

Do you agree with your peer on whether a similar event could happen in the future? Why or why not?
Consider additional preventative steps that could be put in place that your peer did not mention. How might these steps prevent a future bank failure?