Steve Mnuchin is betting regulators don’t want NYCB to become another SVB

Former Treasury Secretary Steve Mnuchin is making a big bet that regulators don’t want NYCB to become the next SVB.

He and an investor group completed their $1 billion deal to inject new capital into troubled lender New York Community Bancorp (NYCB) just days before the one-year anniversary of the government seizure of California lender Silicon Valley Bank (SVB). That March 10 failure in 2023 triggered widespread panic in the banking system.

Mnuchin apparently tried to make certain this was OK with regulators. He told CNBC he had “extensive” conversations with the Federal Reserve and the Office of the Comptroller of the Currency, and they supported the injection.

There is a likely reason why: What regulators learned from the upheaval of a year ago is that they want to fix problems at individual banks before it’s too late — and certainly before a surprise seizure causes undue panic in the financial markets.

“We were not quick enough, we were not effective enough,” Fed Chair Jay Powell told Senate lawmakers Thursday, referring to the Fed’s supervision of SVB. The lesson was that “earlier interventions and more effective ones” need to happen going forward.

Not only is a private solution for a troubled lender usually preferable to a public one, it’s also cheaper for the wider banking system.

“From the FDIC’s standpoint, anytime you could have an open bank solution that doesn’t involve the Deposit Insurance Fund, that’s a good thing,” Mitchell Glassman, an adviser with Secura/Issac, told Yahoo Finance.

No one “wants to undertake that burden, if they can avoid doing so,” added John Popeo, a financial consultant and former attorney with the FDIC.