Sometimes markets change slowly as innovation or regulation transforms winners and losers. But sometimes – think now – markets undergo radical franchise-value paradigm shifts as critical structural flaws expose mortal systemic vulnerabilities. The SVB crisis is actually the fourth radical franchise-value shift I’ve seen in my financial-services career. As a result, this memo looks back at lessons learned the very hard way and then forward to constructive actions to minimize the chances of doing this all over again even sooner than before.

The first radical rewrite I witnessed came after the S&L crisis of the 1980s. In very short, once there were thousands of S&Ls and then there weren’t. Lesson: then as now, lowest-common denominator regulation combined with clueless and even captive supervisors is not a sustainable business model.

The next radical franchise-value write-down same in the early 1990s when banking followed S&Ls into the grinder. This resulted from the S&L-crisis hangover, bailout of the nation’s then-seventh largest bank, and widespread, devastating fossil-fuel and real-estate loan losses. Even harder lesson learned: then as now, supervisors waited far too long to curb growing risks and the FDIC was woefully unprepared for larger failures.

One might think that once bitten, the regulators would be twice as careful, especially given that the FDIC and supervisors had a decade after 1991 reforms to retool. Still, the globe only avoided a systemic run after Long-Term Credit Management blew in 1998 thanks to a Fed-orchestrated bailout and then the largest failure ever in 2001 unmasked how little the agencies had done to ensure effective risk management in the absence of external shock. As I detailed last week, much demanded by Congress in 1991 that should have been obvious long before 2001 remained undone.

Lessons unlearned, hearings over, the U.S. mortgage market went from risky in 2002 to insane by 2008. The system blew up yet again, bailouts rained down upon the financial system for both banks and nonbanks, and yet another radical franchise-value rewrite began. This one went even farther to empower shadow banks as regulated ones came under new rules that redefined every line of business and drove them out of more than a few.

By 2019, regulators did nothing to staunch the swift advance of shadow banks even as banks pulled out of systemic-critical activities. The repo implosion that year showed that asymmetric regulation is high-risk regulation, leading to yet another Fed bailout that gave the market still more room to run free until Covid caught everyone and most especially all the regulators by surprise all over again.

In 2011, we saw this coming and we’re not the only ones. Now, Secretary Yellen has called for likekind rules for likekind risk, but the White House release later that afternoon pressed instead only for a bank-rule rewrites even though most rules as written clearly allow supervisors to take the actions they nonetheless neglected at SVB, Signature, Silvergate, and other high-risk banks.

What we may now be witnessing is a whitewash in which a few supervisors take a fall, regulators blame their wayward charges, still more asymmetric rules are written that are then half-heartedly enforced at outlier entities, finance migrates farther outside the reach of risk-managing banks, and we go boom all over again even faster than ever. I really don’t want to see a fifth radical franchise- value transformation borne of foreseeable lapses at unrepentant regulators, but the auguries are not fortuitous.