How to End the Sins of Supervisory Omissions and Bail-Out Commissions

The reason the FDIC sold First Republic to JPMorgan is that it didn’t want to do yet another resolution that bailed out uninsured depositors.  The reason the FDIC didn’t want to backstop more uninsured depositors is that it would have had to say First Republic was as systemic as SVB and Signature Bank and this was nowhere near as credible.  The reason the FDIC had to find these two earlier failures systemic was because it couldn’t think of anything better and the reason it couldn’t think of anything better in any of these resolutions is that it was wholly unprepared for them and, now, for any of the others that may come suddenly upon us.  The FDIC must quickly rewrite its resolution playbook, but even a good one won’t work without a new set of triggers for meaningful prompt corrective action that forces change at troubled banks and readies the FDIC for resolution – not bail-out – if change doesn’t come quickly.