Douglas Diamond

We had initially prepared an entirely different episode for today, but last week's Silicon Valley Bank collapse, the largest in U.S. history since 2008, meant a quick change of plans.What happened? What is unique about this bank run, and what isn't? How much should regulators be blamed, and how much should bank management be? Do social media and today's frantic digital environment mean this is the end of banking as we know it?Luigi and Bethany talk to two experts with unique insights into the crisis: Chicago Booth Professor Douglas Diamond, who won the 2022 Nobel Prize for his decades-long work on bank runs, and Eric Rosengren, former Boston Fed President, for his view as a regulator. They discuss the factors that led to the collapse, including risky lending practices, lack of oversight, and the challenges of regulating the rapidly evolving world of banking. They also explore the broader implications of the collapse, including the impact on the broader financial system and the role of regulation in promoting financial stability.Show Notes:Nobel Laureate Douglas Diamond on How the Fed Could Have Prevented SVB’s Collapse, by Brooke Fox, on ProMarketHow Do We Avoid the Next SVB? by Chicago Booth Professor Anil Kashyap, on ProMarketLink to the advertised Chicago Booth Review podcast: https://www.chicagobooth.edu/review/podcast?source=cbr-sn-cap-camp:podcast23-20230320 Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Douglas Diamond, a Nobel Prize-winning economist and finance professor at the University of Chicago Booth School, delves into the intricacies of banking and financial crises. He reveals how bank runs are often self-fulfilling prophecies, fueled by short-term debt's risks. Diamond shares his first-hand experience advising on the 2008 financial crisis and critiques the regulatory reforms that missed critical warning signs. He even likens the 30-year mortgage to Michael Corleone, cautioning that good ideas can go awry when they're poorly managed.