Policymakers also need to recognize the limits of government oversight as a

substitute for market discipline. Banks should be required to raise more money from
shareholders, who have a strong incentive to keep an eye on the way that money is
used, since they can lose all of it. Money raised from shareholders is called
capital, and banks have far less of it than other kinds of companies. They are
allowed to borrow most of the money they use from lenders and depositors. If, for
example, banks were required to raise 20 percent of funding from shareholders, that
would still be well below the norm for other kinds of companies but enough that it
might have covered Silicon Valley Bank’s losses and saved the bank.

Congress should also require clawbacks of executive compensation and dividends at

failed banks. If bankers are required in the future to return some of what they
have gained from their poor decisions, it might have a sobering effect.

The government does not want to describe its actions as a bailout because voters
don’t like bailouts. The customers of Silicon Valley Bank, in particular, have been
loudly unhappy to be described as the beneficiaries of a bailout because that’s an
embarrassing thing to be; it contravenes the mythology of Silicon Valley as a
scrappy frontier where people build the future without help, or oversight, from the
government.

But the success of both the financial industry and Silicon Valley has always
depended on government aid and prudent regulation. This bailout is necessary
because the government was not paying enough attention. Policymakers ought to be
honest about those mistakes and be clear about the steps they will take to avoid a
repeat.