The abrupt failures of Silicon Valley Bank and Signature Bank and subsequent concerns about the stability of other banks have reignited a fierce debate among lawmakers, the financial industry, the Biden administration and former government officials about an array of banking reforms and regulatory changes.

The ideas floated within a month of Silicon Valley Bank’s collapse on March 10, 2023, range from calls to tweak banking regulations to a major overhaul of the government’s oversight of the banking system.

I’m a finance professor who previously worked for two major banks and was an economist at the Federal Reserve. Based on what I’ve learned from the banking crises that have occurred in the past 40 years, I’d put all the banking reform proposals under consideration into five categories.

1. Stronger supervision

Silicon Valley Bank reportedly ignored six separate warnings from the Federal Reserve Bank of San Francisco that it had too little cash on hand and was engaging in risky practices. So calls for stronger bank supervision and regulation should come as no surprise.

Any such reforms would at least, in part, reverse changes from a law Congress passed in 2018 that loosened some banking regulations.

Previously, the government had to pay especially close attention to banks with at least US$50 billion in assets. Among other things, it needed to subject them to stress tests – in which the authorities assess whether banks have the ability to respond to hypothetical economic shocks – by having enough cash on hand to meet relatively strict capital requirements.

The 2018 law raised the cutoff for what counts as a “systemically important” bank to $250 billion in assets, thus allowing many banks, including SVB, to avoid these more stringent regulations.

The White House has already called for new rules similar to what’s listed above for mid-sized banks — those with $100 billion to $250 billion in assets. SVB, which had about $210 billion in assets, fell in this category before its demise.

Sen. Elizabeth Warren of Massachusetts and Rep. Katie Porter of California have introduced legislation in the Senate and the House of Representatives that would simply repeal the 2018 law, returning the threshold to $50 billion.

Major banking trade groups, such as the Bank Policy Institute, which advocates on behalf of its large-bank members, have argued that the 2018 law was not a major factor in the failures of SVB and Signature Bank.

2. Higher deposit insurance threshold

The role that deposit insurance plays in staving off and alleviating banking crises could also change.

The Federal Deposit Insurance Corp. was only supposed to insure accounts of up to $100,000 during the 2008 financial crisis. But instead, it covered nearly all depositors, uninsured as well as insured, in most bank failures that occurred at that time.

The government subsequently raised that limit to $250,000 in October 2008. But the FDIC once again broke with its official mandate when it protected depositors from losses in excess of that ceiling during the March 2023 bank failures.

Some lawmakers have suggested raising the $250,000 cap on deposit insurance.

Rep. Maxine Waters, the highest-ranking Democrat on the House Financial Services Committee, says she supports that step. And Warren has suggested that she might support new limits that are in the millions of dollars rather than the hundreds of thousands.

“Is it $2 million? Is it $5 million? Is it 10 million?” she said in a television interview.

But those lawmakers have so far stopped short of calling for the FDIC to commit to always fully covering all losses among customers who experience losses when bank failures cause their deposits to vanish – rather than doing so on a case by case basis.

FDIC Chair Martin J. Gruenberg told the Senate Banking Committee during a recent hearing that the insurer plans to release its own proposals on May 1.

3. ‘Modified deposit payoff’

Other proposals go further.

For example, William Isaac, who chaired the FDIC from 1978 to 1986, is calling for the government to insure all non-interest-bearing checking accounts, regardless of size. But he also has a recommendation that might potentially discipline banks that run into trouble.

Isaac distinguishes between deposits that are essentially investments, such as certificates of deposit that people use for long-term savings purposes, and, say, a checking account a customer maintains primarily for basic transactions.

Investors with large sums of money held in CDs are generally wealthy individuals who can either assess financial risks on their own or with input from a paid adviser. People with CDs also have an incentive to leave them with the bank, because withdrawing the money tied up in them before maturity can mean paying a penalty or forfeiting the high interest rates that make them attractive investments.

Isaac also advocates returning to the way uninsured deposits – currently, those above the $250,000 mark – were treated in the 1980s. He calls this the “modified deposit payoff” model.

In resolving a bank failure, the FDIC would cover the full cost of compensating customers with uninsured deposits that don’t pay any interest, yet give uninsured depositors certificates worth 80% of their uninsured funds.

If the government were to recover at least 80% of its cost of covering the uninsured deposits, often by selling failed banks to financial institutions, investors with large deposits at a failed bank would get paid more, Isaac explained in a Wall Street Journal op-ed.

“This reform would protect business accounts that are essential to keeping the economy moving and would reduce substantially the risk of panics,” he wrote.

4. ‘Ring-fencing’

The most comprehensive proposals that call for restructuring the banking system would use what’s known as a “ring fence” model.

Ring-fencing segregates a portion of bank assets and liabilities from the rest. The United Kingdom already follows this approach.

Since 2019, British banks have had to segregate their retail banking activities from their presumably riskier investment banking and international lending.

The most radical of these proposals would lodge all insured deposits in “narrow banks” which would be allowed to hold only cash and U.S. Treasury securities.

All bank lending activity would occur outside of narrow banks, perhaps in finance companylike firms funded with uninsured borrowing and capital instruments such as stocks and bonds.

Economist Robert Litan wrote a book about narrow-banking in the 1980s, but the idea can be traced back to Milton Friedman – the late University of Chicago economist and Nobel Prize winner.

Banks are typically required to set aside a portion of their deposits as reserves held either as cash or deposits at their local Federal Reserve bank. However, the Fed reduced that share to zero in March 2020 – effectively eliminating the requirement altogether.

Some experts question whether ring-fencing, by preventing the transfer of capital among bank subdivisions, might make banks less flexible in responding to financial shocks – and therefore riskier.

Critics of the narrow-bank model point out that this approach would drastically reduce the amount of money banks could lend. As a result, systemic risks would shift from real banks into “shadow banks” – securities firms, hedge funds and other credit intermediaries that face less regulation and supervision. Shadow banks contributed to the 2007-2009 global financial crisis, according to the International Monetary Fund.

5. Compensation clawbacks

At the heart of the debate about banking reform is “moral hazard.” That’s a concept regarding how insurance can create an incentive to take bigger risks when people, institutions and even countries realize they won’t bear the full cost of that risk.

One way to reduce risks in this context is to make bank executives bear some of the costs when the banks they run fail.

A bipartisan group of senators have introduced a bill to do just that. It would require regulators to claw back compensation, including the bonuses and stock awards paid to bank executives in the five years preceding a failure.

In my view, it’s too early to tell whether policymakers will make minor adjustments or opt for more significant reforms.

One thing that I hope all policymakers will keep in mind is that there are trade-offs between the financial stability of banks and market discipline. Offering too much government support – such as insuring all liabilities in the event of a bank failure – creates incentives for banks and their customers to ignore risks or to engage in risky behavior.

This article was updated to clarify Robert Litan’s contributions to the debate over banking reform.

Brian Gendreau, Director, Latin American Business Environment program, University of Florida

This article is republished from The Conversation under a Creative Commons license. Read the original article.

If you’re feeling the misery of allergy season in your sinuses and throat, you’re probably wondering what nature has in store for you this time – and in the future.

Pollen allergies affect over 30% of the global population, making them a significant public health and economic issue as people feel ill and miss work. Our research shows that, as greenhouse gases warm the planet, their effects are driving longer and more intense pollen seasons.

To help allergy sufferers manage their symptoms in our changing climate, we’re building better pollen forecasts for the future.

As atmospheric scientists, we study how the atmosphere and climate affect trees and plants. In a 2022 study, we found that the U.S. will face up to a 200% increase in total pollen this century if the world continues producing carbon dioxide emissions at a high rate. Pollen season in general will start up to 40 days earlier in the spring and last up to 19 days longer than today under that scenario.

While most studies focus on pollen overall, we zoomed in on more than a dozen different types of grasses and trees and how their pollen will affect regions across the U.S. in different ways. For example, species like oak and cypress will give the Northeast the biggest increase, but allergens will be on the rise just about everywhere, with consequences for human health and the economy.

Why pollen is increasing

Let’s start with the basics. Pollen – the dustlike grains produced by grasses and plants – contains the male genetic material for a plant’s reproduction.

How much pollen is produced depends on how the plant grows. Rising global temperatures will boost plant growth in many areas, and that, in turn, will affect pollen production.

Warmer temperatures will extend the growing season, allowing plants to grow and emit pollen for longer periods. But temperature is only part of the equation. We found that a potentially greater driver of the future pollen increase will be rising carbon dioxide emissions from sources such as vehicles and power plants. Carbon dioxide fuels photosynthesis, leading to increased growth and the potential for more pollen production.

Pollen changes will vary by region

We looked at 15 different pollen types, rather than treating all pollen the same as many past studies have. Our study found that the amount of pollen increase in a specific region depends on the types of vegetation.

Typically, pollination starts with leafy deciduous trees in late winter and spring. Alder, birch and oak are the three top deciduous trees for causing allergies, though there are others, like mulberry. Grass pollen becomes more prevalent in the summer, followed by ragweed in late summer. In the Southeast, evergreen trees like mountain cedar and juniper (in the cypress family) start in January. In Texas, “cedar fever” is the equivalent of hay fever.

We found that in the Northeast, pollen seasons for a lot of allergenic trees will increasingly overlap as temperatures and carbon dioxide emissions rise. For example, it used to be that maple trees would release pollen first, and then birch would pollinate. Now we see more overlap of their pollen seasons.

In general, pollen season changes are greater in the northern United States than in the South, because of larger temperature increases in northern areas in future climate projections.

Southeastern regions, including Florida, Georgia and South Carolina, can expect large grass and weed pollen increases in the future. The Pacific Northwest is likely to see peak pollen season a month earlier because of the early pollen season of alder.

Allergy problems are already on the rise. A study in 2021 found that the overall pollen season was already about 20 days longer in North America than it was in 1990 and pollen concentrations were up about 21%.

Silver lining: We can improve pollen forecasting

Most pollen forecasts right now provide a very broad estimate of where and when pollen counts will be high. Part of the problem is that there aren’t many observing stations for pollen counts. Most are run by allergy clinics, and there are fewer than 200 of these stations distributed across the country. Michigan, where we live, doesn’t have any that are currently operating.

It’s a very labor-intensive process to measure different types of pollen. As a result, current forecasts have a lot of uncertainties. These likely are based in part on what a station has observed in the past and the weather forecast.

Our model, if integrated into a forecasting framework, could provide more targeted pollen forecasts across the country.

We can estimate where the trees are from satellite data and on-the-ground surveys. We also know how temperature influences when pollen comes out – what scientists call the phenology of the pollen. With that information, we can use meteorological factors like wind, relative humidity and precipitation to figure out how much pollen gets into the air, and atmospheric models can show how it moves and blows around, to create a real-time forecast.

We’re currently working with a National Oceanic and Atmospheric Administration lab about ways to integrate that information into a tool for air quality forecasting. Our next step is to evaluate these forecast tools and make information available to the public.

There are still some unknowns when it comes to long-term pollen projections. For example, scientists don’t fully understand why plants produce more pollen in some years than others, and currently we cannot include these changes in our models. It’s also not fully clear how plants will respond if carbon dioxide levels go through the roof. Ragweed and residential trees are also hard to capture. There are very few ragweed surveys showing where these plants are growing in the U.S., but that can be improved.

This is an update to an article originally published March 15, 2022.

Yingxiao Zhang, Ph.D. Student in Atmospheric Science, University of Michigan and Allison L. Steiner, Professor of Atmospheric Science, University of Michigan

This article is republished from The Conversation under a Creative Commons license. Read the original article.