These are from a former student and I’ll probably have more of my own.

A former student of mine at the University of Rochester’s Graduate School of Management, whom I hadn’t heard from in over 40 years, emailed me on the weekend and gave me permission to quote him. He had read my Hoover Defining Ideas article in which I argued against the bailout of Silicon Valley Bank.

Here’s his first email:


I am a former PhD student of yours at Rochester in the late 1970s. I eventually graduated with a dissertation concerning political risk and multinational firms. After teaching for a while, I moved on to the SEC, then Treasury, and finally ended up at the FDIC, in the TOO BIG TO FAIL group, and retired soon after, frustrated that our group was not making any serious progress in regulating such institutions. I just wanted to confirm that your analysis of the multiple failures concerning the SVB failure is spot on. Additionally, the $250K limit on deposit insurance should promote closer scrutiny of the bank by larger depositors. Eliminating or weakening that protection limit, as was done in this case, would likely result in less private sector scrutiny of bank behavior, not what is needed.

Anyway, keep up the good work,

Frederick J. Patrick, Ph.D.

I taught at the U. of R. from August 1975 to July 1979. I replied to thank him and then he replied with more details:


Thanks so much for your response. I’m fully retired now and have been for a while, but I still maintain a few contacts at the agencies where I worked.

Oddly enough, I was working at the Office of Thrift Supervision as the Director of Credit Policy when Washington Mutual failed in 2008. About a year earlier, I gave a speech at the annual meeting of the federal banking agencies that was titled “There’s a tunnel at the end of this light” that characterized the mortgage market as being fueled by rising house prices, low unemployment, and low interest rates, a rare combination that was unlikely to last. Given the environment, Washington Mutual was engaged in making many NINJA mortgages that required virtually no underwriting (No Income, No Jobs, No Assets), a practice that was tolerated because rising house prices were thought to likely cover any defaulted mortgages. When pushed on this, WaMu said that if it didn’t make these types of loans, it would be out of the mortgage business. A year later it was, indeed, out of the mortgage business, with the largest bank failure in our history.

The structure of OTS was such that it unintentionally abetted such practices. There were five regional heads of supervision, the idea being that there was substantial regional variation in lending practices and standards. For example, mortgage default rates were much lower in Minnesota than in New York, perhaps driven by cultural standards. So having regional directors with substantial autonomy made sense. However, it was my understanding that the budget for the regional supervision was based only on the size and vitality of the institutions under its supervision. The regions did better when their institutions did better.  WaMu was huge and growing quickly …

Anyway, the lesson learned at Rochester that the incentives that individuals face matter in making business decisions has proved remarkably resilient, be it accounting practices (Paul Healy’s dissertation) or political risk, among others.

Please feel free to quote my earlier missive.  And, to address equality issues of my own, my wife and I took the same last name when we married in 1979 – it’s Phillips-Patrick, so I’m legally Frederick Phillips-Patrick.  (And on an entirely different note, after we married, we spent the ’79-’80 school year in London, where I attended the London School of Economics. It turned out that my faculty advisor was Janet Yellen, who was visiting the LSE that year. How ironic!)

Again, great to hear from you,