Faced with a snowballing financial panic, regulators bailed out the largest customers of the failed Silicon Valley and Signature Banks on Monday. The FDIC now insures all the two banks’ depositors, even though coverage was ostensibly limited to deposits under $250,000. The regulators hope the bailout will reassure uninsured depositors at other fragile banks. While this debacle has many causes, skewed corporate governance incentives played an important role. As financial instability beckons, the executives and directors of banks owe fiduciary duties exclusively to their shareholders, even though their depositors and even the economy as a whole are very much at risk. What caused the
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