Last weekend the Federal Deposit Insurance Corporation (FDIC) announced that it would cover uninsured depositors of Silicon Valley Bank and Signature Bank, asserting the lenders pose a "systemic risk." During a recent appearance on Yahoo Finance, former FDIC Chair Sheila Bair questioned that decision.

"I think the communications around this by the regulators needs to really be crystal clear why they view these two banks as systemic. What was systemic about it?" she told Yahoo Finance. "The uninsured depositors probably wouldn't have had to take that many losses." More than 85 percent of Silicon Valley Bank deposits and roughly 90 percent of Signature Bank’s deposits were uninsured at the end of last year, according to bank filings.

The two banks were bigger than most in the US but nowhere near as large as giants like Bank of America (BAC) or Citigroup (C). Silicon Valley Bank had $209 billion in assets as of Dec. 31, according to the FDIC, while Signature Bank had $110 billion. Bair remains unsure those figures warrant the “systemic” designation.

"That may sound big. But it's a $23 trillion banking system. So as a percentage, really not," said Bair, who was in charge of the FDIC during the 2008 financial crisis and participated in the largest-ever bank seizure when regulators took control of Seattle's Washington Mutual and sold the bulk of its operations to JPMorgan Chase (JPM).

Bair said that the "systemic" designation could trigger further panic from other banks.

"That's a problem when you do these one-off interventions, bailouts. I would call it a bailout. It makes other banks and other bank depositors jittery," Bair said. "So it's not clear that this calmed nerves. It may have created more fear about risk in the banking system. So we will have to wait and see how this all plays out."

Bair stated that she knew of "half a dozen banks or so" that were having "accelerated uninsured deposit pressures," but declined to name them.

Silicon Valley Bank's troubles accelerated last week after it announced a $1.8 billion after tax loss from the sale of securities. Bair argued that large and mid-sized banks that intend to sell their securities at a loss should be more transparent about such losses.

"If they lose value, they have to put that… So you don't have to worry about their capitals looking inflated because they haven't recognized mark to market losses on available for sale securities," Bair said. "And actually, some of the big banks have some fairly large mark to market losses that they have not had to recognize in their accounting because they're in a hold to maturity portfolio."

During the Trump administration the government passed a bill that released small, regional banks like Silicon Valley and Signature from the same sort of scrutiny applied to the larger banks in the country. In particular, banks of their size didn't have to maintain the same sort of standardized "liquidity coverage ratio" designed to measure whether a lender has enough high-quality assets to create liquidity in a crisis. Bair contended that banks should better prepare themselves for major losses in the event of a financial catastrophe.

"Really, bank managers and examiners need to be looking very, very carefully at the assets that banks have that could be sold if they have large-scale deposit withdrawals," Bair said. "And what the loss is on that might be if they get into a situation like this, and do they have enough capital to absorb it?"

Blair also asserted that banks could do more to manage their interest rate risk. She pointed out that low-yield, mortgage-backed securities lose value as interest rates increase.

"Even if you have bonds in mortgage-backed securities that are low yield, so they're losing value as interest rates have gone up, you can buy interest rate protection on that," Bair said. "It costs money. It's going to cut into your profits a bit. But a prudent bank manager would be doing that."

Her comments come as some experts speculate that the Federal Reserve could pause its hawkish campaign to raise rates.

"They need to hit pause. They need to assess what the impact of these increased rates are on financial stability, on the labor market..." Bair said. "Continuing to raise short-term rates the way they have, no, they should stop, hit pause, assess what the impact of this is before going further."

Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

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