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> They were flying blind. While the Fed raised interest rates, the bank seemingly moved forward without any risk assessments.

Not having a CRO was unacceptable, without question. However, I don't know if having a CRO would have saved them. Lack of an officially appointed CRO does not imply lack of a functioning risk department, so it's not completely the same as "flying blind." Also, the CRO in a bank has a limited role. Decisions ultimately made by the CEO, after consulting the CRO as well as others such as the CFO and the Head of the Treasury department. Given the way the corporate politics and bank politics work, the CRO may have quite limited influence on decisions like how and when to raise new funding, and how much risk appetite to have for things like liquidity risk.

> But that wasn't the issue. The issue was all the "dry powder" that the bank accumulated over the past year.

Not really. The CEO really did inadvertently trigger an avoidable bank run. It wasn't simply the email, but also the decision to sell the HTM securities at a loss and raise equity publicly. The "dry powder" that had accumulated over the past year could have been handled in many different ways, they didn't have to buy 10 year Treasuries at a time when the risk was clearly that rates could rise due to persistent inflation and as the VC investment climate was cooling. The lowest risk option would have been to take the customer cash and deploy it in the secured overnight repo market while waiting a little bit to see what happens with inflation, the VC market, commercial real estate post-pandemic, etc., and dollar cost averaging any plans to purchase vast quantities of securities over years.

they never sold any htm securities

Oh right, I forget, they merely announced that they had liquidated their entire AFS book at a $2 billion realized loss? That makes more sense, the accountants wouldn't have allowed to sell the HTM securities. That doesn't make it better, it makes it worse. Banks don't normally sell securities at a loss in their AFS book, nor do they normally liquidate their entire AFS book to raise cash. These were recklessly alarming moves for SVB to be signaling to the market.

You didn't do your research. They sold their AFS securities because Moody's was threatening to downgrade them, and they were forced to act. That's why everything happened so quickly, Moody's was going to downgrade them, which forced SVB to make a bunch of deals in order to not only short up their finances but try to get investors to inject liquidity. They didn't have enough time to seal the deal before announcing it, and all the investors pulled out after the reaction to the announcement.

> Moody's was threatening to downgrade them, and they were forced to ac

Ah I was missing that part of the story. It turns out that SVB hired Goldman Sachs to advise them on this crazy plan and all to turn a 2 notch downgrade by Moody's into a 1 notch downgrade. Supposedly they were so rushed by Moody's that they couldn't even close the equity raise before announcing it (which is batshit crazy for a company with a public stock price to do while trying to avoid a credit downgrade). I'm not sure why SVB was surprised and caught off guard by Moody's - shouldn't they have been in communication with Moody's all along the way? Not sure what to think about Goldman's involvement, are they incompetent too?

But of all this just makes me agree even more with the employee quoted in the article. If you are facing these kinds of problems as a bank CEO, get on a plane to the Middle East and get a Sovereign Wealth Fund to close your funding gap, instead of publicly announcing that you'll raise equity just to satisfy a Moody's rating analyst. Because, as we now know, your stock will crater, your new equity investor will walk away, and your customers will start a run on your bank, and by Monday you will have lost your shirt.

> turns out that SVB hired Goldman Sachs to advise them on this crazy plan

It’s interesting seeing New York Finance pinning the proximate blame on Goldman, while the Bay Area is largely angry at large depositors, e.g. VCs.

So... just pretend everything's fine and it would have been? Security through obscurity?

for non finance people, what are you meaning by AFS? Available for sale?

Available for sale, essentially the liquid portion of their holdings that can be sold immediately. They are treated differently for accounting and risk/asset ratios.

that's my understanding, yes

All this C-suite nonsense is just a bunch of... nonsense, it needs to stop. Let me explain what I mean. After a quick google:

What is a Chief risk officer?

CROs report to the board and the CEO on various issues, including insurance, IT security, financial audits, internal audits, global business variables, fraud prevention, and other internal corporate matters.

That's all cost-center stuff, none of that has anything to do with the banking line of business. It doesn't need to be chief anything and it had nothing to do with the failure of SVB.

A bank's entire business and reason for existence is risk pooling and risk arbitrage, making money on the interest rate spreads between being on different sides of different products. The CEO of a bank cannot afford not to be qualified to be the head of banking risk. He should have quants working for him and reporting to him, but the buck stops with him.

Responsibility works best in a hierarchy, you're in charge of something, you report to somebody who is in charge of you and what you do, but at a minimum, the CEO needs to know the core business cold, and sideline delegate only things that are not of that nature. A bank needs that job description up above, but it's not C suite. Having a C-suite encourages egotism and distributes risk (not interest rate risk) in an un-responsible way, if you have a chief of something, why it must be taken care of, right? There's only room for one chief. In addition to that, COO, CFO, CMO have pretty standard meanings, but no reason they can't be called VP of Operations, Treasurer/Controller/VP of Finance, and VP of Marketing though.

And then, no need for a CEO, just have a President. (that corporations have a president is encoded in law, btw, but not CEO)

> Let me explain what I mean. After a quick google: What is a Chief risk officer? ... That's all cost-center stuff, none of that has anything to do with the banking line of business.

This is hilarious. Next time, at least try asking ChatGPT instead of Google before becoming an expert on something new and explaining it to others on the Internet.

What you read is the CRO job description for a CRO of any corporation. All large corporations have CROs, and the CRO is responsible for the risks that all corporations have (security, insurance, etc). A bank CRO's job description includes all of that plus the banking risks, such as credit risk, capital markets risk and liquidity risk. A bank run, in particular, is a negative result of liquidity risk.

I think what OP is trying to say is that just because there is no CRO, doesn’t mean there is nobody that cares about risk. It’s a red herring.

If the CRO left, the whole organisation under and above him didn’t suddenly disappear. Chances are they have a top lieutenant that knows as much if not more of the actual risk than the CRO.

I'd fire the CRO if I was tired of their shit too.

Or one might fire the CRO if they are tired of their incessant, daily nagging that the entire business it at risk and that we need to make sweeping changes that are going to negatively affect next quarter profitability.

under and above her, unless he's a man named laura

the rest of my point is the same, if a bank has a chief risk officer, it's the President of the bank, or an EVP. There are quants who track, measure and calculate financial risk, but that's a line responsibility, they're not chiefs. If you want to call the President of a "financial risk banking company" the chief of something, he's CEO, not CRO, even though risk management is his main job.

As much as I agree with you about the silliness of the C-suite, the job of "head of risk" is an important position at a bank because they:

1. Keep people hired for their greed honest (in terms of creating their models), and

2. Keep track of "soft" risks that can't be tracked by models well and tail risk that is underpriced by models (ie keep track of the nebulous concept of "modeling risk").

In opposition to the rest of the senior executives - who encourage greed and actively ignorance of "soft" risks to make more money.

The buck does not stop with the CEO, it stops with the company’s board, who represent investors and who the CEO answers to. The CRO often reports to the board and at the very least, communicates directly with them.

The reason for the role of CRO is that the CEO, CFO and other C suite executives are not really aligned with investors incentive-wise. If the bank does really well, the CEO gets huge bonuses. If the bank crashes, the CEO gets fired but typically doesn’t lose all their money like investors do. Hence the need for the board’s function in risk management and a CRO to help them with that. In a bank, the risks are unique and often hard to see which is why risk management is often a huge department.

None of this exonerates the CEO. Of course they are to blame when things go wrong. But when financial risk is a huge part of a business, it’s good to have some backup for that role as well.

I'd love to know whose on the board of SVB. Is it leadership from other companies that were SVB customers?

Signature bank, which also collapsed last week, had Barney frank (of Dodd-Frank banking regulation) on its board.

Life doesn't get any better.

Everyone knows if there's not a Chief Custodial Officer, the bathrooms won't get cleaned.

Not only a CCO, but a Director of Privies and Urinals. When it comes to busy bathrooms, head-count is important.

If your organization is designed to have a C-level official to manage things like internal audit, and that job is vacant for an extended period, it’s unlikely that the VP of Audit has the political capital to be heard.

The shitshow around this bank is a case study for poor or no internal controls.

The regulators allow mark-to-maturity on underwater bonds. When do the regulators wake up and set more reasonable rules?

It’s not particularly relevant. Regulators aren’t there to ensure that soft bumpers are in place for companies like a kiddie bowling alley.

Counterpoint: without a dedicated person in charge of this, responsibility will be diffused among the organization and everyone will assume someone else is taking care of it

No such thing as a cost center in business. It is an idea that comes from “C-suite nonsense”. Either someone provides marginal value above their marginal cost or they don’t.

LOL. You want same person to be responsible for quarterly profits, long term investments and risks assessment. And than will act surprised when it crashes.

> The issue was all the "dry powder" that the bank accumulated over the past year.

Who is to blame for allowing the operating issues you explained? I’d argue it’s the CEO. All CEOs know that can’t just ignore the X when a CxO role is vacant. But that’s what you are saying happened.

The CEO is responsible for lack of CRO too

They wouldn't have been legally allowed to be out of compliance without a change in regulations.

https://www.reuters.com/article/us-usa-trump-dodd-frank/trum...

What exactly are you saying, that it would have been illegal for a bank to allow its risk officer to resign or to leave?

It means when the CRO left, the bank would have had to immediately appoint someone else into the position. Which all banks should be prepared to do. That is basic succession planning.

What is especially ridiculous with SVB is the CEO made the CRO give up the position and remained employed there for several more months. This wasn’t a surprise. The CEO forced the resignation on the CEO’s schedule with no successor in the wings.

Curious how you know they didn't? Or at least have someone performing the same tasks?

I don't think so. I think they are saying that if the original regulations were still in place, the bank would not have been able to make these "investments" even without a Risk Officer.

Exactly, listen to anyone in banking. The idea of buying and holding such long dated MBS and LETTING YOUR HEDGES EXPIRE just as the Fed was raising rates is just unheard of. Even if they were allowed, it was spectacularly unwise and not just in hindsight.

https://youtu.be/GdfYnqyu7v8 There are multiple banking insiders who've discussed this that come to the same conclusion, here's a simple one for those who don't want to do any research, just WTF?!?

But why were they allowed to do this? Why could they add $120B in low interest bonds when rates were low and lots of cash was coming in during the pandemic?

Because the regulations were loosened in May of 2018 with lobbying by SVB (and possibly Thiel himself) they were just below the $250B limit. Also, what the hell were companies doing with $250M deposits earning nothing (not being swept into MoneyMarkets), when they could have been making $10M a year and been safe from losing it? Apparently, because their VCs recommended it.

Isn't that just as bad? If it's illegal to act without a risk manager, you can't make bad risk decisions or investments like SVB did, but you can't make good or necessary ones either.

If only workers could sign contracts with some sort of 'notice period' allowing their employer time to hire a replacement....

...and if they get hit by a bus? That would be illegal also?

There are obviously legal exceptions? It could be that you make a notice to the government that this is happened and they just increase scrutiny on you until you’ve hired someone?

It’s not like this is the only business with legal requirements for specific roles.

If only important executives could have deputies, who could become 'Acting CRO' on an interim basis when needed...

How do you know Silicon Valley Bank didn't?

Aren't these execs bound by trading windows and 10b5-1 like filing requirements?

yes, they filed new 10b5-1 and used them. they did the needful. it will probably cause the rules to change.

I don’t think it kicks in without another trading window going by. It requires 3 months or more to kick in.

There might be more to this than what we’re hearing. It’s probably all media frenzy bs right now.

That's a new regulation passed in December that doesn't take effect until April. At the moment, there is no cooling off period.

10b5-1 rules actually did change recently, IIRC it's now about six months from change to sell.

3 months but that new rule kicks in April 1st

All true, but any CEO or COO should be fully cognizant of these same risk profiles. Fiduciary responsibility is a real thing. I can’t see anything but malfeasance here. Seems highly unlikely it was ignorance.

You don't need to be a Chief Risk Officer to know that a huge low yield long-term bond is a liability in a high interest rate environment. Clearly they thought the party would never end.

It's like banking 101.

Assuming the CEO was not aware is unfathomable. Degree in business, started as a loan officer in the 90s.

I guess he's just assumed that the problem was not necessarily fatal and was effectively betting on it. Very easy to imagine - moose in the headlights type of reaction.

You think that release was chatGPT?

That’s on the CEO. And the board.