Silicon Valley Bank's board of directors and management failed
federalreserve.gov
federalreserve.gov
From the linked summary:
1. Silicon Valley Bank's board of directors and management failed to manage their risks;
2. Federal Reserve supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity;
3. When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough; and
4. The Board's tailoring approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act and a shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.
How many DOA car loans is BofA sitting on? How many 2.7% mortgages did WF underwrite? How much dead commercial RE is backed by JPM?
And they ALL bought US Treasuries yielding nothing
Go look at top banks by % of uninsured deposits...I believe First Republic is #10, way down the list
SVB was only guilty of being small
When landlords really start bailing on commercial RE, you will see a major bank implode, only a matter of time. Or, the car loan bubble pops first.
No, SVB was guilty of having extremely coordinated risk: All their depositors had basically identical risk profiles, being cash rich, profit seeking VC funded companies that could easily move that cash around and had the same cohort of friends and networking buddies that whatever one did, the others would be sure to follow.
They are also guilty of being straight up negligent with regards to hedging their risks in terms of interest rates changing, and didn't even diversify their treasury portfolio. It's insanely stupid, like first year econ level stuff. Most people understand the downside risk to locking up your money for several years the first time they learn about CDs.
a) CEO of SVB was on the Board of Govs of SF Fed Reserve, the entity that is supposed to supervise and regulate banks b) He had earlier lobbied Congress to relax stress test requirements so the SVB would be in the exempt group.
So when you have a bank regulator (SF Fed board member) lobbying Congress to deregulate his own bank (so much to unpack here) does the rest really matter? It would only be a matter of time before the proverbial shtuff hit the fan.
The SF Fed has a nine-member board. Three members are appointed by the Board of Governors of the Federal Reserve System, who in turn are appointed by the president and confirmed by Congress.
The remaining six members are elected by banks.
You can certainly make the case that banks should have less influence over the fed. But this isn't at all unique to SVB.
See https://www.frbsf.org/our-district/governance/boards-directo...
What about the endless oversight so famously wrapped around every bank right now? Is it true that you cannot in reality start a Bank in the USA without an Oracle license? due to the vast and arcane reporting requirements already in place for decades?
Does this lead to a situation where the innovators are actually using micro-flaws in supervision rules and magnifying that by thousands of times compared to a "well-run" Bank, directly contradicting the aims of oversight and specifically due to excessive and byzantine existing oversight?
Does this Federal Reserve have the ability to make rules that work for Banks in 2023 after the extended-lifetime cash QE ?
The Fed's review found "four key takeaways on the causes of the bank's failure." The first fingers management. Nos. 2 to 4 criticise supervisors.
> What about the endless oversight so famously wrapped around every bank right now
SVB was not subject to liquidity coverage ratios (LCRs), a regulatory rollback pushed through in 2017 [1]. Had SVB been, they would have breached their LCR in March of 2022.
> Is it true that you cannot in reality start a Bank in the USA without an Oracle license?
No. Kentland Federal Savings and Loan doesn't use computers [2].
> Does this Federal Reserve have the ability to make rules that work for Banks in 2023 after the extended-lifetime cash QE
Yes, the same book other banks follow. (Our pretending HTM securities always preserve value and are liquid assets is an ongoing farce that is being fixed.)
[1] https://apnews.com/article/banking-crisis-congress-lobbying-...
[2] https://www.indiatimes.com/worth/news/america-smallest-bank-...
"On March 9, SVB lost over $40 billion in deposits, and SVBFG management expected to lose over $100 billion more on March 10. This deposit outflow was remarkable in terms of scale and scope and represented roughly 85 percent of the bank’s deposit base. By comparison, estimates suggest that the failure of Wachovia in 2008 included about $10 billion in outflows over 8 days, while the failure of Washington Mutual in 2008 included $19 billion over 16 days. In response to these actual and expected deposit outflows, SVB failed on March 10, 2023, which in turn led to the later bankruptcy of SVBFG."
March 9th and 10th were the Thursday and Friday before SVB collapsed.
On March 8th, Goldman Sachs advised SVB to go public with non-binding stock commitments [1][2]. The stock dropped, the commitments vanished, and then it plummeted. Because SVB was pretending its 70¢ bonds were worth $1, it had clearly lost the faith of big investors, and it couldn't go to the Fed; it was illiquid and insolvent.
[1] https://www.ft.com/content/7e7fdddb-724c-42fd-98ee-5d7248d53...
[2] https://ir.svb.com/news-and-research/news/news-details/2023/...
[1] https://www.investor.gov/introduction-investing/investing-ba...
[2] https://archive.is/HXfvw (Bloomberg: Matt Levine: Banking Gets a Bit Narrower)
[3] https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...
(not investing advice)
What restricts people from putting their money in crypto?