Silicon Valley Bank was "
SVB failed because it mismanaged Interest Rate Risk (IRR) and liquidity, resulting in a "virtual run" on a big bank where
Our federal and state bank supervisors failed because of their traditional focus on "CAMELS" safety and soundness exams, which focus on Capital, Asset quality, Management, Liquidity and Sensitivity to risk. They put
With all due respect, our myopic CAMELS regulators far too often have it backward. If we reversed this acronym and had "SLEMAC" supervisors at SVB, they would have demanded IRR management and increased liquidity with SVB's huge underwater government bond portfolio and uninsured depositor base.
SLEMAC examiners would have required SVB to hedge its huge bond portfolio against the record inflation and interest rate increases that should have been apparent in late 2021, but which became evident to everyone in early 2022.
Startups were left reeling after SVB's failure. But there are challenges to serving young companies.
But how exactly would this have been done? I can tell you how, because I did something very similar.
Between 2021 and 2022 I oversaw a dramatic restructuring of my organization's $100 million bond portfolio, which held a mix of mortgage-backed securities and government bonds very similar to SVB's.
Rather than its normal 7- to 8-year bond duration,
Ironically, I emailed SVB's CEO Greg Becker in October 2021 to introduce him to that fund after they opened their
While no one likes Monday morning coaches, I will unashamedly put on my basketball "
With only a 6.4% hedging loss on its $120 billion bond portfolio instead of the 14.7% market value loss reported in its year-end 2022
As opposed to that $17.6 billion bond loss wiping out its $16.3 billion of equity capital at that time, SVB, like
Realistically, even if SVB's state and federal supervisors had required such an IRR hedging strategy, their board and officers might have been unwilling or unable to execute it.
The
Friendly federal and state examiners will likely be an issue. The San Francisco Fed, where the Bank's CEO was a
Another indication of supervisory failure is the fact that none of the very large recently failed or troubled banks including SVB, Signature or First Republic were among the 39 banks on the FDIC's year-end 2022
The recent increase in deposit insurance