The collapse of Silicon Valley Bank (SVB) resulted in losses of up to one million dollars (920,641 euros) in deposits a day before, as stated before the United States Senate by its former CEO, Gregory Baker, who, in addition, convicted. To tell the Federal Reserve (Fed) that interest rates will remain low.
“On March 9, 42,000 million dollars were withdrawn [38.667 millones de dólares] “Deposits in a Silicon Valley bank in ten hours, or about a million dollars per second,” Baker assured the US Senate, adding, “I don’t think any bank can survive a deposit flight of this magnitude.”
Furthermore, Baker blamed panic on social networks and the ‘flight’ of deposits on the Fed’s signal that inflation was temporary and that interest rates would continue to decrease as the real reason for the SVB’s disappearance.
Baker explained, “The Federal Reserve claimed at the time that interest rates would remain low and that inflation, which had begun to rise, would be transitory.” In contrast, this institution “launched itself at a 40-year rate of growth in only twelve months”.
However, it is known that from within the SVB, already in 2020, it was suggested to diversify assets and invest in short-term bonds as the entity’s deposits increased. Still, management continued to bet on longer-term bonds, something that increased SVB’s vulnerability when the Fed raised rates sharply to tame inflation arising from the post-pandemic economic recovery. And later, from the war. Ukraine.
Tim Scott, the most senior Republican senator on the House Banking Inquiry Committee, asserted that “anybody who has paid attention to the growth of the economy over the last two years clearly realizes that the Federal Reserve will keep raising rates. The opinion is similar to that of the chairman of the commission, Democrat Sherrod Brown, who has assured that SVB was “very badly managed”.
Despite everything, Scott admitted that the regulators did not act correctly or on time, because “they fell asleep at the wheel.”
Federal Reserve Opinion
Two weeks ago, the Fed itself produced a report on the reasons for the collapse of the Baker-led entity and disclosed that SVB had 31 open warnings from regulators in some “essential areas”, such as governance, risk assessment, liquidity or Interest Risk Management when it collapsed in March.
In that document, the Fed denounced significant management failures on the part of the bank’s management and their inability to appreciate the risks assumed. However, the Fed also acknowledged that regulators failed to act in a timely manner despite the fact that SVB had 31 open alerts, “nearly three times as many as its peers.”
The Fed said at the time, “Necessary steps were not taken to ensure that SVB resolved these problems quickly.” “Observers failed to realize how serious their vulnerabilities had become as SVBs grew in size and complexity.”
