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Government Corruption

Where were the regulators on SVB?

2023-03-12

[American Thinker] The Federal Reserve and FDIC get call reports every quarter to show each bank's financial conditions. Those are public reports that the "experts" on Wall Street can also see.

The report for SVB, or, Silicon Valley Bank, for Sept. 30, 2022 showed that if SVB had to recognize the losses on its portfolio, it had negative equity. The reports also show how many uninsured deposits they have, which appear to be over 90% of their total deposits. These are not core deposits.

Essentially, when investment rates were near zero, SVB took in massive amounts of volatile deposits and invested in longer-term bonds. As inflation and yields started rising, the market value of the investments were tanking.

So why didn't the FDIC, and the Federal Reserve, start putting severe restrictions on SVB to protect the customers and the taxpayers since that is their main job?

Were they more focused on climate change and diversity than financial stability?

Heres what the bank looked like to market participants:

SVB’s Balance-Sheet Time Bomb Was ’Sitting in Plain Sight,’ Short Seller Says

So-called banking expert Sen. Elizabeth Warren, and other supporters of big government as the solution to everything, should be asked why the bureaucrats didn't spot that elephant in the room.

How many other banks have the same liquidity issues that SVB had? A huge number clearly have mark-to-market problems?

Posted by:Besoeker

#3 From the FDICs perspective they might not have much focus on a bank like SVB because the FDIC is only really on the hook for 3% of the deposits. This was not a mom and pop operation where the FDIC would be on the hook for 90% of deposits.

Posted by: Airandee 2023-03-12 15:40

#2 Risk Management (which generally is composed of the most clueless people in the bank)

LOL -- not only that, but merely having a Risk Management Department implies to the public that Risk is being "Managed", which is a pleasing illusion. Enron had risk managers every ten feet in the building and risk models that would give Einstein a headache.

The Am Thinker articles implies that the FDIC just sits back and reads call reports. There's a very remote chance that's true here, but I've seen situations in which the FDIC had examiners onsite permanently, and one big deal in which regulators attended board meetings and had substantial input. So I'd be interested in seeing how that shakes out here.

Posted by: Matt 2023-03-12 15:09

#1 To be fair to SVB, this is what every bank does. They take short-term deposits (like your checking account, which you can spend from whenever you feel like it) and invest in relatively longer-term assets. This is one of the ways that banks make money.

Managing this risk is the job of two departments: Risk Management (which generally is composed of the most clueless people in the bank) and Treasury(which generally has much sharper and more capable people.) If they fail to manage the risk properly, then...

But again, the fact that SVB did not get loans from the Fed but rather was seized outright by the FDIC makes me think something much more was involved here.

Posted by: Tom 2023-03-12 13:45

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