Who is at fault for SVB failure?

First, I think there needs to be an investigation into SVB’s stock sales prior to the failure. I understand the CEO of that company sold off stock not long before the shuttering. Who had insider knowledge and profited?

That aside, we know the reason the bank failed is twofold, mismanagement and that interest rates were dramatically increased by the Federal Reserve starting in 2022 with the thinking that it would help stem inflation. This increase caused money to be expensive, making raising cash for SVB customers difficult, which translated into deposits being withdrawn to cover operational costs.

On March 8, SVB sold $21 billion in securities to raise cash to cover depositor withdrawals and lost about $1.8 billion on that sale due to interest rates reducing the value of the securities. On March 9, SVB announced the raising of capital and the stock plummeted. That day, customers initiated a run and withdrew $42 billion leaving the bank with a negative cash balance.

The management of SVB should have been on top of what was happening many months ago and seemed to have failed miserably at their jobs. Would the bank stress test have raised concern if the regulation was not amended in 2018 to exclude banks of SVB’s size? Probably not. At the end of the day, the Federal Reserve was shortsighted, as it was before the 1929 stock crash when it raised rates and banks failed.

Howard Roth

Foster City