The Swift Demise of Silicon Valley Bank Raises Concerns About Oversight
The swift demise of Silicon Valley Bank (SVB) has raised serious concerns about the bank’s management and, more importantly, the failure of oversight. These issues were highlighted during Wednesday’s hearing of the Oversight Subcommittee on Health Care and Financial Services, where Chairwoman Lisa McClain (R-Mich.) expressed her apprehensions.
“The speed that it failed raised immediate concerns not only of poor management at the bank but of a failure of oversight,” stated McClain. “Evidence that has surfaced since has shown just that.”
According to McClain, the reason behind SVB’s collapse was straightforward, branding it “one of the least complex bank failures in history.”
She described a series of events that ultimately led to policies enacted by the late Trump and early Biden administrations, though she did not call out Trump by name.
“The bank was invested in some of the safest securities available: U.S. treasuries and agency securities. The credit risk was minimal,” the congresswoman said. “The only real risk to these securities is high inflation rates.”
“Then came the rampant inflation brought on by President Biden’s unnecessary spending, injecting trillions into an economy already flush with cash. In response, the Fed spent months tightening to try to extinguish the rampant inflation.”
It was the Fed’s response that drove interest rates higher, exposing the risk contained on the SVB balance sheet. McClain also blamed the tech bank for not properly hedging against the rise in interest rates, given that they were signaled in advance by the Federal Reserve.
She placed most of the blame on regulators, saying they did not provide enough oversight to ensure SVB was investing in interest rate hedges.
“Who was overseeing this bank? What were they focused on instead of risk management? And why didn’t they intervene?”
Some economists believe that more regulation is not the answer and—in fact—it is the U.S. government’s ubiquitous role in determining private sector interest rates that caused this problem to begin with.
Economist Peter Schiff. (Courtesy of Peter Schiff)
Founder and Chief Economist of Euro Pacific Asset Management Peter Schiff believes the Federal Reserve’s presence is inherently distorting to the free market
What Went Wrong with Silicon Valley Bank?
Silicon Valley Bank’s collapse has raised serious concerns about the bank’s management and the failure of oversight. Chairwoman Lisa McClain expressed her apprehensions during a hearing of the Oversight Subcommittee on Health Care and Financial Services. According to McClain, the reason behind SVB’s collapse was straightforward, branding it “one of the least complex bank failures in history.”
The bank was invested in some of the safest securities available: U.S. treasuries and agency securities. The credit risk was minimal. The only real risk to these securities is high inflation rates. Then came the rampant inflation brought on by President Biden’s unnecessary spending, injecting trillions into an economy already flush with cash. In response, the Fed spent months tightening to try to extinguish the rampant inflation. It was the Fed’s response that drove interest rates higher, exposing the risk contained on the SVB balance sheet.
McClain also blamed the tech bank for not properly hedging against the rise in interest rates, given that they were signaled in advance by the Federal Reserve. She placed most of the blame on regulators, saying they did not provide enough oversight to ensure SVB was investing in interest rate hedges. Some economists believe that more regulation is not the answer and—in fact—it is the U.S. government’s ubiquitous role in determining private sector interest rates that caused this problem to begin with.
Founder and Chief Economist of Euro Pacific Asset Management Peter Schiff believes the Federal Reserve’s presence is inherently distorting to the free market. Who was overseeing this bank? What were they focused on instead of risk management? And why didn’t they intervene? These are the questions that need to be answered to prevent similar failures in the future.
