[chrisk]

IMO it needs to be made clear that there were TWO "causes" for the SVB cash shortfall. The fact they bought long-term assets that were subject to loss of value due to interest rate fluctuations was indeed one of them and needs to be investigated. The other "cause" was much more unique to SVB.
 
SVB was reliant on deposit growth due to large cash infusions when tech stocks made public offerings and raised lots of cash. Up to a year ago (more or less) tech stocks (mostly biotech) could and did raise hundreds of millions of dollars on vapor. Many deposited the resulting funds in SVB. Most of these companies didn't need much of the money immediately, so it was available to pay out to other depositors. As 2022 went on, that changed. IPOs dried up. Cash was going out as people burned through their money, but no cash was coming in. It was indeed a form of Ponzi scheme where new deposits were counted upon for liquidity. SVB had got by that way for many years, and therefore didn't feel the need to worry about paying out cash to depositors. There was always more on the way. No "hedge" was needed. If IPOs were still happening frequently, SVB's cash position would (probably) have been "good enough" to weather the storm.

Few (any?) other large banks are as dependent as SVB was on this type of "business". Some of the recent layoffs and closures in the tech industry can be traced to burning through cash and the (unexpected) inability to raise any more. SVB is almost collateral damage due to this "bubble" bursting.

The type of risk you describe is the type of risk that bank management should be managing. In addition to actual liquidity, the management has to project competence. The tech bros did not buy it and withdrew $42 billion on Thursday.

Note that SVB got itself exempted from stress tests.

The 12-member board of directors was chaired by a woman from Texas who was former Vice Chair of E&Y. 7 of the members have Stanford degrees, mostly MBAs. Mary Miller, on the board for 8 years, worked for T Rowe Price for 26 years, heading up the Fixed Income Division. She then spent 4 years at the US Treasury, as Assistant Secretary for Financial Markets and as Under Secretary for Domestic Finance.

Was all of this fire power on the board used to grease the skids for light regulation or were they hands off when the management was lobbying for exclusion from tighter regulation?

[chrisk]

IMO it needs to be made clear that there were TWO "causes" for the SVB cash shortfall. The fact they bought long-term assets that were subject to loss of value due to interest rate fluctuations was indeed one of them and needs to be investigated. The other "cause" was much more unique to SVB.
 
SVB was reliant on deposit growth due to large cash infusions when tech stocks made public offerings and raised lots of cash. Up to a year ago (more or less) tech stocks (mostly biotech) could and did raise hundreds of millions of dollars on vapor. Many deposited the resulting funds in SVB. Most of these companies didn't need much of the money immediately, so it was available to pay out to other depositors. As 2022 went on, that changed. IPOs dried up. Cash was going out as people burned through their money, but no cash was coming in. It was indeed a form of Ponzi scheme where new deposits were counted upon for liquidity. SVB had got by that way for many years, and therefore didn't feel the need to worry about paying out cash to depositors. There was always more on the way. No "hedge" was needed. If IPOs were still happening frequently, SVB's cash position would (probably) have been "good enough" to weather the storm.

Few (any?) other large banks are as dependent as SVB was on this type of "business". Some of the recent layoffs and closures in the tech industry can be traced to burning through cash and the (unexpected) inability to raise any more. SVB is almost collateral damage due to this "bubble" bursting.

The type of risk you describe is the type of risk that bank management should be managing. In addition to actual liquidity, the management has to project competence. The tech bros did not buy it and withdrew $42 billion on Thursday.

Note that SVB got itself exempted from stress tests.

The 12-member board of directors was chaired by a woman from Texas who was former Vice Chair of E&Y. 7 of the members have Stanford degrees, mostly MBAs. Mary Miller, on the board for 8 years, worked for T Rowe Price for 26 years, heading up the Fixed Income Division. She then spent 4 years at the US Treasury, as Assistant Secretary for Financial Markets and as Under Secretary for Domestic Finance.

Was all of this fire power on the board used to grease the skids for light regulation or were they hands off when the management was lobbying for exclusion from tighter regulation?