[Mick]

This is obviously a complex situation and there were many factors involved.  However, it is ludicrous to claim that SVB was hoodwinked by the Fed into buying too many long-term bonds.  This is one of the most sophisticated bank/investment houses in the country...SVB was instead, putting too high of a percentage of their assets in non-liquid investments to cover unexpected withdrawals.  SVB could claim that they expected to be able to take such risks because they were never prevented from doing so before, but they knew they were taking risks.  Whether they would or would not have passed a stress test is a separate question from their culpability for their investment decisions.  Getting away with it is not the same as being tricked into doing it.  

SVB's senior management was certainly sophisticated enough to understand the risk that they were taking. From what I gather, there were a number of voices who loudly counseled against investing too much in government instruments that were disintegrating in value. This cannot have been a surprise to anyone at SVB, although the speed of the collapse may have been a surprise.

Still...the vibe I was getting from former CEO Greg Becker's announcements was that he was caught at least a little bit surprised. Did anyone else get that feeling? When did Becker realize, have the first inkling that their investing strategy was wildly incorrect? I know some people think he was very smart, and a midwestern financial conservative, and certainly he looked the part. He had gravitas. He and SVB got greedy. When did he realize that inflation was rearing its ugly head and would destroy their strategy and the 16th largest bank in the country?

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SVB was sophisticated enough to have adopted this Risk Committee Charter in April 2022

https://www.svb.com/globalassets/library...-final.pdf

Interesting process memo. It doesn't commit to a specific risk-averse profile, it just details processes. Reminds me of the old ISO-9000 standards; you could build lead lifejackets as long as you followed the process.

Quite true.  More telling about the level of concern was the article I posted earlier about the info in the latest proxy that the CRO was pushed out in early 2022 and the board Risk Committee was upsized to 7 members and met an e extraordinary 17 times in 2022.

Would be very interesting to read the minutes of those meetings...I imagine that they are in the hands of some regulator somewhere. What would be even more interesting would be a level of internal conflict in those meetings that wasn't documented, particularly if some senior banker mandated that it not be documented. The SEC and DoJ investigators are going to have some very interesting conversations with SVB officer, director and employee witnesses over the next few months.

It's interesting to note that a classic asset-liability mismatch, triggered by higher rates and compounded by leverage tanked the bank. It's further interesting to note that insiders clearly felt that there were risk-related issues -- they had 18 meetings in 2022, and just 7 in 2021, more than double the normal number of risk-related meetings after their Chief Risk Officer Laura Izurieta resigned in April, 2022 and left SVB in October, 2022. I'm guessing she complained a little too loudly for senior management.

VC (and other) depositors withdrew $42 billion in 44 hours.  Wow. And insider trades showed that not only did Greg Becker (CEO) sell significant shares in the days prior to the proxy filing and capital disclosure, but the CFO and Michelle Draper (CMO) did as well.

SVB had no risk chief through much of 2022, proxy statement shows | Banking Dive

[Mick]

This is obviously a complex situation and there were many factors involved.  However, it is ludicrous to claim that SVB was hoodwinked by the Fed into buying too many long-term bonds.  This is one of the most sophisticated bank/investment houses in the country...SVB was instead, putting too high of a percentage of their assets in non-liquid investments to cover unexpected withdrawals.  SVB could claim that they expected to be able to take such risks because they were never prevented from doing so before, but they knew they were taking risks.  Whether they would or would not have passed a stress test is a separate question from their culpability for their investment decisions.  Getting away with it is not the same as being tricked into doing it.  

SVB's senior management was certainly sophisticated enough to understand the risk that they were taking. From what I gather, there were a number of voices who loudly counseled against investing too much in government instruments that were disintegrating in value. This cannot have been a surprise to anyone at SVB, although the speed of the collapse may have been a surprise.

Still...the vibe I was getting from former CEO Greg Becker's announcements was that he was caught at least a little bit surprised. Did anyone else get that feeling? When did Becker realize, have the first inkling that their investing strategy was wildly incorrect? I know some people think he was very smart, and a midwestern financial conservative, and certainly he looked the part. He had gravitas. He and SVB got greedy. When did he realize that inflation was rearing its ugly head and would destroy their strategy and the 16th largest bank in the country?

---

SVB was sophisticated enough to have adopted this Risk Committee Charter in April 2022

https://www.svb.com/globalassets/library...-final.pdf

Interesting process memo. It doesn't commit to a specific risk-averse profile, it just details processes. Reminds me of the old ISO-9000 standards; you could build lead lifejackets as long as you followed the process.

Quite true.  More telling about the level of concern was the article I posted earlier about the info in the latest proxy that the CRO was pushed out in early 2022 and the board Risk Committee was upsized to 7 members and met an e extraordinary 17 times in 2022.

Would be very interesting to read the minutes of those meetings...I imagine that they are in the hands of some regulator somewhere. What would be even more interesting would be a level of internal conflict in those meetings that wasn't documented, particularly if some senior banker mandated that it not be documented. The SEC and DoJ investigators are going to have some very interesting conversations with SVB officer, director and employee witnesses over the next few months.

It's interesting to note that a classic asset-liability mismatch, triggered by higher rates and compounded by leverage tanked the bank. It's further interesting to note that insiders clearly felt that there were risk-related issues -- they had 18 meetings in 2022, and just 7 in 2021, more than double the normal number of risk-related meetings after their Chief Risk Officer Laura Izurieta resigned in April, 2022 and left SVB in October, 2022. I'm guessing she complained a little too loudly for senior management.

VC (and other) depositors withdrew $42 billion in 44 hours.  Wow. And insider trades showed that not only did Greg Becker (CEO) sell significant shares in the days prior to the proxy filing and capital disclosure, but the CFO and Michelle Draper (CMO) did as well.

SVB had no risk chief through much of 2022, proxy statement shows | Banking Dive