OPINION: SVB’s collapse is a reminder to all of us to check our assumptions when we’re in doubt, and especially when we’re not.
The demise of Silicon Valley Bank two weeks ago is still sending tremors through the banking system and financial markets. Technical reasons for SVB’s failure — poor interest rate risk management or the highly concentrated, uninsured nature of its deposits, for example — hold lessons for lawmakers, bank regulators and bankers. The non-technical tale behind its failure, though, is one of hubris and groupthink, and that is a familiar lesson we could all benefit from studying.
The regulators who initially seized Silicon Valley Bank were from California, not the federal government. Citing Section 592 of the California’s Financial Code and SVB’s pending insolvency, the California Department of Financial Protection and Innovation announced on March 10 it had taken control of the bank and appointed the FDIC as receiver. California law empowers DFPI to seize a bank that is “conducting its business in an unsafe or unsound manner.
Lessons for bankers to draw from the SVB debacle are almost too obvious to bear highlighting. Is it a good idea for a bank with more than eight figures worth of assets under management to go for eight months without a chief risk officer? No, it is not. Will interest rates stay low forever? No, they will not.Be wary of groupthink, for starters. After all, SVB’s long term prospects were fine.
Not unlike their cousins, the Wall Street “masters of the universe,” tech barons and their protégés pride themselves on their superior smarts. SVB’s customer base might have been tightly concentrated in one sector, but surely they wouldn’t turn on the hand that lent them. It’s a tale as old as time.
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