Breaking News: Major Tech Lender Silicon Valley Bank Fails!
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Opinion | Elizabeth Warren: Silicon Valley Bank Is Gone. We Know Who Is Responsible. (Published 2023)
The recent bank failures were entirely avoidable.
Elizabeth Warren: Silicon Valley Bank Is Gone. We Know Who Is Responsible.
March 13, 2023
Justin Sullivan/Getty Images
By Elizabeth Warren
Senator Warren is a Democrat from Massachusetts.
No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules.
In the aftermath of the 2008 financial crisis, Congress passed the Dodd-Frank Act to protect consumers and ensure that big banks could never again take down the economy and destroy millions of lives. Wall Street chief executives and their armies of lawyers and lobbyists hated this law. They spent millions trying to defeat it, and, when they lost, spent millions more trying to weaken it.
Greg Becker, the chief executive of Silicon Valley Bank, was one of the many high-powered executives who lobbied Congress to weaken the law. In 2018, the big banks won. With support from both parties, President Donald Trump signed a law to roll back critical parts of Dodd-Frank. Regulators, including the Federal Reserve chair Jerome Powell, then made a bad situation worse, letting financial institutions load up on risk.
Banks like S.V.B. — which had become the 16th largest bank in the country before regulators shut it down on Friday — got relief from stringent requirements, basing their claim on the laughable assertion that banks like them weren’t actually “big” and therefore didn’t need strong oversight.
I fought against these changes. On the eve of the Senate vote in 2018, I warned, “Washington is about to make it easier for the banks to run up risk, make it easier to put our constituents at risk, make it easier to put American families in danger, just so the C.E.O.s of these banks can get a new corporate jet and add another floor to their new corporate headquarters.”
I wish I’d been wrong. But on Friday, S.V.B. executives were busy paying out congratulatory bonuses hours before the Federal Deposit Insurance Corporation rushed in to take over their failing institution — leaving countless businesses and nonprofits with accounts at the bank alarmed that they wouldn’t be able to pay their bills and employees.
S.V.B. suffered from a toxic mix of risky management and weak supervision. For one, the bank relied on a concentrated group of tech companies with big deposits, driving an abnormally large ratio of uninsured deposits. This meant that weakness in a single sector of the economy could threaten the bank’s stability.
Instead of managing that risk, S.V.B. funneled these deposits into long-term bonds, making it hard for the bank to respond to a drawdown. S.V.B. apparently failed to hedge against the obvious risk of rising interest rates. This business model was great for S.V.B.’s short-term profits, which shot up by nearly 40 percent over the last three years — but now we know its cost.
S.V.B.’s collapse set off looming contagion that regulators felt forced to stanch, leading to their decision to dissolve Signature Bank. Signature had touted its F.D.I.C. insurance as it whipped up a customer base tilted toward risky cryptocurrency firms.
Had Congress and the Federal Reserve not rolled back the stricter oversight, S.V.B. and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks. They would have been required to conduct regular stress tests to expose their vulnerabilities and shore up their businesses. But because those requirements were repealed, when an old-fashioned bank run hit S.V.B., the bank couldn’t withstand the pressure — and Signature’s collapse was close behind.
On Sunday night, regulators announced they would ensure that all deposits at S.V.B. and Signature would be repaid 100 cents on the dollar. Not just small businesses and nonprofits, but also billion-dollar companies, crypto investors and the very venture capital firms that triggered the bank run on S.V.B. in the first place — all in the name of preventing further contagion.
Regulators have said that banks, rather than taxpayers, will bear the cost of the federal backstop required to protect deposits. We’ll see if that’s true. But it’s no wonder the American people are skeptical of a system that holds millions of struggling student loan borrowers in limbo but steps in overnight to ensure that billion-dollar crypto firms won’t lose a dime in deposits.
These threats never should have been allowed to materialize. We must act to prevent them from occurring again.
First, Congress, the White House and banking regulators should reverse the dangerous bank deregulation of the Trump era. Repealing the 2018 legislation that weakened the rules for banks like S.V.B. must be an immediate priority for Congress. Similarly, Mr. Powell’s disastrous “tailoring” of these rules has put our economy at risk, and it needs to end — now.
Bank regulators must also take a careful look under the hood at our financial institutions to see where other dangers may be lurking. Elected officials, including the Senate Republicans who, just days before S.V.B.’s collapse, pressed Mr. Powell to stave off higher capital standards, must now demand stronger — not weaker — oversight.
Second, regulators should reform deposit insurance so that both during this crisis and in the future, businesses that are trying to make payroll and otherwise conduct ordinary financial transactions are fully covered — while ensuring the cost of protecting outsized depositors is borne by those financial institutions that pose the greatest risk. Never again should large companies with billions in unsecured deposits expect, or receive, free support from the government.
Finally, if we are to deter this kind of risky behavior from happening again, it’s critical that those responsible not be rewarded. S.V.B. and Signature shareholders will be wiped out, but their executives must also be held accountable. Mr. Becker of S.V.B. took home $9.9 million in compensation last year, including a $1.5 million bonus for boosting bank profitability — and its riskiness. Joseph DePaolo of Signature got $8.6 million. We should claw all of that back, along with bonuses for other executives at these banks. Where needed, Congress should empower regulators to recover pay and bonuses
Prosecutors and regulators should investigate whether any executives engaged in insider trading or broke other civil or criminal laws.
These bank failures were entirely avoidable if Congress and the Fed had done their jobs and kept strong banking regulations in place since 2018. S.V.B. and Signature are gone, and now Washington must act quickly to prevent the next crisis.
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Hood Critic
The Power Circle
Hood Critic
The Power Circle
NZA
LOL
what a time to be alive!
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LOL
they are going to push this in multiple media platforms
choc_cardigan
Squad
fukk this racist country
Hood Critic
The Power Circle
It's crystal clear now: More banks are going to fail
Commentators are warning of another banking crisis on the horizon, as bank stocks buckle under fears of contagion from SVB's failure.
markets.businessinsider.com
It's crystal clear now: More banks are going to fail
Jennifer Sor Mar 13, 2023, 2:33 PM
Timothy A. Clary/AFP via Getty Images
- It is likely that more bank failures are coming after the collapse of Silicon Valley Bank.
- Commentators, politicians, and the markets are all warning of more pain in store.
- The speed at which SVB fell is a warning that these events can materialize in the blink of an eye.
SVB's operations were shuttered on Friday by the FDIC, which shortly after closed Signature Bank. While market commentators say the failures don't mark a Lehman-style crisis, more bearish prognosticators say the risk of contagion across the banking industry remains high.
In an interview with Politico on Sunday, former Federal Deposit Insurance Corporation chairman William Issac said more banks are bound to collapse, and markets could be on the precipice of another 1980s-style banking crisis.
"There's no doubt in my mind: There's going to be more. How many more? I don't know," Issac said, comparing the situation to the banking crises of the 1980s and 1990s, when the FDIC dealt with the failure of over 1,600 banks.
For further clues that there's more pain to come, look to the market. Investors are clearly nervous about the potential for a cascade of bank failures, reflected in the stock price of a handful of regional banks on Monday.
First Republic, PacWest, Western Alliance, and Charles Schwab are among the major names that cratered on Monday morning as investors grow anxious about banks' ties to the tech industry or which may be sitting on large unrealized losses in their bond portfolios, two factors that catalyzed the fall of SVB.
Trading in shares of Western Alliance were halted 20 times since March 10 due to spikes in volatility, according to NYSE data. PacWest trades were halted 11 times, and First Republic was halted 13 times in that timeframe.
Biden, Yellen vow no bailouts
Though depositors have been made whole in both recent failures, banks and their shareholders should be prepared for the government to let them fail, and should not count on anything resembling a 2008-style bailout.That message was broadcast clearly by both Treasury Secretary Janet Yellen over the weekend, and by President Joe Biden on Monday.
"Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we're certainly not looking," Yellen said in regards to a possible bailout. "And the reforms have been put in place means that we're not going to do that again."
As for Biden, the president was quick to point out that no bailout was coming and no taxpayer money would be at risk.
"Investors in the banks will not be protected," Biden said. "They knowingly took a risk and when the risk didn't pay off, the investors lose their money. That's how capitalism works."
He added: "No losses will be borne by the taxpayers. I'm going to repeat that -- no losses will be borne by the taxpayers."
Collapse at lightning speed
Finally, a startling takeaway from the SVB fall has been the speed at which the bank crumbled and was eventually shut down. This point is especially important in the era of digital banking.Customers pulled $42 billion in deposits from SVB on Thursday alone, egged on by panicked messages on social media and from prominent VC investors like Peter Thiel.
For context, the biggest bank run of the Great Financial Crisis saw customers cash out $16.7 billion from Washington Mutual over 10 days.
Fundstrat's head of research Tom Lee compared the downfall of SVB to that of FTX, the now-defunct crypto exchange that went down at similar lightning speed. That could easily be the precedent for the future, he warned:
"When FTX collapsed in 2022, those in the traditional finance world viewed that lightning collapse as improbable in the 'real world' — but the collapses of SIVB, Signature Bank and Silvergate show this same dynamic can happen to any financial institution in this digital age," Lee said.
ADevilYouKhow
Rhyme Reason
They’re blaming black people already?