Sen. Elizabeth Warren: 'I wish I'd been wrong' predicting SVB collapse

[Yo_Mama_Been_Loggin]

Sen. Elizabeth Warren (D-Mass.) wrote a scathing opinion essay for The New York Times on Monday, saying "we know who is responsible" for last week's stunning collapse of Silicon Valley Bank and ensuing financial fallout.

"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," wrote Warren, whose political reputation has been predicated in large part on fighting corporate greed. That law, however, was defanged in 2018 under then-President Donald Trump following intense lobbying pressure from various Wall Street and banking interests including, Warren pointed out, "Greg Becker, the chief executive of Silicon Valley Bank."

Indeed, one of the crucial rollbacks enacted by Trump was raising the threshold of how much money a bank possessed before it was considered "too big to fail" and thereby requiring certain regulatory oversight. Now sitting comfortably below the limit of $250 billion, SVB was therefore subject to fewer regulations over the past five years, leading to what Warren deemed "a toxic mix of risky management and weak supervision." This included relying largely on startups as its main batch of depositors — a move that left the bank particularly vulnerable to the economic flux of a single industry, rather than diversifying its stakeholder group.

"Had Congress and the Federal Reserve not rolled back the stricter oversight," Warren said, Silicon Valley Bank "would have been subject to stronger liquidity and capital requirements to withstand financial shocks." And while the damage in this particular instance is done (although the Biden administration has vowed to cover deposit insurance above the usual $250,000 limit for bank customers), Warren nevertheless proposes a series of steps to prevent the next medium-size bank meltdown from occurring. Her suggestions include returning to Dodd-Frank-levels of regulation, amending deposit insurance rules to better protect payrolls and ordinary banking transactions, and — perhaps most importantly — ensuring that "those responsible not be rewarded" with the government empowered to not only "claw back" excessive executive bonuses, but also investigate potential civil and criminal lawbreaking on the part of those at the top of SVB.

https://www.yahoo.com/news/sen-elizabeth-warren-wish-id-174930969.html

[yonder]

1. I like her "those responsible not be rewarded" proposal

and especially the civil and criminal penalties part of that.

[Casady1]

2. No bank can sustain a run

[Celerity]

4. that shit 2018 partially Dodd Frank rollback made SVB exempt from key stress tests

thus greatly increasing a chance of it collapsing in the manner that it did


Silicon Valley Bank chief pressed Congress to weaken risk regulations

CEO Greg Becker personally led the bank’s half-million-dollar push to reduce scrutiny of his institution – and lawmakers obliged

https://www.theguardian.com/business/2023/mar/11/silicon-valley-bank-weaken-risk-regulations-svb

Eight years before the second-largest bank failure in American history occurred this week, the bank’s president personally pressed Congress to reduce scrutiny of his financial institution, citing the “low risk profile of our activities and business model”, according to federal records reviewed by the Lever. Three years later – after the bank spent more than $500,000 on federal lobbying – lawmakers obliged.

On Friday, California regulators shut down the Silicon Valley Bank (SVB), a top lender to venture capital firms and tech startups, and the Federal Deposit Insurance Corporation took it over, following a bank run by its customers. The bank reportedly did not have a chief risk officer in the months leading up to the collapse, while more than 90% of its deposits were not insured.

Link to tweet

In 2015 Greg Becker, SVB’s president, submitted a statement to a Senate panel pushing legislators to exempt more banks – including his own – from new regulations passed in the wake of the 2008 financial crisis. Despite warnings from some senators, Becker’s lobbying effort was ultimately successful.

Touting “SVB’s deep understanding of the markets it serves, our strong risk management practices”, Becker argued that his bank would soon reach $50bn in assets, which under the law would trigger “enhanced prudential standards”, including more stringent regulations, stress tests and capital requirements for his and other similarly sized banks. Becker insisted that $250bn was a more appropriate threshold.

snip

[Casady1]

5. Regardless of these regulation repeals

no bank can sustain a run. I work in the high tech community and one of my companies was with SVB. My paystubs had SVB on it. That being said the tech community is a shining light on our present economy. It is filled mostly with liberals. Yes there are the Peter Thiel but I would say he is not the norm.
All new software comes out of startups. Almost every piece of software on your computer is from a startup. Apple and Microsoft were startups. The big companies buy these little startups. I was employee number six and we grew it to 350 people and we sold it.

SVB has been a friend to high tech. By far the most liberal and democratic of all industries.

SVB placed a bet on treasury bonds and Powell raising the interest 5 basis points caused the run. No bank even with the regulations prior to 2018 could survive a run.

[Celerity]

6. If SVB had been under the levels of scrutiny that it should have been under, it likely would never

been allowed to get to a level where that type of run occurred.

Deregulation (and far from limited to just bank deregulation) often ends in multivariate levels of shambolic outcomes.

[Casady1]

7. They made a bet on treasury bonds

No bank can sustain a run regardless of regulations.

[Celerity]

8. repeating the same problematic causational rationale over and over is not persuasive, sorry

[Caliman73]

3. This is inherent to Capitalism, or at least American Capitalism.

This idea of "never ending growth" and "short term gain" rather than focusing on community well being and sustainability. The idea that we have to make more, and "if you aren't growing, you are dying" always leads to this.

People looking to make more money will use their power and influence to chip away at the rules, until they are basically dead. Just like they did in the decades after Glass-Stegall. They had weakened it so much by the time Clinton finally signed the SMA, that there wasn't really even a small picket fence between commercial banks and more speculative investment banks. You had the Big Banks all leveraged to the hilt when the bottom dropped out from Lehman Bros and AIG (though AIG got saved).

Conservatives never learn and they will still not learn after the fallout from SVB is over. They think that wealthy people should be able to do whatever they want (unless it is "being woke" ) and we should bail them out at taxpayer expense.

[appalachiablue]

9. +1