But as we know, 45 all but gutted and ignored Dodd-Frank and as it is now coming out, SVB warning signs were happening well before now -
Warning Signs At SVB May Have Been Missed Because Of Trump Era Stress Test Relaxations
Mayra Rodriguez Valladares Senior Contributor
Mar 11, 2023, 12:24pm EST
Silicon Valley Bank’s demise has led many pundits to blame rising interest rates, panicked depositors, bank regulators, and rating agencies. Rising rates are inanimate actors, and depositors, regulators, and rating agencies do not run banks. SVB’s VB -3% Chief Executive Officer Greg Becker, his team, and the bank’s Board of Directors are responsible for this colossal failure, which now not only leaves numerous depositors without their money but is likely to lead to significant layoffs at companies who had their money at SVB.
Significant asset size growth, reliance on largely homogeneous depositors, as well as concentrations in investments and in liabilities were signaling trouble at SVB since at least 2019. Banks are opaque institutions. Anyone analyzing a bank needs countless hours, not only to analyze financial disclosures, but also Basel III disclosures, which are focused on risk. And by the time any of us see their financials, that information is already old because financials are usually published several weeks after the quarter ends. Yet, even looking at aggregated data about SVB, a number of signs would have told investors, lenders, and credit analysts that SVB had problems.
Asset Growth and Quality
The first step in analyzing a bank’s financial health involves looking at its assets. This entails looking at data to tell us about asset growth, diversification, credit quality, and measuring assets’ sensitivity to interest rate movements, both small and especially large. From 2019 to the end of 2020, SVB’s assets, meaning loans, credit facilities, securities, and other investments grew 63%. And from 2020 to the end of 2021, total bank assets grew over 83%. This significant asset growth happened in years when Covid-19 caused death, illness, and lockdowns. Loans alone grew almost 114% from 2019 to 2020 and then almost 30% from 2020 to 2021. Silicon Valley Bank's asset growth and its loan growth, in particular, were signs that risk managers might not manage the accompanying rising risks. With a rise in assets comes more risk. What should have also caused eyebrows to raise was when risk weighted assets went up 13% at a time that asset size barely moved from 2021 to the end of 2022.
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Was SVB running a stress to see how liquid we would be in a period of stress? We do not know. Thanks to all those politicians and bank lobbyists who fought hard to lower risk management requirements for banks under $250 billion assets, SVB was not required to disclose how much it had in high quality liquid assets to help it cover net cash outflows in a period of stress. Part of the Basel III definition of stress certainly includes testing fleeing deposits. These regulatory changes were signed into law by President Trump in 2018 as part of the Economic Growth, Regulatory Relief and Consumer Protection Act, which eased requirements put in place in the aftermath of the 2008 Financial Crisis under Dodd-Frank and the Consumer Protection Act.
https://www.forbes.com/sites/mayrarodriguezvalladares/2023/03/11/warning-signals-about-silicon-valley-bank-were-all-around-us/?sh=180832db1e10
This all started to happen BEFORE loons like Thiel and his ilk put a nail in their coffin.
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