Silicon Valley Bank was on the Federal Reserve’s radar for more than a year before it collapsed.
SVB’s balance sheet was a ticking time bomb but somehow the bank regulators ‘missed it’ and the bank ultimately collapsed.
Silicon Valley Bank reportedly held $173 billion in deposits – $117 billion of its deposits were in mortgage-backed securities.
The so-called bank regulators somehow ‘failed’ to notice Silicon Valley Bank was a ticking time bomb when more than two-thirds of its deposits were invested in mortgage-backed securities that yielded 1.5% as the Fed raised rates 450 basis points last year, according to its balance sheets.
Silicon Valley Bank holds $173B of deposits.
Fed interest rate is at 4.57%
SVB’s $117B of securities (MBS) yield 1.56-1.66%
This is causing a bank run
If enough VC / tech cos pull their money,
—SVB may be bankrupt
—Many startups may be wiped out
—Crash may cause a recession! pic.twitter.com/wA38Mx1edb
— Deedy (@debarghya_das) March 10, 2023
The Federal Reserve of San Francisco issued six citations and flagged Silicon Valley Bank.
By July of 2022, Silicon Valley Bank was under a “full supervisory review” and “placed under a set of restrictions that prevented it from growing through acquisitions,” according to the New York Times.
The regulators knew Silicon Valley Bank was in trouble and did not have enough cash to cover depositors.
But they were bailed out anyway.
Last week the Brandon gang bailed out SVB. TGP earlier reported on the connections between SVB and China’s venture capital business. SVB was the bridge for Chinese venture capitalists to get to US dollars.
When Brandon bailed out SVB depositors in full, he bailed out China’s venture capitalists. These entities included companies that backed China’s aerospace and defense ventures.
The New York Times reported:
Silicon Valley Bank’s risky practices were on the Federal Reserve’s radar for more than a year – an awareness that proved insufficient to stop the bank’s demise.
The Fed repeatedly warned the bank that it had problems, according to a person familiar with the matter.
In 2021, a Fed review of the growing bank found serious weaknesses in how it was handling key risks. Supervisors at the Federal Reserve Bank of San Francisco, which oversaw Silicon Valley Bank of San Francisco, which oversaw Silicon Valley Bank, issued six citations. Those warnings, known as “matters requiring attention” and “matters requiring immediate attention,” flagged that the firm was doing a bad job of ensuring that it would have enough easy-to-tap cash on hand in the event of trouble.
But the bank did not fix its vulnerabilities. By July 2022, Silicon Valley Bank was in a full supervisory review – getting a more careful look – and was ultimately rated deficient for governance controls. It was placed under a set of restrictions that prevented it from growing through acquisitions. Last autumn, staff members from the San Francisco Fed met with senior leaders at the firm to talk about their ability to gain access to enough cash in a crisis and possible exposure to losses as interest rates rose.
It became clear to the Fed that the firm was using bad models to determine how its business would face as the central bank raised rates. Its leaders were assuming that higher interest revenue would substantially help their financial situation as rates went up, but that was out of step with reality.
Silicon Valley Bank was hit with its first securities lawsuit last Monday.
Shareholders filed a class action lawsuit against SVB arguing they were never warned about the risks to its business model, Bloomberg reported.