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The Fed Knew Silicon Valley Bank Had Problems a Year Ago, and They Did Nothing

March 17, 2023 by Joe Cunningham Leave a Comment

More than a year before a shocking collapse that led to a near-crisis in the financial sector, Silicon Valley Bank was the subject of an investigation set in motion by the Federal Reserve in San Fransisco, according to a new report.

Bloomberg is reporting today that the investigative team, made up of senior examiners for the Fed, was tasked with assessing the firm and its potential risks. What they found, it seems, should have been enough to get regulators involved long before the bank collapsed and sent shockwaves through the tech and financial sector – and long before taxpayer bailouts became an option.

According to Bloomberg, those investigators “fired off a series of formal warnings to the bank’s leaders, pressing them to fix serious weaknesses in operations and technology, according to people with knowledge of the matter.”

More from the report:

Then late last year they flagged a critical problem: The bank needed to improve how it tracked interest-rate risks, one of the people said, an issue at the heart of its abrupt downfall this month.

The Federal Reserve has promised to investigate how it supervised SVB Financial Group’s Silicon Valley Bank, now the second-biggest failure of a US lender in history. The relatively late discovery of so many flaws raises questions about whether the Fed was diligent in stepping up oversight as the firm was ballooning in size. On Friday, Santa Clara, California-based SVB Financial filed for Chapter 11 bankruptcy protection.

In a twist, the San Francisco Fed’s deputy point person in charge of monitoring the bank until late 2021 received a new assignment afterward, becoming the regulator’s point person on Silvergate Capital Corp., according to people with knowledge of the situation. Silvergate also shut this month because of similar flaws in its deposit base and the positioning of its balance sheet.

A representative for the Fed declined to comment.

As the Democrats call for more regulation of the banking industry, this report highlights a familiar problem – namely, that the regulations and safeguards already in place don’t appear to be working.

The fact of the matter is that the bank had enacted an incredibly risky investment strategy – among other things, a total lack of diversity in their investments – and had no chief risk officer for most of the last year. There was no one around to tell them they were acting stupid.. except for the Fed, which tried. The bank just didn’t listen.

When the FDIC seized the bank, it was the first time the Biden administration was told of the problems the bank was facing, but the Federal Reserve was aware of them. In other words, it looks a whole lot like 9/11 in one regard: Federal agencies weren’t talking to each other, and something bad happened as a result of their negligence.

So when the Democrats and progressives and their allies in the media tell you we need more regulation, it’s important to point out that they can’t seem to enforce what’s already there, and imposing more restrictive regulation will only hurt small and regional banks (who don’t always have the capital to fully comply) while the big banks do very little to change their risky practices.

Janet Yellen admitted in a Senate hearing yesterday that those smaller banks won’t get the same opportunities at bailouts that big banks do. So the small banks get hurt by stifling regulations and the big banks can continue to take giant risks knowing the government will bail them out each and every time.

This is truly incredible.

Here is an exchange with Senator James Lankford & Yellen.

He asks, “Will every community bank … get the same treatment as SVB?”

Yellen: “Banks only get the treatment if … the failure to protected uninsured depositors would create systemic risk.” pic.twitter.com/JvAX3Hhb6F

— unusual_whales (@unusual_whales) March 17, 2023

That’s the real underlying problem with all this. Time and again, the biggest banks, corporations, etc. can do all the shady or risky things they want to and they’ll be forgiven and even bailed out. They are, as was deemed during the last major financial crisis, “too big to fail.” But while Wall Street can suckle the fruitful teat of government, Main Street is never given that opportunity.

That is the real “systemic risk” we are facing today.

Trending on RedState Video

Filed Under: <![CDATA[Banking]]>, <![CDATA[Federal Reserve]]>, <![CDATA[Government]]>, <![CDATA[regulations]]>, <![CDATA[Silicon Valley Bank]]>, News, Red State

Feds Take Over Silicon Valley Bank in Biggest Bank Failure Since 2007

March 10, 2023 by Joe Cunningham Leave a Comment

Silicon Valley Bank (SBV), a financial institution that focused primarily on investing in tech start-ups, has been taken over and shut down by federal regulators in one of biggest financial failures in history, and the biggest since the Global Financial Crisis over a decade ago.

The collapse of the bank comes as the tech industry has lost a lot of profitability in recent months. Major tech firms are slashing jobs, and new start-ups are dwindling.

The stunning downfall of the bank, once a darling of the financial world, comes after it raced to find a buyer following a major reported loss, according to the Wall Street Journal.

Once a darling of the banking business, Silicon Valley Bank collapsed at warp speed after it announced a big loss on its bondholdings and plans to shore up its balance sheet, tanking its stock and sparking widespread customer withdrawals.

The bank’s parent company, SVB Financial Group, was racing to find a buyer after scrapping a planned $2.25 billion share sale Friday morning. Regulators weren’t willing to wait. The California Department of Financial Protection and Innovation closed the bank Friday within hours and put it under the control of the FDIC.

SVB, based in Santa Clara, Calif., earlier this week surprised investors by announcing that it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits. The stock has lost more than 80% since then, and tech clients rushed to pull their deposits over concerns about the bank’s health.

Despite a strong jobs report Friday morning, the carryover from the sudden panic on Wall Street Thursday dragged the markets down. The four largest U.S. banks lost roughly $52 billion in value Thursday. “Bank stocks continue to plunge Friday morning, with a number halted for volatility,” the WSJ also reported.

After its major financial losses, SVB tried and failed to find a buyer, according to CNBC. Shares of its parent company, SVB Financial, fell by 60 percent on Thursday, which led to the aforementioned loss in market value in other institutions.

The FDIC takeover of SBV leaves several unanswered questions for investors and account holders. At the end of 2022, SVB had approximately $209 billion in total assets, with about $175.4 billion in total deposits. According to the FDIC, it’s currently unclear what how many of those deposits were above their insurance limit of $250,000 per depositor.

However, unlike previous financial failures, this one could be limited in its impact on the larger financial sector. SVB specialized almost exclusively on tech investments. Banks with diversified holdings are not seeing the collapse that those with limited holdings are. The FDIC takeover also means there is likely not going to be a run on banks, as was initially feared in news reports. Wall Street analysts previously indicated as much, and Morgan Stanley told its clients that SVB’s issues are “highly idiosyncratic.”

Part of SVB’s collapse ties into the American economy and inflation concerns. The Federal Reserve’s aggressive rate hikes hit the tech sector particularly hard, and all told, the value of SVB’s bondholdings was dented. Because of these and other issues, deposits were on the decline, which led the bank to sell almost all of its available securities.

Trending on RedState Video

Filed Under: <![CDATA[fdic]]>, <![CDATA[Financial Crisis]]>, <![CDATA[Government]]>, <![CDATA[Regulators]]>, <![CDATA[Silicon Valley Bank]]>, <![CDATA[SVB]]>, News, Red State

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March 20, 2023 | Ian Hanchett | Leave a Comment

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DeSantis Mentions Soros and MSNBC Commentator Beclowns Himself Claiming ‘AntiSemitism’

March 20, 2023 | Jim Thompson | Leave a Comment

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March 20, 2023 | Dennis Santiago | Leave a Comment

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March 20, 2023 | Carlos Garcia | Leave a Comment

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March 20, 2023 | Jerry Wilson | Leave a Comment

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March 20, 2023 | Cam Edwards | Leave a Comment

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March 20, 2023 | Alex Nitzberg | Leave a Comment

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March 20, 2023 | Mike Miller | Leave a Comment

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March 20, 2023 | Carlos Garcia | Leave a Comment

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March 20, 2023 | Michele Blood | Leave a Comment

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