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 banking regulators ‘missed’ it and the bank eventually collapsed.
Silicon Valley Bank reportedly held $173 billion in deposits – $117 billion of its deposits were in mortgage-backed securities.
So-called banking regulators somehow ‘didn’t’ notice that 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 by 450 basis points last year, according to its balance sheets.
Silicon Valley Bank holds $173 billion in deposits.
The Fed interest rate is at 4.57%
SVB’s $117 billion in securities (MBS) yield 1.56-1.66%
This causes a bank run
If enough VC/tech cos make their money,
—SVB could be bankrupt
—Many startups could be wiped out
—A crash can cause a recession! pic.twitter.com/wA38Mx1edb
— Deedy (@debarghya_das) March 10, 2023
The San Francisco Federal Reserve issued six citations and flagged Silicon Valley Bank.
In July 2022, Silicon Valley Bank was undergoing a “comprehensive supervisory review” and “was subject to a set of restrictions that prevented it from growing through acquisitions,” according to The New York Times. .
Regulators knew Silicon Valley Bank was in trouble and didn’t have enough cash to cover depositors.
But they were bailed out anyway.
Last week, the Biden gang bailed out SVB. TGP has previously reported on SVB’s links to venture capital activities in China. The SVB was the gateway for Chinese venture capitalists to access US dollars.
When Biden fully bailed out SVB depositors, he bailed out Chinese venture capitalists. These entities included companies that supported Chinese aerospace and defense companies.
The New York Times reported:
Silicon Valley Bank’s risky practices have been 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 was in trouble, according to a person familiar with the matter.
In 2021, a Fed review of the growing bank found serious weaknesses in how it handled 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. These warnings, known as “matters needing attention” and “matters needing immediate attention”, indicated that the company was doing a poor job of ensuring that it had enough easy-to-use cash in hand. problem case.
But the bank did not fix its vulnerabilities. In July 2022, Silicon Valley Bank was undergoing a full supervisory review – gaining closer scrutiny – and was ultimately found deficient in governance controls. It was subject to a set of restrictions that prevented it from growing through acquisitions. Last fall, San Francisco Fed staffers met with senior company executives to discuss their ability to access sufficient liquidity in a crisis and their potential exposure to losses as interest rates were rising.
It became clear to the Fed that the firm was using the wrong models to determine how its business would deal with the central bank’s rate hike. Its executives assumed that higher interest income would significantly improve their financial situation as rates rose, but that did not correspond to reality.
Silicon Valley Bank was hit with its first securities lawsuit last Monday.
Shareholders have filed a class action lawsuit against SVB, claiming they were never warned of the risks to its business model, Bloomberg reported.