The collapse of Silicon Valley Bank continues to reverberate, hitting bank stocks, revealing hidden stresses, knocking on to Credit Suisse, and setting off a political blame-game.
Why the $212bn tech-lender abruptly collapsed, triggering the most significant financial crisis since 2008, has no single answer. Was it, as some argue, the result of Trump-era regulation rollbacks, risk mismanagement at the bank, sharp interest rate rises after a decade of ultra-low borrowing costs, or perhaps a combination of all three?
Federal investigations have begun and lawsuits have been filed and no doubt new issues at the bank will emerge. But for now, here are the main reasons experts believed SVB failed.
Vermont Senator Bernie Sanders argues that the culprit was an “absurd” 2018 law, supported by Congress and signed by Donald Trump, that undid some of the credit requirements imposed under the Dodd-Frank banking legislation brought in after the 2008 banking crisis.
Dodd-Frank required that banks with at least $50bn in assets – banks considered “systemically important” – undergo an annual Federal Reserve “stress test” and maintain certain levels of capital as well as plans for a living will if they failed.
SVB chief executive Greg Becker argued before Congress in 2015 that the $50bn threshold (SVB held $40bn at the time) was unnecessary and his bank, like other “mid-sized” or regional banks, “does not present systemic risks”.
Trump said the new bill went a “long way toward fixing” Dodd-Frank, which he called a “job-killer”. But the nonpartisan Congressional Budget Office (CBO) warned before the bill passed that raising the threshold would “increase the likelihood that a large financial firm with assets of between $100bn and $250bn wouldRead more on theguardian.com