By Taxpayers Association of Oregon
Former Silicon Valley Bank CEO Greg Becker spoke before a Senate panel on the failure of Silicon Valley Bank recently.
The Wall Street Journal Editorial Board made this observation on his testimony:
“Mr. Becker explains what the Fed would prefer to ignore. Deposits ballooned during the pandemic owing to “near-zero interest rates and the largest government-sponsored economic stimulus in history,” Mr. Becker told Senators. Liquidity and capital rules encouraged SVB to invest its flood of new deposits in long-dated government-backed securities that regulators deemed “safe.” …From 2020 to 2022, our headcount and professional services expenses increased substantially, the bulk of which were dedicated to enhancing risk management and operational execution,” he added. “By the end of 2022, my recollection is that SVB had roughly 1,000 people with all, or the majority, of their responsibilities focused on risk management of some type.” A lack of attention to regulation can hardly be faulted for SVB’s failure. Mr. Becker’s testimony suggests that bank examiners and SVB employees were focused more on complying with regulation than managing actual and potential balance-sheet risks. Examiners were concerned primarily with SVB’s processes, not its classic financial vulnerability of interest-rate risk hiding in plain sight.Bank executives aren’t blameless, but they were also responding to the Fed’s easy money and misplaced regulatory priorities. Mr. Becker has lost his job and no doubt a lot of money. Has even a single regulator at the San Francisco Fed lost hers?”
The last sentence strikes a strong point on why government regulators get a free pass on not seeing risk and warnings signs when that is their job.
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