Former head of SVB linked the bankruptcy of his bank with negative sentiment in social networks

Former CEO of Silicon Valley Bank (SVB), which went bankrupt on March 10, Greg Becker, believes that the fastest rate of increase in the Federal Reserve System (Fed) key rate in recent decades, as well as negative sentiment in social networks, contributed to the collapse of the organization. He stated this in an affidavit prepared for hearings in the US Senate. Bloomberg.

“The Fed has said that interest rates will remain low and inflation, which has begun to swell, will only be temporary. Indeed, from the beginning of 2020 to the end of 2021, banks collectively purchased almost $2.3 trillion of investment securities in a low yield environment created by the Fed,” Becker wrote in a letter to the Senate.

The former head of the financial institution believes that the media comparison of SVB with the cryptocurrency bank Silvergate Capital Corp., which collapsed on March 8, two days before Silicon Valley Bank, also contributed to the bankruptcy. The comparison has led to a rapid spread of rumors and misconceptions on the internet, leading to an “unprecedented bank run,” Becker said.

“The next day, the flight gained momentum. By the end of the day on March 9, $42 billion of deposits were withdrawn from SVB in ten hours, or about $1 million every second,” said the former head of Silicon Valley Bank.

Mr. Becker also acknowledged the shortcomings in the work of the SVB, which were pointed out by auditors and regulators. At the same time, he said that the company was trying to improve the effectiveness of risk management by, in particular, expanding the organization’s treasury management group. In 2022, SVB also looked to improve its liquidity, he noted.

“I never imagined that these unprecedented developments could happen to SVB and I firmly believe that the leadership team and I made the best decisions we could make based on the facts, forecasts and outside expert advice available to us at the time,” he concluded.

In early March, American SVB and Signature Bank, which specialized in lending to start-ups, went bankrupt in sequence. SVB was the 17th largest bank in the US. In the week following the collapse of SVB and Signature Bank, other US banks borrowed a record $165 billion from the Fed due to banking market concerns. March 27 became knownthat North Carolina-based banking holding First Citizens will purchase all deposits and loans from Silicon Valley Bridge Bank, an SVB sanatorium, for approximately $72 billion at a $16.5 billion discount.

At the end of April, the Fed presented a report on the results of the verification of the circumstances of the bankruptcy of SVB. In a 144-page Fed document indicatesthat the bank was the victim of a classic case of poor management by its management and board of directors, as well as weak oversight by the Fed itself.

About the banking crisis – in the material “Kommersant” “At least three volumes per month”.

Erdni Kagaltynov