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How the Latest Silicon Valley Bank Development Ends the Bailout Debate

AP Photo/Jeff Chiu

While some Democrats have not entirely hopped on this train, others have regarding the collapse of Silicon Valley Bank: they blame Trump. Sen. Elizabeth Warren (D-MA), the Left’s most prominent race hoaxer, has firmly planted her flag on this hill and is willing to die on it. Former Rep. Barney Frank (D-MA), the man behind 2010’s Dodd-Frank bill, which aimed to prevent such financial institutional failures, says Trump’s 2017 tweaks to the act did little to nothing to facilitate the bank’s demise. Frank faces a rather embarrassing situation right now, being on the board of Signature Bank, which was shuttered over systemic risk concerns; Signature was a cryptocurrency outfit.


Now, we’ve learned that the Federal Reserve knew about SVB’s risky behavior, had it under supervisory review for a year, and the bank itself didn’t heed any of the warnings or recommendations offered, namely that the model they were using for risk assessment was incorrect, to avoid disaster (via NYT): 

Silicon Valley Bank’s risky practices were 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 had problems, according to a person familiar with the matter. 

In 2021, a Fed review of the growing bank found serious weaknesses in how it was handling key risks. Supervisors at the Federal Reserve Bank of San Francisco, which oversaw Silicon Valley Bank, issued six citations. Those warnings, known as “matters requiring attention” and “matters requiring immediate attention,” flagged that the firm was doing a bad job of ensuring that it would have enough easy-to-tap cash on hand in the event of trouble. 

But the bank did not fix its vulnerabilities. By July 2022, Silicon Valley Bank was in a full supervisory review — getting a more careful look — and was ultimately rated deficient for governance and controls. It was placed under a set of restrictions that prevented it from growing through acquisitions. Last autumn, staff members from the San Francisco Fed met with senior leaders at the firm to talk about their ability to gain access to enough cash in a crisis and possible exposure to losses as interest rates rose. 

It became clear to the Fed that the firm was using bad models to determine how its business would fare as the central bank raised rates: Its leaders were assuming that higher interest revenue would substantially help their financial situation as rates went up, but that was out of step with reality. 

By early 2023, Silicon Valley Bank was in what the Fed calls a “horizontal review,” an assessment meant to gauge the strength of risk management. That checkup identified additional deficiencies — but at that point, the bank’s days were numbered. In early March, it faced a run and failed within a matter of days. 


SVB was an institution whose customer base was primarily in the high-tech industry, which has been shellacked for nearly a year on Wall Street, exposing the bank. The run came when the bank announced a massive capital raise to cover the immense losses it had incurred. So, this shockingly wasn’t a surprise. The Fed knew this bank was using faulty models and methods to conduct its business, and on SVB’s part—they did nothing. This was never Trump’s fault; that’s a Democratic Party lie. But it not only blows up the argument for that but should also end the debate about a soft bailout for these folks. There should be none. They knew the risks, ignored them, and took a wanton disregard for the institution's health. Let them burn.  

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