This week’s top three SVB misconceptions from social media

SVB

Photo credit: Financial Times

The Silicon Valley Bank had a rather spectacular collapse this week. The run on the banks was due to a decline in funding from venture capital deposits, rising interest rates causing asset/liability imbalances, and the company’s sale of government bonds at huge losses to raise capital.

Getting straight to my points — the top three misconceptions about Silicon Valley Bank that have surfaced repeatedly on social media over the past week —

1) “It’s 2008 again”. That statement is false, but we have some serious financial dislocations that were likely caused by the Fed keeping interest rates below inflation for such a long period of time. In 2008, the crisis had to do with the quality of the securities on banks’ balance sheets. This month’s dislocations at SVBVB are primarily due to liquidity, as the maturities of the assets and liabilities sides of their balance sheets do not match. Also on the word “again” above – certainly we will continue to have financial crises, but every crisis is different, both large and small.

2) “It’s another taxpayer bailout.” Wrong again. The FDIC typically covers deposits of up to $250,000 per depositor per institution – and in the case of SVB, the FDIC announced Sunday that it would cover 100% of SVB deposits (raising other questions about the repeatability of this action – the to to be discussed at another time). . Depositors are paid out of the FDIC Insurance Fund — which all banks fund pro-rata based on their deposit size — which means JPMorgan and Citibank pay much more into the fund than your local bank. Think of it as a survivor-pays-for-the-dead philosophy — which was also a basis for many of the actions taken by regulators to quell the 2008 financial crisis.

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3) “Your ESG and Woke policies got SVB out of the way.” Oh please stop! Silicon Valley Bank was not an outlier on either its diversity goals or its ESG investments. SVB said it will invest approximately 8 percent of its assets in small business and community development projects over the next few years, in line with the 8-15 percent pledged by the top three banks, JPMorgan, Citibank and Bank of AmericaBAC.

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I’m a strategic investor and business builder. In my work at McKinsey, I have supported the growth and optimization of world-class wealth management and private equity companies. While leading transformation teams building five wealth management businesses, I was CEO of Blackstone Alternative Asset Management and FRM/Man and founded Lasair Capital in strategic partnership with a Fortune 5 retirement plan. I pioneered the institutionalization of the hedge fund industry and have delivered targeted solution executions to leading global clients. Through my work, I have helped millions of retirees have better-funded retirements.

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