As a result of the string of disasters that have rocked the banking industry, many people are beginning to question the sector’s capacity to maintain its stability. After receiving billions of dollars from venture capital customers during the Covid-19 outbreak and investing it in longer-term bonds, Silicon Valley Bank (SVB) is the most recent institution to be the subject of inquiry for this practice.
This choice was made on the premise that we could count on the Federal Reserve to keep interest rates at historically low levels, but that did not turn out to be the case.
In the casino on Wall Street, SVB is not the only company placing high-risk wagers with the money deposited by customers. A great many other financial institutions have come to terms with the truth that the historically low-interest rates of the Trump period cannot be maintained indefinitely without causing unchecked inflation, which would then be followed by hyperinflation and collapse.
Why Didn’t SVB Do More to Safeguard Its Customers’ Deposits?
Concerns have been raised regarding the manner in which SVB ignored the unavoidable repercussions of the Federal Reserve’s policy of continually raising interest rates while failing to protect the “unstable deposits” of its customers. On Thursday, investors and depositors attempted to withdraw $42 billion, causing the company to have a negative cash balance of approximately $1 billion, according to the authorities.
According to Bloomberg, there are still many unanswered questions regarding how SVB was able to successfully navigate its precarious position in recent months and whether the company made a mistake by waiting and failing to secure a $2.25 billion capital injection before publicly announcing losses that alarmed its customers.
Who Should Be Held Responsible for the Collapse of the Banks?
The scandal-ridden banking industry is the sole party to blame for the current wave of bank collapses, we are currently experiencing. When SVB was created in the 1980s over a game of poker, interest rates had just started their continuous slide from double digits to near zero under the Trump administration. The leadership of the company chose to disregard all of the warning signs while placing high-stakes wagers with the money of other individuals, which eventually resulted in the company going bankrupt.
SVB was a bank that was careless with the money of other people and played fast and loose with it. According to Sarah Kunst, a managing director at the venture capital firm Cleo Capital, there was a significant amount of risk that they were accepting that other banks would not. It ultimately contributed to their fall from power.
In March 2021, at the height of the Covid-19 epidemic, SVB was swimming in cash. In fact, it had so much cash that its greedy executives found it difficult to resist the temptation of flushing it down the toilet by betting on hazardous Wall Street investments. According to data published by Bloomberg, the total deposits at the banks had a meteoric rise over the course of the preceding 12 months, increasing from $62 billion to almost $124 billion. This one hundred percent gain greatly exceeded a boost of twenty-four percent at JPMorgan Chase & Co. and a rise of thirty-six and a half percent at First Republic Bank, another California financial firm.
Greg Becker, the CEO of SVB, was gloating to the media that he had “the finest bank CEO job in the world, and maybe one of the top CEO positions, period,” as he described his position. When questioned at the time if his bank’s expanding income was sustainable, he grinned and started spewing off phrases often associated with technological visionaries. He stated this with a smile on his face, “The innovation economy is the finest place to be.” We count ourselves really lucky to be in the thick of things right now.