SVB Saga: A Risk Management FAIL
March 16, 2023 3:20 pm
Discussion this week on the Random Gleanings centered on the news of the week – the Silicon Valley Bank collapse. We’d guess that books will come out on the myriad causes of this bank failure (the second largest bank to fail in American history) pointing fingers at the Federal Reserve, Venture Capitalists and the Tech Start-ups they fund, and Social Media (Twitter, specifically) as playing a role in this bank run… BUT, the one thing that is certain, and where Jesse Hansford & Chris Beard concentrated their attention in the early days of the forensics is that the Bank’s leadership did a TERRIBLE job of RISK MANAGEMENT of their institutions investments.
To be clear, the investments that they held were not the toxic investments of the 2008 banking debacle, rather this time around the underlying investments were in Treasuries and Mortgage Backed Securities, both considered High Quality investments. No, in this case, the risk came in the form of misaligning their investments to their “current” needs. It boils down to a cash-flow” issue. While the guys beat up on the ignorance of the Bank Management for their malfeasance, there is plenty to learn for your own risk management in taking a lesson from SVB. …