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They're mad at the match, but they aren't mad at the powderkeg. SVB didn't have a Chief Risk Officer from April 2022 through January 2023. They were flying bli

They're mad at the match, but they aren't mad at the powderkeg. SVB didn't have a Chief Risk Officer from April 2022 through January 2023. They were flying blind. While the Fed raised interest rates, the bank seemingly moved forward without any risk assessments. A new Chief Risk Officer was named in January 2023. The top insiders then sold tons of shares in February, suggesting that they all realized something was wrong. In the next public report on March 8th at 4pm, they announce a capital raise to offset their now booked losses. This sets off a bank run on March 9th. And the rest is history. ----------- Maybe instead of blaming the bank run on March 9th (the lit match), they need to focus more on the 10+ months of poor risk assessments and blatant insider-trading in February (suggesting that the higher-ups discovered the issue and acted upon it for personal financial gains). -------------- Sure, the email / press release on March 8th was poorly written. So poorly written it set off a bankrun. The CEO deserves some of the blame here for such shoddy writing that set off the stampede. But that wasn't the issue. The issue was all the "dry powder" that the bank accumulated over the past year.

aaomidi 4y ago
The CEO is responsible for lack of CRO too
- kurthr 4y ago
  They wouldn't have been legally allowed to be out of compliance without a change in regulations. https://www.reuters.com/article/us-usa-trump-dodd-frank/trump-signs-bill-easing-u-s-bank-rules-into-law-idUSKCN1IP2WX https://www.reuters.com/article/us-usa-trump-dodd-frank/trum...
  - listenallyall 4y ago
    What exactly are you saying, that it would have been illegal for a bank to allow its risk officer to resign or to leave?
    - berkeleyjunk 4y ago
      I don't think so. I think they are saying that if the original regulations were still in place, the bank would not have been able to make these "investments" even without a Risk Officer.
      - listenallyall 4y ago
        Isn't that just as bad? If it's illegal to act without a risk manager, you can't make bad risk decisions or investments like SVB did, but you can't make good or necessary ones either.
      - kurthr 4y ago
        Exactly, listen to anyone in banking. The idea of buying and holding such long dated MBS and LETTING YOUR HEDGES EXPIRE just as the Fed was raising rates is just unheard of. Even if they were allowed, it was spectacularly unwise and not just in hindsight. https://youtu.be/GdfYnqyu7v8 https://youtu.be/GdfYnqyu7v8 There are multiple banking insiders who've discussed this that come to the same conclusion, here's a simple one for those who don't want to do any research, just WTF?!? But why were they allowed to do this? Why could they add $120B in low interest bonds when rates were low and lots of cash was coming in during the pandemic? Because the regulations were loosened in May of 2018 with lobbying by SVB (and possibly Thiel himself) they were just below the $250B limit. Also, what the hell were companies doing with $250M deposits earning nothing (not being swept into MoneyMarkets), when they could have been making $10M a year and been safe from losing it? Apparently, because their VCs recommended it.
    - michaelt 4y ago
      If only workers could sign contracts with some sort of 'notice period' allowing their employer time to hire a replacement....
      - listenallyall 4y ago
        ...and if they get hit by a bus? That would be illegal also?
SubuSS 4y ago
Aren't these execs bound by trading windows and 10b5-1 like filing requirements?
- yieldcrv 4y ago
  yes, they filed new 10b5-1 and used them. they did the needful. it will probably cause the rules to change.
  - SubuSS 4y ago
    I don’t think it kicks in without another trading window going by. It requires 3 months or more to kick in. There might be more to this than what we’re hearing. It’s probably all media frenzy bs right now.
    - hexedpackets 4y ago
      That's a new regulation passed in December that doesn't take effect until April. At the moment, there is no cooling off period.
  - iEchoic 4y ago
    10b5-1 rules actually did change recently, IIRC it's now about six months from change to sell.
    - yieldcrv 4y ago
      3 months but that new rule kicks in April 1st
deleted 4y ago
[deleted]
fsckboy 4y ago
All this C-suite nonsense is just a bunch of... nonsense, it needs to stop. Let me explain what I mean. After a quick google: What is a Chief risk officer? CROs report to the board and the CEO on various issues, including insurance, IT security, financial audits, internal audits, global business variables, fraud prevention, and other internal corporate matters. That's all cost-center stuff, none of that has anything to do with the banking line of business. It doesn't need to be chief anything and it had nothing to do with the failure of SVB. A bank's entire business and reason for existence is risk pooling and risk arbitrage, making money on the interest rate spreads between being on different sides of different products. The CEO of a bank cannot afford not to be qualified to be the head of banking risk. He should have quants working for him and reporting to him, but the buck stops with him. Responsibility works best in a hierarchy, you're in charge of something, you report to somebody who is in charge of you and what you do, but at a minimum, the CEO needs to know the core business cold, and sideline delegate only things that are not of that nature. A bank needs that job description up above, but it's not C suite. Having a C-suite encourages egotism and distributes risk (not interest rate risk) in an un-responsible way, if you have a chief of something, why it must be taken care of, right? There's only room for one chief. In addition to that, COO, CFO, CMO have pretty standard meanings, but no reason they can't be called VP of Operations, Treasurer/Controller/VP of Finance, and VP of Marketing though. And then, no need for a CEO, just have a President. (that corporations have a president is encoded in law, btw, but not CEO)
- ranger207 4y ago
  Counterpoint: without a dedicated person in charge of this, responsibility will be diffused among the organization and everyone will assume someone else is taking care of it
- paulddraper 4y ago
  Everyone knows if there's not a Chief Custodial Officer, the bathrooms won't get cleaned.
  - labster 4y ago
    Not only a CCO, but a Director of Privies and Urinals. When it comes to busy bathrooms, head-count is important.
riskneutral 4y ago
> They were flying blind. While the Fed raised interest rates, the bank seemingly moved forward without any risk assessments. Not having a CRO was unacceptable, without question. However, I don't know if having a CRO would have saved them. Lack of an officially appointed CRO does not imply lack of a functioning risk department, so it's not completely the same as "flying blind." Also, the CRO in a bank has a limited role. Decisions ultimately made by the CEO, after consulting the CRO as well as others such as the CFO and the Head of the Treasury department. Given the way the corporate politics and bank politics work, the CRO may have quite limited influence on decisions like how and when to raise new funding, and how much risk appetite to have for things like liquidity risk. > But that wasn't the issue. The issue was all the "dry powder" that the bank accumulated over the past year. Not really. The CEO really did inadvertently trigger an avoidable bank run. It wasn't simply the email, but also the decision to sell the HTM securities at a loss and raise equity publicly. The "dry powder" that had accumulated over the past year could have been handled in many different ways, they didn't have to buy 10 year Treasuries at a time when the risk was clearly that rates could rise due to persistent inflation and as the VC investment climate was cooling. The lowest risk option would have been to take the customer cash and deploy it in the secured overnight repo market while waiting a little bit to see what happens with inflation, the VC market, commercial real estate post-pandemic, etc., and dollar cost averaging any plans to purchase vast quantities of securities over years.
- kragen 4y ago
  they never sold any htm securities
  - riskneutral 4y ago
    Oh right, I forget, they merely announced that they had liquidated their entire AFS book at a $2 billion realized loss? That makes more sense, the accountants wouldn't have allowed to sell the HTM securities. That doesn't make it better, it makes it worse. Banks don't normally sell securities at a loss in their AFS book, nor do they normally liquidate their entire AFS book to raise cash. These were recklessly alarming moves for SVB to be signaling to the market.
epvgwwqe 4y ago
You don't need to be a Chief Risk Officer to know that a huge low yield long-term bond is a liability in a high interest rate environment. Clearly they thought the party would never end.
- 331c8c71 4y ago
  It's like banking 101. Assuming the CEO was not aware is unfathomable. Degree in business, started as a loan officer in the 90s. I guess he's just assumed that the problem was not necessarily fatal and was effectively betting on it. Very easy to imagine - moose in the headlights type of reaction.
cyanydeez 4y ago
You think that release was chatGPT?
conductr 4y ago
> The issue was all the "dry powder" that the bank accumulated over the past year. Who is to blame for allowing the operating issues you explained? I’d argue it’s the CEO. All CEOs know that can’t just ignore the X when a CxO role is vacant. But that’s what you are saying happened.
jaynate 4y ago
That’s on the CEO. And the board.
tomcam 4y ago
All true, but any CEO or COO should be fully cognizant of these same risk profiles. Fiduciary responsibility is a real thing. I can’t see anything but malfeasance here. Seems highly unlikely it was ignorance.

aaomidi 4y ago

The CEO is responsible for lack of CRO too

kurthr 4y ago
They wouldn't have been legally allowed to be out of compliance without a change in regulations. https://www.reuters.com/article/us-usa-trump-dodd-frank/trump-signs-bill-easing-u-s-bank-rules-into-law-idUSKCN1IP2WX https://www.reuters.com/article/us-usa-trump-dodd-frank/trum...
- listenallyall 4y ago
  What exactly are you saying, that it would have been illegal for a bank to allow its risk officer to resign or to leave?
  - berkeleyjunk 4y ago
    I don't think so. I think they are saying that if the original regulations were still in place, the bank would not have been able to make these "investments" even without a Risk Officer.
    - listenallyall 4y ago
      Isn't that just as bad? If it's illegal to act without a risk manager, you can't make bad risk decisions or investments like SVB did, but you can't make good or necessary ones either.
    - kurthr 4y ago
      Exactly, listen to anyone in banking. The idea of buying and holding such long dated MBS and LETTING YOUR HEDGES EXPIRE just as the Fed was raising rates is just unheard of. Even if they were allowed, it was spectacularly unwise and not just in hindsight. https://youtu.be/GdfYnqyu7v8 https://youtu.be/GdfYnqyu7v8 There are multiple banking insiders who've discussed this that come to the same conclusion, here's a simple one for those who don't want to do any research, just WTF?!? But why were they allowed to do this? Why could they add $120B in low interest bonds when rates were low and lots of cash was coming in during the pandemic? Because the regulations were loosened in May of 2018 with lobbying by SVB (and possibly Thiel himself) they were just below the $250B limit. Also, what the hell were companies doing with $250M deposits earning nothing (not being swept into MoneyMarkets), when they could have been making $10M a year and been safe from losing it? Apparently, because their VCs recommended it.
  - michaelt 4y ago
    If only workers could sign contracts with some sort of 'notice period' allowing their employer time to hire a replacement....
    - listenallyall 4y ago
      ...and if they get hit by a bus? That would be illegal also?

SubuSS 4y ago

Aren't these execs bound by trading windows and 10b5-1 like filing requirements?

yieldcrv 4y ago
yes, they filed new 10b5-1 and used them. they did the needful. it will probably cause the rules to change.
- SubuSS 4y ago
  I don’t think it kicks in without another trading window going by. It requires 3 months or more to kick in. There might be more to this than what we’re hearing. It’s probably all media frenzy bs right now.
  - hexedpackets 4y ago
    That's a new regulation passed in December that doesn't take effect until April. At the moment, there is no cooling off period.
- iEchoic 4y ago
  10b5-1 rules actually did change recently, IIRC it's now about six months from change to sell.
  - yieldcrv 4y ago
    3 months but that new rule kicks in April 1st

deleted 4y ago

[deleted]

fsckboy 4y ago

All this C-suite nonsense is just a bunch of... nonsense, it needs to stop. Let me explain what I mean. After a quick google: What is a Chief risk officer? CROs report to the board and the CEO on various issues, including insurance, IT security, financial audits, internal audits, global business variables, fraud prevention, and other internal corporate matters. That's all cost-center stuff, none of that has anything to do with the banking line of business. It doesn't need to be chief anything and it had nothing to do with the failure of SVB. A bank's entire business and reason for existence is risk pooling and risk arbitrage, making money on the interest rate spreads between being on different sides of different products. The CEO of a bank cannot afford not to be qualified to be the head of banking risk. He should have quants working for him and reporting to him, but the buck stops with him. Responsibility works best in a hierarchy, you're in charge of something, you report to somebody who is in charge of you and what you do, but at a minimum, the CEO needs to know the core business cold, and sideline delegate only things that are not of that nature. A bank needs that job description up above, but it's not C suite. Having a C-suite encourages egotism and distributes risk (not interest rate risk) in an un-responsible way, if you have a chief of something, why it must be taken care of, right? There's only room for one chief. In addition to that, COO, CFO, CMO have pretty standard meanings, but no reason they can't be called VP of Operations, Treasurer/Controller/VP of Finance, and VP of Marketing though. And then, no need for a CEO, just have a President. (that corporations have a president is encoded in law, btw, but not CEO)

ranger207 4y ago
Counterpoint: without a dedicated person in charge of this, responsibility will be diffused among the organization and everyone will assume someone else is taking care of it
paulddraper 4y ago
Everyone knows if there's not a Chief Custodial Officer, the bathrooms won't get cleaned.
- labster 4y ago
  Not only a CCO, but a Director of Privies and Urinals. When it comes to busy bathrooms, head-count is important.

riskneutral 4y ago

> They were flying blind. While the Fed raised interest rates, the bank seemingly moved forward without any risk assessments. Not having a CRO was unacceptable, without question. However, I don't know if having a CRO would have saved them. Lack of an officially appointed CRO does not imply lack of a functioning risk department, so it's not completely the same as "flying blind." Also, the CRO in a bank has a limited role. Decisions ultimately made by the CEO, after consulting the CRO as well as others such as the CFO and the Head of the Treasury department. Given the way the corporate politics and bank politics work, the CRO may have quite limited influence on decisions like how and when to raise new funding, and how much risk appetite to have for things like liquidity risk. > But that wasn't the issue. The issue was all the "dry powder" that the bank accumulated over the past year. Not really. The CEO really did inadvertently trigger an avoidable bank run. It wasn't simply the email, but also the decision to sell the HTM securities at a loss and raise equity publicly. The "dry powder" that had accumulated over the past year could have been handled in many different ways, they didn't have to buy 10 year Treasuries at a time when the risk was clearly that rates could rise due to persistent inflation and as the VC investment climate was cooling. The lowest risk option would have been to take the customer cash and deploy it in the secured overnight repo market while waiting a little bit to see what happens with inflation, the VC market, commercial real estate post-pandemic, etc., and dollar cost averaging any plans to purchase vast quantities of securities over years.

kragen 4y ago
they never sold any htm securities
- riskneutral 4y ago
  Oh right, I forget, they merely announced that they had liquidated their entire AFS book at a $2 billion realized loss? That makes more sense, the accountants wouldn't have allowed to sell the HTM securities. That doesn't make it better, it makes it worse. Banks don't normally sell securities at a loss in their AFS book, nor do they normally liquidate their entire AFS book to raise cash. These were recklessly alarming moves for SVB to be signaling to the market.

epvgwwqe 4y ago

You don't need to be a Chief Risk Officer to know that a huge low yield long-term bond is a liability in a high interest rate environment. Clearly they thought the party would never end.

331c8c71 4y ago
It's like banking 101. Assuming the CEO was not aware is unfathomable. Degree in business, started as a loan officer in the 90s. I guess he's just assumed that the problem was not necessarily fatal and was effectively betting on it. Very easy to imagine - moose in the headlights type of reaction.

cyanydeez 4y ago

You think that release was chatGPT?

conductr 4y ago

> The issue was all the "dry powder" that the bank accumulated over the past year. Who is to blame for allowing the operating issues you explained? I’d argue it’s the CEO. All CEOs know that can’t just ignore the X when a CxO role is vacant. But that’s what you are saying happened.

jaynate 4y ago

That’s on the CEO. And the board.

tomcam 4y ago

All true, but any CEO or COO should be fully cognizant of these same risk profiles. Fiduciary responsibility is a real thing. I can’t see anything but malfeasance here. Seems highly unlikely it was ignorance.