No sooner had the news broken of the Silicon Valley Bank (SVB) bank failure, there were immediate comparisons to previous bank failures and calls to bail out the bank.

It was called Silicon Valley Bank, but its collapse is causing shockwaves around the world.

From winemakers in California to startups across the Atlantic Ocean, companies are scrambling to figure out how to manage their finances after their bank suddenly shut down Friday. The meltdown means distress not only for businesses but also for all their workers whose paychecks may get tied up in the chaos.

From research, it’s looking quite evident that SVB made some serious missteps along the way. Even as the federal government kept printing money because of the Covid issues, banks such as SVB for some asinine reason ended up with little to zero cash reserves. In other words, SVB was toast on how much liquidity they had. Which was none. When that news broke in the middle of last week, investors understandably got more than a little nervous, and then the bank was shut down by regulators. 

It isn’t just the tech companies that are scared because their assets are tied up in SVB. Nope, it’s smaller companies such as wineries who are wondering what will happen on Monday morning. 

Meanwhile, we also find out that many of the SVB bank execs cashed out their stock weeks and DAYS before the bank shut down. 

Gregory Becker, CEO, sold 11% on Feb 27, 2023.

Michael Zucker, General Counsel, 19% on Feb 5.

Daniel Beck, CFO, sold 32% on Feb 27.

Michelle Draper, CMO, sold 25% on Feb 1.

And, bank employees were all given their annual bonuses just before the bank was shut down. 

In addition to supposedly not keeping enough liquidity in the bank, what else went wrong at SVB? I’m sure we’ll find out more over the next days and weeks as this mess continues to unravel, but it sure is a red flag when one finds out that the chief over Risk Management was more concerned about diversity, equity, LGBTQXYZ, and other woke agenda items instead of managing the actual REAL risks of a bank portfolio!

Meanwhile, Jay Ersapah, who acts as CRO for the bank in Europe, Africa and the Middle East and who describes herself as a ‘queer person of color from a working-class background’ – organized a host of LGBTQ initiatives including a month-long Pride campaign and implemented ‘safe space’ catch-ups for staff.
In a corporate video published just nine months ago, she said she ‘could not be prouder’ to work for SVB serving ‘underrepresented entrepreneurs.’

Furthermore, CEO Gregory Becker lobbied to have federal oversight raised from $50 billion to $250 billion.

‘Without such changes, SVB likely will need to divert significant resources from providing financing to job-creating companies in the innovation economy to complying with enhanced prudential standards and other requirements,’ said Becker.

‘Given the low risk profile of our activities and business model, such a result would stifle our ability to provide credit to our clients without any meaningful corresponding reduction in risk.’

In other words, SVB didn’t want federal oversight and that wish ended up being granted. Leaving all the bank customers in the lurch. Longtime hedge fund manager Bill Ackman issued this warning yesterday. 

The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or… https://t.co/SqdkFK7Fld

— Bill Ackman (@BillAckman) March 11, 2023

It’s a long tweet, but well worth clicking to read it all. Of the numerous points he makes in that long paragraph, this stood out for me. 

“The FDIC’s and OCC’s [Office of the Comptroller of Currency] failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits,” Ackman said.

Yes, where in the hell was the FDIC and OCC?? They should’ve had eyes on SVB no matter what was agreed to in DC! Ackman also makes another interesting point. The federal government waffled and didn’t guarantee the deposits for the SVB clients. If the feds had, Ackman asserts that would’ve been better for a new owner to step in and bring more equity to the table. Is that the case? Something to consider.

But that didn’t happen, again, leaving clients in the lurch and possible investors stepping back from trying to help solve the problem. An auction is taking place right now, and supposedly we’ll know tonight who the new investor will be. 

Meanwhile, Janet Yellen swoops in this morning to assure us all that there won’t be a bank bailout. 

This is an interesting read on another reason why SVB failed. Meanwhile, consider this thread via Twitter that suggests some of this could’ve been avoided if it weren’t for social media blowing up the situation. 

But the reality is, the banking industry has to start adding this "social media risk" into their frameworks and find a way to get ahead and control the narrative, to avoid this type of situation from happening again.

— professorstam.eth (@ProfessorStam) March 12, 2023

For SVB, perhaps they should’ve had their Risk Assessment manager evaluate risk instead of virtue signaling over woke agenda issues. Furthermore, they made the mistake of not being fully transparent with investors and clients, which came back around to bite them in the butt. 

It’s going to be interesting to watch how this unfolds starting on Monday. Meanwhile, there are companies out there rightfully worrying about their assets and making payroll for their employees. 

Feature Photo Credit: piggy bank and money via Pixabay, cropped and modified