June 23, 2024

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Silicon Valley bank lost $1 million the second day before the crash |  financial markets

Silicon Valley bank lost $1 million the second day before the crash | financial markets

Former CEO of Silicon Valley Bank, Gregory Baker, during his statement to the US SenateLeah Mellis (Reuters)

Silicon Valley Bank (SVB) lost up to $1 million (920,641 euros) per second in deposits the day before its collapse, as reported before the US Senate by its former CEO, Gregory Baker, who also blamed the Federal Reserve ( Fed) for hinting that interest rates will remain low.

On March 9, 42 thousand million dollars were withdrawn [38.667 millones de dólares] In Silicon Valley bank deposits within ten hours, or roughly $1 million every second, Baker confirmed to the US Senate. “I don’t think any bank can survive a scarcity of deposits of this magnitude,” he added.

Additionally, Baker blamed deposit “flights” on social media panic and Fed signals that inflation was temporary and interest rates would remain low as the real reason for the SVB’s disappearance. “The Fed stated at the time that interest rates would remain low and that inflation, which had begun to rise, would be temporary,” Baker explained. On the contrary, this institution “started raising interest rates for 40 years in just twelve months.”

However, it was known that from within the SVB itself, already in 2020, it was proposed to diversify assets and invest in short-term bonds as the number of entity deposits grows. However, the administration chose to continue betting on long-term bonds, something that further weakened the SVB when the Federal Reserve quickly raised interest rates to tame inflation resulting from, first, the post-pandemic economic recovery, and later from the war in Ukraine.

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The most senior Republican senator on the House Banking Investigation Committee, Tim Scott, asserted that “anyone who has paid attention to the evolution of the economy over the past two years would have clearly understood that the Federal Reserve will continue to raise interest rates.” that SVB was “very poorly managed”. Despite everything, Scott admitted that the organizers did not act correctly or on time, because they “slept at the wheel.”

Just over two weeks ago, the Fed released a report into the causes of the collapse of the entity directed by Baker and revealed that the SVB had 31 open warnings from regulators in some “essential areas”, such as governance and risk assessment or liquidity or interest risk management when it collapsed in March. In that document, the Fed criticized major management failures on the part of the bank’s management and its inability to assess the risks assumed. However, the Fed also acknowledged that regulators did not act in a timely manner despite the fact that SVB has 31 open warnings, “about three times the number of its peers.” The Fed said at the time: “Necessary steps were not taken to ensure that the SVB resolved these issues quickly enough. Supervisors failed to realize the severity of their vulnerabilities as the size and complexity of the SVB grew.”

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