Collapse of Silicon Valley Bank (SVB) - Who is responsible?
Responsibility for the meltdown of SVB
What factors/parties lead to the collapse of SVB?
Responsibility is a bit of a narrow view - it will point to a few human beings and perhaps institutions. That will not provide us a full view of what factors resulted in the bank’s collapse. Instead let’s take a factor-by-factor view while clubbing the factors under different departments/institutions.
A financial institution, especially a bank is an extremely complex entity. And for a complex entities, with complex relationships with its ecosystem, a collapse is not a simple phenomenon. Failure of complex systems typically do not result due to singular factors - instead, multiple factors are present, sometimes with unfortunate timing and peculiar contextual environment. Similar was the case with the collapse of Silicon Valley Bank.
There are actually two issues at hand, somewhat intertwined, so we need to examine both together:
What factors contributed to/who is responsible for the collapse of Silicon Valley Bank?
What factors contributed to/who is responsible for the collapse of Silicon Valley Bank becoming a systemic risk?
Let’s examine a few of the important responsible factors/parties in those two categories.
Factors/Parties responsible for the Collapse of SVB:
Bank Management
Treasury investment and risk management strategies - Banks are supposed to make the best investment decisions and protect those investments (via hedging) to delivery the best returns for their shareholders. If the institution fails in either, it indicates a failure of management.
Risk management of business operational model - The fact that the risk of high level of uninsured depositors potentially causing a bank run was not identified or managed, it definitely is a risk management failure in management’s hands.
Ratings Agencies
Sleeping at the wheel - Ratings agencies are supposed to update their ratings on a constant basis, based on the latest information available. Based on the jarring change of rating in the final days of SVB, it appears that the ratings agencies were sleeping at the wheel and one fine day suddenly woke up to the brewing risk in the bank.
Factors/Parties responsible for the Collapse of SVB becoming a systemic RISK:
Regulatory Governance
As it appears the regulatory framework was not structured to be able to properly regulate the type of bank that Silicon Valley Bank was. This is the responsibility of Congress. As more information becomes clear, the significance of this point will also become clear.
Regulators
Collapse of the bank is not a failure in regulation, but collapse of the bank resulting in a systemic risk is a failure of regulation. Within the existing regulatory framework, it appears that regulators still should have had better visibility into the risk that was brewing. Thus, there appears to be some amount of failure of regulation as well.
It is a developing story, and more factors/parties are expected to get added.