New York () — The search for culprits for the collapse of Silicon Valley Bank has already begun and the technology sector points to Greg Becker, CEO of the bank, for allowing his company to go down in history as the second largest bank failure registered in the United States.
A Silicon Valley Bank employee, who requested anonymity to speak candidly, was stunned to see Becker publicly acknowledge the extent of the bank’s financial problems before privately rallying the financial support needed to weather the storm.
This set the stage for the panic that ensued as customers rushed to get their money out.
“It was absolutely stupid,” the employee, who works in asset management at Silicon Valley Bank, told in an interview. “They were being very transparent. It’s the exact opposite of what you would normally see in a scandal. But their transparency and candor killed them.”
Becker and his management team revealed on Wednesday night the hope (but not the firm commitment) of raising $2.25 billion in capital, as well as $21 billion in asset sales that caused losses of $1.8 billion. .
The news sparked a wave of fear in Silicon Valley, where the bank is a key lender to tech startups. Many of them panicked and withdrew $42 billion last Thursday alone, when Silicon Valley Bank shares plunged 60%, according to California regulators’ records.
At the close of business that day, Silicon Valley Bank had a negative cash balance of about $958 million.
“People are shocked at how stupid the CEO is,” says the person who knows Silicon Valley Bank. “You’ve been in business for 40 years and you tell me you can’t raise $2 billion privately? Get on a jet and fly to Kuwait like everyone else and give them control of a third of the bank.”
Silicon Valley Bank did not respond to requests for comment, but Becker apologized to employees for the situation.
“It is with a heavy heart that I am here to deliver this message,” Becker said in a video message to staff Friday.according to Reuters. “I can’t imagine what was going through his head and wondering, you know, about his job, his future.”
“General hysteria”
Jeff Sonnenfeld, CEO of the Yale School of Management’s Chief Executive Leadership Institute (CELI), told that he agrees that Silicon Valley Bank’s management deserves criticism for its “callous and careless execution.”
“Someone struck a match and the bank yelled: ‘Fire!’, ringing alarm bells in earnest out of genuine concern for transparency and honesty,” Sonnenfeld and Steven Tian, CELI’s director of research, said in an email. on on Sunday.
Sonnenfeld and Tian said Wednesday night’s announcement of a $2.25 billion unsubscribed capital increase was not only “unnecessary” because Silicon Valley Bank had sufficient capital, well in excess of regulatory requirements, but there was no need to simultaneously disclose the loss of US$1.8 billion.
The double whammy “understandably sparked widespread hysteria in the midst of a race to withdraw deposits,” they both wrote, adding that they could have spaced out the announcements by a week or two and reduced the magnitude.
After his administration announced a nosedive bailout of Silicon Valley Bank depositors on Sunday, President Joe Biden signaled that US authorities would closely scrutinize all parties involved in the bank’s failure.
“I am firmly determined to hold those responsible for this disaster to account and to continue our efforts to strengthen supervision and regulation of large banks, so that we do not find ourselves in this situation again,” Biden said in a statement.
The role of the Fed
For their part, Sonnenfeld and Tian argue that Jerome Powell, Biden’s pick to head the Federal Reserve, and his colleagues deserve at least part of the blame.
“There should be no misunderstanding that the collapse of Silicon Valley Bank was a direct result of the Fed’s persistent and excessive interest rate hikes,” they wrote.
Because? Because the Federal Reserve’s war on inflation depressed both the value of the bonds Silicon Valley Bank relied on for capital and the value of the tech startups the bank served.
Of course, Silicon Valley Bank had more than a year to prepare for both issues.
The Silicon Valley Bank employee called the bank’s mismanagement of the balance sheet last week “stupid” and questioned the CEO and CFO’s strategy.
However, the employee, who is a Wall Street veteran, stressed his belief that Silicon Valley Bank’s fall was caused by mistakes and “naiveté”, and not by any wrongdoing.
“The saddest thing is that this place is like the Boy Scouts,” he said. “They made mistakes, but they are not bad people.”
