The Fed Had Already Spotted Big Problems at SVB Before Its Collapse - Slashdot
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The Fed Had Already Spotted Big Problems at SVB Before Its Collapse
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And starting in 2021 — long before the run on Silicon Valley Bank — the Federal Reserve had "repeatedly warned the bank that it had problems," reports the New York Times:
In 2021, a Fed review of the growing bank found serious weaknesses in how it was handling key risks. Supervisors at the Federal Reserve Bank of San Francisco, which oversaw Silicon Valley Bank, issued six citations. Those warnings, known as "matters requiring attention" and "matters requiring immediate attention," flagged that the firm was doing a bad job of ensuring that it would have enough easy-to-tap cash on hand in the event of trouble.
But the bank did not fix its vulnerabilities. By July 2022, Silicon Valley Bank was in a full supervisory review — getting a more careful look — and was ultimately rated deficient for governance and controls. It was placed under a set of restrictions that prevented it from growing through acquisitions. Last autumn, staff members from the San Francisco Fed met with senior leaders at the firm to talk about their ability to gain access to enough cash in a crisis and possible exposure to losses as interest rates rose.
It became clear to the Fed that the firm was using bad models to determine how its business would fare as the central bank raised rates: Its leaders were assuming that higher interest revenue would substantially help their financial situation as rates went up, but that was out of step with reality. y early 2023, Silicon Valley Bank was in what the Fed calls a "horizontal review," an assessment meant to gauge the strength of risk management. That checkup identified additional deficiencies — but at that point, the bank's days were numbered. In early March, it faced a run and failed within a matter of days....
The picture that is emerging is one of a bank whose leaders failed to plan for a realistic future and neglected looming financial and operational problems, even as they were raised by Fed supervisors. For instance, according to a person familiar with the matter, executives at the firm were told of cybersecurity problems both by internal employees and by the Fed — but ignored the concerns.
The Federal Reserve Bank system has 12 distircts, and the one overseeing California had a board of directors which included SVB's CEO Greg Becker, the article points out. "While board members do not play a role in bank supervision, the optics of the situation are bad."
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The good news from this story is that this didn't leak; despite these concerns being raised, they didn't get out into the media, which would have killed the bank immediately.
But, of course, the problem this reveals is that the watchdog barked and nothing happened. This is BAD. This sort of misbehaviour needs to have serious consequences for the executives responsible (think prison sentences and massive fines).
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They're not all bad. Some of them just jump over plants every now and then.
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Not even sure it is a problem of the watchdog barked and they did nothing. The situation they put themselves in wasn't one they could extradite themselves from overnight or even over a year. The bonds had 3 year horizons, The only way out was to sell at a lose (which may have triggered the exact same result as the run) or let them mature and take a small profit and hope that in the time between the now and maturation they didn't experience a run (which of course they did). They were playing russian roulette
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Banks get MRA's from regulators all the time. It's part of a continuous audit process. However, to get that many in such a short period of time and then not have actionable plans in place to cure the deficiencies is not common at all. At many banks, having a "rap sheet" like that will trigger cuts to the bonus pool for leadership and/or disciplinary action against the people responsible. The fact that none of that occurred (at least to my knowledge), shows an epic miss in how the bank was governed. The relevant C suite folks as well as the members of the board should be held accountable (fines and censure at a minimum) for the lack of oversight. Those clowns are probably on a number of other boards. Hopefully someone is looking at those other firms for evidence of similar shenanigans.
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Actually it may have had a plan, but not actioned in fast enough. In a reply I made to someone else pointing out that all the CEO of relevance (HR and marketing are not relevant) were white males (replying to the usual woke caused the failure BS), and pointing out the 1 female of relevance had only been in the position since January, someone pointed out that the role of Chief Risk Manager at the bank had only been created in 2021.
That said it doesn't bode well that they churned through two CxOs in that time
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It certainly leaked to somebody. Israeli firms with money in SVB were able to extract $1B in the days before the takeover.
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It's called a "bank run", a lot of people got out. That is why the take over happened... Not the other way around.
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Perhaps by checking the balance sheet.
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And other companies got the other $41B. What's your point ?
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I been wondering where this was hiding. Even thou the bank didn't need to do stress testing and scenario testing, the Fed does a TON of it every time they consider rate changes. They do it to almost ALL the banks, no matter the size. It's how they partially determine who much to raise or lower the rate per quarter. If they raised the rate 2% in any quarter... it will easily kill off numerous banks around the world!
It's not unusual to get these statements from the Fed; they put everyone against the most stringent rule sets. Even getting this many isn't abnormal... especially for banks not under full regs.
But very concerning that once the reviewes showed horrible planning for the future, not enough restrictions were put in place. The Fed should have really pushed the bank to divest its customer base a bit to other banks... spread the risk to hold up the confidence and limit the damage, if not the risk, of a bank run.
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Not sure that's a viable approach, because it would show anyone who was watching that the bank being told to divest its customer base was not a secure place for deposits, thus triggering the bank run one wants to avoid.
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I think people forget that we have banking regulations. Because some "unelected federal bureaucracy" (or whatever some here on Slashdot like to call them), they get a chance to settle out of court and avoid their one strike. With regulations, we can only toss someone into jail if they violate it AND are found guilty in a court of law at least twice. Now, anything that any of these regulatory agencies really wants to put on the fast track for criminal prosecution, that has to be referred to the Department
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Many other banks are stuck with long bonds to their neck, having failed to pull the stop-loss triggers that would have destroyed exec bonuses. Plenty of other banks... I think you will find out Trump and Co rolled back many of the inter-bank clearing regulations. Funds for 0.1% buy 10 year bonds and watch the money roll in. So you put everything and the kitchen sink into bonds. Interest rates rocket up, you are in Texas Hold'em and bluff stakes. Now that money which was re-loaned internationally has to gene
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As I see it, a lot could be avoided if all normal deposits were guaranteed: then there would be no run to withdraw, and the only thing that would happen was that the stock price would fall, but no crash and uncertainty in the financial markets. That would have been a small price to pay compared to the risk for the world economy where much larger banks now have to be guaranteed anyway.
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The only reason this story is coming out now is to perpetuate the myth of the all-seeing regulator who could fix everything if only we gave them more power.
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Dude. It's not criminal to run your business poorly. Prison sentences is a bit harsh.
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Congress set the laws and limit of regulation. A few years ago congress reset limits so that banks of SVB size were no longer considered too big to fail and thus not subject to the full range of regulation, scrutiny, and consequences.
I donâ(TM)t think this failure came as any surprise. The execs were selling stock, at least four million in the two weeks prior. I suspect that general knowledge of the weakness of the bank is what caused the bank run. The official story is that fake news caused a panic and the bank was an innocent victim. But that appears not to be the case.
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The official story might be that fake news caused a panic, but the spin I'm seeing in the media everywhere is that SVB spend millions in Washington on purchasing the regulations they wanted and are now paying the price.
Or, rather, taxpayers are paying the price. Again. -
Nope, relaxing of some of Frank-Dodd not relevant, you can look up Congressman Frank's NPR interview where he states would not have prevented SVB collapse. it's a meme liberal news media spew for Trump hate points
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That's not really what he said in that interview at all. In fact he mostly tried to cover his own arse because he's on the board of Signature Bank.
He really just tried to blame crypto.-
That is what he said. And what experts say.
"
----- USA Today ---
The changes in Dodd-Frank did not cause the failure of the banks, Thomas Hoenig, a distinguished senior fellow at the Mercatus Center at George Mason University and former president of the Federal Reserve Bank of Kansas told USA TODAY."The amendments were a bipartisan action to ease some of the burden on smaller regional banks," says Hoenig. "There was nothing in those changes that prevented the Fed Board of Governors from examining this bank,
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So not Senator Franks then, someone else who makes his living from banking thinks the rules preventing banks from crashing the economy again are not too strict.
OK then.
People who like to stop banks from crashing the economy tend to disagree though.
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The limits aren't really the issue. There was clearly a systemic problem in the way the firm managed risk and how it hedged its portfolio against fluctuating interest rates. It's classic poor governance rather than the result of a single rule change.
Bond math isn't rocket science.
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To raise cash to cover their losses on devalued assets.
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The 2018 change to the threshold for a "systematically important financial institution" (SIFI) does mean that SVB was not automatically covered by the regulations for SIFIs -- but regulators could still [go.com] apply those rules if they chose to. And others say [cnn.com] the rule change wouldn't have mattered for SVB (search for "Richardson").
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For anyone thinking the execs did insider trading or anything illegal or even immoral... they didn't.
The bank financial statements were pretty clear that rising interest rates were stressing the bank. Before the financials with material shortfall statement, people already knew that deposits and reserves were dwindling... you can see it in the quarterly statements.
So as long as the execs didn't sell before the financial disclosure, they are fine. Normally you don't keep that disclosure so dagger like. It wasn't a large amount, but you would have still seen a "outlook good in procuring funding; waiting for ink to dry" type of accompaniment. Lacking that, enough people lost confidence to get a bank run rolling.
The Execs clearly lost it too and cut their losses before they sunk with the ship. For any Exec who sold before the statement release, yeah, the Fed, Bankruptcy Court, & SEC will easily claw that back for reparations.
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Except that the SEC isn't enforcing anything below massive thresholds, and hasn't been since before the dotcom crash. They are one of the means by which such insider information is leaked to other major stock buyers, not the means by which such limits are enforced.
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Ok, not to big to fail, then why is government bailing it out? Only FDIC insured accounts should be covered, nothing else. Either you are too big to fail and subject to stricter regulations, or you are not too big to fail, subject to less regulations, but no bailout when you crash.
Perhaps the government should also start a TBTF (Too Big To Fail) insurance to which all TBTF companies are expected to pay premiums for future bailouts, in addition to being subject to stricter regulations. Save the taxpayers
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Thew regulator should have been able to save the bank, they knew early enough and were already involved. That this was not enough indicates the regulator does not have enough bite. This usually is a problem caused by stupid politicians.
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It's not the regulator. It's a massive internal failure due to ideology. They didn't even have a risk assessment manager for 3/4 of 2022. Because the person responsible for hiring a replacement was focusing on promoting "Diversity, Inclusion, Equity" withing the company instead.
That is why there was no one to actually spearhead reassessing the risks of their investment portfolio until it was too late. And the talented diversity hires within the bank legitimately believed that having bonds with ~1% interest
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You're a deranged halfwit.
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I guess we found another person who has "alternative ways of knowing" and therefore believes that ~1% interest rate bonds that made the massive part of SVB's investment portfolio in time of rapidly rising inflation are a great investment. And those pointing out the obvious thing that every other bank does that you absolutely hedge against inflation risk even when you don't invest in such a fundamentally idiotic way as a bank...
That supposedly makes me a deranged halfwit. Somehow. I guess that also requires
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You believe they were so focused on being woke that they made bad investments. That's pitiful of you to think. No, they were so focused on getting their next stock cashout that they ran the ship into the ground.
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It is _also_ the regulator. Quite obviously.
And you think that would have been possible with effective regulation? Not so.
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Except that regulator did its job. It looked at, found and pointed out to the bank that its risk assessment was not done as industry best practices dictate. When bank failed to correct the problem within reasonable period of time (notably, this was a very rapidly evolving problem, their risk manager was supposedly fired in April 2022, which is what caused the delay in reacting to regulator's instructions) and started failing as a result, bank was taken over by the insurer before it took out most of the acco
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Had an edit error above. This sentence:
>They clearly had alternative ways of knowing how risk works, so they didn't even hedge against credit risk
Should state "... they didn't even hedge against risk of rising interest rates".
Something that basically every bank does as a matter of normal operations. Except SVB. Who's primary difference vis a vis other banks is depth of wokeness at every level due to location and clientele.
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No, these were not "effective regulations". The regulator reviewed the bank and noted the deficiencies... this is normal and not a "regulation". Because they have no teeth. The teeth here were the required financial disclosures... which are nice but real regs ensure a severely mitigated blow or avoidance.
If this was a larger bank like Chase, these findings would be found internally and fixed before an external got wind of it. Because having material findings like this has automatic repercussions in the
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Wait, you think that reviewing bank's financials is not regulation but "normal"?
Have you ever heard of the concept of "bank secrecy"? There is NOTHING "normal" about reviewing internal accounting of a bank. It's in fact a highly abnormal, highly exceptional process that requires a tremendous amounts of safeguards to maintain bank secrecy.
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Yes, it's normal, happens all the time. I can bet you that pretty much every bank in the US... it's happening every day of the year.
You think companies just get into million and billion dollar partnerships and loans without standardized attestation statements? You think the smaller banks don't provide similar statements as the ones required of bigger ones so that customers can make an informed comparison?
Other than NDAed auditors, no one else needs to comb through the secret sauce of the bank. Once the au
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You have no secrecy against an auditor (within the audit scope). An auditor is under NDA, but any questions you do not answer are red flags and get escalated right away.
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Banking basics for dummies: In general, there are two kinds of bonds that banks hold on their balance sheet that must be registered differently. First is liquid assets, and those are available for sale immediately. These have one risk calculus and hedging requirement set. Other is "held to maturity", which bank intends to hold until they're due and these have completely different risk calculus and hedging requirement set.
SVB held those ~1% bonds as "held to maturity". That was the problem, because they didn
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Because the person responsible for hiring a replacement was focusing on promoting "Diversity, Inclusion, Equity" withing the company instead.
Bullshit.
This is just the latest in a long, evolving line of lies about SVB, trying to blame this on the latest culture-war fad.
The bank knew about the liquidity risks they were taking in 2020; they just gambled wrong. There's a link in this post:
https://slashdot.org/comments.... [slashdot.org]-
I mean head of risk management only wasn't on staff from April 2022 to early 2023. You can pretend really hard as you did in the post you linked that this is somehow not relevant that SVB implemented massive policies against white heterosexuals, so white heterosexual head of risk management gets the fuck out from that hostile work environment.
And turns out that unicorns aren't real, and neither are skilled risk management heads that are also extremely sexually publicly perverted dark skinned women. So it ta
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There are two possibilities here. You are either a really lousy troll or, if you actually believe that horse shit, you are dumber than a rock.
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You forgot the third possibility; that Luckyo actually believes his bullshit, is dumber than a rock, and also a really lousy troll.
Frankly, I think that's closer to reality.
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> blame this on the latest culture-war fad
It actually was the lack of diversity that killed them, just not of the Woke kind:
"SVB also violated the second tenet of sound banking: attracting a broad mix of customers. He points out that SVB had an extremely small proportion of retail clients to balance all the Silicon Valley startups and their wealthy founders."
The economist who won the Nobel for his work on bank runs breaks down SVB's collapse -- and his fears over what's next
https://www.yahoo.com/lifestyl... [yahoo.com]
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Exactly this--my credit union's president said the exact same thing, and I've seen it echoed across other credit unions & a statement from the NCUA (credit union's version of FDIC). You can read it for yourself here:
https://www.arizonafinancial.o... [arizonafinancial.org]
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Sleepy retards with tired drivel are the new Rickroll.
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[citation needed]
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Several stories ago the slashdot economists were convinced it was due to being “woke”.
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I only have come across this: https://twitter.com/DC_Draino/... [twitter.com]
Impossible to assess causality though.
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Some people also blame natural disasters on gay people. [logotv.com] Hell, half the time I can't remember to put my clothes in the dryer, do you really think I have time to smite ya'll straight folks with hurricanes and shit?/s
Although, I think I'd find it pretty funny if, in a turnabout is fair play sort of way, The Satanic Temple put out a press release blaming the bank failure on... Republicans.
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that the "bank collapsed because it was too work" narrative didn't take off. I'm sure Fox News is pushing it, but normally when right wing media goes all in on something the contagion spreads due to their large reach and favorable social media algorithms.
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How are those ~1% bonds doing on the market, oh gigachad sitting in the top story of his ivory tower?
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Several stories ago the slashdot economists were convinced it was due to being “woke”.
There was exactly 1 person on the board of SVB who had banking experience [nypost.com]. Kim Olson, the director of risk [svb.com] had banking experience, but was only hired in Jan 2023.
The 2022 proxy statement [nypost.com] showed proudly:
... 45% of its board are women, in addition to “other diversity” like “one black” member, “one LGQBT+” and “two veterans.”
The bank made several high profile marketing pushes that were directly about woke issues and how they were solving that problem, while at the same time the bank failed not because liabilities exceeded assets, but because it ran out of liquidity.
As an example of the previous, SVB donated $95 million to Black Lives Matter, where an extra $95 million might have gotten them by their liquidity problem.
SVB bank lobbied congress to raise the stress test limit so that their bank wouldn't need to be stress tested.
You can claim that "Woke" wasn't the reason, but I think that's the apologist (for woke-ism) viewpoint.
The simplest explanation is that the bank was run by people with no real experience in banking, who felt that banking was going to be easy because hey - everyone else does it, and focused on woke issues they felt were important instead of conscientiously doing a good job at banking.
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I see a lot of down-modding of these points, but no actual rebuttals. Interesting.
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I see a lot of down-modding of these points, but no actual rebuttals. Interesting.
Because having a diverse workforce was not the reason why SVB failed, and it has become trendy lately (thanks, Reddit) to swing the banhammer rather than explain why someone is wrong.
Some people are laboring under the delusion that workforce diversity is somehow a new thing; it's not. Disney earned a perfect equality score for 14 consecutive years [thewaltdisneycompany.com]. During that time, their stock went from approximately $25.08 (Jan 27th '06), to $93.20 today. Apple has had a gay man in charge since Steve Jobs passed away. He took over in August '11, with Apple's stock price at approximately $13.46. It is $155 today.
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Eh, it's kind of a catch-22, though, isn't it? Where do you find diverse people with that experience unless someone else has hired them? I have no dog in this fight, but you have to start somewhere.
On the other hand, do you want your whole team "diverse" but with no experience? That seems a little too extreme in the other direction. They should've struck a balance somewhere.
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Here's a rebuttle: The GP mixes board and executive team, doesn't understand the role of either, and thinks the irrelevant diverse people ran the bank instead of the all white males + Olsen and her white male predecessor who actually run the bank.
Wokeism is a talking point, one based on a lie and fuelled on by omission of the truth wherever possible. Oh also we should mod it down because that was yesterday's talking point, today's is that work from home killed the bank. God it's so hard to keep track of whi
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And yet your claim points to the board. The board has little impact in running a company, and even in TFS it's pointed out the board has little oversight of bank operations.
But then you also said Kim Olson was on the board. She wasn't. She was on the executive team. That's something very different and actually relevant to the day to day business. And on that executive team she sits along side 5 white males (and two females for irrelevant things such as marketing and HR), and she came onboard in January repl
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I'll bite here. The NYPost is known to be a right leaning (but not far right) news source. They are going to be biased. If we are going to have a conversation about the SVB board, let's focus on their lack of qualifications, not the narrative the media is trying to sell. Kudos to linking to the 2022 proxy, I'll offer a link to the 2023 proxy: https://d18rn0p25nwr6d.cloudfr... [cloudfront.net]. pg. 14 offers the diversity numbers of the board members. pg. 15 begins their bios. I'll focus on their bios.
Board member -
"You can claim that "Woke" wasn't the reason, but I think that's the apologist (for woke-ism) viewpoint."
If they had promoted anti-Woke issues, e.g. donated that $95 million to groups like the Proud Boys instead of Black Lives Matter, would the bank have been in better shape? No. Therefore it was not the "woke-ism" that caused the bank failure, it was the incompetence.
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In fairness, it is quite clear that their priorities were not banking and at best they were asleep at the wheel.
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They are generally issued at the completion of an audit. The onus is on the bank to respond to the MRA, publish a plan to cure the deficiency, and then follow through with fixing the issues with hard dates and milestones.
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The key takeaway here is that the government had known for nine months that the bank was at risk of failure, and could not, or did not take the steps necessary to prevent collapse.
This does not restore my confidence in either the government or the banking system. What good does it do us for the government to know that a bank is about too fail if they can't or won't actually do anything about it?
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we had the laws in place to stop this prior to 2018... when they were repealed by a Republican run Congress and a few right wing Dems.
One party is consistently in favor of deregulation, and consistently passes laws to that effect. Stop acting like there isn't a difference, and vote in primary elections for the Democratic party so you're not voting for Republicans with a "D" next to their name.-
Ah yes, republicans caused a liberal California bank to fail.
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At least about the failure part. There was nothing liberal about the bank. And you know that you're just trolling. It's not working nobody's buying your constant braying about woke anymore. Trying to declare Banks as woke was a bridge too far and you let the game out. You just look silly now.
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Problem is, it's really hard to put an "I did that!" sticker with Trump's face on a failed bank. Plus, since this bank primarily catered to corporate customers, its failure mostly just contributes to an overall feeling of malaise about the economy in the eyes of the general public. People notice things like higher grocery, rent, and utility prices; a bank failing out in California is just a headline you scroll past to get to the cat videos.
You already know who'll be blamed for that (and I'm not referring
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No we didn't. We had other laws in place, but not ones that would have prevented precisely this from happening. This has been debunked over and over again. Yeah SVB were dicks for lobbying to have those laws rescinded, but they didn't fail as a result of what the laws were covering.
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You are wasting your time, just like I was wasting my time a week ago [slashdot.org]. Just like the other NPCs, he got his pre-programmed speech the day after the bank failed, and his parser doesn't understand any questions.
It just doesn't matter that this theory was debunked by Tuesday [cnn.com]. It isn't a reasoned opinion that he can be reasoned out of. He'll just keep repeating it until the next NPC update gives him new lines.
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Why should the government step in? Capitalism allows for failure of non-profitable business - I'm sure the IRS could point to thousands of failing businesses right now that won't have any government intervention to save them.
You mean because the banks themselves lobbied to have their government regulations reduced, so the government no longer needs to intervene if they're going to fail? Sounds like an own goal to me.
The root of the problem is that your lawmakers allowed this deregulation in the first p
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You are assuming that the goal is to protect the bank rather than to protect the depositors. Sure, the easiest way to protect the depositors would be to head off the bank failure in the first place, but if the bank investors insist on setting themselves on fire they will always find a way to do so. All you can do is get the depositors out of the way.
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first under Trump by removing all Dodd's Frank's provisions for 'medium size' banks and then by appointing that ***hole Jerome Powell to a second term. He's not just in charge of cranking interest rates and causing recessions, he's also the head banking regulator. Biden appointing him to another term is probably the worst thing he's done since the 80s.
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Yes but the gutted regulations had nothing to do with SVB's failure since what SVB were doing was perfectly fine under previously regulations. SVB lobbied to have the regulations rescinded along with other banks largely in anticipation of future growth.
Just because you bought a gun one day, and die from a bullet wound the day after doesn't mean you used that particular gun to shoot yourself.
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That's the worst Biden did? REALLY? Not Barisma or the Afganistan pullout or West Palestine or allowing the bank to give $70 mil to domestic terrorists in Antifa?
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Seriously, why isn't Greg Becker barred from ever operating a dollar bill again? And why isn't he and his entire C-Suite going to jail??? Anyone? Anyone? Bueller? Bueller?
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Well, you've got to point to which explicit laws there is evidence that they broke. I'll agree that their actions SHOULD have been illegal (not necessarily Greg Becker, as I don't know the names of any of the individuals), but this doesn't mean that that's the way the laws read. There are lots of things that should be legal and aren't, and also lots of things that should be illegal, and aren't. And often there actually is a law, but there's no way to get proof. (And, of course, sometimes there's a law,
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Because SVB was a protected lefty unicorn that had to be shielded from scrutiny at all costs by the government and the left.
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Good news is that Corporations are people when it is convenient and they are not people when it is rich people / dealing with rich people / dealing with economy / donating to politicians / Too big to fail / or basically anyone else that is not John Smith walking down the street
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