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The former CEO (retired 2019) of SVB explains it wasn't exactly their fault.

Yes, it was exactly their fault. How this goofball could work in the banking industry for 30 years and not understand bonds is hilarious. Sorry, tragic. We'll get to that in a minute.

Had the bank bought bonds that had short-term maturities (vs long-term), they wouldn't have been hammered when inflation and, therefore, interest rates went up. Apparently, I'm the only one that knows that? What a buffoon!

Ok, what's the difference between comedy and tragedy? A. You're walking along and fall into a manhole: Comedy. B. I'm walking along and fall into a manhole: Tragedy. No, I didn't have money with SVB: Comedy.

A Eulogy for Silicon Valley Bank

Its lending was vitally important to America—and the loans aren’t what got it into trouble.

By Ken Wilcox, WSJ

March 14, 2023 1:23 pm ET

If you had trouble following the story of Silicon Valley Bank’s downfall, don’t feel foolish. Before retiring in 2019, I worked for SVB for almost 30 years, including 10 as CEO (2001-11), and I had difficulty understanding it as it unfolded.

Last Thursday, after teaching a class on Zoom, I read that SVB—my pride and joy—had announced an equity offering, which hadn’t found favor with investors. I was shocked. SVB was one of the largest and most successful banks in the U.S.; I couldn’t imagine why it would sell stock or why investors wouldn’t buy it.

Later that day, I read that several venture capitalists were encouraging their portfolio companies to withdraw their deposits from SVB. By the time I went to bed, it was apparent that a full-fledged bank run was under way. When I woke up on Friday, it was clear that the bank’s regulators were taking it over. I spent the day trying to figure out what had happened.

A few years ago the venture-capital market got frothy, and SVB’s clients deposited huge amounts of newly acquired cash equity—so much that the bank’s deposit base quadrupled within a few years. SVB couldn’t lend out that much money, but unused deposits are a drain on return, so the bank had to deploy them somehow. Rather than put all the excess into low-yielding, short-term investments, the bank decided to place a significant chunk of them into higher-yielding longer-term securities.

But the venture market became less frothy, and the venture capitalists’ portfolio companies needed some of their deposits back. That money was locked up in these longer-term securities—and in the meantime, the Federal Reserve had raised interest rates, reducing the value of SVB’s investments. Selling them would have meant taking a hit of about $1.8 billion—not crippling, but anxiety provoking. SVB needed cash to return the deposits, so it attempted to sell stock. When the bank announced that on Thursday, many venture capitalists panicked.

When a run ensues, it is usually irreversible and fatal. The regulators had to do something quickly, and they did. They took control of SVB and ended its life, all within about 24 hours of the ill-described announcement of the $1.8 billion loss.

The repercussions of this failure are enormous. Even if the depositors are made whole, startups may die for want of credit. Thousands of employees may lose their jobs. Many may lose confidence in our banking sector and ultimately in our economy. It may even diminish America’s technological pre-eminence and thus its position in the world.

It’s important to be clear about the cause of SVB’s implosion. For 40 years the bank has supported tech companies, making loans that fuel innovation. Well over 95% of SVB’s employees are lenders, and their loans weren’t what caused the bank to collapse. What brought about its downfall was bad decisions about what to do with excess deposits, which should never have been plowed into long-term securities.

By Sunday, 300 venture capitalists had signed a petition saying that they would welcome SVB back into the market and bank with it again. Given the technology sector’s economic and political importance, America needs somebody to support it with the kind of debt financing that SVB has provided for the past 40 years.

Mr. Wilcox is a former CEO of Silicon Valley Bank and author of “Leading Through Culture.”

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