Silicon Valley Bank – The initial shock of the SVB collapse has faded away, and the blame game has begun as people look for the guilty.
The tech industry is blaming Silicon Valley Bank CEO Greg Becker.
Many blame Becker for allowing the company to become the second-largest US financial disaster in history.
According to an alleged SVB employee, Becker publicly disclosed the bank’s financial difficulties before discreetly putting up financial backing to weather the storm.
The actions created the environment for the fear that led to people withdrawing their funds.
“That was absolutely idiotic,” said the employee. “They were being very transparent.”
“It’s the exact opposite of what you’d normally see in a scandal. But their transparency and forthright-ness did them in.”
Greg Becker and his leadership team said last Wednesday night that they anticipated to produce $2.25 billion in cash from $21 billion in asset sales, resulting in a $1.8 billion loss.
SVB has made no firm pledges despite its best efforts.
The news shook Silicon Valley, where the bank has been a major lender to technology innovators.
Numerous business owners were terrified.
According to California regulator papers, several corporations withdrew $42 billion on Thursday, while Silicon Valley Bank’s shares fell by 60%.
As Silicon Valley Bank closed that day, it had a negative cash position of around $958 million.
“People are just shocked at how stupid the CEO is,” said the SVB employee.
“You’re in business for 40 years and you are telling me you can’t raise $2 billion privately? Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.”
While Silicon Valley Bank has yet to comment, CEO Greg Becker is claimed to have apologized in a video statement to employees.
“It’s with an incredibly heavy heart that I’m here to deliver this message,” said Becker.
“I can’t imagine what was going through your head and wonder, you know, about your job, your future.”
Silicon Valley Bank officials, according to Jeff Sonnenfeld, CEO of Yale School of Management’s Chief Executive Leadership Institute (CELI), deserve to be admonished for their “tone-deaf, failed execution.”
In a joint statement, Sonnenfeld and CELI’s research director, Steven Lian, stated:
“Someone lit a match and the bank yelled, ‘Fire!’ – pulling the alarms in earnest out of genuine concern for transparency and honesty.”
Sonnenfeld and Tian said it was unnecessary to disclose the $2.25 billion unsubscribed capital offering on Wednesday night.
They noted that Silicon Valley Bank had sufficient capital in excess of regulatory requirements.
They also said that the $1.8 billion deficit was unnecessary to reveal.
The one-two blow, according to Sonnenfeld and Tian, sparked a massive frenzy, culminating in a rush to withdraw deposits.
They went on to suggest that the bank may have spaced the statements by at least one or two weeks, which would have lessened the impact.
On Sunday, President Joe Biden’s administration announced a rescue plan for Silicon Valley Bank depositors.
Biden also announced that the US government will undertake an extensive inquiry of all parties involved in the SVB catastrophe.
He released a statement saying:
“I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
The Fed’s involvement
According to Jeff Sonnenfeld and Steven Lian, Jerome Powell, the Chairman of the Federal Reserve and Biden’s choice to lead the Feds, and his colleagues bear some of the blame.
“There should be no mistaking that Silicon Valley Bank’s collapse was a direct result of the Fed’s persistent and excessive interest rate hike,” they wrote.
They stated that the Fed’s attempts to keep inflation under control affected two things:
- The value of the bonds Silicon Valley Bank was relying on for capital
- The value of the tech startups SVB catered
Silicon Valley Bank, on the other hand, had more than a year to prepare for and deal with the problems.
The anonymous SVB employee called the bank’s manipulation of its balance sheet “stupidity,” casting doubt on the CEO and CFO’s strategy.
But nevertheless, the employee, who is also a Wall Street veteran, believes the bank’s downfall was the result of mistakes and “naivety” rather than illegal activity.
“The saddest thing is that this place is Boy Scouts,” they said.
“They made mistakes, but these are not bad people.”