As Wall Street is rocked by the swift demise of Silicon Valley Bank — the biggest collapse by any U.S. bank since the 2008 financial crash — some social media users are looking for a single culprit: their socially conscious or “awakened” agenda.
But the alleged involvement of the Diversity, Equity and Inclusion (DEI) institution in Santa Clara, California, was not the reason for the bank’s collapse, according to banking and finance experts.
Rather, they said the country’s 16th bank went bankrupt due to poor investment and risk strategies leaving the bank with insufficient cash to cope with a massive divestment of assets from its mostly technology sector clients, who are particularly vulnerable in the current economic climate. hit hard.
Experts also say there is no evidence to support claims that the bank’s stated commitment to supporting and investing in diversity and sustainability efforts played a role in its demise.
Post-meltdown social media posts nonetheless pointed to some diversity efforts at the bank, such as launching a month-long LGBTQ pride campaign or donating to Black Lives Matter and other racial justice causes.
Some even cited the bank’s 2022 Environmental, Social and Governance Report, which includes a commitment to provide at least $5 billion in credit, investments and other financing for sustainability efforts by 2027.
“The SVB’s WOKE agenda is largely responsible for their FAILURE,” one Twitter user explained in a post that was downloaded or shared nearly 4,000 times on Wednesday. “The insane leftist agenda is BANKRUPT of our future. Wake up, go bankrupt!”
But the institution’s demise had all the hallmarks of a “classic run on the bank,” Peter Cohan, a professor of management practices at Babson College in Wellesley, Massachusetts, said in an email. “A focus on DEI had nothing to do with the collapse of the SVB.”
Rodney Ramcharan, a professor of finance at the University of Southern California’s Marshall School of Business, agreed, dismissing criticism that the bank had reportedly donated millions to BLM and similar groups over the years as “trivial and irrelevant”. $200 billion. in fortune before it failed.
It’s not even clear that the bank has donated more than $70 million to these causes, according to social media users and conservative news outlets. Many cite a database maintained by the Claremont Institute, a California-based conservative think tank, that claims to track donations to the “BLM movement and related causes.”
The institute’s database contains links to several SVB corporate reports and press releases to support its track record, but an Associated Press review found that none of the documents actually mention Black Lives Matter or BLM. In fact, most of the documents deal with the bank’s environmental and sustainability efforts.
Spokespersons for Institute and BLM did not respond to emails asking for comment on Thursday.
In addition, nothing in the bank’s publicly available financial reports points to harmful spending on diversity initiatives, Ramcharan said. When there were problems, they were included in reports to regulators such as the Federal Reserve.
“The bank allegedly suffered credit losses by writing off bad loans to ‘woke up’ companies,” he explained in an email. “So it’s not about opinions, it’s about factual data. Instead, there are no unusual defaults or loan loss provisions.”
The bank’s $5 billion commitment to sustainability efforts represents a pledge to provide future loans and is not indicative of financial investments that led to the bank’s bankruptcy today, said William Chittenden, a professor in the McCoy College of Business Administration. from Texas State University.
“If we were in 2027 and the SVB had billions in defaulted ‘sustainability loans’ then I would agree that the default could be due to the nature of the loans they provide,” he wrote in an e-mail. -mail. “But to say the bank went bust with loans they probably didn’t even make makes any sense to me.”
The financial disclosure documents show that the bank, founded in 1983, has not properly managed the risk of large investments it has made in recent years as it has grown rapidly, experts agreed.
From 2019 to 2021, the SVB bought tens of billions of dollars worth of mortgage-backed securities, U.S. Treasuries and other relatively conservative investments at low interest rates, said Aaron Klein, a financial expert at the Brookings Institution, a Washington, D.C.-based think tank. Tank. But the bank has not backed those bets with other investments.
While interest rates soared last year, the value of those assets plummeted as the bank’s clients pulled more and more out of their money to make ends meet in a deteriorating economy, he and other experts said. The bank was forced to sell $21 billion worth of securities at a loss of nearly $2 billion.
“Basically, the bank went bankrupt due to liquidity problems,” Chittenden wrote in an email. “The failure had nothing to do with the quality of loans from an ‘awakened’ bank.”
Another major factor in the bank’s demise is its customer base, Klein said.
The bank mainly served technology workers and venture backed companies, including some of the industry’s best-known brands. But almost all of them were considered uninsured savers, meaning their accounts contain more than $250,000 that would be covered by the Federal Deposit Insurance Corporation in the event of a bank failure, he said.
“Uninsured savers are more likely to walk away, making the bank inherently less stable,” Klein wrote.
For all its claims of being a “woke bank,” SVB isn’t even that diverse, at least not in critical leadership roles, said Peter Conti-Brown, a professor of financial regulation at the University of Pennsylvania’s Wharton School.
According to the bank’s website, the bank’s executive team was all white and mostly male, with only one black and one LGBTQ member on the board.
Bank spokesmen did not respond to requests for comment, and the FDIC and other federal and state regulators declined to comment.
“It is not uncommon for SVB to focus on diversification away from such homogeneity – banks and companies of all shapes and sizes have done the same,” Conti-Brown wrote in an email, referring to the company’s executive team. “SVB failed because their bankers were bad at being bankers, something that no extra time away from diversity meetings would have fixed.”
Source: LA Times