As predicted here Mar 12th 2023 the root cause of the failure of Silicon Valley Bank is now well understood as a failure of management. It reflected a failure of management to deploy operational processes.

In my view it was not a systemic Banking issue. However there is a systemic aspect in that it is too easy for bad bank managers to fall into the funding mis-match trap. Fund matching is the most fundamental bank balance sheet management issue since the very first banks operated by the Crusaders.

Where the financial benefit exceeds the costs of mismanagement or even criminality someone will take that opportunity

Bloomberg are reporting the failure of First Republic is virtually identical to SVB.

First Republic found itself in a similar situation to Silicon Valley Bank, which was shut down by regulators in March. Its failure to manage an interest rate mismatch on its balance sheet.

For the record this is from the Mar 12th 2023 post.

SVB and beginning to understand the reasons behind failure Bankwatch

SVB was caught in a classic liquidity trap being asked to repay customer deposits while the supporting asset values (bonds) were reducing in value commensurate with the rate increases.

This liquidity trap is banking 101 a could or should have been caught by the SVB funds managers and reported to executive but that clearly did not happen.

The result: SVB is caught in a bank run.

Regulator miss: Banking prudence and operating at dollar levels too large relative to their balance sheet size are at the root of their problem. Stress tests should capture that risk.

Tags #SVB #First-Republic #bank-operations #management-failure