- Jul 7, 2021
Both banks had a ton of cash deposits they were sitting on, and they bought bonds, in many instances, long term (10 year) gov't bonds at 1.5%. Nice and safe, right? Well.... yes, when interest rates are at 0.5%. But this is where the risk management people at these banks dropped the ball.
After Dodd-Frank was implemented after the 2008 banking crisis, banks with greater than 50b in assets were required to pass Federal OCC stress tests to prove their investment strategy could weather scenarios such as sudden interest rate spikes, amongst others. These stress tests are required to be done between February 5 and April 5 on even numbered years, most recently would have been completed by April 5 2022. Through Franklin Square Investments, SVB successfully lobbied Congress and the FDIC to up that threshold to 250b. When that partial repeal of Dodd-Frank was passed in 2018 (implemented Oct 2019), SVB and many banking institutions became exempt from having to prove their investment strategy could weather exactly what's happening in the economy. SVB controlled just over 209b in assets at the time of their demise.
Someone at SVB knew what they were doing was a ticking time bomb and instead of fixing that problem, lobbied to change the laws.
Out of the 2,124 banks in this country controlling $300m or more in assets, only 12 of them are required to pass economic stress testing.
"Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world"
Nobody is going to walk away from this with anything more than a slap on the wrist while billions of dollars quietly disappear into the void.
Stats for bank data:
Data for FSI lobby spending:
Franklin Square Group Lobbying Profile
Lobbying profile for Franklin Square Group, a lobbying firm that was hired by 38 clients in 2022, for a total amount of $6,430,000.
Dodd-Frank stress test info:
Dodd-Frank Act Stress Test (Company Run) | OCC
These report templates collect quantitative projections of balance sheet, capital, losses, and income across three or more macroeconomic scenarios, along with qualitative information on methodologies used.