Sen. Kennedy Says Silicon Valley Bank Crisis Could Have Been Avoided
Sen. John Kennedy (R-La.) Senator John Kennedy (R-La.) stated that the Silicon Vally Bank crisis (SVB), could have been prevented if the bank’s executives had done their risk management job.
Kennedy stated that SVB Bank wasn’t insolvent but had a liquidity issue when he spoke to the Senate floor March 15.
“If the management of Silicon Valley Bank had known the difference between a banking textbook and an L.L. Bean catalog, Silicon Valley Bank would have never bought securities that are so sensitive to interest rate[s] without hedging that risk, and it’s a very easy thing to do,” Kennedy said. “Honestly, it’s banking 101.”
SVB announced March 8th that it had sold $21Billion in securities, at a loss of $1.75B. The company also said it would sell $2.25Billion in common equity and preferred convertible stocks to help shore up its capital. After the Federal Reserve’s aggressive interest rate hike campaign last year, securities lost a lot of value.
Kennedy stated that he was “appalled” SVB failed to hedge the risk
“I’m appalled the bankers at Silicon Valley Bank didn’t do it. I mean, it was bone-deep, down to the marrow stupid,” He stated.
SVB, which was the nation’s 16th-largest bank and had $209 billion of total assets, fell on March 10, as depositors ran to withdraw funds in panic over the bank’s solvency. The Federal Deposit Insurance Corporation has taken control of the bank.
Kennedy stated that the crisis could not have been prevented if SVB bankers had done what they should have done.
Regulators
Louisiana Senator John Cornyn rejected arguments from Democrats who claimed the bank’s failure resulted in a 2018 bill that former President Donald Trump signed that repealed the Dodd-Frank Financial Reform Act.
“There’s been a lot of talk about ‘Silicon Valley Bank wasn’t being regulated because of a bill passed back in 2018 or 2019.’ That’s not true,” He stated. “Silicon Valley Bank was heavily regulated. It had to file regular reports with the federal banking regulators. It was subjected to stress testing. It was subjected to liquidity stress testing.”
However, the senator said that federal regulators failed to perform their duties.
“Where were the regulators? Where were they?” He asked. “You couldn’t have found them with a search party.”
He said, “All regulators had to do was read the reports that Silicon Valley Bank was submitting, and they would have seen the problem.”
“I guess they were asleep, but this whole debacle could have been avoided if the regulators had just done their job and stepped in and said, ‘Silicon Valley Bank, what you’re doing is dumb, and you can’t do it anymore.’ That would have avoided it,” He stated.
FDIC
Kennedy, who is a member of the Appropriations, Banking, Budget, Judiciary, and Small Business Committees, stated that the FDIC should have done the research to find a buyer in order to buy SVB.
“There’s been a lot of talk about, well, they had an auction for the bank, and nobody wanted it. That’s not true,” Kennedy said. “There were buyers, but the problem was that the people at the FDIC do not like bank mergers.”
“Some bank mergers make sense. Some bank mergers don’t make sense. In this case, it would have made extraordinary sense. And, so, the folks at the FDIC stalled and re-stalled, and then we had mass panic,” He added.
The Treasury Department, Federal Reserve and FDIC jointly issued a statement on March 12 stating that “depositors will have access to all of their money starting Monday, March 13.”
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” The federal regulators stated.
Next day, President Joe Biden tried to allay concern over the potential spread of the SVB crisis across the U.S. finance system.
“Americans can rest assured that our banking system is safe. Your deposits are safe,” Biden said. “Let me also assure you: We will not stop at this. We’ll do whatever is needed on top of all this.”
“So if we had done any one of those three things, any one of those three things, this mess could have been avoided,” Kennedy said.
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