Did them being categorized as a small bank influence that?
No. Even small banks have their bond portfolios looked at.
People are throwing around “stress tests” because it sounds official. But the problem is very simple. It was a maturity horizon of their bond portfolio which is really simple stuff.
I suspect with interest rates being held artificially down for so long, they decided to get creative for a little more yield. Bad bet.
SVB didn’t have a Chief Risk Officer for the 8 months leading to Jan 2023. There should be other layers of risk management, but clearly they didn’t help.
Yes this is/was a management issue. Every bank has an asset liability committee (ALCO) and this committee has senior management and board members. All of the bond maturities were discussed in this committee.
The curious thing to me is where were the bank examiners. This is really simple basic blocking and tackling. If I get a chance I will post SVB’s investment maturities and then show show you a typical bank’s investment maturities. You will see the difference.
No risk officer would take it.
Is that speculation or do you have something to back that up? Genuinely asking. I don’t know what all that goes into the position but yea I think I would want to see the books prior to taking that job, not sure if that is protocol anywhere though.
Speculation. What risk officer would want to be set up to fail?
I totally agree. Just never considered that they would get to assess the risk first or how. That would work.
Not sure if this is for me, but here are the facts RE: risk officer at SVB:
- SVB had no official chief risk officer for 8 months | Fortune (3/10)
- Bloomberg - Are you a robot? (3/14)
I am not a banker. I am a corporate finance and accounting professional (management/directorship roles): What I do for risk management for a company and what I believe is required for a bank are two similar, but different things (my company’s portfolio isn’t regulated the same, and it has various tangible assets compared to highly regulated, financial assets). I also am dialed in of how our competitors, vendors, and customers are doing with the overall economic landscape and the impacts to our operations and lines of credit; however, it’s not my day-to-day duty. Based on the below, I’d assume it’s somewhat similar in its umbrella, but CRO is vastly focused on reducing negative future economic impacts on a day-to-day basis. The canary in the coal mine, if you will.
Here’s a job description for a CRO for a bank in Boston:
The Chief Risk Officer (CRO) position encompasses all enterprise risk management such as stress testing, credit performance and portfolio management. The position will be a mix of both risk and credit functions and is a senior level role reporting into the President of the Bank.
- Accountable for the execution and continued enhancement of the Bank’s enterprise risk management framework, including its risk appetite statement, and related processes to achieve its short term and long term strategic, financial and operational goals.
- Develops a deep understanding of, and assists in informing, the Bank’s business strategies and related policies, processes, and controls based upon its established risk appetite.
- Helps further the Bank’s culture of risk, serving as the primary risk liaison with its Board of Directors via the Risk Committee and with the Company’s executive management. Leads and provides key insights and direction to the management. Participates in various other management-level committees to provide risk-based perspectives and input.
- Develops and enhances risk management-related infrastructure, including policies, processes, procedures and documentation to continue supporting the Bank’s growth and decision-making.
- Serves as a liaison with regulators in connection with risk management-related exams. Assists in responding to, and implementing, exam recommendations and findings.
- Oversees the Bank-wide risk assessment to identify and measure current and forward-looking enterprise risks.
- Monitors external environment and industry trends and practices and makes recommendations to the Company’s executive management, as appropriate. Contributes to the identification of, and planning for, emerging risks.
- Develops strong partnerships with leaders of various functional areas of responsibility within the Bank to provide effective and credible challenge in assessing risk and to provide trusted practical advice and assistance in helping to support the Bank’s business objectives.
- Oversees the credit approval process, as well as portfolio monitoring systems for all current and future credit products.
- Ensuring that credit policies are routinely reviewed, modified as necessary, and well-communicated throughout the organization.
- Providing overall loan portfolio management oversight to ensure that the Bank’s asset quality meets stated objectives and that the emphasis of the Bank’s overall credit relationship management is consistent with the Bank’s underwriting standards and the Bank’s risk appetite.
From what I understand
Interests rates is what causes this
- affected long term treasury bond portfolios
- MBS securities are here nor there
- ESG investments blah blah, mainly funded “woke” start ups but I understand the language
It was a terribly poor decision to invest the majority of the deposited cash into long term government bonds, thinking that rates would decrease in a rising inflationary, economic landscape. It’s either betting or idiocy. I’m guessing betting.
That and focus your business in one industry
Man, it’s getting worse. Contagion?
One difference between categorized a small vs big bank, is that small banks are required to have at least 20% liquidity whereas the big banks could go down to 0. At least that’s what I read.
This was really funny…thank you.
Small banks do not have the same capitalization requirements of big banks because it was felt that should a small bank fail, it doesn’t impact the system. Obviously, SVB proved that to be wrong.
I expect the small bank number to drop significantly.
You mean banks like TDECU?