The Fed or the FDIC does not pick your board. They will do a background check to make sure that person doesn’t have a criminal background or was a senior officer or director of a bank that failed. But other than that, the regulators have very little say in who is on your board. They have a little more influence on who is the senior management of the bank but not much more. Most bank boards are somewhat diverse. That is just smart business practices.
Wokeism didn’t fail SVB. Bad banking practices did. All Bank’s and probably all companies nod towards diversity and ESG. It looks good and it doesn’t cost them anything to do it. Whether they believe it and actually practice it…that is another story.
Bank’s should be diverse, not because of some social crusade, it is because it is good business. Everyone has seen my statistics on AA small businesses so I won’t bore anyone again. But the basic premise is they fail at the same rate as white small businesses but there are FAR fewer AA small businesses. So it is like money ball or major league baseball in the 1940s or 1950s. There is a huge wealth of business talent that going underutilized and thus banks are under lending to. I don’t care about the crusade, I care about deploying capital and getting a higher than normal risk adjusted rate of return. The best money ball situation in finance is AA small businesses.
In 2008, the banks were directly selling crap mortgage bonds to investors and then short selling those bonds right after selling them via swaps. The banks that didn’t do this were still paying mortgage lenders to sell mortgages to people who couldn’t afford them via sub primes.
How is that comparable to this? SVB simply had longed on bonds and expected interest rates to remain low for the term of said bonds. They didn’t. They went up resulting in an inability to pay off those bonds because of people pulling out their deposits. Wrong? Yes. Similar to 08? No way.
So what happens with those long term bonds that the now weakened banks own during
a buy out ? Does the new bigger bank, just by shear size , able to add these lower value
assets to their bond portfolio, but not significantly impact their bond portfolio liquidity ?
Or do they cash out the low yield bonds and just reinvest in new bond instruments that have
have a 2-3x better yield? I guess I’m asking what price does the new bank actually pay for
a troubled bank that has billions in low yield bonds ? They pay depositors value or current asset
Per article posted by coachv, that may be about 187 banks that are vulnerable if half of their
depositors did full withdrawals. There is certainly some human behavior psychology at work
here that has to be managed to avert a panic.