Donald Trump – Blame Him for Silicon Valley Bank Downfall? In the wake of the Silicon Valley Bank’s collapse, the blame game has begun – with many critics focusing their blame on Donald Trump and the Republicans.
Before falling apart last week, SVB had served as the primary lender to tech firms and startups. What happened?
SVB announced last Wednesday that “it had sold a number of securities at a loss, and that it planned to sell $2.25bn in new shares to help right its balance sheet,” The Independent reported.
The SVB announcement triggered a panic. Venture capital firms told their companies to withdraw their money from SVB, and the companies complies. “This spiraled into a bank run, leaving the institution’s stock to plummet.”
Federal regulators have since stepped in to take control of SVB – while critics have mobilized to assign blame for the bank’s failure.
Donald Trump earning some blame for SVB failure
Twitter pundits were quick to assign blame for SVB’s failure on Donald Trump and Republican members of Congress.
Howard Forman, a Yale professor, wrote “Here is the list of Senators who voted to REDUCE the regulatory oversight of Silicon Valley Bank (SVB) in 2018, signed into law by then President Trump. Maybe ask them why they did this?” Forman cc’d Marco Rubio, Lindsey Graham, Rand Paul, and Mark Warner on the tweet.
David Sirota, who founded The Lever, tweeted “Quick reminder: 50 Republican senators and 17 Democratic senators voted to ignore warnings and weaken risk regulations for Silicon Valley Bank. Donald Trump signed the bill into law. And now the bank is the 2nd biggest bank collapse in American history.”
“It’s almost like there’s a connection between deregulating banks and banks taking on unmanageable levels of risk,” one Twitter user responded.
Experts, who spoke with The New York Times, echoed similar sentiments, arguing that a bank of SVB’s size “might have managed its interest rate risk better had parts of the Dodd-Frank financial-regulators package not been rolled back under President Trump.”
The Obama administration signed the Dodd-Frank Act into law, in response to the Great Recession (which occurred after the banking collapse of 2007). The Dodd-Frank regulations “reduced the frequency of Federal Reserve-conducted stress tests for banks whose assets totally between $100bn and $250bn.”
SVB was quick to blame inflation – with some merit. “Higher borrowing costs throttled the gains of tech stocks that could have benefitted the bank,” The Intercept reported. “And a significant drop in available VC funding floating around forced companies to withdraw their holdings.”
But external factors, like inflation, are not solely to blame.
SVB’s President pushed for deregulation
Eight years ago, SVB’s president, Greg Becker, pushed Congress to reduce scrutiny on SVB, on account of the “low risk profile of our activities and business model.” Becker also cited “SVB’s deep understanding of the markets it serves” and “strong risk management practices.”
Right. Three years (and half a million dollars in lobbying) later, Congress adhered to SVB’s request. And now, SVB has failed, prompting the Federal Deposit Insurance Corporation to step in and take over the bank. Apparently, SVB has not had a chief risk officer for months; and 90 percent of SVB’s deposits were uninsured.
Harrison Kass is the Senior Editor at 19FortyFive. An attorney, pilot, guitarist, and minor pro hockey player, Harrison joined the US Air Force as a Pilot Trainee but was medically discharged. Harrison holds a BA from Lake Forest College, a JD from the University of Oregon, and an MA from New York University. Harrison listens to Dokken.