Regulatory capture, it's called. Man, it does a lot of damage.<p>Long ago I and colleagues opened accounts at SVB for two different outfits with VC money. It was simply the thing to do when getting started converting that money into software that would then produce lots more money.<p>It was simply the thing to do. We didn't have CFOs. We knew darn well our deposits would exceed the household-banking FDIC insurance limit. It would have seemed a brutal waste of very precious time to do an independent background check on our banks.<p>Look, friends, the rule of law is what makes it possible to do business. If we lowly startup entrepreneurs can't trust institutions like banks reliably to provide their services, and we can't trust the government to do their part in maintaining that reliability, who can we trust? Are the next YC classes going to get their financing in Krugerrand gold coins? Are they going to need to look for safes on EBay along with the other gear they need to make the magic happen?<p>Lowly? Yeah. Compared to banks, governments, infosec certification people, even landlords and vendors? Yeah. Lowly. We have to be able to trust our environment at least a little bit to succeed.<p>This regulatory capture is freakin' ridiculous and has to come to an end.
I want to have sympathy for the depositors, but it is hard to knowing that they chose to keep their funds in an bank that was actively lobbying to weaken risk regulations.<p>There multiple products that would help in this situation, such as insurances and virtual accounts that split between multiple FDIC accounts/banks.<p>Bailing out these depositors would send the wrong message and encourage moral hazard, i.e., the belief that someone else will always bear the costs of risky behavior. Educating entrepreneurs and investors on the importance of diversification, due diligence, and risk management would create a more resilient and sustainable innovation ecosystem, where success is based on merit and hard work, not on cronyism or government intervention.
> Touting “SVB’s deep understanding of the markets it serves, our *strong* risk management practices”<p>(Emphasis mine). According to other news [0] they did not have a formally appointed chief risk officer for eight months. While having a puppet CRO is obviously not a sufficient condition to ensure "strong risk management", having a well staffed and - as much as possible - independent risk management department is widely considered best practice [1]. In this instance such an internal body would get on high alert and run scenario upon scenario and stress test as soon as the inflation/interest rate environment changed.<p>[0] <a href="https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/" rel="nofollow">https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...</a><p>[1] <a href="https://www.bis.org/basel_framework/chapter/SRP/30.htm" rel="nofollow">https://www.bis.org/basel_framework/chapter/SRP/30.htm</a>
Note that the 2015 lobbying was done by Greg Becker in person. Money quote is at the end:<p>> In 2019, Becker was elected to serve on the board of directors at the Federal Reserve Bank of San Francisco. Becker left the board on Friday.
<i>Every meaningful financial scheme is the same.</i> Borrow more money than you can be asked to pay back, and gamble it heavily. This is the only way to <i>make money</i> without doing any work. It's theft, very simply, but its hard theft to detect.<p>This theft is made more difficult to efficiently regulate when a blacklist style bottom up approach to regulation is used. If I have to evaluate every investment strategy that <i>calls itself</i> a bank for hidden leverage, I'm guaranteed to miss some. Its a hard game to play, and investigators are humans with both the capacity to make mistakes and be corrputed.<p>This is further dynamically complicated by the fact that the government is the insurer of last resort in a lot of these cases. The FDIC was instituted in response to what happens in the absence of government intervention (the great depression), and it doesnt really stop there. The federal government has the authority to bail out overleveraged "banks" that fail, and banks know this, leading them to seek out even riskier (more correlated) investments.<p>If we cannot consistently identify hidden risk, we need to be taxing the shit out of leverage. We are the ones who are going to be on the hook when the dam breaks, and they file a claim. so we should set the price of the premiums.
Prior to joining SVB, CEO Gentile was CFO for Lehman Brothers GIB - <a href="https://news.ycombinator.com/item?id=35110431" rel="nofollow">https://news.ycombinator.com/item?id=35110431</a>
How we get bipartisan corruption:<p>• Lack of public financing for political campaigns.<p>• Lesser of two evils thinking, where each party gives their own politicians a pass because "the other side is worse".<p>• Corporate consolidation of the news media, where the culture and even the personnel of reporting and politics are interchangeable.<p>• "Success" (AKA greed is good) as a national ethos, with no pushback from religion, since the dominant US Christianity has somehow (is there anyone more anti-capitalist than Jesus?) been captured by amoral business interests.
This is a situation when the board should give the CEO a presentation box with a pistol and one round of ammunition, walk out, lock the door, and wait for the bang.
with no dog in this fight, I see this as some enforcement grudge match from NY capital old-school on California capital new-school, triggered by zero tolerance for crypto.<p>IMO - almost all the leveraged finance in the last 20 years is already over-the-top and mostly "fake money".. who gets the axe first is politics. Supporting statement to this heresy? When the "real economy" tanked due to covid-19 lockdown, the paper tigers of Bloomberg continued to gain wealth, not a little, a lot. Where does that come from? ad sales alone? Oil and Gas Arab cash leveraged out into a hundred counter-parties with big names? Whatever the "technical" explanation.. lots of musical chairs games are up today. cheers<p><i>edit</i> cannot help but pile on here.. Roku (who I have never heard of as a consumer) had two Billion USD in <i>cash</i> ? wtf