Why the Banking Crisis May Just Be The Beginning

Although virtually everyone knows of SVB’s failure, not everyone understands exactly why Silicon Valley Bank failed.

  • Many have blamed SVB’s environmental, social, and governance policies or “stakeholder capitalism” for the bank’s sudden collapse.
  • In reality, these are really just symptoms of the bank’s ongoing financial mismanagement.

The bank’s failure also highlights the immense risks facing our banking system, and our government share much of the blame.

  • SVB mismanaged its interest rate and duration risk by seeking yield through investments in high-duration, long-maturity assets.
  • These investments were made in a bid to increase the bank’s net interest margin.

A study released on March 13 took a deeper look at the unrealized losses banks were likely holding.

  • They found that total unrealized losses as of December 2022 were $1.7 trillion.
  • In a chilling warning, the report’s authors noted that “the losses from the interest rate increase are comparable to the total equity in the entire banking system.”

We’re not out of this banking crisis. In fact, it may be just the beginning.

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