SVB Collapse: Taking Stock Of Ignored Red Flags

There is no gainsaying the fact that cloudy storms always herald rainfall and there cannot be rainfall without cloudy storms. It is in light of this truism that the recent collapse of Silicon Valley Bank ought to be investigated so that hard lessons can be learned to avert a future reoccurrence.

According to an English saying, “Go woke, go broke”, which loosely translates to mean that when a company puts politics ahead of standard operations, in the end, it pays dearly for the faux pas.

This has been proven in practice in the case of the erstwhile Silicon Valley Bank whose executives focused on corporate formalities or political correctness, while for eight months it had been revealed how the head of the risk management sector was missing.

Based on available findings, SVB executives focused mainly on initiatives to embrace wrongly interpreted diversity among its members and favoured investing in start-ups that promote a “healthier planet” but failed to identify the glaring problems within the business as interest rates rose. 

The now-bankrupt bank was rated highly for its ESG policies by the MSCI index, having created its own initiatives to “promote inclusion and opportunities in the innovation economy” and investing in clean energy solutions in recent years.

It had even announced that it would invest a whopping $5 billion by 2027 to support sustainability efforts, while its European offices held a Pride of Diversity celebration and promoted “safe spaces.” 

But for eight months last year, the bank did not have a head of risk management as it invested customers’ money in government bonds and low-yield securities.

Then when the Federal Reserve raised interest rates, the value of SVB’s assets fell while customers scrambled to withdraw their money.

Now, many are criticizing the financial institution for focusing too much on wake-up policies rather than investment.

Silicon Valley Bank has long touted its diversity and inclusion efforts as it builds its banking franchise around startups, while in its ESG report, it said it strives to “create a more just, equitable and sustainable world."

At the same time, the bank implemented “a diverse slate of candidates for leadership roles” and introduced the first six Workgroups for Asian, Black, Hispanic, LGBTQ, veteran, military, and female employees.

In 2021, SVB continued to expand the program, leveraging its resources, experience, and connections to address key barriers that prevent underrepresented groups from succeeding in innovation.

In a statement, then-CEO Greg Becker pointed out: “We support visionary companies and investors who are boldly tackling the biggest challenges of our time.”

For his part, Craig Robinson, the bank’s head of corporate social responsibility, said: “Using our resources and influence to help build strong communities and contribute to economic, social, and environmental progress has always been at the core of our business”.

As highlighted, the head of the risk for the bank in Europe, Africa, and the Middle East, instead of realizing the risks, spent his time organizing a series of initiatives against the background of the LGBTQ community, including a month-long Pride campaign, which included “Lesbian Day of Visibility” and “Trans Awareness Week”.

The Glaring Mistakes

“Management was wrecked by interest rates, underestimated customer withdrawals, hired the wrong people, and failed to sell the stock,” writes Andy Kessler for the Wall Street Journal.

For his part, Will Hild, executive director for Consumer Research, stated: “The bank suffered from a mix of senior management who focused more on identity politics than risk management and investment.

“Let this be a warning, not just to other banks, but to all of America: Focus on serving your customers, not politics.”