Super-Regional Banks Weren't Nearly as Reckless as SVB Financial
A thorough look-back analysis of the past month in the financial sector reveals that the main reason Silicon Valley Bank failed is because of poor asset-liability management and the inability to manage interest rate risk.
Management loaded up on lower-yielding, longer-duration government-backed bonds too early in the interest rate cycle. As interest rates soared, those bonds fell massively underwater. Then, when SVB's more flighty deposit customers, composed of early-stage companies and venture capital and private-equity companies, began to spend their money or move it elsewhere in search of yield, liquidity came under pressure. Once investors and depositors became worried that SVB would have to sell bonds while trading at huge losses to cover deposit outflows, they got spooked, and the bank soon experienced a deposit run.
The look back also shows that the downfall of the bank -- and its parent company, SVB Financial -- could have easily been avoided were it not for a lot of poor decisions made by management. Thankfully, most of the super-regional banks that SVB is measured against have done a much better job of managing their own balance sheets. Let's take a look.
Source Fool.com
