Is it just mismanagement?

The statements made by a number of officials who were questioned by the Banking Committee in the US Senate point the finger at the management of Silicon Valley Bank as being responsible for the collapse of the bank early this month, whose infection almost spread to other banks inside and outside the United States. . Not surprisingly, the vice president responsible for banking supervision at the Fed blames third parties, and ignores the Fed’s role. It is not surprising that the head of the guarantor of customer deposits in banks, FDIC, indicates that the customer compensation program approved by the Treasury Department to compensate customers for more than $250,000 will cost more than $20 billion, which means a loss for his organization that must be compensated by raising insurance fees. on the banks.
Yes, there were cases of mismanagement for each of the Silicon Valley Bank, the second largest bank collapse in the United States, and similarly to Signature Bank, which is the third largest bank collapse, but the Federal Reserve’s delay in dealing with inflation since its inception cannot be ignored. In the end, it led to a continuous, rapid and jerky rise in interest rates.
Mismanagement in Silicon Valley Bank was not in employing bank deposits in high-risk assets, on the contrary, all investments were in high-strength debt securities issued by the US government, or by large financial institutions. Mismanagement, as seen by the Reserve Board official, is represented by the bank investing in long-term bonds without taking into account the short-term liquidity requirements, and then incurring large losses when the bank was forced to sell these bonds at a low price.
It is true that what the bank’s management did involved a kind of risk, but the main reason for the collapse was not the low prices of those bonds, but rather the increase in deposit withdrawals due to the panic that afflicted depositors, as 42 billion dollars were withdrawn in one day, most of which took place within a few seconds. electronic transfers via smart phones. If any other bank, large or small, had been subjected to such withdrawals, it would have collapsed as Silicon Valley did.
Yes, there is a defect committed by the bank’s risk management related to the bank’s failure to hedge against rising interest rates, or that it did not carry out enough hedging operations. It is known that there are financial derivatives available aimed at protecting against the risks of these cases. For example, there are future contracts on US Treasury bonds that can be purchased for a specific period in order to ensure that the bank’s investments in the bonds that caused the crisis are not affected. The use of future contracts, or others such as options contracts on bonds or interest rate swap contracts, could have protected the bank’s assets and avoided the large losses that the bank was forced to receive in the end.
In crises, he always searches for an excuse to blame, and usually every responsible party blames the other party. Among the causes of the bank’s collapse, some parties referred to a law issued in 2018 that exempts large banks from certain controls regarding maintaining certain levels of cash liquidity, as well as exempting them from Some stress tests carried out by the central bank. Likewise, the bailout program was not without criticism from some that the speed of activation of the program and the amount of support through which it was provided would not have taken place if the case had been specific to an ordinary regional bank, but rather because the bank’s clients were wealthy from venture capital institutions and pampered technical companies.
The facts before us in the end are that so far it seems that the spread of the infection of banks has already been avoided, as the fear of depositors has subsided and the markets have relaxed, and indeed we have seen a rebound in the prices of regional banks, or at least a halt to the decline for a large number of them. It seems that there is greater awareness of the importance of intensifying supervision of banks and activating the role of the supervisory authorities, which are currently only sounding the alarm internally without taking any preemptive measures and without having any powers regarding the safety of banks’ assets and investments, and this is a controversial issue, but there are demands for more powers in This matter is for the supervisory authorities of the Reserve Board and its branches located in the United States.