Risky Business at Silicon Valley Bank: What Happened?
As federal regulators take over Silicon Valley Bank in the wake of its collapse, many finance sector resilience professionals are looking at its risk management strategies to figure out what went wrong.
When the SVB collapse was announced on Mar. 10, it surprised many in the banking and finance industry, along with number of workers whose paychecks were suddenly in limbo, unsure of when they could expect the situation to resolve.
But while it may have seemed sudden on the outside – a damaging mix of overly aggressive investments, a spike in the interest rates, and the consequences of deregulation all coming to a head – many in the risk management field noticed warning signs going back at least a year.
“In the past 15 months … SVB operated without a full-time chief risk officer and the number of board risk committee meetings more than doubled,” Forbes’ Noah Barsky reported after looking at SVB’s proxy filing. The board committee also held more members than any other committee.
But just because it was a large committee doesn’t mean it was stocked with expertise. Of the seven board members assigned to SVB’s Risk Committee, only one had any background remotely related to risk management and none ever held a senior risk management role.
Former bank examiner for the Federal Reserve Mark Williams elaborated, telling Fortune, “The board-appointed risk management committee, which works closely with the CFO, should have done adequate scenario analysis to examine the deposit withdrawal risk. That, in fact, was the bank’s downfall.”
SVB’s failures, and what they mean for investors and businesses, will be dissected at length in the months to come. But one thing is clear – dedicated risk management expertise might have helped avoid some of the biggest issues.
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