March 13, 2023

Post at LinkedIn

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An explanation by the CEO of a small U.S. bank of the decisions made by Silicon Valley Bank, leading to a run by customers and its insolvency. She says SVB didn’t do the right risk management in a changing market environment. #bank #riskmanagement #10yearbonds #failure
As a community bank executive reading the news surrounding the collapse of Silicon Valley Bank on Friday I am appalled. Top execs sold millions of dollars of shares in the weeks prior to the collapse. They went without a Chief Risk Officer for 8 months during one of the fastest rate rising environments on record. Their Chief Administrative Officer was the CFO at Lehman Brothers before its collapse in 2008. Their business was concentrated heavily on startups financed by venture capitalists which is extremely risky in itself.

What’s even crazier? They purposely invested billions of dollars’ of deposits into long term fixed rate investments when rates were near 0%, leading to a massive mismatch on their balance sheet. This mismatch created serious risk in a rising rate environment resulting in large unrealized losses jeopardizing their capital should those losses have to be realized. Fast forward 12 months and interest rates have now greatly increased, those long term fixed rate bonds have dropped in value. How does a $200+ billion dollar bank recently rated as one of the top banks in the country by Forbes explain this horrible lack of risk management? How can anyone say this bank wasn’t operating in a manner that created catastrophic risk on their balance sheet?

Why am I appalled? This is just another example of disparity in size and scope. Small banks like mine manage our risk EVERY single day. When we are examined, we spend hours showing how we model and manage interest rate and liquidity risk regardless of the rate environment. We show we don’t throw all our eggs into one basket and create concentrations of risk that could harm our customers should the rate environment change. I explain how we would pivot and manage our balance sheet when rates crash overnight and how we don’t create such a mismatch in the first place.

This is just another example of why where you choose to bank matters. Just because a bank is ranked by Forbes or is the cool bank in Silicon Valley doesn’t mean it’s run in a way that properly manages risk. If you want to put your money into a bank online or through one of the non-bank providers, please do your research. Community banks by nature do not take on this level of exposure and risk. We live and work in the communities we serve, taking local deposits and making local loans while properly managing our risk so that we remain safe and sound in any environment. In WV, we have a solid regulatory system which works with banks to ensure we as a whole remain stable. I appreciate the level to which our regulators hold banks accountable.

My door is always open. Customers are welcome to stop and ask questions. It is the passion of myself and other community bank executives to make sure you are comfortable with your bank and know that we do not take your trust in us for granted. When you bank local you know your money stays local, and you can have peace of mind knowing we manage our risk every single day. #BankLocally