It’s been seven months since the spectacular collapse of Silicon Valley Bank, the third-largest bank failure in U.S. history. Since then, as best I can tell, there have been a handful of investigations detailing what happened and why: the so-called Barr Report, written under the auspices of the Fed’s Michael Barr, in April; reports by the State of California and the Bank Policy Institute, both released in May; the long-awaited conclusions of the Fed’s Office of Inspector General, in late September; and, most recently, a report led by Sheila Bair, at the Center for Financial Stability. (Bair, of course, was famously the head of the FDIC during the 2008 financial crisis.)
It’s safe to say that while there are some technical differences, the Barr Report, the O.I.G. Report, and the Bair Report are largely in agreement that SVB’s management made the fatal mistake of failing to realize that the bank’s liabilities (its deposits) were short-dated and could flee the bank in an instant, while its assets (billions in long-term Treasuries and other bonds) were long-dated and could not be easily turned into cash, except at a discount, meaning big losses (as happened at the end).
When the bank’s well-heeled depositors freaked out last March and feared that the bank would fail, they withdrew their money as quickly as possible. Of course, because of our so-called “fractional” banking system, most of those deposits weren’t at Silicon Valley Bank. Rather, they had been lent out to borrowers or invested in long-term Treasuries, some of which were sold to Goldman Sachs at a big loss for the bank. Unfortunately, the bank’s board of directors failed to contemplate, incredibly, the fact that even supposedly safe Treasury securities can lose value in a rising interest rate environment, and especially so during a bank run.