“‘There are real questions about why the bank didn’t anticipate one of the most fundamental financial facts that everybody should know, which is interest rates go up and they go down. You can’t bet on them staying low forever.”’”
That was Rep. Katie Porter pinning most of the blame for Silicon Valley Bank’s collapse on rising interest rates.
The California Democrat was speaking on MSNBC’s “The Sunday Show with Jonathan Capehart” on Sunday about the Silicon Valley Bank crash over the past week, which is the biggest bank failure since Washington Mutual during the 2008 financial crisis. Regulators stepped in to take over the bank on Friday.
Porter recapped SVB’s rise and fall with host Capehart, noting the commercial bank, which had largely served the tech industry, grew rapidly in late 2020 by taking “lots and lots and lots of deposits — millions of dollars,” and then turning around and investing that money in federal treasury bonds.
Read more: U.S. and U.K. regulators consider ways to help SVB depositors, FDIC auctioning assets: reports
And: From California wine country to London, SVB bank failure felt worldwide
“How banks make money is they take our money, the deposits, and they go and invest them, and it’s that return that generates their profit,” she explained. “And at the time, U.S. treasuries were very low.”
But as the Fed has raised interest rates aggressively to help combat inflation, those bonds have become devalued. So last Wednesday, Silicon Valley Bank’s parent company, SVB Financial Group SIVB, -60.41%, disclosed that it had sold off about $21 billion worth of its available-for-sale securities at a $1.8 billion loss. And it needed to raise $2.25 billion in capital. So this led to clients withdrawing their deposits in droves, and regulators taking over the bank on Friday.
Read more: Silicon Valley Bank branches closed by regulator in biggest bank failure since Washington Mutual
And: SVB Financial’s stock suffers record plunge as rising client cash burn leads to actions to bolster finances
Porter, who is running for Sen. Dianne Feinstein’s, D-Calif., Senate seat in 2024, said that Silicon Valley Bank should have recognized that interest rates would go up again. “They went up, and the bank wasn’t prepared for it, and there are some real oversight questions about that,” she said.
Meanwhile, Treasury Secretary Janet Yellen said Sunday that she’s been working with banking regulators “all weekend” to stem the damage, as it’s believed more than 90% of the bank’s despite are uninsured.
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said on CBS News’ “Face the Nation” on Sunday. “We are concerned about depositors and are focused on trying to meet their needs.”
Read more: As SVB concerns grow, Yellen says no bailout, but feds are working to prevent bank ‘contagion’
The FDIC said Friday that customers will have full access to their insured deposits no later than Monday morning and that it hadn’t yet determined the total amount of uninsured deposits.
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