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Disastrous Harvest: Silicon Valley Bank and the Anti-Regulation Bank Lobby

Before the financial collapse come the aggressive anti-regulation lobbyists. These are often of the same ilk: loathing anything resembling oversight, restriction, reporting and monitoring. They are incarnations of the frontier, symbolically toting guns and slaying the natives, seeking wealth beyond paper jottings, compliance and bureaucratic tedium.

The collapse of Silicon Valley Bank (SVB), for a period of time the preferred bank for start-ups, is the bitter fruit of that harvest. Three days prior to the second-largest failure of a US financial institution since the implosion of Washington Mutual (Wamu) in 2008, lobbyists for the banking sector had reason to gloat. They had the ears of a number of GOP lawmakers and were pressing the case that Federal Reserve Chair Jerome Powell had little reason to sharpen regulations in the industry.

As a matter of fact, the converse case was put: the financial environment was proving too stringent, and needed easing up. This effort built on gains made during the Trump administration, which saw the passing of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Then House majority leader Kevin McCarthy was particularly keen on winding back elements of the Dodd-Frank banking measures introduced in the wake of the 2008 financial crisis. In 2018, he got much of what he wished for.

Lobbyists for SVB were particularly aggressive in that endeavour, and even went so far as to seek exemptions from the Federal Deposit Insurance Corporation (FDIC), the body responsible for insuring bank deposits in times of crisis and institutional oversight. Two former staffers for McCarthy so happen to be registered lobbyists for SVB, a fact that shows how the US revolving door between politics and business continues to whirr at some speed. The SVB lobby list also includes figures who found employment under former President Bill Clinton, former Senator Mike Enzi (R-My), former Senator Tom Coburn (R-Okla.) and former Senator Arlen Specter (D-Pa.), just to name a few.

The crisis duly came. On March 9, startups and venture capitalists made a run on SVB as its share price took a tumble. SVB had sold its available-for-sale (AFS) portfolio for US$21 billion at a US$1.8 billion loss. In a patch-up, capital raising response, SVB then announced that it would sell US$2.25 billion in new shares.

By the next day, the FDIC had placed SVB into receivership. The corporation promised that insured depositors would have access to their insured deposits on March 13; uninsured depositors would have to wait a bit longer, expecting an “advance within the next week.” But given that 90% of the bank’s deposits exceeded the amount guaranteed by the FDIC, the prospects for adequate recovery proved uncertain, at least till the FDIC, Federal Reserve and US Treasury promised protection for them.

Deputy Treasury Secretary Wally Adeyemo proved rather green in suggesting that the financial system, as things stood, would be resilient enough to hold off any contagion. “Federal regulators are paying attention to this particular financial institution,” he told CNN, “and when we think about the broader financial system, we’re very confident in the ability and the resilience of the system.”

This is bound to be misplaced. It’s certainly not the view held by former FDIC head, Sheila Blair, who argues that there are other banks in the system with large amounts of uninsured deposits and unrealised losses. “These banks that have large amounts of institutional uninsured money … that’s going to be hot money that runs if there’s a sign of trouble.”

David Sacks of Craft Ventures is also of the view that immediate intervention at the government level was required. “Where is Powell?” he wondered. “Where is [US Secretary of the Treasury Janet] Yellen? Stop this crisis NOW.” SVB, he proposed, should be placed with a top four bank. “Do this before Monday open or there will be contagion and the crisis will spread.”



Questions are being asked whether the anti-regulatory bug has gotten to the various authorities and agencies. Mike Novogratz, founder of Galaxy Digital, pondered whether all banks were now being treated like hedge funds. “Seems like a policy mistake.”

Economists such as Peter Schiff are even more damning, claiming that the entire US banking sector is set for a cathartic clean-up that will be greater than that following 2008. US banks were holding “long-term paper at extremely low interest rates. They can’t compete with short-term Treasuries.” In such an environment, depositors, in the pursuit of higher yields, would initiate mass withdrawals, resulting in a tidal wave of bank collapses.

Blame for the SVB debacle has been extensive. “This was a hysteria-induced bank run caused by VCs [venture capitalists],” opined Ryan Falvey, a fintech investor based at Restive Ventures. “This is going to be remembered as one of the ultimate cases of an industry cutting off its nose to spite its face.”

The oversight advocates are bound to agree. Dennis Kelleher, CEO of the non-profit Better Markets, is certainly one. “SVB’s stunningly quick collapse should put an end to the nonstop attempts by banks, lobbyists and their political allies to weaken capital and other financial regulations that protect depositors, consumers, investors and financial stability.”

This is likely to prove to be a flight of fancy. The banking lobbyists have destructive form and staying power. In 2019, the International Monetary Fund published a working paper noting that bank lobbying, in general, produced “regulatory capture, which lessens the support for tighter rules and enforcement. This, in turn, allows riskier practices and worse economic outcomes.”

As the great financial crisis showed, financial regulation is often the antidote to banditry. The pillaging and frontier types will always resist such tendencies. Again, they have been found wanting, and again, the harmful consequences of their ideas are going to prove deep and extensive.


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  1. Phil Pryor

    The collective is a “wunch of bankers”, who cannot be trusted, ever, and ever, ah men (said May West). The devotion to any career and crusade for personal gain, enrichment, “success, financially”, and thus complete disregard of decencies, morals, ethics, legalities, responsibilities, is a Pox, a Plague, a Pestilence, which has grown enormously in our materialistic times. There were always some noticeable crooks, oerators, predators, social parasites, but now, the daily gloom of it makes us desperate, many of us impoverished at the way of the world as it seeks delusional decline through poor failed leadership. Bankers, like so many, were once respected…

  2. RomeoCharlie29

    I don’t know about SVB and its implications but there is plenty of evidence in Australia of regulatory capture as we’ve seen in so many instances, usually under the (mis)governance of the Liberal/National parties which will seemingly do anything to reduce oversight while expanding the opportunities for wealth creation for mates. The gambling industry comes to mind but the wimpiness of ASIC; the Foreign Investments Review Board in allowing venture capital funds to buy Australian companies, bleed them dry and usually leave governments to pick up the pieces, the aged care and other health care providers and on it goes. The Albanese government continues to pussy-foot around significant opportunities to rein in the outrageously wealthy and benefit the less wealthy, while demonstrating its own example of capture by the Defence lobby via the outrageously expensive pursuit of nuclear submarines.

  3. Canguro

    @Phil Pryor, as always your pithy offerings nail the essential issues. I’m thinking that a blog called ‘The Daily Gloom’ might just find an audience in these desperate times. Something along the lines of this…

  4. New England Cocky

    Well, here we go with GFC Mark II, the scourge of international banking created by rogue American bankers ”too big to fail”.

    Gifting Australian sovereignty for a few very expensive leased US submarines with (perhaps) some subs to be built in Australia during the never never plan, will not save the US economy from the greed of American corporations and the collapse of American society. The American Dream is rapidly becoming the American Nightmare.

    It is time for Australia to stand on their own feet and become a non-aligned nation rather than provide more human cannon fodder for the imperialist dreams of the US NE Military Industrial Complex.

  5. Steve Davis

    “Two former staffers for McCarthy so happen to be registered lobbyists for SVB,…”

    This is how representative democracy has been captured by parasites.

    We are seeing it in Australia also.

    The days of the brown paper bags full of cash are over; too much chance of being caught. The corrupt operate at one degree of separation from the action so that criminal convictions are almost impossible to obtain, even though shady dealings are public knowledge.

    Here it exists primarily in the awarding of contracts to mates, often with no tender process.

    Representative democracy has passed its use-by date.

  6. Clakka

    The collapse of the syphon that is the neo-liberal bling-driven experiment is now being supplanted by a new club-fed totalitarianism, sponsored by both the erstwhile neo-liberals and the neo-cons. Just another besuited abstraction seeking to usurp the ever-slowing spin, the nature of things and the reality of boots on the ground.

    Still the only thing trickling down will continue to be the blood of wage earners and the poor.

    Such are the joys of ‘suicide capitalism’

    In that regard, I have a weather eye on the newest convert, China, and wonder whether it will be able to stem the flow of its blood already spilled.

    It seems the lethal combo of politicians, economists, bankers and magnates can’t together give us a good time and a ball other than a wrecking ball wrought by paranoia and mistrust.

    That we could ever take down all the fences sponsored by greed and domination, maybe we could all chill and like the cows continue our roaming ruminations whilst giving milk to to each other one and all.

    Then again, there’s lawyers. What to do?

  7. New England Cocky

    The next world bank GFC spreads to Credit Suisse.
    . . utm_term=64126a14a9de39b073d58e669d5d0378&utm_campaign=GuardianTodayAUS&utm_source=esp&utm_medium=Email&CMP=GTAU_email
    . .

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