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16 March 2023, Gateway House

Blame Game in Overdrive on SVB Collapse

The collapse of Silicon Valley Bank has global strategic implications. Santa Clara County, the home of Silicon Valley is nearly the size of Hong Kong. A meltdown of Silicon Valley would be catastrophic for U.S. leadership in the technology sector, especially when the U.S. and China are engaged in a technology race for supremacy in commercial and military applications.


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On Friday, March 10th, Silicon Valley Bank, the sixteenth largest bank in the U.S. and member of the Federal Reserve System was closed by California regulators, with the Federal Deposit Insurance Corporation (FDIC) named as receiver to assist in the recovery of funds for creditors. As of December 31, 2022, Silicon Valley Bank had about $209 billion in assets.

To prevent contagion in the corporate sector and serial bankruptcies of clients of Silicon Valley Bank, as well failures of more regional banks, the U.S. Treasury, Federal Reserve and FDIC declared that all deposits of Silicon Valley Bank would be supported above the typically insured limit of $250,000 per depositor.[2] Signature Bank, a smaller New York City-based leader in deposits from cryptocurrency firms, was also seized by regulators on the same protective basis,[3] with all depositors covered regardless of exposure. Other regional banks have seen major hits to their stock prices: First Republic Bank of San Francisco saw its stock price decline 79% in recent days[4]. Fear has been spread via social media like an accelerant. The Treasury and Fed also announced that they would provide liquidity to other banks to avert further runs. This federal intervention appears to have generally calmed the markets, at least for now.

Business schools will be writing up case studies, and regulators and boardrooms of financial institutions will be analyzing what went wrong. The blame game is in overdrive, although ultimately the management and board of directors of Silicon Valley Bank and Signature Bank are responsible.

The technology and financial sectors have been nervous since the November collapse of FTX, a leading cryptocurrency exchange domiciled in the Bahamas. When the price of its token fell due to an action by a competitor, investors commenced withdrawals. An estimated $1 billion of client funds has disappeared.[5]

Excessive government spending by two administrations is an underlying driver of inflation, caused by “too much money chasing too few goods,” in the words of economist Milton Friedman. A fair estimate is that $5 trillion was pumped into the economy by the Trump and Biden administrations for COVID relief and infrastructure development. [6]  Student debt forgiveness is estimated to cost roughly another $500 billion.

As the nation’s chief inflation fighter, during 2022 the Federal Reserve aggressively raised the rate for fed funds (on deposit at the Fed in excess of reserve requirements) from less than 1% to nearly 5% by early February. [7]  With a loan to deposit ratio of only 42%, Silicon Valley Bank invested substantial liquidity in the bond market. It funded itself at short-term rates and invested in longer-term securities. Evidently, the Silicon Valley Bank did not hedge its position and run a short bond portfolio that would benefit it during rising rates which caused the value of those instruments to decline. Rising rates also made it harder for the tech sector to raise capital. Hence, tech companies turned to withdrawals of their deposits at Silicon Valley Bank, which had to sell securities at a loss to meet that demand. The spark that caused the run was a press release of March 8th by SVP Financial Group announcing it was raising cash by issuance of common and preferred stock.[8]

The circumstances of the takeover of Signature Bank were different.[9] While it experienced withdrawals, Barney Frank, a former U.S. representative, co-author of the Dodd-Frank Act of 2010 designed to intensify regulation and a director of Signature Bank, said that the federal government was motivated by the need to keep banks out of the cryptocurrency industry.

As with the demise of Lehman Brothers and market crash of September 2008, the regulatory authorities will also be under scrutiny – who knew what and when did they know it? Banks submit quarterly documents known as call reports to regulatory agencies so they may review the financial condition and risk profile of those institutions.

Democrats are blaming legislation of the Trump administration, such that only banks with assets over $250 billion would be subjected to stricter regulatory standards under the Dodd-Frank Act of 2010. And Republicans are blaming wokeness for the collapse of the bank – too much attention on to Environment Social Governance (ESG) principles with disregard for making money. [10]

Even the swaggering crypto folks have weighed in, blaming centralization of the U.S. banking system, as well as the recent efforts by the government to rein in the crypto sector.[11] The fact that the cryptocurrencies and crypto exchanges are uninsured by the FDIC, and have no lender or support of last resort, reflects the ignorant detachment of those arguments.

With a GDP of about $380 billion,[12] Santa Clara County, the home of Silicon Valley is nearly the size of Hong Kong. [13] A meltdown of Silicon Valley would be catastrophic for U.S. leadership in the technology sector, especially when the U.S. and China are engaged in a technology race for supremacy in commercial and military applications – Artificial Intelligence (AI), cyberwarfare, and cyber-surveillance are integral to this competition and critically important to the future of intelligence. [14] And given that the U.S, economy could be headed for recession, serial bankruptcies in Silicon Valley would make it only worse.

As for India, Silicon Valley, Bangalore and Hyderabad are well integrated in venture capital, software development, and corporate infrastructure – and the CEOs of Google and Microsoft are of Indian antecedents. A meltdown of Silicon Valley would inhibit India’s robust software exports and its technology sector in general.

As with every crisis, politicians will scramble to look like they are doing something corrective and seek more control over the private sector.  As Rahm Emanuel, former mayor of Chicago and now ambassador to Japan famously stated, “You never want a serious crisis to go to waste.”[15] While the effort to protect all depositors of Silicon Valley Bank and Signature Bank was wise, so was letting bondholders and shareholders take the hit. Capitalism should not only reward success, but also punish failure and mismanagement.

Frank Schell is a business strategy consultant and former senior vice president of the First National Bank of Chicago. He was a Lecturer at the Harris School of Public Policy, University of Chicago and is a contributor of opinion pieces to various journals.

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[1] “GDP Ranked by Country 2023,” World Population Review,

[2] The Federal Reserve System, “Joint Statement by Treasury, Federal Reserve, and FDIC,” 12 March 2023,

[3] Nick Timiraos, Andrew Ackerman, and Andrew Duehren, “SVB, Signature Bank Depositors to Get All Their Money as Fed Moves to Stem Crisis,” The Wall Street Journal, 13 Mar 2023,

[4] Brian Baker and Mercedes Barba, “These are the bank stocks and ETFs taking the biggest hit following the collapse of Silicon Valley Bank,” 13 Mar 2023,

[5] “At least $1 billion of client funds missing at failed crypto firm FTX, sources say,” CNN Business, 12 Nov 2022,

[6] Frank Schell, “All the President’s Disconnects,” The American Spectator, 8 Oct 2022,

[7] “United States Fed Funds Rate,” Trading Economics,

[8] Eleanor Hawkins, “Silicon Valley Bank’s fatal communications flaw,” Axios, 14 Mar 2023,

[9] Geoff Mulvihill, “Signature Bank seized to send banks a message, director says,” AP News, 14 Mar 2023,

[10] Janet Paskin and Bloomberg, “‘Wokeness’ killed SVB, some conservative politicians and commentators are saying—not bad risk management or a bank run,” Fortune, 14 Mar 2023,

[11] David Yaffe-Bellany, Erin Griffith, and Mike Isaac, “Silicon Valley Bank Collapse Sets Off Blame Game in Tech Industry,” The New York Times, 11 Mar 2023,

[12] Gabriel Greschler, “Silicon Valley’s economy trampled Austin, Seattle by billions of dollars during COVID’s first two years,” The Mercury News, 16 Dec 2022,

[13] “GDP Ranked by Country 2023,” World Population Review,

[14] “CIA future will be defined by US technology race with China, director says,” Reuters, 9 Mar 2023,

[15] Matt Weidinger and Tim Sprunt, “The “Never Let a Serious Crisis Go To Waste” Crowd Strikes Again”, AEI, 9 Sept 2022,

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