Last week, a Silicon Valley bank closed, causing alarm across the country. Reality TV star and business mogul Kevin O'Leary blames the bank's management for the crisis.
“Let me explain what happened last week. It's a combination of stupid management, a powerful one, with a board above them that was incompetent, or at least asleep at the wheel, because what happened here was just plain bad management.” was,” O'Leary, who stars on the reality TV series Shark Tank, told Yahoo Finance. “The way they place bets means they know nothing about banking.”
Last week, the Silicon Valley bank announced a $1.8 billion loss from the sale of securities after rising interest rates reduced the value of its bonds. The report heralded the biggest bank run in nearly a decade, during which investors desperately tried to pull through. $42 billion from the lender, and the bank had insufficient funds to meet their demands.
“Basically, they took 90% of depositors' money and put it into long bets on 10-year Treasuries when the Fed was raising rates. Yes, only a stupid banker could do that. But that's what they did.” Big risk,” said O'Leary, who was sarcastically nicknamed “Mr. Amazing” on Shark Tank for his abrasive personality.
The Silicon Valley bank, although smaller than larger US banks such as Wells Fargo and JPMorgan, was still the 16th largest bank in the US, with $209 billion in assets as of December 31. according to the FDIC, More than 85% of Silicon Valley Bank's deposits, according to bank filings were uninsured at the end of 2022.
Typically, the Federal Deposit Insurance Corporation (FDIC) covers deposits up to $250,000 per account. But when Silicon Valley Bank closed, the FDIC announced it would cover 100% of the funds.
Some experts, including O'Leary, disagree with the government's decision to intervene. Instead, he argued that the government should have allowed the bank to fail.
“He blew himself up. Let them fail,” O'Leary said.
O'Leary argued that the bank's management must understand risk management and be prepared for potential crises. He also said that mainly “sophisticated investors” such as “hedge funds and venture capital firms” who could handle the losses held the asset and could get 95 cents on the dollar back from their uninsured deposits.
“They're big boys. They understand risk mitigation. And either they were or they weren't doing their job,” O'Leary said.
O'Leary also argued that intervention could set a bad precedent going forward, arguing that banks can only operate under the assumption that the government will bail them out if they make mistakes.
“I can run a bank and spend all my day worrying about the stock price because I don't have to worry about deposits anymore…. I can swing for the fences,” O' Leary said. “I have to stay within the rules of banking, but I can take extreme risk to move that share price and never worry about what I do with depositors' money. Is this a good idea for you?” Good idea?”
dylan kroll is a reporter and researcher at Yahoo Finance. follow him on twitter @CrollonPatrol,
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