March 24, 2023

The collapse of the Silicon Valley Bank (SVB), the bank of choice for high-risk climate change companies, has sparked fears of a looming crisis.  After all, this was the largest bank failure since 2008.  SVB’s collapse was followed swiftly by a shotgun wedding between Credit Suisse, and USB, the takeover of New York’s Signature Bank, and the looming financial threats posed by San Francisco’s First Republic Bank.  

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Despite the 2010 passage of Dodd-Frank, a bill designed to prevent another financial meltdown, America’s banking system is in danger.  One report entitled “Monetary Tightening and US Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?” indicates that 186 U.S. banks are now at risk of failure because of increasing interest rates and the high number of uninsured deposits.  Consequently, if half of the uninsured depositors withdraw their funds, almost 190 banks are in jeopardy, with up to $300 million in deposits at risk.

The rising threat of bank insolvency implies that Dark Ages are ahead.  Banking analysts forecast that many “smaller and regional banks could be consolidated or collapse in a manner resembling the savings and loan crisis,” which triggered the failure of 1,000 banks from 1986 to 1995.  Rising uncertainty could result in banks tightening credit application rules, thus making it harder for people to get mortgages or credit cards.  This could push the nation into a recession, spurring layoffs and economic decline.

The necessity of assigning blame goes to the heart of the world’s current financial problems.  Properly assigning blame rests on two propositions: first, the failure of regulators and regulations, and second, the imposition of new regulatory objectives focused on social justice rather than sound banking practices.  

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These two propositions are related.  SVB’s failure confirms this claim.  Lessons embedded in SVB’s collapse apply to the entire banking system.  First, contrary to best practices, SVB failed to employ a risk management officer for the last eight months.  Second, the  “Federal Reserve (Fed) was aware of risks to Silicon Valley Bank more than a year before its collapse.”  Third, the Wall Street Journal reports that Fed regulators cited risk management issues as early as 2019, four years before the bank’s collapse.  Hence failure was foreseeable.

But there is more.  As Senator Tom Cotton observes, “Biden administration policies are to blame for the collapse of the Silicon Valley Bank.”  He notes, “Joe Biden’s reckless spending created runaway inflation, which led to higher interest rates, which put the squeeze on banks… And it was Joe Biden’s administration that didn’t properly oversee and supervise a bank like” SVB.  This is true, but the more troubling question is, why did the Biden Administration and the Federal Reserve fail us?  

This question finds its answer in two additional queries: first, why did the board of directors of SVB decline to engage in proper management of risk?  And second, why did Biden swiftly announce that the government would bail out SVB, thus saving his leftist climate-change friends from a financial wipeout?  

Any informed answer to such questions should note that SVB and all other American banks were encouraged to place Environmental, Social, and Governance (ESG) concerns ahead of sound banking practices.  Bank failure was more than an option; it was a probability because federal authorities preferred “wokeness” over competence. 

Two years ago, Treasury Secretary Janet Yellen, at her inaugural appearance as the head of the Financial Stability Oversight Council, called climate change “an existential threat” to the health of the U.S. financial system.  While scant evidence supports her claims, Yellen pledged to marshal the regulatory forces at her disposal to guard against the alleged harmful effects of climate change.  The Financial Stability Oversight Council, which includes the heads of the Federal Reserve and the Securities Exchange Commission, was tasked with policing behavior that could potentially crash the entire economy.  Climate change, not improvident behavior, emerged as the leading source of financial risk.

Consistent with the Biden administration’s social policy preferences, the Fed intensified its “scrutiny of banks’ exposure to climate-related risks.”  SVB embraced this agenda with gusto.  Accordingly, it loaned vast amounts of money to dozens of climate companies.  According to one observer,  SVB offered subprime loans to startups that often were not profitable.  And “earlier this month, SVB was one of the sponsors of “Winterfest” which billed itself as a global conference on energy transition.”