More Startups Can Help Fix the Startup Bank ’s Problems

Jack SoloweyBy now, those following the collapse of Silicon Valley Bank (SVB) have largely identified their preferred culprits for thesecond ‐​largest bank failure in U.S. history. But regardless of where one assigns the most blame, it ’s clear that the post‐​Global Financial Crisis regulatory regime neither prevented SVB’s demise nor anextraordinary federal reaction to it. While some take the fall of SVB as a reason todouble down on the usual medicine, this bank failure is a case in point for allowing progress inmonetary and financial alternatives.Ultimately, SVB failed to manage risks, some of which it took on strategically, others of which caught it flatfooted —and all of which observers should consider as potentially enabled by the overhang of moral hazard from previous bank bailouts. Prominent among these risks was acute interest rate exposure through both SVB’s depositors and its investments.SVBspecialized incatering to a relatively undiversified depositor baseconcentrated among tech startups. Startups are a sine qua non of technological innovation and economic dynamism. As venture ‐​funded bets that are typically long term, taking time to achieve profitability, startups also tend to besensitive to interest rate hikes. In addition, when rates were low and SVB ’s depositors were flush with cash, the bankinvested heavily inlong ‐​dated securities, which also would decline inmarket value in the event of rising interest rates.As...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs