Those who say banks collapse because they went ‘woke’ are hiding something
As soon as it was clear that Silicon Valley Bank would not survive the weekend, conservative influencers and Republican politicians had a culprit in sight. Wokeness.
“They were one of the most woke banks,” Rep. James Comer, the top Republican on the House Oversight Committee, said during a segment on Fox News. The governor of Florida, Ron DeSantis, also blamed the bank’s diversity programs. “I mean, this bank, they’re so concerned with DEI and politics and all kinds of stuff. I think that really diverted from them focusing on their core mission,” he told Fox News.
Donald Trump Jr. said that “SVB is what happens when you push a leftist/woke ideology and have that take precedent over common sense business practices.” Sen. Josh Hawley, R-Mo., complained that “these SVB guys spend all their time funding woke garbage (‘climate change solutions’) rather than actual banking and now want a handout from taxpayers to save them.”
Diversity, equity and inclusion initiatives were not responsible for the collapse of Silicon Valley Bank. The people who blame wokeness for the collapse of a bank do not want you to understand or even think about the political economy of banking in the United States.
They want to deflect your attention from the real questions toward a manufactured cultural conflict. And the reason they want to do this is to obscure the extent to which they and their allies are complicit in — or responsible for — creating an environment in which banks collapse for lack of appropriate regulation.
As its name suggests, Silicon Valley Bank was tied tightly into the financial infrastructure of the tech industry. Founded in 1983, it claimed to bank for “nearly half of all U.S. venture-backed start-ups,” and it worked closely with many venture capital firms.
It is risky for a bank to take most of its deposits from a single tightly knit industry. But for much of the past decade, low interest rates, easy money and cheap loans meant that this industry was on the upswing. As tech boomed, so did SVB.
“Flush with cash from highflying startups,” my New York Times colleague Vivian Giang explained, Silicon Valley Bank “did what most of its rivals do: It kept a small chunk of its deposits in cash, and it used the rest to buy longterm debt like Treasury bonds.” As long as interest rates stayed low, those bonds promised safe returns.
Interest rates did not stay low. To fight inflation and reduce the price of consumer goods, the Federal Reserve raised interest rates seven times in 2022. With each increase, Silicon Valley Bank lost money on its bonds. Worse, the interest rate surge affected venture capital firms and the entire world of tech startups, harming the bank’s portfolio as those companies shed value and reduced deposits.
Clients started to withdraw money to meet their liquidity needs, and last week, in order to fund these redemptions, Silicon Valley Bank announced it had sold $21 billion in bonds, at a loss of $1.8 billion. The bank then let it be known that it would sell $2.25 billion in shares to cover the loss.
Worried clients began to withdraw more money, which spooked investors, a development that pushed more clients to withdraw even more money. On Friday, as the bank run gained steam, California’s financial regulatory agency announced that it had taken possession of the bank and placed it under the receivership of the Federal Deposit Insurance Corp.
There is a larger context. Silicon Valley Bank had a significant number of large and uninsured depositors — clients with accounts totaling more than the $250,000 maximum guaranteed by the FDIC. Ten years ago, the bank might have been subject to a stress test by the Federal Reserve, which would have forced the bank to diversify its investments.
But in 2018, a bipartisan bill shielded regional banks like SVB from regulatory scrutiny under the Dodd-Frank Act. Greg Becker, the bank’s CEO, actually lobbied for this change, urging the government to raise the threshold it used for judging systematic risk, from $50 billion in assets to $250 billion in assets.
In the fourth quarter of last year, Silicon Valley Bank reported more than $200 billion in assets.
All of this is to say that if you want to understand the collapse of Silicon Valley Bank, you have to understand the political environment that led Congress to loosen regulations on regional banking institutions. This, again, is just one example of how bad actors and interested parties try to obscure serious questions about the structure of our society with claims that serve only to muddy the waters. You don’t have to look hard to find others.
Put simply, you show me a scene from the so-called culture wars, and I’ll show you what’s behind it: a real issue with real stakes for real people.