- SVB’s crash is connected to the Federal Reserve’s consistent interest rate hikes
- Senator Elizabeth Warren calls Fed chair Jerome Powell "dangerous"
US Federal Reserve Chairman Jerome Powell admitted his agency was caught completely off-guard by Silicon Valley Bank’s sudden crash, although the bank was under his watch.
On March 13, the regulator announced it was launching an internal investigation into the circumstances of the bank’s collapse and how it was monitored and regulated, CoinTelegraph reported.
Interest rate hikes are to blame?
SVB’s crash has been connected to the Federal Reserve’s consistent interest rate hikes, which were supposed to curb inflation. This resulted in devaluation of SVB’s long-term, mortgage-backed bonds, which it had bought at minimal rates.
Market panicked after SVB publicized $1.8b loss
The market panicked after SVB announced its substantial after-tax loss of $1.8 billion. The failed bank also announced it needed raise $2.25 billion urgently. It shed $160 billion from its market cap in 24 hours and the shares of its parent company lost almost 60% on March 10.
A deposit run followed despite SVB CEO Greg Becker’s warnings to investors to keep calm. The US FDIC intervened on March 10, assuming receivership of SVB so customers could access their funds. The government put emergency measures in place soon thereafter to secure the deposits at the bank.
Elizabeth Warren lashes out at Powell
The Fed chair’s latest comments on the failed bank come with the news that the regulator will be raising rates again, this time by 25 basis points. This would be the tenth consecutive raise to a rate of 5%. US Senator Elizabeth Warren told CNN on March 22:
I think he (Powell) is a dangerous man to have in this job. We’ve never seen hikes at this rate in the modern economy. I predicted five years ago the consequence of that kind of weakening would be that we see these banks load up on risk, build their short term profits, give themselves ginormous bonuses and big salaries and then some of those banks would explode. That is exactly what has happened on Jerome Powell’s watch.
