Policy Brief - From Lehman to Silicon Valley Bank and Beyond :
Coherent Identifier 20.500.12592/mj245b

Policy Brief - From Lehman to Silicon Valley Bank and Beyond :

23 March 2023


• It is worth observing that the statistical independence of the decisions of thousands of depositors to deposit or withdraw money does not hold in the real world where the state of the economy tends to affect all customers in the same way. [...] This contributed to the demise of the financial institution Kidder Peabody (itself greatly related to the wrongdoings of the star bond trader and a few executives), to the bankruptcy of the wealthy Orange County in California (led by an incompetent Treasurer, Mr Citron), as well as the Mexican peso devaluation – this one required a bailout from the US and the International Monetary Fund. [...] This explains why the President of the US and the Fed stepped in very rapidly after the run on SVB to avoid contagion in the system, invoking a ‘systemic risk exception’ to declare all deposits insured ($152 billion worth of deposits out of 175 billion were not insured; part of them were meant to ensure the payroll of startup employees) WHAT DOES FINANCIAL THEORY SAY? The practice of Asset Liabili. [...] The portfolio of assets of SVB was greatly composed of Government bonds and not of complicated structured securities; the rating of SVB by the major agencies was A, a very good grade suggesting a focus only on the credit worthiness of the lines of the balance sheet, but not on the Asset Liability structure. [...] The deposits at SVB had doubled in 2021; and the lack of risk management inside the bank in 2022 was sadly complemented by the absence of supervision by US regulators after the application of the 2010 Dodd Frank Act had been limited in 2018 (by decision of the then President and Congress) reduced to banks with a balance sheet of more than $250 billion (instead of $50billion in 2010); the balance s.

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