Silicon Valley Bank ‘first major victim’ of Fed’s interest rate hikes
March 10, 2023
Banking regulators have moved to close California-based Silicon Valley Bank (SVB), a lender to some of the biggest companies in the tech world and the largest bank to fail since the 2008 financial crisis.
Robert Hockett, is a professor of law and public finance at Cornell Law School, where he focuses on financial and monetary law and economics.
“In essence, we're seeing the first major victim of Jerome Powell's rate hikes. The bond assets that SVB had been holding lost much value as interest rates rose. Meanwhile, the same hikes have imposed a crunch on tech firms, which have accordingly been withdrawing funds.
“It’s the proverbial perfect storm where short-term bank liquidity and hence medium-term solvency are concerned.
“It doesn't help that SVB has followed a high-risk, high-reward business model, but they seem to have been in compliance with California law, and these firms are always the first to get hit by rate hikes in any event.
“Yet more reason, then, for Powell to lay off and for us to target production and windfall profits – not rates – to combat inflation.
“Meanwhile, New York banks will now find a nice opportunity to buy into our tech corridor on the cheap if the FDIC has to sell SVP.”