Daily Archives: 20 March 2023

No Chief Risk Officer

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That’s what Silicon Valley Bank had for the last 8 months of 2022. Much is being made of SVB’s choosing to employ a Diversity, Equity, Inclusion person in an executive position during that time frame, but a more important function is being missed in this kerfuffle. That is the answer to this question:

It is not clear who handled [SVB CRO until April ’22, Laura] Izurieta’s duties in the last eight months of 2022.

SVB has a President, a Chief Credit Officer, a Chief Operations Officer, and a Chief Auditor. Each of those persons are, or should have been, fully capable of assessing the level of interest rate risk involved with the interest risk of the bank’s holdings with the Fed vs the interest rates it was paying its depositors.

Each of those worthies are, or should have been, fully capable of assessing the demand and cash flow risk associated with the concentration of particular categories of depositors—startups and venture capitalists—with intrinsically very high cash flows and so high rates of cash deposits and withdrawals compared with “ordinary” consumer depositors’ rates of deposits and withdrawals.

Each of those persons are, or should have been, fully capable of assessing the amount of cash held in accounts above the FDIC-insured maximum of $250,000 compared with the amount held in accounts smaller than that limit. Each of those persons are, or should have been, capable of assessing the closely related risk from the degree of concentration of those large accounts in the hands of a relative few account holders and so the risk of any one of those holders withdrawing all of their money.

The presence of a CRO on the payroll and on duty would have been the one to concentrate on those risks, freeing the rest of SVB’s management team to concentrate on other areas, but management, for one reason or another chose not to employ one for those critical eight months. And that management team failed to pay attention, chose not to pick up the slack.

Public School Ownership

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In an op-ed centered on the question of who owns institutions of higher education like universities, Richard Vedder, Professor Emeritus of Economics at Ohio University, identified seven categories of people who claim ownership of these institutions:

  • The board. Most schools, public or private, are overseen by a legally constituted governing board.
  • The politicians. At public institutions, state government usually is the legal “owner” of the school.
  • The administrators. A school’s president and senior bureaucrats are vested with executive responsibility, which resembles ownership.
  • The faculty. The professors who administer academic offerings and conduct grant-inducing research often feel the school belongs to them.
  • The students. They are a primary reason for the school’s existence and their families pay substantial tuition and fees.
  • The alumni. Graduates constitute the donor base at most private schools and some public ones as well.
  • The accrediting agencies. The federal Education Department charges these bodies with certifying an institution’s right to confer degrees.

I have thoughts.

Board members are charged with organizational governing oversight, but they own nothing, except through personally funded stakes. Board members serve at the pleasure of the school’s owners.

Politicians, acting through the governments of which they’re a part, so long as they’re duly elected or appointed by those duly elected, do act in an ownership capacity vis-à-vis public colleges and universities, and they hire and fire employees like board members—and administrators and faculty—as they see fit. The same capacity is held by private institutions’ owners: partners; private share holders; in the case of publicly traded schools, those shareholders; and religious institutions regarding their parochial schools.

Administrators, like board members, own nothing in their capacity of administrators. They’re employees of the school’s owners, hired to conduct the day-to-day administration of the school within the framework established by the board—and the school’s owners.

Faculty claiming ownership only demonstrate their own self-absorbed arrogance. They’re employees, nothing more.

Students claiming ownership are showing their own, even deeper, obliviousness, an ignorance fostered by those same faculty members. Students are customers of the school. Full stop.

Alumni are even further removed from any trace of ownership, except in the depths of their own fetid imaginations. They’re ex-students, and nothing more, no matter the size of their fiscal donations.

Accrediting agencies claiming ownership is risible on its face. That’s like raters like a Moody’s or auditors like a Deloitte claiming ownership of the companies they’re rating or auditing.