Tag Archives: responsibilities

Whitewash

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It seems the Federal Reserve knew of the risks stemming from SVB management moves as long ago as 2019 [emphasis added].

In January 2019, the Fed issued a warning to SVB over its risk-management systems, according to a presentation circulated last year to employees of SVB’s venture-capital arm….
The Fed issued what it calls a Matter Requiring Attention, a type of citation that is less severe than an enforcement action. Regulators are supposed to make sure the problem is addressed, but it couldn’t be learned if the Fed held SVB to that standard in 2019.
…
Following the 2019 warning, the Fed informed SVB in 2020 that its system to control risk didn’t meet the expectations for a large financial institution, or a bank holding company with more than $100 billion in assets, the presentation to employees at SVB’s venture-capital arm said.

And:

Over time, the central bank issued numerous warnings to SVB, suggesting the bank’s problems were on the radar of the Fed, the bank’s primary federal regulator.

So, what was done by the Fed’s regulators in response to this string of noncompliances?

A central-bank review of its oversight of SVB is due by May.

Will those prior whitewashes be followed up with an official whitewash?

I’m not holding my breath over a favorable outcome, which IMNSHO would include, at the very least, the public firing for cause of the Fed regulator(s) directly responsible for SVB oversight and that individual’s/team’s supervisor. Pour l’encouragement des autres régulateurs.

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.

Thousand Year Tradition

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Pope Francis is contemplating ending the celibacy requirement the Catholic Church imposes on its priests and nuns. The hue and cry over ending this “thousand year” tradition is deafening.

I have a brief thought on this. Those decriers are missing, with equally missed irony, the meaning of that thousand year tradition in a two thousand year old church.

For good or ill, celibacy has never been a universal requirement in the universal church. Get the smelling salts; some pseudo-traditionalists seem to need them.

What Are They Teaching?

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Matthew Wielicki, University of Alabama Assistant Professor of Geological Science, is on the right track, but he’s in a vanishing minority.

We’re literally moving away from the foundations of academia. If professors have any hesitancy in their speech, if students are hesitant to ask questions, if there is a decrease in dialogue because of a fear of retribution—that’s the fundamental principles that universities were founded on.

Unfortunately, he says, professors have precisely that hesitancy to speak freely. And this regarding a December 2022 poll by the Foundation for Individual Rights and Expression that found that

[m]ore than half of the nearly 1,500 college faculty members…were afraid of losing their jobs or reputations because of their words being used against them, even if unfairly. About a third said they don’t feel they can freely express their opinions.
“I definitely experienced that,” Wielicki said.

Even more unfortunately, destructively to our nation’s ability to grow following generations of inquisitive children and adults, these self-censoring “professors,” instead of teaching their subject matter, are teaching two critical and pernicious things. They’re teaching, by example—modeling, in the precious lexicon—cowardice. And they’re teaching that morals don’t matter; it’s better to put career, to put personal gain, ahead of morality.

At Least There’s One

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One man in DC understands the situation. Metropolitan Police Chief Robert Contee has this radical idea on getting violent crime, at least, back under control:

What we got to do, if we really want to see homicides go down, is keep bad guys with guns in jail. Because when they’re in jail, they can’t be in communities shooting people.

Sadly, that’s a concept that’s too complex for the wonders of the DC City Council, who passed—and overrode the Mayor’s veto to do so—an ordinance that

reduce[s] maximum penalties for violent crimes such as burglaries, robberies, and carjackings, along with abolishing minimum sentences for most crimes.

Contee illustrated the depth of the problem:

Right now, the average homicide suspect has been arrested eleven times prior to them committing a homicide[.]

Sadly, he’s only one in DC governance, though, for whom the simple solution isn’t too complex to understand.