CONLEY COMMENTARY (WSAU) – In one of the most disingenuous statements of his presidency, Joe Biden blamed the failure of Silicon Valley Bank on Donald Trump. Biden said the former president favored a loosening of banking regulations, and that’s what caused SVB to fail.
Nothing could be further from the truth. This has nothing to do with lax regulations; it’s all about rising interest rates. And interest rates are rising because of the inflation that Joe Biden’s policies have caused.
This is the Biden bank failure.
How so?
The injecting of more money into the economy caused the inflation that’s stalked us over the past two years. When there are too many dollars chasing too few goods, prices go up. The Federal Reserve has been raising interest rates to try to fight inflation, and they haven’t been successful so far. Before Biden’s inflation, interest rates had been historically low.
When a bank like SVB invests in bonds, they need to be nimble when interest rates rise. Bonds they bought years ago had very low rates, and as rates rise the value of their bond investments goes down. The bank could not cover the spread between the low-interest rates of then and the high-interest rates of now. One of the biggest clues that SVB was in trouble was that they sold a part of their bond portfolio at a loss – a sign that they needed to raise cash quickly.
A fair question is whether other banks are in similar situations. Maybe, maybe not. Silicon Valley Bank was the go-to lender for the tech sector, especially small tech start-ups. That sector is struggling post-COVID with layoffs and bankruptcies. When SVB couldn’t find enough good lending prospects, they put more of their assets into bonds. Covering the interest rate spread became even more difficult. Other banks that make more traditional loans may not have the same challenges.
Hopefully someone in the Biden Administration knows the real cause of this failure; it’s the economy stupid. And inflation. And interest rates. It would be a ‘we’ve seen the enemy, and it is us’ moment. In the meantime, Joe Biden blaming Donald Trump’s banking regulations is a talking point, not a solution.
Chris Conley
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