Last week, Silicon Valley Bank shuttered, causing alarm nationwide. Reality TV star and business mogul Kevin O Leary blames the bank's management for the crisis.
Let me explain what happened last week. O Leary, who stars in the Shark Tank series, told Yahoo Finance that this is a combination of stupid management with a board above them that was incompetent, or at least asleep at the wheel. The bets they made means they know nothing about banking. The sale of securities last week resulted in a $1.8 billion loss for Silicon Valley Bank after rising interest rates lowered the value of its bonds. The report triggered the biggest bank run in nearly a decade, during which investors tried to pull $42 billion from the lender, and the bank had insufficient funds to meet their demands.
They took 90 percent of the depositors money and bet it long on 10 year Treasuries when the Fed was raising rates. An idiot banker would do that. But that's what they did, massive risk, said O Leary, who is sarcastically nicknamed Mr. Wonderful for his abrasive persona on Shark Tank.
Silicon Valley Bank, though smaller than big U.S. banks like Wells Fargo and JPMorgan, was the 16th largest bank in the U.S., with $209 billion in assets as of December 31, according to the FDIC. Nearly 85% of Silicon Valley Bank deposits were uninsured at the end of 2022, according to bank filings.
The FDIC of the Federal Deposit Insurance CorporationFederal Deposit Insurance Corporation covers up to $250,000 of deposits per account. When the Silicon Valley Bank closed, the FDIC announced it would cover 100% of the funds.
Some experts, including O Leary, disagree with the decision to intervene. He argued that the government should have let the bank fail.
They blew themselves up. Let them fail, O Leary said.
O Leary believes that the bank's management should understand risk management and should have prepared for potential crises. He said that mainly sophisticated investors such as hedge funds and venture capital firms that could have handled the losses and would have received 95 cents on the dollar from their uninsured deposits.
They understand risk mitigation. O Leary said that either they were or they weren't doing their jobs.
O Leary argued that the intervention could set a bad precedent going forward, arguing that banks might simply operate under the assumption that the government will bail them out if they make a mistake.
I can be running a bank and spend all day worrying about the stock price, because I don't have to worry about the deposits anymore, so I can swing for the fences, O Leary said. I have to stay within the rules of banking, but I can take inordinate risk to move that stock price and never worry about what I do with the depositors' money.