Republicans trying to get traction in their effort to rig the market against environmental, social, and governance principles in investing are claiming that Silicon Valley Bank collapsed because of ESG. Republicans are also throwing in SVB’s diversity, equity, and inclusion policies as part of the bank’s downfall.
As usual, those Republicans are wrong. There is no evidence that ESG or DEI policies caused the run on Silicon Valley Bank:
First, experts have broadly agreed that the bank’s demise had little to do with “wokeness.” As The New York Times and others have explained, the collapse was due to a bank run precipitated by a decline in start-up funding, rising interest rates and the firm’s sale of government bonds at a huge loss to raise capital.
The bank’s loans to environmental and community projects “were not an important factor behind the collapse of SVB,” said Itay Goldstein, a finance professor at the University of Pennsylvania’s Wharton School. “There is no immediate indication that these loans precipitated the run by investors.”
Silicon Valley Bank also was not an outlier in its diversity goals or its E.S.G. investments. U.S. investments in those assets are expected to rise to $33.9 trillion by 2026. A 2022 report by the Consumer Financial Protection Bureau found that 59 percent of banks had lending programs specifically for women- and minority-owned businesses, financing that would fit under the “social” umbrella of E.S.G.
…Silicon Valley Bank said in a recent report that it would invest about $16.2 billion over the next few years to finance small businesses and community development projects, affordable housing and renewable energy. That level of investment was equivalent to about 8 percent of its $209 billion in assets.
But Silicon Valley Bank was hardly alone in pursuing these types of investments. Of the 30 largest banks in the United States — Silicon Valley Bank ranked No. 16 — all but one (First Citizens Bank) have made E.S.G. investments and released reports on them. And the three largest U.S. banks — JPMorgan Chase & Company, Bank of America and Citigroup — all dedicated 8 percent to 14 percent of their overall assets toward social and environmental investments in 2021. All three have committed to at least $1 trillion in sustainable investments by 2030 [Linda Qiu, “No, ‘Wokeness’ Did Not Cause Silicon Valley bank’s Collapse,” New York Times, 2023.03.15].
SVB failed because it acted the way Republicans wanted it to, ignoring regulations and making risky bets on things like crypto (which right-wingers love):
SVB and Signature failed because they had poor risk management. SVB didn’t even have a chief risk officer for months prior to the collapse.
Both banks should have anticipated Federal Reserve interest rate increases over the last year — they were well understood by other banks — and adjusted their bond holdings’ maturity ladders accordingly. That failure — a basic risk management requirement — was at the root of their collapse.
SVB and Signature drank the Silicon Valley Kool-Aid: They acted more like the firms they lent to, less like prudent conservative bankers and more like the venture capitalists and tech firms they worked with. The banks’ cultures and conduct norms were distorted and deficient.
This is a banking collapse driven by poor management decisions, poor risk management, bank boards asleep at the wheel and too little regulation of regional banks. Neither bank was subject to stress testing and strict capital requirements after a 2018 weakening of the Dodd-Frank rules for these so-called small banks, which Sen. Elizabeth Warren (D-Mass.) and the late former Fed Chair Paul Volcker fought against.
This bank crisis is grounded upon basic failures of regulation, supervision, management and corporate culture [Stuart Mackintosh, “The Right Is Wrong: ESG Investing DId Not Create the Banking Crisis,” The Hill, 2023.03.21].
ESG and DEI didn’t kill SVB; PPM and GOP did.