Democrats and conservative voices are blaming each other for the collapse of Silicon Valley Bank. Among the conservative voices is former Vice President Mike Pence.
The Blame Game
Former Vice President Mike Pence blamed Silicon Valley Bank's collapse, which occurred on Friday, on the bank's misallocation of resources towards “left-wing priorities.” Pence criticized the Biden administration for encouraging such prioritization. Pence specifically called out the bank's commitment to ESG goals, which he believes are “left-wing environmental, social, and governance goals.” Conservative media has recently been critical of ESG goals in the business world.
However, Pence's criticisms did not mention the role of banking regulations in the collapse of SVB. In contrast, Democrats have been vocal in their belief that the repeal of Dodd-Frank banking regulations in 2018 contributed to the bank's downfall. Despite the fact that most senators who supported the deregulatory legislation were Republicans, 17 Democrats also approved of the repeal. This has led to a blame game between Democrats and conservatives over the root cause of the Silicon Valley Bank collapse.
No Bailouts
Pence opposed any kind of bailout for the bank and noted that he did so during the 2008 financial crisis. Instead, he argued for allowing failed businesses to go through the bankruptcy process, allowing them to restructure or be bought out by competitors. This process is essential for maintaining a functioning free market, according to Pence.
Pence also criticized Biden's promise that the bailout would not be paid for by taxpayers, calling it “disingenuous.” He argued that Americans would ultimately pay for the bailout through higher fees and that the bailout would also support deposits made by Chinese companies that used SVB. Pence suggested that one reform would be to refuse to insure the deposits of companies that do business in China or Russia.
Democrats, on the other hand, blamed the repeal of Dodd-Frank banking regulations in 2018 for the bank's collapse. They claimed that the deregulatory legislation laid the groundwork for the bank's downfall. While most senators who supported the repeal were Republicans, 17 Democrats also approved of it.
The collapse of Silicon Valley Bank has led to a blame game between Democrats and conservatives over the root cause of the bank's failure. While Pence and conservatives criticized the bank's prioritization of ESG goals, Democrats pointed to the repeal of banking regulations. The debate continues as both sides try to hold the other responsible for the bank's collapse.
The Root Cause
The collapse of the bank could have been avoided if there had been better communication between the bank and its customers, resulting in a loss of confidence. An in-depth investigation of the bank's failure will occur in the coming weeks and months.
However, the fundamental issue was a common problem that other banks must be aware of. The bank had invested its deposits in low-yield bonds, which were classified as long-term “hold-to-maturity” assets. The bank did not have to update the value of these bonds until they were sold, misleading investors about the bank's financial condition.
There was no problem as long as the bank did not have to sell these assets to meet withdrawal requests. But if the bank had to sell at a loss, it would create complications. Therefore, banks must exercise caution when investing in “hold-to-maturity” assets.
Following reports that the bank's management lobbied regulators in 2015 to relax regulations that could have prevented them from taking risky moves, Washington is expected to discuss bank regulations further. The bank's president reportedly testified to the Senate to weaken certain regulations.
This article was produced and syndicated by Wealth of Geeks.