Did SVB Fail Because of Climate Change?

March 27, 2023 By E.J. Smith - Your Survival Guy

Greg Becker, President and Chief Executive Officer of Silicon Valley Bank and SVB Financial Group, gives remarks at the welcome reception for the Global Entrepreneurship Summit, held on June 22-24, 2016 at Stanford University in Palo Alto, California. [GES Photo/Public Domain]

Did Silicon Valley Bank (SVB) fail because of climate change? Maybe. But not because the sea level rose or the rivers went dry. It may have been that the San Francisco Federal Reserve Bank’s hyperfocus on climate change and other progressive issues made its regulatory arm miss the signals at SVB. The Wall Street Journal’s editorial board writes:

Congress will hold hearings this week on the role of regulators in recent bank failures, and let’s hope they’re instructive. One question that deserves probing is whether misplaced priorities at the San Francisco Federal Reserve Bank caused it to overlook financial risks hiding in plain sight.

The Fed’s mandates include promoting price stability and full employment on monetary policy and a safe and sound banking system as a regulator. The San Francisco Fed is responsible for regulating banks in the Western U.S., and one of those was Silicon Valley Bank (SVB) that failed two weeks ago.

The problems at midsize banks appear most acute in the SF Fed district. See failed Silvergate Bank, and First Republic and PacWest Bancorp, which have scrambled to raise cash. What did the Fed’s examiners miss, and why?

Judging by her public presentations, San Francisco Fed President Mary Daly has been focused more on the progressive priorities of climate change and equity. In June 2021, she touted the regional Fed’s work cataloguing climate risks, including “formal surveys, listening sessions, and targeted meetings with CEOs to better understand how climate risk affects decision making and resiliency planning.” She added: “Consistent with our history, we have assembled a team to study how these issues are likely to impact the Federal Reserve’s mandates in the future.”

Climate change “including the frequency and magnitude of severe weather events—affects each of our three core roles,” the bank’s website says. For instance, climate change may “challenge the resiliency” of banks and “low-and moderate-income communities and communities of color.” What about the resiliency of banks to runs on deposits or rising interest rates?

A San Francisco Fed memo last October noted that its “Supervision + Credit (S+C) group” has been working with Federal Reserve Board Vice Chair for Supervision Michael Barr to “inform his agenda and priorities”—namely, financial risks to banks from climate change, cryptocurrency, financial fairness and the Community Reinvestment Act. None of these contributed to SVB’s failure.

Action Line: When politicians and regulators put their personal pet projects and causes ahead of the safety and reliability of government, you (the taxpayer) invest, and they win. Click here to subscribe to my free monthly Survive & Thrive letter.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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