The federal bailout of Silicon Valley Bank wouldn’t have been needed if SVB bankers understood the basics about hedging bank risks, or if federal regulators weren’t asleep to the rising possibility that the California bank might fail, Sen. John Kennedy, R-La., said on the Senate floor Wednesday.
Kennedy said SVB wasn’t broke and was only suffering from a liquidity crisis that both the bank itself and federal regulators had the power to correct.
"If the management of Silicon Valley Bank had known the difference between a banking textbook and an L.L. Bean catalog, Silicon Valley Bank would have never bought securities that are so sensitive to interest rates without hedging that risk. Honestly, it’s banking 101," Kennedy said.
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The senator said all that was needed was an effort by the bank to hedge the growing risk it faced from owning securities that were sensitive to rising interest rates, and it could have avoided the sudden need to sell these securities that tumbled as interest rates soared higher over the last year.
"I’m appalled the bankers at Silicon Valley Bank didn’t do it. I mean, it was bone-deep, down to the marrow stupid," he said.
Having failed that step, SVB was then poorly served by federal regulators, Kennedy said. He said SVB was under heavy regulation – despite arguments from Democrats that a 2018 change to the law let SVB escape regulations.
"Where were the regulators?" Kennedy asked. "You couldn’t have found them with a search party."
Kennedy also said a third problem was that the Federal Deposit Insurance Corp. failed to make any effort to find a buyer for the bank.
"There were buyers," Kennedy said. "But the problem was that the people at the FDIC do not like bank mergers."
"If we had done any one of those three things... this mess could have been avoided," he said.
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Kennedy also insisted that the Biden administration bailed out SVB, even though the administration has noted that the money being used to pay back depositors was money collected by bank fees. Kennedy said that still amounts to a federal bailout that will eventually hit taxpayers, as banks will eventually pass on those fees to their customers.
"You can pretty it up any way you want to, and you can put perfume on a pig, but it still smells like a pig," he said. "It’s a bailout."
