Real Talk | Fintech: Exploring the Origins and Impacts of SVB’s Collapse

By?Jagathi Gururajan

Following the recent failure of Silicon Valley Bank (SVB), we thought it would be helpful to reach out to trusted industry sources to help break down what’s actually happening and where we go from here.

In the first of a series of interviews with fintech leaders and executives, FintechWomen Founder & President Jagathi Gururajan spoke with advisory council member?Ken Mooney?to bring some perspective.

Jagathi: The Silicon Valley Bank collapse is the?largest?since 2008. During the crisis, you were a business leader at State Street, responsible for managing credit quality and exposure. With that experience in mind, how are you reacting to the news surrounding SVB and Signature Bank?

Ken: This is a crisis of confidence and liquidity.

Our financial system works based on confidence and trust. This was once shaken in 2008, and the failures of SVB and Signature Bank have shaken it again. As information becomes available, it’s clear that these incidents are the product of a series of several failures: aggressive increases in interest rates to fight inflation, the resultant unrealized losses in securities that were purchased for yield, poor risk management and lagging regulatory review. People have been conditioned to expect that the other shoe will drop, and it has.

It’s true that banks have more capital these days, so they can absorb the losses. However, these banks were not diversified, and I would worry about similar banks (the FDIC?estimates?that there was a total of about $620 billion in unrealized losses at yearend 2022).

With all of that in mind, though, I think we’ll avoid facing the same level of issues encountered in 2008—so long as the government and regulators take the right steps to instill confidence in the financial system.

Jagathi: Fintech has seen 15 years of explosive growth since the 2008 financial crisis. Do you think technology has any impact on how the two events have played / are playing out? Or are both just the product of poor human judgement?

Ken:?I do believe that technology can be a useful tool to discover and understand risks, especially considering how complex and fast-moving financial markets are nowadays. However, we seem to be trapped in a vicious cycle, repeating some of the same fundamental mistakes.

Human judgment continues to play a big role in these types of financial crises, from poor risk management at institutions to uneven regulatory oversight. Each financial crisis is different, but the same basic fundamentals apply—including lack of diversification, over-leverage, and reliance on models, as well as cultures that do not prize good risk management or understand the risks associated with institutional strategies.

Jagathi: We’ve heard a narrative circulating that SVB’s failure may have been?the product of distraction by organizational diversity demands. How would you respond to this thinking?

Ken:?I think it is a very good thing to be inclusive, and it’s a good management decision to foster such a focus. I think that diversity efforts have had very little to do with causing the current crisis. These failures are directly related to macroeconomic environmental challenges, mixed with poor decision-making and oversight.

I am very proud to add that two of the smartest individuals I ever worked for in risk management were women. I cherish the time I spent with them learning how to be an effective risk manager.

If you enjoyed this article and want to learn more, feel free to?connect with Ken on LinkedIn. For further perspective, he also recommends reading the following?article.