Some of the same people who are trying to convince us that January 6 was a peaceful sightseeing outing and that the situation in Ukraine is a minor territorial dispute have come up with a remarkable explanation for the collapse of Silicon Valley Bank. They claim it is the result of what they call “woke capitalism.”
Politicians such as Florida Gov. Ron DeSantis and House Oversight Chair James Comer are echoing claims by propagandist Tucker Carlson that SVB’s collapse was the result of its involvement with ESG—environmental, social and governance policies meant to promote objectives such as sustainability and diversity.
There are two problems with this claim. The first is that SVB was hardly a leader in the ESG world. The bank’s preoccupation was apparently to ingratiate itself with venture capitalists, private equity investors and start-up entrepreneurs, whether or not they were pursuing social goals. It was also chummy with California wineries. SVB wanted to be a power in Silicon Valley, not a crusader. Like most banks, it made some ESG-type investments, but they were a small part of its portfolio.
The other problem is that there is no connection between ESG practices and the forces that led to SVB’s demise. Based on what has come to light so far, it appears what happened at the bank was largely a result of poor risk management. SVB failed to pay adequate attention to the consequences of having loaded up on long-term government debt securities that were rapidly losing value at a time of escalating interest rates.
Along with that poor internal risk management, there was apparently a failure of regulatory oversight. To some extent, this was the fault of the Trump Administration and Congress, which in 2018 watered down the Dodd-Frank Act and exempted banks of SVB’s size from intensive scrutiny.
As pointed out by the New York Times, Moody’s was more alert to the perils at SVB than the regulators or the bank’s own executives. Last week the credit rating agency contacted the bank’s CEO Greg Becker to warn him that SVB’s bonds were in danger of being downgraded to junk status.
This set off a scramble by SVB to raise more capital. Once depositors got wind of this, they began emptying their accounts, many of which had balances above the $250,000 limit normally insured by the FDIC. Soon there was a full-blown run on the bank, prompting regulators to take over SVB and shut it down. The Biden Administration then bailed out the depositors in whole, using assessments from other banks. ESG has nothing to do with any of this.
As this is being written, the business news is focusing on problems at Credit Suisse. It will be interesting to see if the U.S. Right tries to apply the woke label to that situation as well. Although it gives lip service to ESG, Credit Suisse has a track record of less than enlightened practices. Two decades ago, it was being sued over its investments in apartheid-era South Africa. It has a history of lending to oil and gas projects and has been slow to respond to demands to reduce that exposure.
As shown in Violation Tracker, Credit Suisse’s record in the U.S. includes numerous cases in which it paid penalties to resolve allegations relating to the facilitation of tax evasion, foreign bribery and other misconduct. Its U.S. penalty total is over $11 billion.
Come to think of it, the Right will probably decide that a bank with a history of making money from racism, fossil fuels, tax evasion and bribery is worthy of support.
The woke capitalism critique cannot be taken seriously as an explanation of what happened at SVB. Yet there is the danger that it will serve to divert attention for some away from the real problems: reckless bank management and sleepy financial regulation.