Like many of you, I’ve been reflecting on the implosion of Silicon Valley Bank quite a bit this past week, now that the initial panic has faded into a dulled sense of disbelief. Certainly, there were warnings that SVB was in trouble ( most notably from Seeking Alpha – in December – asking if SVB was a blow-up risk and, as if time traveling, describing almost exactly what would come to pass just a few months later). Many others have commented on how and why SVB (and soon after Signature, and nearly First Rep
I don’t really feel like rehashing the last week and will let others do that work. But a few things that aren’t being broadly talked about broadly are on my mind. The first, and perhaps most important, is just how important smaller banks are to our economy. Our banking system has become increasingly consolidated over the past few decades – from over 10,000 banks in the mid-90s to barely 4,000 today. Most of this consolidation has come at the expense of smaller community banks and largely, the consolidators
Also on my mind as I contemplated the past 10 days of craziness was what William Forster Lloyd described as the “ Tragedy of the Commons ” ( the tendency for groups of individuals to act in their own best interest at the expense of the greater good) . A bank run certainly fits the bill, as we all witnessed. While it is clear that SVB needed a capital infusion (and that they handled their attempt at raising capital – and specifically the timing and content of announcing that capital raise – extremely poorl
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