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SVB Crisis Caused by “Utterly Irresponsible” Banking Practices, Says Anne Glover, CEO of Amadeus Capital
Anne Glover, CEO and co-founder of Amadeus Capital, has criticized Silicon Valley Bank (SVB) for what she calls “utterly irresponsible” practices that led to the recent crisis. Glover spoke at a tech investor showcase in east London, where she highlighted SVB’s banking practices as a one-on-one failure that was not in line with basic banking principles.
SVB, a crucial pillar of the tech industry, offered financing to firms that were often turned away by traditional banks. However, the bank was shut down and taken over by the U.S. government after a slew of startups and venture capitalists withdrew their money en masse amid fears over its financial health.
Short-term Deposits Used for Long-Maturity Debt
According to Glover, SVB’s crisis was caused by the bank taking short-term deposits from VCs and investing them in long-maturity debt. The bank took cash deposits from VCs and hedge funds and put them into first-year mortgage bonds that fell in value when the interest rates went up. SVB did not hedge the interest rate, which is a basic banking practice that was not followed.
SVB’s U.K. Arm Sold to HSBC
Across the Atlantic, SVB’s U.K. arm was sold to British bank HSBC for £1 in a government and Bank of England-facilitated deal that protected £6.7 billion ($8.3 billion) in deposits. Glover, who serves on the Bank of England’s board as a non-executive director, praised the central bank for doing a phenomenal job in delivering a resolution that was satisfactory to the U.K., much better than the U.S. did.
Banks Struggle with Rising Interest Rates
Banks, more broadly, have been under immense strain due to a rise in interest rates, which has made debt more expensive. While on the one hand, it is now more profitable for banks to lend, they are also holding government bonds on their balance sheet. When interest rates rise, those assets become less valuable.
Credit Suisse’s Failure
Credit Suisse is the most notable failure in the sector to date. The Swiss banking giant was rescued by rival lender UBS in a cut-price deal coordinated by the Swiss government.
Anne Glover, a prolific tech investor, joined Amadeus after previously working at Apax Partners & Company Ventures on the investment team. She co-founded Amadeus in 1997 with Hermann Hauser, who was instrumental in the development of the first Arm processor.
Conclusion
SVB’s crisis was caused by irresponsible banking practices that failed to follow basic principles of banking. While banks struggle with rising interest rates, they need to ensure they are taking adequate measures to hedge against risks. The failure of banks such as Credit Suisse highlights the need for banks to be vigilant in their practices. The sale of SVB’s U.K. arm to HSBC, facilitated by the Bank of England, offers a positive example of how to resolve a crisis satisfactorily.
