• About Us
  • Get Insights to Your Inbox
Monday, March 27, 2023
Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors
Insights@Questrom
  • Our Insights
    • All
    • Business Challenges
    • Business Education
    • Business Functions
    Starbucks fans are steamed:

    Starbucks fans are steamed:

    Is Creativity in Advertising Dead in the age of AI?

    Is Creativity in Advertising Dead in the age of AI?

    How Higher Ed Can Contend with Learning Platforms

    How Higher Ed Can Contend with Learning Platforms

    RxPass smartphone interface. (Amazon Photo)

    Meet Amazon’s New Prescription Plan: RxPass

    Inflation Cools, Prices Remain High

    Inflation Cools, Prices Remain High

    MBA Case Competitions: Meet Boston University’s Master Case Coach

    MBA Case Competitions: Meet Boston University’s Master Case Coach

    How Will AI & Machine Learning Impact Your Business?

    Do People Believe Generative AI?

    Buying gifts? Why ‘buy now, pay later’ could be a dangerous option for many holiday shoppers

    Buying gifts? Why ‘buy now, pay later’ could be a dangerous option for many holiday shoppers

  • Videos & Podcast
    • All
    • Podcast
    • Videos
    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    AI: What is it and how will impact business?

    Is Creativity in Advertising Dead in the age of AI?

    Is Creativity in Advertising Dead in the age of AI?

    How Higher Ed Can Contend with Learning Platforms

    How Higher Ed Can Contend with Learning Platforms

    How Companies Deal with Disruption

    How Companies Deal with Disruption

    Money: It’s created. It’s destroyed. But what is it?

    Money: It’s created. It’s destroyed. But what is it?

    Blockchain, Beyond Crypto

    Blockchain, Beyond Crypto

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    S1:E2 What the FTX?

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Gender Differences and the Job Search

    Gender Differences and the Job Search

  • Insights Events
    • Events
    • Insights Live
    • Questrom Institute Events
  • In the Media
    • All
    • BU Today
    • Global Media
    • Local Media
    • National Media
    • Op-Ed
    • The Brink
    Could This Meeting Have Been an Email?

    Could This Meeting Have Been an Email?

    Bankers Are Scoring Big Profits as Rates Soar. Now They’re Facing a Backlash

    Bankers Are Scoring Big Profits as Rates Soar. Now They’re Facing a Backlash

    A Risk Management Nightmare at Silicon Valley Bank

    A Risk Management Nightmare at Silicon Valley Bank

    SVB Crisis: What happened and what’s ahead?

    SVB Crisis: What happened and what’s ahead?

    Why are Banks Failing and Does That Herald Another Financial Crisis?

    Why are Banks Failing and Does That Herald Another Financial Crisis?

    Companies Scramble to Meet Payroll, Pay Bills After SVB’s Swift Failure

    Companies Scramble to Meet Payroll, Pay Bills After SVB’s Swift Failure

    Million-Dollar Teardowns

    Million-Dollar Teardowns

    Can We Trust ChatGPT and Artificial Intelligence to do Humans’ Work?

    Can We Trust ChatGPT and Artificial Intelligence to do Humans’ Work?

    [WalletHub] Expert Thoughts on Chase Freedom Unlimited

    Best Car Insurance Companies

    Trending Tags

    • Publications
      • All
      • Books
      • Harvard Business Review
      • Journals
      • Sloan Management Review
      Will Generative AI Create a New Era of Search Competition?

      Will Generative AI Create a New Era of Search Competition?

      ‘Your Messaging Sucks’

      ‘Your Messaging Sucks’

      How Coworking Spaces Impact Employee Well-Being

      How Coworking Spaces Impact Employee Well-Being

      Will Salary Transparency Laws Change Employee Compensation?

      Will Salary Transparency Laws Change Employee Compensation?

      Heroes from Above But Not (Always) from Within? Gig workers’ reactions to the sudden public moralization of their work

      Heroes from Above But Not (Always) from Within? Gig workers’ reactions to the sudden public moralization of their work

      To Encourage Patients to Fill Prescriptions, Fix Copays

      To Encourage Patients to Fill Prescriptions, Fix Copays

      Is Tesla’s Era of Dominance Coming to an End? What Experts Say

      Is Tesla’s Era of Dominance Coming to an End? What Experts Say

      ESG Investing

      ESG Investing Isn’t Designed to Save the Planet

      Epinephrine Autoinjector Costs Remain High for Some Patients with Private Insurance

      Epinephrine Autoinjector Costs Remain High for Some Patients with Private Insurance

      Trending Tags

      Insights@Questrom
      • Our Insights
        • All
        • Business Challenges
        • Business Education
        • Business Functions
        Starbucks fans are steamed:

        Starbucks fans are steamed:

        Is Creativity in Advertising Dead in the age of AI?

        Is Creativity in Advertising Dead in the age of AI?

        How Higher Ed Can Contend with Learning Platforms

        How Higher Ed Can Contend with Learning Platforms

        RxPass smartphone interface. (Amazon Photo)

        Meet Amazon’s New Prescription Plan: RxPass

        Inflation Cools, Prices Remain High

        Inflation Cools, Prices Remain High

        MBA Case Competitions: Meet Boston University’s Master Case Coach

        MBA Case Competitions: Meet Boston University’s Master Case Coach

        How Will AI & Machine Learning Impact Your Business?

        Do People Believe Generative AI?

        Buying gifts? Why ‘buy now, pay later’ could be a dangerous option for many holiday shoppers

        Buying gifts? Why ‘buy now, pay later’ could be a dangerous option for many holiday shoppers

      • Videos & Podcast
        • All
        • Podcast
        • Videos
        S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

        AI: What is it and how will impact business?

        Is Creativity in Advertising Dead in the age of AI?

        Is Creativity in Advertising Dead in the age of AI?

        How Higher Ed Can Contend with Learning Platforms

        How Higher Ed Can Contend with Learning Platforms

        How Companies Deal with Disruption

        How Companies Deal with Disruption

        Money: It’s created. It’s destroyed. But what is it?

        Money: It’s created. It’s destroyed. But what is it?

        Blockchain, Beyond Crypto

        Blockchain, Beyond Crypto

        S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

        S1:E2 What the FTX?

        S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

        S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

        Gender Differences and the Job Search

        Gender Differences and the Job Search

      • Insights Events
        • Events
        • Insights Live
        • Questrom Institute Events
      • In the Media
        • All
        • BU Today
        • Global Media
        • Local Media
        • National Media
        • Op-Ed
        • The Brink
        Could This Meeting Have Been an Email?

        Could This Meeting Have Been an Email?

        Bankers Are Scoring Big Profits as Rates Soar. Now They’re Facing a Backlash

        Bankers Are Scoring Big Profits as Rates Soar. Now They’re Facing a Backlash

        A Risk Management Nightmare at Silicon Valley Bank

        A Risk Management Nightmare at Silicon Valley Bank

        SVB Crisis: What happened and what’s ahead?

        SVB Crisis: What happened and what’s ahead?

        Why are Banks Failing and Does That Herald Another Financial Crisis?

        Why are Banks Failing and Does That Herald Another Financial Crisis?

        Companies Scramble to Meet Payroll, Pay Bills After SVB’s Swift Failure

        Companies Scramble to Meet Payroll, Pay Bills After SVB’s Swift Failure

        Million-Dollar Teardowns

        Million-Dollar Teardowns

        Can We Trust ChatGPT and Artificial Intelligence to do Humans’ Work?

        Can We Trust ChatGPT and Artificial Intelligence to do Humans’ Work?

        [WalletHub] Expert Thoughts on Chase Freedom Unlimited

        Best Car Insurance Companies

        Trending Tags

        • Publications
          • All
          • Books
          • Harvard Business Review
          • Journals
          • Sloan Management Review
          Will Generative AI Create a New Era of Search Competition?

          Will Generative AI Create a New Era of Search Competition?

          ‘Your Messaging Sucks’

          ‘Your Messaging Sucks’

          How Coworking Spaces Impact Employee Well-Being

          How Coworking Spaces Impact Employee Well-Being

          Will Salary Transparency Laws Change Employee Compensation?

          Will Salary Transparency Laws Change Employee Compensation?

          Heroes from Above But Not (Always) from Within? Gig workers’ reactions to the sudden public moralization of their work

          Heroes from Above But Not (Always) from Within? Gig workers’ reactions to the sudden public moralization of their work

          To Encourage Patients to Fill Prescriptions, Fix Copays

          To Encourage Patients to Fill Prescriptions, Fix Copays

          Is Tesla’s Era of Dominance Coming to an End? What Experts Say

          Is Tesla’s Era of Dominance Coming to an End? What Experts Say

          ESG Investing

          ESG Investing Isn’t Designed to Save the Planet

          Epinephrine Autoinjector Costs Remain High for Some Patients with Private Insurance

          Epinephrine Autoinjector Costs Remain High for Some Patients with Private Insurance

          Trending Tags

          Insights@Questrom
          Home Opinion

          Silicon Valley Bank: Blame and Ethics of the Failure

          This is a developing story.

          Dave EpsteinbyDave Epstein
          March 12, 2023
          in Opinion, Silicon Valley Bank
          44
          A A
          Silicon Valley Bank: Blame and Ethics of the Failure

          Jan 31, 2020 Santa Clara / CA / USA - Silicon Valley Bank headquarters and branch; Silicon Valley Bank, a subsidiary of SVB Financial Group, is a U.S.-based high-tech commercial bank

          Shocking. My favorite bank, gone. And I am fearful that the successor won’t nearly be as good for our entrepreneurial community. As an entrepreneur and venture capitalist (VC), I counted on Silicon Valley Bank (SVB) to be there for my own and my portfolio startups. They did what other banks wouldn’t -not just take our deposits but provide working capital well before we had the resources to prove we had the assets to repay or the receivables to pass muster. They were part of the startup ecosystem. We as VCs, vouched for the companies we invested in, and even without guarantees, SVB trusted our judgement. SVB was rewarded with a loyal following assuring that once the companies were solvent and growing, deposits would increase, and all would be happy. We as entrepreneurs appreciated liquidity and financial flexibility with lines of credit and loans with favorable terms. But that’s not all. We became part of a network which helped us both in times of growth and trouble. I rarely saw complaints about this bank. They were there to help and support us. We represented future growth for SVB. It was a uniquely symbiotic relationship.

          We don’t know everything about the internal workings of the bank, but this failure is well reported as a “run of the mill” run on the bank. It seems SVB was caught with rising interest rates that depressed the value of their bonds which, when forced to sell due to massive withdrawals, quickly wiped-out billions of dollars’ worth of assets. Whether they could have ridden out the crunch had there not been the panicked withdrawals is a matter of speculation. Suffice it to say that with these withdrawals, SVB didn’t stand a chance.

          Where does the blame lie? Who is responsible and were their actions ethical? Some possibilities are the CEO, Moody’s, VCs, Regulators, the Fed, and the depositors.

          Greg Becker, CEO: Greg, at the helm of SVB, is where the buck stops. He and his CFO Daniel Beck appeared to be slow off the mark in making sure their bond portfolio didn’t drop too far as interest rates rose and their bond prices declined. The fed’s interest rate hikes were expected and well publicized, so there isn’t an excuse for it taking SVB by surprise. The initiative to raise capital through stock sales for the purpose of shoring up their balance sheet should have started earlier. Does this sloppy business practice rise to the occasion of criminal negligence? Perhaps in the eyes of some. Giving them the benefit of the doubt, we might see that even if poorly managed, they had good intentions for the bank. So ethically they are OK if there was no malintent. However, what is questionable as we are learning now, is that both Becker and Beck sold stock just days before the collapse. It is likely that they were trading on inside information. If so, they are both ethically and legally wrong. They sold their stock to individuals and funds that trusted the value of SVB, thus purposely duping these buyers. It amounts to stealing, never an ethically justifiable act.

          Moody’s: Maybe the first to sound an alarm was the rating company, Moody’s. Having notified Greg Becker of an impending downgrade, Becker had no choice but to try to prevent that from happening and get SVB’s finances in order. Moody’s, arguably, was the catalyst. Should they have downgraded the stock knowing it would hurt the company? Absolutely! That is their job. And as we know from the financial crisis of 2008, the rating companies were to blame for NOT downgrading mortgage-backed securities that were deeply in trouble. Now the hard question: Should they have simply warned SVB of the downgrade? By giving them time, the market was left in the dark, counting on a fair rating by Moody’s and others, believing the now questionable higher rating. Ethics and legality diverge here, since ethically it should have been made public immediately once the issue was known. Legally, there is no timeline, or even obligation, to do the right thing, as we saw in their defense in 2008 when the rating companies claimed it was “just their opinion.” They depend on their reputations and not the law to make their ratings trustworthy. Ethically, this is a tough one for sure. SVB might have suffered the same fate had Moody’s given only enough notice to ensure a correct assessment. Allowing SVB to time to convince them otherwise, Moody’s had to weigh the suffering of the public due to bad trades, with the suffering of the bank and their depositors due to bank failure. One could say that rating companies are there to protect securities buyers and consequently the public, in which case they did the ethically wrong thing. This is a systemic problem in the financial industry and one that should be reconsidered as a part of good business practice.

          VCs: It’s hard to justify the actions by Peter Thiel and the VCs who called for their portfolio companies to withdraw all their money from SVB, without trying to work with the bank to save it. VCs are good at finance. That is their livelihood. What happened to their common sense knowing that any run on a bank will cause it to fail if it must liquidate assets that are under water? Basic financial understanding that banks keep only a small fraction of deposits in cash, makes it imperative that they depend on NOT having a run on the bank. The FDIC is supposed to allow depositors to trust there will be liquidity when they need it, alleviating a huge concern. Thiel and others know, or should have known, that once they initiated the run, even the best case for them would have been that the first few companies would succeed in withdrawing funds. The rest would be out of luck. The financial well-being of the bank and all the portfolio companies would be severely compromised. This does not consider, the well-being of employees, suppliers, families, corporate partners, and the industry itself.

          Regulators: Regulators are the scape goat of any market failures. They are damned if they do, damned if they don’t. No industry clamors for more regulation and usually claims that self-regulation works better in a capitalistic society. This is hogwash. Repeatedly we see the failure of businesses to self-regulate. The prime example of this failure is the financial crisis of 2008. We know regulators are necessary and could have made a difference. With the annual bank stress tests, shouldn’t SVB have been flagged earlier? Are the tests sufficient and timely enough? This will be a discussion going forward to make sure we learn from this failure. The question of ethics for regulators is more of a question of what they are charged with doing and how well they execute their responsibilities. If they are doing both adequately and honestly, then this is a legal and societal question of how much freedom we want to give our companies, based on trustworthiness. When there are bad actors, harm is cause for everyone and regulators must keep plugging loopholes taken advantage of by those actors.

          The Fed: Interest rates. The fed has the near impossible job of setting and influencing interest rates to balance growth and inflation. They also have responsibility for not introducing destabilizing market actions. In raising rates so rapidly over the past year, did the Fed properly consider the unintended consequences of that rise? The markets fared somewhat well with this rapid rise in that balance. Now we tamed inflation a bit and have not run the economy into a recession. We should recognize that this has not been without pain especially for the less well off. Bank failures, however, can destabilize the market as a whole, and SVB in particular can upset our entrepreneurial engine that promises future prosperity. Going forward, I am certain that this will be a topic when considering the next interest rate hike, if at least to look at every place where bonds lose value and asses the possible damage. Inverted yield curves complicate this to a great extent, as financial underpinnings assume the time value of money is a major factor in determining the long-term returns for parked money. Ethically, I believe the Fed, like the regulators, are on solid ground as they are trying to do their best, even if they didn’t predict a bank failure because of the quick increase in rates.

          Depositors: Finally, can we blame the victims? Depositors to SVB were in a tough spot. VCs encourage their portfolio companies to use SVB because of the reasons I opened this opinion with. SVB rewarded depositors who kept all their money at SVB with preferential treatment when it came to loans and services. The risk in using only one bank became abundantly clear last week (before government intervention), only $250k was insured per account. With a failure, payroll, payables, receivables, and all financial parts of the company are in jeopardy. Prior to this event, few would have considered bank failure a possibility. In this startup community no one questioned the viability of SVB as it was the standard others were measured against. Should the CFOs of each depositor have been vigilant about checking on the health of its banks? They might be now. They are on notice that regulators may not protect them. In any case, few in the future will put all their financial eggs in one basket. In this situation, it is hard to see any ethical lapse by individual depositors, however, going forward, it is incumbent upon them to be better stewards of their financial assets.

          I quote Alphabet’s motto: “Do the Right Thing.” Perhaps the right thing is not always obvious to all parties, but this is not an excuse to be irresponsible. We must learn from this event to ensure that this doesn’t happen again and apply these insights to broader situations. There is nothing like a crisis to make us all smarter.

          Tags: Bank FailureBreaking NewsOp-EdOpinionSilicon Valley BankSVBSVB Failure
          Share4Tweet3Share1ShareSend
          Dave Epstein

          Dave Epstein

          Dave is the Executive Director of the Susilo Institute for Ethics in a Global Economy and a Professor of Practice at Boston University’s Questrom School of Business. Dave is involved in promoting ethical, environmental and social awareness and actions in relation to business, engineering, education, the environment and political arenas. Along with teaching ethics at Boston University, he has taught ethics in his finance and entrepreneurship classes at the University of San Francisco, University of California, Berkeley, Menlo College and several other universities. Recently, Dave completed a year at Stanford University as a Distinguished Careers Institute Fellow.

          Related Posts

          A Risk Management Nightmare at Silicon Valley Bank
          National Media

          A Risk Management Nightmare at Silicon Valley Bank

          March 14, 2023
          SVB Crisis: What happened and what’s ahead?
          Global Media

          SVB Crisis: What happened and what’s ahead?

          March 13, 2023
          Why are Banks Failing and Does That Herald Another Financial Crisis?
          BU Today

          Why are Banks Failing and Does That Herald Another Financial Crisis?

          March 13, 2023
          Companies Scramble to Meet Payroll, Pay Bills After SVB’s Swift Failure
          National Media

          Companies Scramble to Meet Payroll, Pay Bills After SVB’s Swift Failure

          March 10, 2023
          Would you buy a car from this man?
          Opinion

          Would you buy a car from this man?

          January 26, 2023
          ChatGPT producing an essay
          Business Education

          Ethical Implications of ChatGPT in the Educational Setting

          December 15, 2022
          Larry Fink Asked to Step Down by Bluebell (London) – He Shouldn’t
          Feature

          Larry Fink Asked to Step Down by Bluebell (London) – He Shouldn’t

          December 15, 2022

          Upcoming Events

          12 April 2023

          Insights@Questrom Live: A Conversation with Jerold Zimmerman

          Questrom Executive Dining Rooms, 595 Commonwealth Avenue, Fourth Floor, Boston, MA, 02215

          View Detail
          Check back soon for upcoming events

          Missed an Event? Click Here to Watch Previous Insights Live Events

          Get Our Insights Newsletter

          Get Insights straight to your inbox by signing up now.

            Popular Insights

            • Inflation Cools, Prices Remain High

              Inflation Cools, Prices Remain High

              21 shares
              Share 8 Tweet 5
            • Ethical Implications of ChatGPT in the Educational Setting

              18 shares
              Share 7 Tweet 5
            • Silicon Valley Bank: Blame and Ethics of the Failure

              11 shares
              Share 4 Tweet 3
            • How Serious is “Reverse Discrimination”?

              9 shares
              Share 4 Tweet 2
            • Would you buy a car from this man?

              8 shares
              Share 3 Tweet 2

            Boston University Questrom School of Business
            595 Commonwealth Avenue
            Boston, MA 02215

            Follow Us

            Newsletter

            © 2023 Trustees of Boston University

            • About Us
            • Digital Business Institute
            • Human Resource Policy Institute
            • Susilo Institute for Ethics in the Global Economy
            Generic selectors
            Exact matches only
            Search in title
            Search in content
            Post Type Selectors
            • Business Challenges
              • Business Policy & Markets
              • Digital Business
              • Diversity, Equity & Inclusion
              • Entrepreneurship & Innovation
              • Future of Work
              • Health, Biopharma, & Health-Tech
              • Risk
              • Social Impact
            • Business Functions
              • Corporate Strategy
              • Finance & Accounting
              • Innovation
              • Leadership & Management
              • Marketing
              • Operations
              • Technology
            • Publications
              • Journals
              • Harvard Business Review
              • Sloan Management Review
            • Insights Events
              • All Events
              • Insights Live
              • Questrom Institute Events
            • Videos & Podcast
              • Videos
              • Insights@Questrom Podcast
              • Podcast
            • Voices in the Media
            • Our Experts

            © 2023 Trustees of Boston University

            Welcome Back!

            Sign In with Linked In
            OR

            Login to your account below

            Forgotten Password?

            Retrieve your password

            Please enter your username or email address to reset your password.

            Log In
            Suggest Topic
            X

            Add New Playlist

            -
            00:00
            00:00

            Queue

            Update Required Flash plugin
            -
            00:00
            00:00