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The Fed and SVB

By quickly ring-fencing SVB and saving depositors, the Fed showed it is becoming more of a learning organization. Combined with its excellent performance managing the worst inflation spike in 40 years, instigated by the worst pandemic in 100 years, the Fed demonstrated an ability to quickly adjust when circumstances demand flexibility. This is new behavior.

To build on this and to show that it has truly committed to new behavior, the Fed will have to accomplish a few more tasks. Given the behavior of SVB management in the period leading up to the crisis, with the CEO selling $4 million in stock on or around February 28th just weeks before his bank collapsed, an effort to claw back the proceeds of any stock sale taking place less than 60 days before the collapse should be initiated.

News reports also indicate that management received bonuses in the days leading up to the collapse. These should be clawed back, too.

Further, one key to the collapse was a run on the bank accelerated by certain key influencers and advisors, specifically Peter Theil and his Founders Fund. A complete investigation of this situation should be undertaken, with Mr. Theil being held accountable and forced to repay the Treasury for any damage caused by his role in the bank run.

Finally, this is a fast-moving situation, with consequences and impacts that have yet to be fully understood. We believe the failure of SVB has significant implications for the US defense industry. Artificial Intelligence (AI), autonomous fighting vehicles, and other important technologies are being developed by tech firms affiliated with or customers of the bank. In the UK, HSBC acquired SVB's British unit for £1. Note that HSBC originally stood for the Hongkong and Shanghai Banking Corporation, meaning the bank is now Chinese. Giving a Chinese bank insider access to critical defense related technologies is shortsighted and dangerous. Having the US pay, via guarantees and subsidies that make SVB’s depositors whole, is foolish.

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