The collapse of Silicon Valley Bank (SVB
VB
) is the first sizeable victim of the deep financial fault line created since 2008. It is the second-largest bank default in U.S. history. The default puts the golden trifecta rule of banking – the concurrent optimization of liquidity, solvency, and profitability – into a full review. The bank closure showed once more that markets are immensely inefficient in their price discovery efforts and risk/return attribution. That rating agencies failed on top underscores the need for stricter frameworks and tighter methodologies. The latter observations chime with the 2008 crisis, yet initiatives to address those flaws premised under Dodd-Frank regulation never saw the light of day.
The failure reminds us subtlety of the hidden and unpriced strands of the poly-crisis: unintended consequences of decade-long unorthodox monetary policies, the COVID-19 pandemic remediation measures, the excessive leverage in the system, and the fissures emanating from democracy eroding rulings.
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