The Silicon Valley bank crisis is the result of “idiot management,” says Kevin O’Leary

Silicon Valley Bank closed last week, sparking alarms across the country. Reality TV star and business mogul Kevin O’Leary blames the bank’s management for the crisis.

“Let me explain what happened last week. This is a powerful combination of idiotic management with a board above that was incompetent or at least asleep behind the wheel because what happened here was just plain bad management,” O’Leary, who stars in the reality TV series Shark Tank, said Yahoo Finance. “To make the bets they made, that means they don’t know anything about banking.”

Last week, Silicon Valley Bank announced a $1.8 billion loss on the sale of securities after rising interest rates drove down the value of its bonds. The report sparked the biggest bank run in nearly a decade, with investors attempting to siphon off a staggering $42 billion from the lender and the bank lacking sufficient funds to meet their demands.

“Essentially, they took 90% of depositors’ money and put it in 10-year Treasury bonds for a long time, just as the Fed was raising rates. Yes, only an idiot banker would do that. But that’s exactly what they did, a massive risk,” said O’Leary, who nicknamed “Mr. Wonderful” for his aggressive personality in Shark Tank.

Silicon Valley Bank, although smaller than big US banks like Wells Fargo and JPMorgan, was still the 16th largest bank in the US with assets of $209 billion as of December 31, according to the FDIC. According to bank records, over 85% of Silicon Valley Bank’s deposits were uninsured at the end of 2022.

Kevin O'Leary Chairman, O'Shares ETFs;  tv personality,

Kevin O’Leary Chairman, O’Shares ETFs; Television personality ‘Shark Tank’ speaks during the 22nd annual Milken Institute Global Conference in Beverly Hills, California, U.S. April 30, 2019. REUTERS/Mike Blake

Typically, the Federal Deposit Insurance Corporation (FDIC) covers deposits up to $250,000 per account. But when the Silicon Valley bank closed, the FDIC announced it would cover 100% of the funds.

Some experts, including O’Leary, disagree with the government’s decision to intervene. Instead, he argued that the government should have let the bank fail.

“They blew themselves up. Let them fail,” O’Leary said.

O’Leary argued that the bank’s management should have understood risk management and prepared for potential crises. He also added that mostly “savvy investors” like “hedge funds and venture capital firms” who could have absorbed the losses held the assets and got back 95 cents on the dollar from their uninsured deposits.

“They are big boys. You understand risk mitigation. And either they did their job or they didn’t,” O’Leary said.

O’Leary also argued that the intervention could set a bad precedent for the future, arguing that banks could simply operate on the assumption that the government will bail them out if they make a mistake.

“I can run a bank and worry about the stock price all day because I don’t have to worry about the deposits anymore… I can swing for the fences,” O’Leary said. “I have to abide by the rules of banking, but I can take undue risk to move the stock price and not worry about what I do with depositors’ money. Does that sound like a good idea to you?”

Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

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