Silicon Valley Bank crisis a result of ‘idiot management,’ Kevin O’Leary says

Last week, Silicon Valley Bank shuttered, prompting alarm nationwide. 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 combination, a powerful one, of idiot management with a board above them that was incompetent, or at least asleep at the wheel, because what happened here was just plain bad management,” O’Leary, who stars on the Reality TV series Shark Tank, told Yahoo Finance. “To make the bets they made means they know nothing about banking.”

Last week, Silicon Valley Bank announced a $1.8 billion loss from the sale of securities after rising interest rates lowered the value of its bonds. The report triggered the biggest bank run in nearly a decade, during which investors tried to pull a staggering $42 billion from the lender, and the bank had insufficient funds to meet their demands.

“Basically, they took 90% of the depositors' money and bet it long on 10-year Treasuries right when the Fed was raising rates. Yes, only an idiot banker would do that. But that's what they did, massive risk,” said O’Leary, who is sarcastically nicknamed “Mr. Wonderful” for his abrasive persona on Shark Tank.

Silicon Valley Bank, though smaller than big U.S. banks like Wells Fargo and JPMorgan, was still the 16th largest bank in the U.S., worth $209 billion in assets as of Dec. 31, according to the FDIC. According to bank filings, over 85% of Silicon Valley Bank deposits were uninsured at the end of 2022.

Kevin O'Leary Chairman, O'Shares ETFs; Television Personality,
Kevin O'Leary Chairman, O'Shares ETFs; Television Personality, "Shark Tank" speaks during the Milken Institute's 22nd annual Global Conference in Beverly Hills, California, U.S., April 30, 2019. REUTERS/Mike Blake (Mike Blake / Reuters)

Usually, the Federal Deposit Insurance Corporation (FDIC) covers up to $250,000 of deposits per account. But when Silicon Valley Bank closed, the FDIC announced it would cover 100% of 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 understand risk management and should have prepared for potential crises. He also added that mainly “sophisticated investors” such as "hedge funds and venture capital firms" that could have handled the losses held the assets and would have gotten back 95 cents on the dollar from their uninsured deposits.

“They're big boys. They understand risk mitigation. And either they were or they weren't doing their jobs,” O’Leary said.

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

“I can be running a bank and just spend all of my day worrying about the stock price because I don't have to worry about the deposits anymore…. I can swing for the fences,” O’Leary said. “I have to stay within the rules of banking, but I can take inordinate risk to move that stock price and never worry about what I do with the 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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