Yahoo Finance Short seller Jim Chanos scoffs at former SVB boss's suggestion that the Fed's sharp policy shift toppled the bank
Jim Chanos scoffed at remarks made by Silicon Valley Bank's ex-CEO that a sharp shift in Fed policy had brought the bank down.
Former CEO Greg Becker highlighted the Fed's aggressive interest-rate hikes as a factor that led to SVB's collapse.
"What SVB did was make a massive bet that rates would stay low. They lost that bet," Chanos said on Twitter.
Jim Chanos scoffed at the former Silicon Valley Bank chief's suggestion that a sharp policy change by the Federal Reserve was largely responsible for the lender's shocking collapse in March.
SVB had loaded up on long-term bonds during 2020-2021, based on the Fed's messaging from the period that any spike in inflation would be "transitory" and interest rates would remain low, Greg Becker, the bank's ex-CEO, said in a prepared testimony released ahead of a US Senate Banking Committee hearing Tuesday.
The lender ended up incurring huge losses on that bond portfolio as the US central bank dramatically changed its policy stance in 2022, and launched the most aggressive series of interest-rate increases since the 1980s to rein in runaway inflation. The news of such losses triggered a selloff in SVB's shares and a run on its deposits - fueled by social-media speculation - that eventually led to its collapse.
But Chanos pushed back against Becker in a wry Twitter comment, suggesting SVB brought about its own end after it failed to follow the cardinal banking rule of avoiding asset-liability mismatch.
"Of course it's the Fed's fault that SVB lent long and borrowed short at all-time lows in rates, violating the Rules of Banking 101," the famed short-seller and Chanos & Co. boss tweeted on Monday, in a response to Becker's remarks.
In his testimony, Becker wrote that the Fed's rate hikes and the negative social media buzz following the collapse of crypto-friendly Silvergate Bank days before were key factors that led to SVB's run on deposits.
"Importantly, throughout 2020 until late 2021, the messaging from the Federal Reserve was that interest rates would remain low and that the inflation that was starting to bubble up would only be "transitory," he wrote. "Indeed, between the start of 2020 and the end of 2021, banks collectively purchased nearly $2.3 trillion of investment securities in this low-yield environment created by the Federal Reserve."
But Chanos clapped back saying SVB had made a wager that ultimately went wrong, suggesting the Fed can't be blamed for its rate hikes eroding the the value of the collapsed lender's bond holdings.
"If you have floating-rate liabilities (deposits) then your assets should be floating-rate as well. What $SIVB (and $FRC) did was make a massive bet that rates would stay low. They lost that bet," Chanos said on Twitter.
Becker's testimony on Tuesday will mark the first time he speaks publicly since March 10, when US regulators seized control of the once-trusted lender to startups and venture capital firms. Its seizure sent shockwaves through the US banking system amid fears of contagion effects spilling over to a global banking crisis, culminating in the takeover of First Republic by JPMorgan and other lenders folding up.
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