Conventional order of memo/email fields is to, from date, subject

Subject: Support for Article on Silicon Valley Bank published March 27, 2023

From: Karan Desai

Date: March 29, 2023

Indicate who you are writing to

Business documents are single spaced, double space between paragraphs. Paragraphs are not

indented. Keep paragraphs short and focused.

Dear Editor, your assessment specifies that you write to the author, not to the editor

I am writing to support the opinions expressed in your article entitled “Fed Vice Chair

Calls Silicon Valley Bank a ‘Textbook Case of Mismanagement”, published on March 27, 2023

(Smialek & Flitter, 2023).

The article is about Silicon Valley Bank (SVB), which was a bank that recently collapsed

and spurred fears of another financial crisis akin to 2007-2008. It was a regional bank whose

clients were concentrated in the Silicon Valley and within the tech and venture capital industries.

On March 9, it experienced a bank run where customers withdrew $42 billion in funds on a

single day. The next day, the California regulators took over control of the bank and placed it

under the authority of the Federal Deposit Insurance Corporation (FDIC). The FDIC gained the

approval of the Treasury to go above and beyond, and back all client deposits held within the

bank, not just the first $250,000. By doing so, the FDIC protected depositors and their funds,

without needing to rescue or bailout the bank, its management, or shareholders. Hmmm. You
should be writing to the authors of the article not to the editor, and both the authors and the editor

know what they wrote. You would not use your response to summarize the article.

The article outlines two main reasons for SVB’s failure – mismanagement by the

company executives, and inadequate oversight and correction action by the Federal Reserve of

the bank. I completely agree with both the reasons expressed and will elaborate below. Too

much time spent summarizing

Firstly, SVB executives made risky bets to attract deposits, by offering higher rates on

deposits than competitors. To recoup those higher rates, the bank invested the deposits into

longer-term, high-yield bonds and generally kept less deposits on hand than the industry norm.

However, bank executives underestimated risks such as the upcoming Federal Reserve interest

rate hikes. By investing more deposits and into riskier long-term investments, executives did not

ensure adequate liquidity within SVB’s books. When interest rates rose sharply in 2022-2023,

the value of the long-term bonds declined significantly (the two are inversely correlated) and led

to large investment losses for the bank (Fidelity Viewpoints, 2023). While there are several other

similar-sized banks as SVB in the US – those banks did not collapse like SVB did. SVB’s

management had a certain part in its failure – first by overreaching and offering higher rates on

deposits to customers, then by overreaching again when investing those deposits into risky, long-

term bets.

Secondly, the Federal Reserve and its subordinates are to blame for SVB’s failure, as

they are the financial regulators within the nation. Post the 2008-2009 financial crisis, the

regulators imposed stricter Dodd-Frank regulations, which required banks to maintain sufficient

cash positions to cover 30 days of withdrawals, and pass “stress tests” that evaluate banks

performance if hypothetical recessions or financial meltdowns occurred. However, in 2018

following lobbies by smaller banks, the government exempted banks with less than $250 billion

in assets from these regulations. SVB happened to fall in this cohort and was thus exempted.

Additionally, the Federal Reserve’s bank supervisors also identified these risks to SVB’s

management in the fall of 2021 given its unique business model and magnified risks. They gave

the bank a very low credit rating and rated its management poorly as well. However, these were

mere warnings, not strict mandates for SVB to change course (Rugaber, 2023). If the Federal

Reserve had not relaxed its posture for smaller banks and provided clear direction to SVB

executives – SVB’s collapse could have been prevented despite its management’s mistakes.

In conclusion, I am appalled at Silicon Valley Bank’s failure and the need for the

Treasury to step in to protect depositors. Having witnessed the 2008-2009 financial crisis and the

stronger regulation that followed, I am astounded that SVB’s management, and the Federal

Reserve regulators allowed such a situation to recur. I will continue to closely follow the news

and peruse New York Times articles to stay updated on this developing story.

Sincerely,

Karan Desai
 References

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Simply provide the URL.

1. Fidelity Viewpoints. (2023, March 21). Silicon Valley Bank: What happened? Retrieved

March 29, 2023, from https://www.fidelity.com/learning-center/personal-finance/silicon-

valley-bank-collapse

2. Rugaber, C. (2023, March 28). Federal Reserve considering stronger bank rules after

SVB failure, official says. Retrieved March 29, 2023, from

https://www.pbs.org/newshour/economy/federal-reserve-considering-stronger-bank-

rules-after-svb-failure-official-says

3. Smialek, J., & Flitter, E. (2023, March 27). Fed vice chair calls Silicon Valley Bank a

'textbook case of mismanagement'. Retrieved March 29, 2023, from

https://www.nytimes.com/2023/03/27/business/economy/fed-silicon-valley-bank-

mismanagement.html

Karan, this has some solid content. The assignment calls for you to write to the authors of the

article. When doing so, you would reasonably assume the authors know what they wrote. You

would use the content of your response to offer specific observations not to summarize the
article. As you move through thee remaining assessments, review APA formatting for references

and format your documents as business documents.