By Cait Kemp
@caitlinkemp09
The Business club paired up with the Women in Business club to sponsor a round-table meeting discussing the recent banking crisis that has been seen across the country. Four major banks (Silicon Valley Bank, Silvergate Bank, Signature Bank and Credit Suisse) failed in the month of March, leading to many questions about the integrity of banking and the ethical decisions being made by higher-ups in the companies.
Students from a span of business-related classes attended the meeting to learn more about the crisis and participate in conversation about the events leading up to it. Leading the meeting was chair of the business management department Laura Katz, who acted as the moderator. On the panel were professors in the business management department Prianka Musa, Mark Howard and Tim Allen. Each professor had a knowledge of different aspects and were able to offer their expertise to the conversation.
The main reason for the banking crisis was the sudden action taken by depositors to take their money out, sparking a bank run. Bank runs happen when people begin to get word that they should be taking their money out, for a variety of reasons, and once word gets around, everyone flocks to do the same.
“This is probably one of the building blocks of the financial system,” Musa said. “If we don’t really trust it, it doesn’t run on its own. It runs on trust, and this is one of the times it was really tested.”
The cause of this for specifically Silicon Valley Bank (SVB) was the CEO and CFO sold $3.5 million and $575,000, respectively, of stock in the company. Venture capitalist Peter Thiel sent out a tweet advising people to take out their money. This tweet ultimately sparked the bank run that put SVB into failure.
In the instance of SVB, questions were raised about the actions of the CEO and CFO. Many are concerned that they had speculation about issues with the company, causing them to sell the stocks. If they did have prior knowledge, this could be a major problem in business ethics, as they were acting in a self-serving way rather than doing what is best for the company and the consumers.
“One thing we talk about in business ethics, which isn’t an easy term to grasp, is corporate governance – the oversight of how you make sure the companies in the process of daily life are making the right decisions and there is someone checking it,” Allen said. “Who approves these million-dollar loans and bonuses? Does the board have a rule on that or can [the CEO] just write a check?”
Allen posed an important question. Looking at the SVB code of ethics, which consists of 21 pages of statements the company promises to abide by, it seems as though an act such as that should not have been able to slip through the cracks.
Honesty is at the heart of SVB’s code of ethics, stating to take responsibility, act with integrity and encounter situations in a fair and responsible way. The selling of the loans with prior knowledge of the bank’s potential failing is not a confirmed fact, however it is something that many believe should be investigated as it would be a detrimental problem for the company if the higher-ups were found guilty.
Another one of the main issues that arises is the concept of regulation. During Donald Trump’s presidency, one of his first big motions was to scale back on the regulation of banks. Banks had to be of a certain size in order to be required to undergo regulation, including stress tests that helped to determine a bank’s status after different scenarios.
“You didn’t have to go to these tests unless you were 50 billion and then they raised it to 250 billion,” Allen said. “So as a result Silicon Valley Bank was not at that size so they didn’t have to go through the regulation, these tests were done on your credit, on your deposits, et cetera to see if you can handle something going wrong.”
Throughout the round table, the panel posed questions to the students, encouraging them to use their own knowledge and judgment to form opinions on the matter. It gave students the opportunity to not only learn from the discussion, but put into practice what they are taught in the classroom and use it to analyze a real-life situation.
Photo Courtesy Springfield College