Until bankers have more to lose themselves, collapses like SVB and Credit Suisse will keep happening

‘At Credit Suisse, although many executives were ousted over the years, they clearly did not lose enough individually to deter others from acting in similar ways’. Photograph: Edgar Su/Reuters

Executives at Silicon Valley Bank (SVB) and Credit Suisse took substantial risks. SVB proactively expanded the bank’s deposits, some might say excessively. These depositors were uninsured and undiversified. And back when interest rates were low, the bank invested significantly in US government bonds, which was fine at the time. But when there were signs that interest rates were rising and creating substantial interest rate risk, managers left this portfolio unhedged and unchanged. How come SVB managers took those risks? It seemed that they lacked “skin in the game”.

The risks taken by executives at Credit Suisse were of a different nature, but still substantial. By becoming involved in such companies as the now defunct Greensill and Archegos, the bank’s capital took a hit. The fines it has accrued after facing scandal after scandal have also bitten into its capital. It can be said that those involved also lacked skin in the game.