In a recent episode of Steve Bannon’s War Room: Pandemic, the host made a bold statement: “The problem is these wild west banks like SVB were leveraged to the hilt.” What did he mean by this, and what does it say about the state of the financial industry?
First, let’s unpack what Bannon means by “wild west banks.” The term suggests a lack of regulation or oversight, where banks are free to take risks and pursue profit at any cost. This is in contrast to the more tightly regulated banking system that emerged after the Great Depression and was further strengthened in the wake of the 2008 financial crisis. Wild west banks are characterized by a willingness to take on massive amounts of debt, often with the belief that they can earn greater returns than the interest they will have to pay.
Now, let’s consider the specific bank Bannon mentions: SVB, or Silicon Valley Bank. This bank is known for its focus on technology companies and startup ventures, and it has been linked to many high-profile IPOs and other financial transactions. However, as Bannon suggests, SVB has also been heavily leveraged, meaning it has taken on a large amount of debt relative to its assets or equity. This is a risky strategy, as any unexpected losses or downturns in the market could leave the bank unable to meet its debt obligations.
So, why does this matter? Bannon suggests that wild west banks like SVB pose a threat to the stability of the financial system, and by extension, the broader economy. If these banks take on too much debt and are unable to repay it, they could trigger a cascading series of defaults and bankruptcies that could spread across the financial system. Moreover, the sheer amount of debt taken on by these banks could exacerbate economic inequality, as the risks and rewards of such investments are not distributed evenly across society.
Of course, not everyone agrees with Bannon’s analysis. Some argue that the regulatory framework in place is robust enough to prevent such risks, and that so-called “innovative” financial products and strategies are crucial to driving economic growth. However, there is no denying that the wild west mentality of some banks poses a potential threat to the stability of the financial system. As such, policymakers and regulators will need to remain vigilant and ensure that banks are operating in a responsible and sustainable manner.