Porter on Silicon Valley Bank collapse: ‘You can’t bet on’ interest rates staying low forever

Rep. Katie Porter (D-Calif.) on Sunday blamed the Silicon Valley Bank collapse in part on the mistaken belief that interest rates would stay low forever.

During an appearance on MSNBC’s “The Sunday Show with Jonathan Capehart,” Porter said rising interest rates were one of the leading causes of the bank’s collapse, noting how the bank in late 2020 grew rapidly by taking in “lots of deposits.”

It attracted those deposits by promising relatively high interest rates, and then invested money in federal Treasury bonds. When the Fed started hiking interest rates last year, that devalued the bonds, leaving Silicon Valley Bank with a gaping hole in its balance sheet.

The bank’s collapse began last Wednesday when it informed investors that it needed to raise some $2 billion to shore up its balance sheet.

Porter, who announced in January that she’s running for the Senate, noted some good news, which is that the Treasury bonds still have value. But she questioned why the bank didn’t wasn’t prepared for rising interest rates.

“But there are real questions about why they didn’t anticipate one of the most fundamental financial facts that everybody should know, which is interest rates go up and they go down. You can’t bet on the same low forever,” Porter told Capehart. 

“That’s they didn’t, They went up and the bank wasn’t prepared for and there are some real oversight questions about that,” Porter added. 

Porter’s remarks come as regulators shut down the Silicon Valley Bank on Friday, marking the second largest bank collapse in U.S. history, following the 2008 financial crisis/recession.

According to Bloomberg News analysis, more than 93 percent of the $161 billion at the bank was not insured by the Federal Deposit Insurance Corporation. 

Shalanda Young, the director of the the White House Office of Management and Budget, said during an appearance on CNN’s “State of the Union” the U.S.’s banking system is  “resilient” amid the fallout of the Silicon Valley Bank collapse.

“What I will say about the banking system overall is it is more resilient, it has a better foundation than before the financial crisis. That’s largely due to reforms put in place after the financial crisis. Our Treasury secretary is at the helm and working diligently with regulators,” Young told host Kaitlan Collins.