Ross: DeSantis is wrong, diversity isn’t the reason the banks failed

There are a number of theories about why the Silicon Valley Bank failed. The easiest theory to understand came from Presidential candidate Ron DeSantis.

“It appears to me, I mean this bank, they’re so concerned with DEI and politics and all kinds of stuff I think that really diverted from them focusing on their core mission,” DeSantis said.

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DEI being Diversity, Equity, and Inclusion. He didn’t go into details, so we’ll have to try to figure it out for ourselves.

Could it be the bank’s diversity training sessions traumatized management into not keeping enough cash reserves on hand? DeSantis didn’t say, but in case that explanation didn’t fly, he had a backup explanation:

“I also look at it and say we have such a morass of federal regulations, we have a massive federal bureaucracy, and yet they never seem to be able to be there when we need them to be able to prevent something like this,” DeSantis said.

And he got that exactly right! Because there are a lot of federal bank regulations which are supposed to prevent this. One of the toughest regulations was passed in 2010. It was called the Dodd-Frank Act. It was a reaction to the financial catastrophe of 2008. And Dodd-Frank required banks large and small to keep enough cash reserves to prevent the exact problem Silicon Valley Bank faced last week.

But here’s the kicker: in 2018, Silicon Valley Bank vigorously lobbied to change those regulations to exempt itself –and other smaller banks– from having to keep those higher reserves.

And they won. Congress changed the rules, and the President went along.

“The legislation I’m signing today rolls back the crippling Dodd-Frank regulations that are crushing community banks,” Trump said as he signed the legislation. “As a candidate, I pledge that we would rescue these community banks from the disaster of Dodd-Frank. And now we are keeping that commitment”

This bit of history prompted the Fox Headline “Liberals blame Trump for Silicon Valley Bank collapse.”

And they have a point – liberals blame Trump for everything, the way conservatives blame ‘wokeness’ for everything. But there was an article in Forbes Magazine that seemed to back the liberals this time: “How Trump’s Deregulation Sowed The Seeds For Silicon Valley Bank’s Demise.”

And the article explains that because of the 2018 de-regulation, smaller banks like SVB didn’t even have to conduct stress tests to see if they were vulnerable!

I’m not sure whose explanation is correct here – but what I do know is that in business stories like this, the facts tend to be complicated and fiercely boring.

And knowing that, Ron DeSantis gave his audience what they wanted, skipped the boring parts, and blamed it on diversity.

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