Starling Insights Editorial Board
May 22, 2023
In a recent Financial Times article, Evgueni Ivantsov, Chairman of the European Risk Management Council, argued that, while the collapses of Silicon Valley Bank (SVB) and Credit Suisse appear to be very different on the surface, the root cause for each was toxic culture and mismanagement of strategic risk.
SVB transformed its business strategy to capitalize on the influx of cash to tech startups, repositioning itself as an investment firm and channeling interest-free deposits into securities investments. These steps led to a portfolio overexposed to interest rate risk, ultimately spelling disaster when interest rates rose.
Credit Suisse's downfall began with an ambitious strategy to reinvent the bank, which caused an internal culture shock, Ivantsov argues. Pressure to achieve rapid growth and to hit profitability targets undermined incentives towards prudence, leading to misconduct and financial loss over time. Although Credit Suisse was too big to be felled by a single event, such as Greensill Capital's insolvency or Archegos Capital's collapse, these crises highlighted the bank's weak risk culture and mismanagement, robbing it of essential market confidence.
Ivantsov contends that it is, therefore, essential for risk managers to examine any strategy changes and to identify new strategic risks that may be implied. Once identified, such emergent risks must be clearly communicated across the organization, and credible mitigation plans should be developed. More attention and resources must be devoted to identifying and managing culture and strategic risks if we can hope to prevent future banking crises, Ivantsov concludes.
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