Is there a gendered angle to what’s going on with the banks?

The fact we’ve had a question on this shows just how wild misinformation has become. That’s not meant as shade to the reader, but instead to those hell bent on political point scoring when it comes to the merits of diversity. 

Banks have been in the headlines a lot this week. First we saw the collapse of a bank many people hadn’t heard of until this week - Silicon Valley Bank (SVB) - in the US. SVB was known for providing services to startups and venture capital-backed firms.

SVB became the largest bank to fail since 2008 when it was shut down by regulators on 10 March, so naturally people became worried another banking crisis might be afoot. 

Unfortunately, this has led to a number of commentators, mainly in the US, engaging in Twitter-based hand-wringing about the bank’s diversity and inclusion policies, and purported focus on sustainable investments. 

“Its resources should have not been blown on woke/DEI initiatives instead of actual financial management,” Republican Andy Biggs said.

“They were one of the most woke banks in their quest for the E.S.G.-type policy in investing,” Republican James Comer added.

The slogan #GoWokeGoBroke even started appearing on Twitter, which was immediately picked up by the Daily Mail, which said SVB was obsessed with diversity, invested $5bn for a healthier planet and held a month-long pride celebration.

Some context here: ESG, which stands for environmental, social and governance, is a pretty well established way of investing that looks at the risks associated with things such as climate change, on investments, as well as financial risks. Republicans in the US have become very upset about this recently, thinking, wrongly, that it’s a way of telling people what to do and a crackdown on freedom. So much so that some of them are running political election campaigns based on anti-ESG sentiment. Which means an opportunity to jump on SVB was a great one for political point scoring but has to be seen in that context. 

Looking inwards at the bank, A Wall Street Journal article on SVB noted that women made up 45% of the bank’s board and was too distracted by diversity to sufficiently analyse the risks of interest rate rises.

In response, Black Women in Venture Capital published an open letter to the author of the WSJ op-ed saying that the “insinuation is insulting and a slap in the face to the many organisations that exist to increase diversity at every step in the tech value chain”.

They added: “It is also part of a broader straw-man argument made by many individuals and organisations that believe making American society more inclusive for historically marginalised groups is detrimental to our economy's growth.”

So what did happen to SVB? The problem was, SVB put a lot of money in US Treasury bonds when interest rates were low - this is essentially when the bank lends money to the US government for a set period of time. It is meant to be one of the least risky investments you can make, but they also don’t have very high returns. 

SVB wanted higher returns so it invested in the longer-term - 10-year - bonds.  And the return you get from bonds are tied directly to interest rates. Because SVB bought them when these were low, when interest rates started rising, the value of the bonds SVB held went down. At the same time, customers of the bank wanted to withdraw their funds because they struggled in a tougher economic environment and needed access to their funds. To cover the deposit withdrawals, SVB sold some of its investments at a loss, which concerned investors and depositors. More worried customers started withdrawing their funds and so on. The loss of confidence had a big role to play here.

Then we had Credit Suisse, which is now being taken over by UBS in what has been labelled by some as an example of “disastrous” governance. The bank had to deal with a string of scandals in recent years, and despite management changes, has been unable to turn around its fortunes. In 2021 a selloff in the bank’s shares began following losses related to the collapse of a fund and a company the bank had dealings with. A subsequent strategic review failed to appease investors, while at the same time clients started pulling their money out of Credit Suisse funds, leading to the bank declaring its biggest annual loss since the financial crisis in 2022 of 7.29bn Swiss francs.

Other smaller banks in the US, France and UK are now also feeling the strain - all again really boiling down to a loss of confidence in the banking sector. 

In the short term, the sad truth is women may well be more likely to feel the effects. With Credit Suisse, it’s the lowest-ranking bondholders who are losing out. And with SVB, which made it easier for more diverse entrepreneurs - a segment of the population receiving just a fraction of venture capital funding and which have been historically underbanked - to borrow, there could now be a gap in this funding. 

In the longer term, could this be a chance to reform the banking sector for the better? 

Action of the week: Send your well wishes to Selin, who is going off on maternity leave!