Senators on Tuesday accused former Silicon Valley Bank and Signature Bank executives of failing to recognize the red flags leading to the two largest bank failures in U.S. history in March, accusing them of the millions they received. criticized dollar executive compensation.
But executives repeatedly blamed the bank’s demise on an unprecedented run on deposits in the hours and days before a regulatory seizure.
Former Silicon Valley Bank CEO Gregory Becker told the Senate Banking Committee that the rapid rise in interest rates and media coverage played a central role in the failure of SVB. Becker, who spent nearly 30 years as an SVB employee, had no idea what would eventually happen to the bank, he said.
Sen. Sherrod Brown (D-Ohio), chairman of the committee, said the banks were growing too fast, with SVB tripled in size and signature banks doubling in size between 2019 and 2021. Stated. “A good banker knows it’s not safe for banks to grow that fast.”
The bank failure occurred days after cryptocurrency bank Silvergate Capital announced it was closing, and weeks before First Republic Bank collapsed.
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It shocked the U.S. banking system and raised concerns about the health of the industry.
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Lawmakers are now calling for regulatory changes, reimbursement of compensation and other measures to prevent other bank executives from taking excessive risks.
Becker was also present at Tuesday’s Senate hearings, along with Signature Bank co-founder and former chairman Scott Shea and Signature’s former president Eric Howell. Most of the lawmakers’ questions focused on Becker’s role and executive compensation.
Brown said the Federal Reserve, Federal Deposit Insurance Corporation, and state financial regulators identified the banks’ aggressive growth as a risk years before their failures, including the The volatile nature of deposits is also included, and the total amount exceeds 2 million yen, he pointed out. 90% of each bank deposit.
The Fed cited uninsured deposits as a risk for SVB in 2018, but the bank did not correct it. “You don’t seem to have tried,” said Mr. Brown.
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Depositors withdrew about $42 billion the day before SVB closed, and another $100 billion is expected to flow out the day it is seized by regulators, representing about 80% of deposits over two days.
“I don’t think any bank can survive a run of this speed and scale,” Becker said.
Senator Chris Van Hollen (D, Md.) asked Mr. Becker about the $1.5 million bonus for 2022. “Do you think you deserve it?” he asked. Becker replied that his bonus was determined by the bank’s board of directors based on performance and that decision was fair.
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Becker joined SVB’s board in 2022 and has been on the board since 2011, according to a bank representative last year.
Van Hollen said the committee is looking at ways to recoup executive compensation. “This is why people have so little trust in the financial system,” he said.
Senator Elizabeth Warren (D-Massachusetts) notes that the SVB bankruptcy cost the FDIC Insurance Fund $20 billion, and bank CEOs will continue to put banks at risk unless lawmakers take action. said it could continue to receive tens of millions of dollars in funding. Bonuses and stock options, and “everyone else would have to pay for it.” She’s proposing a bill that “slightly reduces the profits of bank CEOs blowing up banks.”
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Founded in 1983 and headquartered in Santa Clara, California, Silicon Valley Bank provides banking services to start-up and late-stage private companies, including nearly half of the venture capital-backed technology and life sciences companies. I’ve been focusing.
SVB’s growth accelerated following the government’s economic stimulus in response to the COVID-19 pandemic. But the Fed’s signal on interest rates caught me off guard. I bought long-term government bonds while interest rates were low. The value of these holdings has eroded as interest rates began rising sharply last year, with base rates moving from near zero to over 5%.
When Silvergate Bank announced on March 8 that it would cut back and liquidate, depositors ran on the bank. Becker denounced rumors that media reports comparing Silvergate and SVB ultimately led to the deposit operation and closure on March 10. The signature was seized two days later.
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Signature co-founders Shay and Howell said they believed Signature was well-capitalized, which helped them manage their deposits. But regulators thought otherwise.
In response to numerous questions about the extent to which management is responsible for events at the bank, all three witnesses allege that the bank’s failure was due to unprecedented and unpredictable withdrawals of personal deposits. bottom. “I believe Signature Bank has run responsibly,” Shay told Warren.
Mr. Brown concluded the hearing by pointing out that longtime former bank executives “blame others for most of the bank’s failures” and that both banks suffered from a lack of willingness to “solve known problems.” rice field.
At a separate hearing on Tuesday, bank regulators testified before the House Financial Services Committee about bankruptcies and oversight of banks.
Fed Deputy Chairman Michael Barr has already called the SVB bankruptcy a “textbook mismanagement case” in the Senate. He and three other regulators appeared before the House hearings.
Becker and Shea, along with state banking regulators from New York and California, are scheduled to testify before the House Financial Services Committee at 10 a.m. Wednesday.
Email Janet H. Cho (janet.cho@dowjones.com).
