Top executives from Silicon Valley Bank and Signature Bank refused to commit to voluntarily handing back the millions of dollars they were paid before the collapse of their banks triggered a US regional banking crisis.
In their first public appearances since the two lenders were shut down by regulators in March, former SVB former chief executive Greg Becker, alongside ex-Signature executives Scott Shay and Eric Howell, were quizzed by members of the Senate banking committee over their roles in the recent failures.
Lawmakers including Elizabeth Warren, the progressive Democratic senator from Massachusetts, repeatedly asked Becker and Shay if they would return their pay to the Federal Deposit Insurance Corporation, which shouldered billions of dollars of losses following the collapse of the two banks.
Becker, who earned almost $10mn in 2022, stopped short of committing to returning any money but said he would “co-operate with the regulators as they go through the process to look at that specific area”. Shay, who was paid $6mn last year, said he was “not planning to do so”.
Becker was also questioned by Chris Van Hollen, a Democratic senator from Maryland, about a report that executive pay at SVB had soared after it started to buy riskier assets exposed to rising interest rates.
Becker and Shay argued their banks were well-managed lenders whose failures were the result of a confluence of events including the Federal Reserve’s aggressive interest rate rises, the collapse of Silvergate in the same week in March, and bank runs exacerbated by social media.
“I truly do believe that with the information we had at the time when we made our decisions, that we made the best decisions that we could have,” Becker said.
In written testimony released on Monday prior to the hearing, Becker blamed an “unprecedented” run on deposits fuelled by “rumours and misconceptions” for SVB’s collapse.
Democratic and Republic senators on Tuesday admonished the executives for a perceived lack of accountability. “Mr Becker, you’ve blamed pretty much everyone else for SVB’s failures,” said Sherrod Brown, the Democratic chair of the Senate banking committee.
Katie Britt, a Republican senator from Alabama, told Becker she was “concerned with the lack of responsibility that you have chosen to take for the role that you played leading up to the failure of the bank that you led for the last 12 years”.
Senators convened the hearing to examine the failures of SVB and Signature in early March, which shook confidence in US regional lenders and led to the collapse of First Republic last month. A separate hearing in the House addressed oversight of US bank regulators.
The root cause of California-based SVB’s eventual failure was its decision to invest a rush of deposits from tech companies and venture capital firms in a securities portfolio consisting mostly of long-dated US debt and mortgage bonds. These investments fell in value when the Fed started to raise interest rates last year.
The decision to sell a chunk of its securities at a $1.8bn loss based on what Becker claimed was advice from Goldman Sachs spooked investors and depositors, triggering a bank run and leaving SVB struggling to raise fresh capital.
Goldman, which worked on a separate capital-raising attempted by SVB at the same time, said on Monday it had informed SVB in writing that it would not act as its adviser on the securities sale, and that SVB should not rely on any advice from it in this matter.
New York-based Signature was seized by regulators days after SVB was shut down. The bank had more than doubled its deposits by 2022 by being one of the few lenders to accept funds from clients involved in cryptocurrencies.
Brown accused executives at SVB and Signature of prioritising profits over the safety of their customers’ deposits.
“We took risk management seriously,” argued Becker. Senator Tim Scott of South Carolina, the top Republican on the banking committee, said it was “hard to believe” Becker’s defence.
In the House on Tuesday, Michael Barr, the Fed’s vice-chair for supervision, said that the overall US banking system is “sound and resilient” despite the recent period of “acute stress”.
Patrick McHenry, Republican chair of the House financial services committee, blamed the Fed for being too slow to react to soaring inflation, causing it to rapidly raise interest rates over the past year. That had “injected heightened interest rate risks into the financial system”, he said.
Read the full article here
