NEW YORK, Might 16 (Reuters) – The previous chief govt of Silicon Valley Financial institution defended the U.S. lender’s efforts to handle danger in his first public feedback after the financial institution’s shock collapse, as regulators promised higher supervision to forestall extra such failures.
The highest executives at SVB and one other failed lender, Signature Financial institution, as nicely regulators overseeing them appeared at separate congressional hearings on Tuesday to be grilled by senators demanding an account of why the banks collapsed.
California banking regulators shut down Silicon Valley Financial institution on March 10 after depositors withdrew $42 billion in 24 hours, sparking a rout in financial institution shares globally and investor fears of contagion spreading to different banks.
Two different U.S. regional lenders – together with Signature – have since failed, marking the largest turmoil to grip banks for the reason that 2008 monetary disaster.
In his feedback, former SVB CEO Greg Becker painted an image of an unprecedented, unforeseeable disaster that unfolded at lightning velocity regardless of the financial institution taking danger administration critically and having liquidity of round $80 billion on the finish of final 12 months.
“I imagine it was a sequence of unprecedented occasions that every one got here collectively within the quickest financial institution run in historical past,” Becker instructed the Senate Banking Committee.
In a separate Home of Representatives listening to, high banking regulators vowed to make sure supervisors extra aggressively police lenders.
RISK ON?
Tuesday’s listening to for the primary time supplied lawmakers the chance to grill Becker, who has been criticized for failing to deal with risk-management points that had been flagged by regulators. Some lawmakers have additionally rebuked Becker for shelling out bonuses and have questioned whether or not he and different executives profited from inventory gross sales forward of the financial institution’s collapse.
Becker offered SVB inventory within the first quarter with the biggest gross sales on Feb 27, public information present. He mentioned he was unaware the financial institution was in bother on the time.
“I used to be the CEO of Silicon Valley Financial institution, I take duty for what in the end occurred,” Becker mentioned.
Lawmakers on each side of the partisan divide, although, have been unimpressed.
“Why did you ignore admonitions from regulators?” Senator Sherrod Brown, a Democrat, mentioned in his opening assertion.
[1/2] Greg Becker, former president and CEO of SVB, speaks on the 2022 Milken Institute World Convention in Beverly Hills, California, U.S., Might 3, 2022. REUTERS/Mike Blake
“There’s a easy reply, the identical reply we discover for many large financial institution failures — as a result of the executives have been getting wealthy.”
Executives from Signature Financial institution additionally testified alongside Becker on Tuesday, pushing again on assertions from lawmakers that the financial institution had weak company governance.
“I do not imagine that there was mismanagement on the financial institution,” mentioned Eric Howell, the previous president of Signature Financial institution.
Responding to criticism about SVB missing a chief danger officer within the months main as much as its collapse, Becker mentioned he had been instructed by regulators to search for a extra skilled govt for the place. He additionally mentioned he would cooperate with regulators as they reviewed SVB’s govt compensation.
SVB’s downfall was triggered by holdings of long-term Treasuries shedding worth as rates of interest rose shortly – a danger the financial institution had not hedged. It was as an alternative compelled to borrow within the brief time period at larger charges whereas sustaining long-term loans on its books that have been made when charges have been low.
The financial institution tried to cowl the loss by elevating capital, however in asserting the transaction helped gas a financial institution run.
“Mr. Becker you made a very silly wager that went dangerous, did not you,” mentioned Senator John Kennedy, a Republican. “And the taxpayers of America needed to decide up the tab to your stupidity.”
Becker rebuffed regulators’ assertions that SVB didn’t handle rate of interest dangers in his ready testimony, saying that up till late 2021, the Federal Reserve had indicated that rates of interest would stay low and that rising inflation was merely transitory.
TOUGHER RULES COMING
At a separate listening to, the Federal Reserve’s high regulatory official instructed Home members the central financial institution was investigating a payout of govt bonuses at SVB hours earlier than it was closed by regulators, calling it “outrageous.”
SVB staff acquired annual bonuses March 10 simply hours earlier than the financial institution was shuttered, in keeping with media stories.
On the different listening to, Becker instructed lawmakers that the bonuses have been for workers’ performances in 2022 and that the financial institution’s human assets division had scheduled the fee date upfront with out his data.
Fed Vice Chair for Supervision Michael Barr additionally mentioned the Federal Reserve will unveil a plan for overhauling financial institution capital and liquidity guidelines this summer season, which might embrace more durable guidelines on banks related in measurement to SVB and Signature.
Such lenders had beforehand had guidelines relaxed beneath the Trump administration, however Barr mentioned the Fed was “fastidiously contemplating” rule modifications for bigger regional banks of over $100 billion in belongings.
Reporting by Tatiana Bautzer and Saeed Azhar in New York
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