The former chief executive of Silicon Valley Bank defended the U.S. lender’s efforts to manage risk in his first public comments after the bank’s shock collapse, as regulators promised better supervision to prevent more such failures.
The top executives at SVB and another failed lender, Signature Bank, as well 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 Bank on March 10 after depositors withdrew $42 billion in 24 hours, sparking a rout in bank shares globally and investor fears of contagion spreading to other banks.
Two other U.S. regional lenders – including Signature – have since failed, marking the biggest turmoil to grip banks since the 2008 financial crisis.
In his comments, former SVB CEO Greg Becker painted a picture of an unprecedented, unforeseeable crisis that unfolded at lightning speed despite the bank taking risk management seriously and having liquidity of around $80 billion at the end of last year.
“I believe it was a series of unprecedented events that all came together in the fastest bank run in history,” Becker told the Senate Banking Committee.
In a separate House of Representatives hearing, top banking regulators vowed to ensure supervisors more aggressively police lenders.
RISK ON?
Tuesday’s hearing for the first time offered lawmakers the opportunity to grill Becker, who has been criticized for failing to address risk-management issues that had been flagged by regulators. Some lawmakers have also rebuked Becker for dishing out bonuses and have questioned whether he and other executives profited from stock sales ahead of the bank’s collapse.
Becker sold SVB stock in the first quarter with the largest sales on Feb 27, public records show. He said he was unaware the bank was in trouble at the time.
“I was the CEO of Silicon Valley Bank, I take responsibility for what ultimately happened,” Becker said.
Lawmakers on both sides of the partisan divide, though, were unimpressed.
“Why did you ignore admonitions from regulators?” Senator Sherrod Brown, a Democrat, said in his opening statement.
“There is a simple answer, the same answer we find for most big bank failures — because the executives were getting rich.”
Executives from Signature Bank also testified alongside Becker on Tuesday, pushing back on assertions from lawmakers that the bank had weak corporate governance.
“I don’t believe that there was mismanagement at the bank,” said Eric Howell, the former president of Signature Bank.
Responding to criticism about SVB lacking a chief risk officer in the months leading up to its collapse, Becker said he had been told by regulators to look for a more experienced executive for the position. He also said he would cooperate with regulators as they reviewed SVB’s executive compensation.
SVB’s downfall was triggered by holdings of long-term Treasuries losing value as interest rates rose quickly – a risk the bank had not hedged. It was instead forced to borrow in the short term at higher rates while maintaining long-term loans on its books that were made when rates were low.