By Gina Heeb and Andrew Ackerman
Senate Democrats and Republicans pressed former Silicon Valley Bank Chief Executive Greg Becker and two ex-executives from Signature Bank Tuesday, blaming both banks' management for the way they handled rapid growth and rising interest rates before collapsing in March
Senate Banking Committee Chairman Sherrod Brown (D., Ohio) said the banks grew too fast and repeatedly ignored warnings from federal and state officials in the face of "glaring risks" from their customer and industry concentrations. SVB catered to startup and venture customers, a tightknit group who pulled their large deposits when trouble hit. Signature bet on crypto banking and then struggled after the sector imploded.
"We know your banks were fatally mismanaged," Mr. Brown said. "When you put other people's money, and our broader economy, at risk, there must be accountability for that level of mismanagement. Running a bank, as you know or should know, is unlike running any other company."
The hearing marked the first time the former executives have spoken publicly since SVB and Signature were seized by regulators in rapid succession two months ago, after spooked customers yanked deposits en masse from the banks. The failures touched off a crisis of confidence across the sector that has continued despite federal backstops and assurances from regulators that the system is safe.
Mr. Becker apologized Tuesday and said SVB was caught off guard as the Federal Reserve raised interest rates over the past year at the fastest pace in decades. The increases led to sharp declines in the value of securities held by banks, which ultimately led to a giant loss for SVB when it attempted to restructure its balance sheet.
SVB customers quickly yanked deposits in what Mr. Becker called an "unprecedented" deposit run that he said no bank could have survived. Depositors withdrew approximately $42 billion the day before SVB was seized and were set to withdraw another $100 billion of deposits if doors opened again, Mr. Becker said.
"You made a really stupid bet that went bad," Sen. John Kennedy (R., La.) said to Mr. Becker. "Unless you were living on the International Space Station, you could see that interest rates were rising and you weren't hedged."
Former Signature executives told lawmakers Tuesday that they believe regulators acted too quickly to seize the bank. Signature Chairman Scott Shay said the bank was in a "strong position to weather the storm," even after depositors pulled $16 billion from the bank within hours of SVB's seizure.
SVB and Signature, with a respective $209 billion and $110 billion in assets in December, were the second- and third-largest banks to fail in U.S. history at the time. When First Republic Bank was seized and sold to JPMorgan Chase this month it became the second-largest collapse, after Washington Mutual in 2008.
Officials across Washington have launched probes into the failed banks and the agencies that oversee them. The failures have led to calls for more stringent regulations on banks, especially the midsize ones that saw rules loosened under former President Donald Trump, and sparked debates over other policies such as deposit insurance.
Several lawmakers pressed the SVB and Signature executives over the compensation they received while leading the banks, concerns that were echoed by bank regulators who appeared before a House Financial Services Committee hearing also on Tuesday.
Michael Barr, the Fed's vice chair of supervision, told House lawmakers that it might be appropriate for the central bank to impose tougher restrictions, including around executive compensation, on banks that don't quickly respond to problems uncovered by their supervisors.
"That might have made a difference here," Mr. Barr said, referring to SVB. He also said the Fed is investigating bonuses paid to SVB employees hours before it failed, which he called "outrageous."
Before SVB's failure, the Fed repeatedly found problems, Mr. Barr said, but its supervisors didn't take sufficient steps to ensure the bank fixed those problems quickly enough.
Mr. Becker suggested on Tuesday the compensation he received last year was reasonable. He said he was impacted by losses of the SVB stock he held, though he sold millions of dollars worth of it before the bank disclosed its loss.
"From the standpoint of that compensation, that's determined by the board of directors," Mr. Becker said. "And so I know they believed it is fair, and I believe that they were accurate."
Write to Gina Heeb at gina.heeb@wsj.com and Andrew Ackerman at andrew.ackerman@wsj.com
(END) Dow Jones Newswires
May 16, 2023 13:25 ET (17:25 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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