Former SVB CEO Greg Becker to Apologize for Bank Collapse
3 min read
16 May 2023, 01:17 AM IST
Becker in prepared congressional testimony says no bank could have survived the run of velocity and magnitude experienced by bank
PremiumFormer Silicon Valley Bank chief executive Greg Becker plans to tell a Senate committee on Tuesday that no bank could have survived the unprecedented deposit run that led to his institution’s failure in March.
Mr. Becker hasn’t spoken publicly since regulators seized SVB two months ago, after a failed capital raise and historic deposit run doomed the startup- and technology-focused California bank. Two former executives at New York-based Signature Bank, which failed shortly after, are also set to appear before the Senate Banking Committee.
“I do not believe that any bank could survive a bank run of that velocity and magnitude," Mr. Becker wrote in testimony prepared for the hearing.
Depositors withdrew approximately $42 billion the day before SVB’s closure. Another $100 billion of deposits were set to be withdrawn the day regulators seized SVB, Mr. Becker said, or about 80% of the bank’s total deposits over two days.
Mr. Becker apologized to employees, clients and shareholders in the prepared remarks, saying the takeover of SVB was “personally and professionally devastating."
Democrats and Republicans alike are expected to question Mr. Becker, along with former Signature Chairman Scott Shay and former President Eric Howell, over their roles in the collapses. SVB’s and Signature’s failures were the second- and third-largest bank failures in U.S. history until First Republic Bank was seized and sold this month. It became the new second-largest collapse, after Washington Mutual in 2008.
The March failures set off a crisis of confidence across the industry, which was already under pressure over the past year as the Federal Reserve raised interest rates at the fastest pace in decades. The increases pushed up the cost of deposits for banks and led to sharp declines in the value of securities and loans they hold.
SVB was caught off guard by the Fed’s messaging on interest rates, Mr. Becker said. The Fed had signaled throughout 2021 that rates would remain low and that the inflation that was starting to bubble up “would only be ‘transitory,’" Mr. Becker said.
“Despite this messaging, early in 2022, the Federal Reserve began a series of interest rate hikes that would eventually become the steepest rate increase over a 12-month period in almost 40 years," he said.
Fed officials have largely pinned the blame for SVB’s failure on the firm’s management, saying they failed to effectively manage the bank’s interest-rate and liquidity risk, and the firm then suffered a devastating and unexpected run by its uninsured depositors. “SVB’s failure is a textbook case of mismanagement," said Michael Barr, the Fed’s vice chairman for supervision, testifying before lawmakers in late March.
The two former Signature executives are expected to tell lawmakers that they believe regulators acted too quickly to seize the bank on March 12.
Despite seeing heavy withdrawals on the day regulators took over SVB, Signature “was well-capitalized, solvent, and had sufficient borrowing capacity to withstand these and future withdrawals," said Mr. Howell, the bank’s former president, in prepared testimony.
Within hours of SVB’s seizure, Signature customers yanked $16 billion from the bank, Mr. Shay, the former chairman, said in his own prepared remarks. “Although I believed that the bank was in a strong position to weather the storm, regulators evidently saw things differently," he said.
Messrs. Howell and Shay will likely face questions about Signature’s cryptocurrency ties, which raised issues for the bank after the collapse of the crypto exchange FTX in November. Signature “took these developments seriously" and “significantly reduced" its digital asset deposits last year, Mr. Shay said.
Regional lenders have borne the brunt of the recent banking turmoil, as some depositors move to megabanks that they see as too big for the government to allow to fail. Shares of midsize and small banks have been badly battered, as investors try to exit institutions they think are positioned similarly to those that failed and as shortsellers look to seize on dramatic swings in financial stocks.
Officials across Washington have said the system is safe and opened a series of investigations into the banks that failed and the agencies that oversee them. The House Financial Services Committee will separately on Tuesday press officials from the Fed, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Office of the Comptroller of the Currency.
