Owners of failed US banks accused of profiting on security

Top executives of Silicon Valley banks and Signature Bank were questioned by US lawmakers on Tuesday after the lenders’ failures sparked the US regional banking crisis, with a senior US senator accusing them of prioritizing profit over the safety of their customers’ deposits. Accused of.

“Why did you let things get so bad? Why did you ignore the advice of the regulators?” said Sherrod Brown, the Democratic chairman of the Senate Banking Committee. “There is a simple answer—the same answer we find for most questions about the failures of the big banks: Because the executives were getting rich.”

The senators spoke at a hearing convened in early March to investigate the failures of SVB and Signature, 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.

Sitting as a Senate witness was Greg Baker, former chief executive officer of SVB, along with Scott Shay, former president of Signature Bank, and Eric Howell, former president of Signature.

“We took risk management seriously,” said Becker, who was making his first public appearance since the collapse of SVB.

In his written testimony released Monday ahead of the hearing, Baker blamed an “unprecedented” run on deposits fueled by “rumors and misconceptions” for the lender’s dismay.

Senator Tim Scott of South Carolina, the top Republican on the banking committee, said in Baker’s defense it was “hard to believe” that the bank took risk management seriously.

The root cause of California-based SVB’s eventual failure was its decision to invest deposits from tech companies and venture capital firms in a securities portfolio consisting mostly of long-term US debt and mortgage bonds. These investments fell in value when the Federal Reserve began raising interest rates last year.

The decision to sell a portion of its securities at a loss of $1.8 billion, based on what Baker claimed was Goldman’s advice, scared away investors and depositors, triggered a bank run and forced the bank to raise new capital. Had to fight for

New York-based Signature was seized by regulators a few days after SVB was shut down. The bank is set to more than double its deposits by 2022, being one of the few lenders to accept funds from customers involved in cryptocurrencies.

In the House on Tuesday, Republicans criticized regulators and Joe Biden’s administration for jeopardizing the health of the financial system by crafting new rules and restrictions for lenders already under stress.

Patrick McHenry, chairman of the House Financial Services Committee, accused the Fed of being too slow to react to rising inflation, which led it to raise interest rates sharply over the past year, which he said was “a threat to the financial system.” increased interest rate risks”.

McHenry criticized Michael Barr, the Fed’s vice chairman for supervision, for his support of greater regulatory and supervisory scrutiny of mid-sized banks. Those changes would affect the banking system, McHenry said, leaving banks too big to fail on one end and “a scattering of very small banks dependent on government subsidies to survive” on the other.

“You have recently indicated your willingness to go beyond reviewing supervisory failures that contributed to the bank’s failures,” he told Barr. “You have used this crisis to justify a long-standing priority of progressives to raise capital requirements and impose more regulations on banks.”