The fastest pace of rate hikes by the Federal Reserve in decades combined with negative social media sentiment contributed to the failure of SVB Financial Group’s Silicon Valley Bank, said Greg Becker, former chief executive officer of the company.
(Bloomberg) — The fastest pace of rate hikes by the Federal Reserve in decades combined with negative social media sentiment contributed to the failure of SVB Financial Group’s Silicon Valley Bank, said Greg Becker, former chief executive officer of the company.
“The messaging from the Federal Reserve was that interest rates would remain low and that the inflation that was starting to bubble up would only be ‘transitory,’” Becker said in written testimony prepared for a US Senate Banking Committee hearing Tuesday focused on Silicon Valley Bank and Signature Bank, both of which were seized by regulators in March. “Indeed, between the start of 2020 and the end of 2021, banks collectively purchased nearly $2.3 trillion of investment securities in this low-yield environment created by the Federal Reserve.”
Silicon Valley Bank catered to the technology-startup ecosystem, and its heavy focus on the sector combined with a portfolio of long-dated bonds that lost value as interest rates climbed made it particularly susceptible to the bank run that prompted regulators to seize the lender. Its failure touched off a number of other bank runs, leading to the seizure of Signature Bank days later and the eventual collapse of First Republic Bank as well.
Becker said comparisons by the media between SVB and Silvergate Capital Corp., which announced plans to wind down just days before his bank’s seizure, contributed to SVB’s failure.
“Silvergate’s failure and the link to SVB caused rumors and misconceptions to spread quickly online, leading to the start of what would become an unprecedented bank run,” Becker said in his testimony. “The next day, the bank run picked up steam. By the end of the day on March 9, $42 billion in deposits were withdrawn from SVB in 10 hours, or roughly $1 million every second.”
Becker also acknowledged lapses on the part of SVB raised by auditors and regulators that executives were working to rectify. He pointed to the expansion of the bank’s Treasury management team to enhance risk management as it closed on $100 billion in assets, a level it surpassed in February 2021.
The bank also sought to hire a chief risk officer with experience running a so-called large financial institution after consultation with the Federal Reserve Board. SVB also looked to improve liquidity in 2022, he said, while noting that regulators said at that time that the bank had sufficient capital and liquidity.
“I never imagined that these unprecedented events could happen to SVB and strongly believe that the leadership team and I made the best decisions we could with the facts, forecasts and outside expert advice available to us at the time,” Becker said. “The takeover of SVB has been personally and professionally devastating, and I am truly sorry for how this has impacted SVB’s employees, clients and shareholders.”
Signature Bank
It’s the first time Becker is speaking publicly since March 10, when Silicon Valley Bank was placed into receivership. Executives who ran failed banks have been under intense public scrutiny as turmoil continues to roil the financial sector. Scott Shay, co-founder and former chairman of New York-based Signature Bank, also is set to testify Tuesday, as is Eric Howell, the company’s former president.
Both Shay and Howell said in their written testimony that they believed Signature’s liquidity position would have allowed it to remain open, but that they understood regulators viewed the situation differently.
“Although I disagreed with this decision, I recognize the important role that bank regulators play in our financial system,” Shay said. “My first priority in helping to build Signature Bank was providing excellent service to our customers. I was therefore pleased that the government guaranteed the full amount of our customers’ deposits.”
(Updates with additional comments from Becker, Shay testimony starting in sixth paragraph.)
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