Silicon Valley Bank’s former chief executive Greg Becker plans to blame an “unprecedented” run on deposits fuelled by “rumours and misconceptions” for the collapse of the lender, according to testimony released ahead of a high-stakes congressional hearing.

In his first public appearance since the collapse of SVB on March 10, which triggered the worst bout of banking turmoil since the 2008 crisis, Becker is expected to say that no lender “could survive a bank run of that velocity and magnitude”.

According to pre-written testimony ahead of a grilling on Tuesday in front of the Senate banking committee, Becker said he was “devastated” by the collapse of SVB — which now ranks as the third-largest US bank failure — and “truly sorry” for the impact on staff, clients and investors.

In comments that could prove uncomfortable for Goldman Sachs, Becker pointed out SVB had decided to sell a chunk of its securities at a loss based on advice from the Wall Street group, a move that spooked investors and depositors.

The ensuing bank run prompted regulators at the US Federal Deposit Insurance Corporation to seize control of the bank. Goldman did not immediately respond to a request for comment.

“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,” wrote Becker, who ran SVB for 12 years.

The former SVB chief also appeared to direct some blame at the US Federal Reserve and its incorrect prediction that a jump in inflation starting in 2020 would be “transitory”. Because of that “messaging”, SVB and other banks “invested in their securities portfolios”, Becker argued.

Meanwhile, Becker took issue with an article in the Financial Times, published in February, that reported SVB was facing scrutiny over its decision to move assets into the securities portfolio, along with another lender called Silvergate. Silvergate decided to shut down on March 8, two days before the collapse of SVB.

“Silvergate’s failure and the link to SVB caused rumours and misconceptions to spread quickly online, leading to the start of what would become an unprecedented bank run,” wrote Becker.

He added: “The next day, the bank run picked up steam. By the end of the day on March 9, $42bn in deposits were withdrawn from SVB in 10 hours, or roughly $1mn every second.”

The next day the FDIC took possession of SVB, prompting another $100bn of deposit withdrawals. That meant 80 per cent of total deposits had disappeared in just two days, the swiftest run on a bank in US history.

In a report released late last month by the Fed, the US central bank blamed the failure of SVB on mismanagement by Becker and other executives, as well as regulatory changes made during the administration of Donald Trump and the failure of Fed supervisors to quickly address problems after they were uncovered.

Former top executives from Signature Bank, which was seized by regulators in parallel with SVB, are scheduled to appear at the same hearing as Becker on Tuesday.

According to prewritten testimony, Scott Shay, former chair of Signature, plans to tell lawmakers that the FDIC was wrong to take over the lender.

“The bank had a well-defined and solid plan to continue in operation and withstand additional withdrawals,” Shay wrote. “Although I believed that the bank was in a strong position to weather the storm, regulators evidently saw things differently.”

The grilling of top executives from SVB and Signature will kick off a day of soul-searching in Washington over the reasons for the bank collapses, which shook confidence in US regional lenders and which the Fed has blamed for a credit crunch.

Regulators, including Fed vice-chair for supervision Michael Barr and FDIC chair Martin Gruenberg, will testify about the collapsed banks in a separate hearing before the House Financial Services Committee.

In his opening remarks, Barr is set to tell lawmakers he is “committed” to addressing “weaknesses in regulation and supervision” while being “sensitive to how changes may affect banks in the current economic environment”.

Becker’s testimony also addressed criticism about his pay, including disclosures that showed he sold $3.6mn in SVB shares shortly before the bank collapsed. He said he “believed very strongly” in SVB’s stock and that his stake was nearly five times larger than the size required by the board.

The sale of shares in February was triggered by SVB announcing its results for the fourth quarter, he said. “I did nothing to accelerate that trade and only learned it had executed after the fact.”

SVB’s market capitalisation hit a high of $44bn in 2021 at the peak of a pandemic-fuelled tech boom, but had dropped to about $17bn in February after concerns about a downturn in the venture capital industry that was its core client base.

Reporting by Antoine Gara, Stephen Gandel, Brooke Masters and Josh Franklin in New York, Colby Smith in Washington, and Tabby Kinder in San Francisco

Source link

Leave a Comment