1 of 7 | Former CEO of Silicon Valley Bank Gregory Becker (L), former Chairman of Signature Bank Scott Shay (C) and former President of Signature Bank Eric Howell during a Senate Banking, Housing and Urban Affairs committee meeting Tuesday, blamed unprecedented events and circumstances for the collapse of their banks in March. Photo by Bonnie Cash/UPI | License Photo
May 16 (UPI) -- Former executives of two failed banks remained steadfast Tuesday, blaming "unprecedented" events for the failure of their respective institutions while being questioned by lawmakers.
Greg Becker, the former CEO of Silicon Valley Bank told the full Senate Committee on Banking, Housing and Urban Affairs Tuesday, that the failure of Silvergate Bank led to misconceptions that contributed to SVB becoming the first FDIC-insured bank to fail in more than two years when it was closed by the California Department of Financial Protection.
"News reports and investors wrongly lumped SVB and Silvergate together. Rumors and misconceptions quickly spread online, culminating on March 9 with the first-ever social media bank run, leading to $42 billion being withdrawn from SVB in 10 hours," Becker told the committee, adding he believes the bank's executive and management teams "made the best decisions" they could at the time.
"Ultimately, I believe SVB's failure was brought on by a series of unprecedented events," Becker testified at the first of three hearings meant to determine how California-based SVB and New York's Signature Bank failed, leading to their seizure by regulators in March within days of each other."
Scott Shay, the former bank chairman of the board, for New York's Signature Bank, said the federal-insured crypto industry lender's shutdown days later at the hands of state regulators made for "a series of truly extraordinary and unprecedented events."
"Within just a few days of SVB collapse, Signature Bank customers withdrew $16 billion in assets. Nonetheless, I was confident Signature Bank could withstand the economic earthquake that occurred that day," Shay said.
Committee Chairman Sen. Sherrod Brown, D-Ohio, opened the hearing by questioning how management at the two institutions was able to "fail so spectacularly."
"The simplest explanation is best. It is first and foremost the bankers' fault that the banks crashed. We know that federal and state bank officials repeatedly told managers and directors at your banks where there were problems, big problems. The kind of problems you can't ignore," said Brown.
"You never slowed down to make sure you were doing basic bank management."
The committee also demanded to know why the amount of uninsured deposits at both banks eclipsed 90% at one point in the lead-up to their collapses.
"How did you see that risk and then not respond to it?," ranking member Sen. Tim Scott, R-S.C., asked both men.
Becker replied the bank historically kept the rate at between 85% and 90%, although the actual dollar amounts increased greatly as SVB's assets mushroomed from $71 billion in 2019, to $212 billion in 2021.
Lawmakers asked why executives sold millions in stock ahead of both banks being seized by state regulators.
"SVB bank executives, including Mr. Becker, who is in front of us today, dumped millions of dollars in company stock in the days leading up to the crash," Brown told committee members at the meeting's outset.
"You were paying out bonuses until literally hours before regulators seized your assets."
Sen. Bob Menendez, D-N.J., pushed the issue further during questioning, asking Becker if he believed he was in possession of privileged information when he and fellow executives sold $84 million worth of the bank's stock.
"You had material information, the question is, is that material information or not?" Menendez asked.
"I didn't believe it was," Becker replied.
"You didn't believe it was. Thirty different supervisory findings, all of which are elements of the collapse of the bank, and you didn't believe those were material findings," Menendez countered.
"Clearly, the compensation structure at your institution was not in line with the long-term interest of your shareholders and your deposit holders."
The New Jersey senator said he hoped to work with committee members to draft legislation that prevents "risky, incentive-based executive compensation plans that leave taxpayers footing the bill when banks fail."
Related hearings are scheduled Wednesday and Thursday to hear from management and regulators.