SVB collapse: House to hold first hearing on SVB as lawmakers remain split on response

Cami Mondeaux

March 18, 08:36 AM March 18, 08:36 AM

The House is set to hold its first hearing on the collapse of Silicon Valley Bank, marking a significant step toward addressing the financial crisis while lawmakers remain split on how to avoid similar incidents in the future.

The House Committee on Financial Services will hold a hearing on March 29 to question federal financial regulators on their response to the bank collapse, lawmakers announced on Friday. The hearing is expected to be the first of several as lawmakers seek to determine the cause of the banking failures and consider measures to prevent future shortcomings.

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"We are working around the clock to deliver answers to the American people in order to protect depositors, promote the safety and soundness of America’s banks, and strengthen our financial system," Reps. Maxine Waters (D-CA) and Patrick McHenry (R-NC), the top two lawmakers on the committee, wrote in a joint statement. “We will conduct this hearing without fear or favor to get the answers the American people deserve.”

The hearing will feature two witnesses, including Martin Gruenberg, chairman of the board of directors at the Federal Deposit Insurance Corporation, and Michael Barr, the vice chairman for supervision of the board of supervisors at the Federal Reserve. More witnesses could be called to testify before the hearing takes place.

Lawmakers have already begun pressing for answers on the banking failures, with senators on the Finance Committee questioning Treasury Secretary Janet Yellen on the matter during a separate hearing on her department’s proposed budget for 2024.

Additionally, Sen. Sherrod Brown (D-OH) sent a letter to the Treasury, the Fed, and the FDIC on Thursday, urging the government agencies to conduct a comprehensive review of the bank’s collapse that led to a strain on the nation’s financial system. As part of that request, Brown pressed the agency to implement stronger banking regulations “to prevent failures and mitigate contagion.”

The hearing comes as lawmakers on both sides of the aisle seek to address the collapse of SVB and Signature Bank, which prompted a frenzy and strain on the national stock market late last week.

Sen. Elizabeth Warren (D-MA) introduced legislation on Tuesday that would abolish Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act and restore certain provisions used to overhaul the U.S. financial system in the aftermath of the 2008 recession.

Warren’s legislation specifically targets a Title IV provision that raised the asset threshold to $250 billion for banks to be regulated as “systemically important.” That rollback, Warren argued, led to the deregulation and subsequent collapse of SVB and Signature Bank, prompting the frenzy and strain on the stock market.

The bill has ignited some disagreement among Senate Democrats as the party members can’t agree on whether they want to repeal the 2018 legislation altogether or pass stronger regulations. Republicans, on the other hand, have rejected the idea.

Senate Minority Whip John Thune (R-SD) dismissed any talks of legislation as being “premature," especially before lawmakers understand the causes behind the collapse.

Both SVB and Signature Bank collapsed late last week, prompting major federal intervention to backstop uninsured deposits in a bid to halt panic.

The collapse came after SVB announced on March 8 that it had sold $21 billion in bonds, cementing $1.8 billion in previously unrealized losses. That announcement sparked a frenzy among venture capital firms, which reportedly began advising clients to pull their money from Silicon Valley Bank — causing its stock to be thrust into a free fall.

Regulators shut down Signature Bank two days after Silicon Valley Bank collapse

Emily Jacobs

March 12, 09:10 PM March 12, 09:10 PM

Federal and state banking regulators announced Sunday that Signature Bank, one of the main financial institutions for cryptocurrency firms, had been shut down.

The decision to shutter the New York-based bank was revealed in a joint statement from the Federal Reserve, Treasury Department, and Federal Deposit Insurance Corporation. The trio said that the FDIC would make customers of Signature and Silicon Valley Bank, whose Friday collapse sparked fears of a possible banking crisis, whole. The Signature failure is the third-largest in U.S. banking history, while SVB is the second.

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“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” the statement about SVB read, adding that "no losses will be borne by the taxpayer."

New York bank regulators said in a separate statement Sunday that the closure was "in light of market events, monitoring market trends, and collaborating closely with other state and federal regulators” to protect both consumers and the financial system.

The FDIC also established a "bridge" successor bank, which will enable Signature customers to access their funds on Monday morning. The regulator named Fifth Third Bancorp CEO Greg Carmichael as chief executive of the bridge bank.

The moves come as federal and state regulators attempt to prevent a major banking crisis from spreading.

New York Gov. Kathy Hochul, a Democrat, said Sunday that she hoped the U.S. government's actions would provide "increased confidence in the stability of our banking system."

"Many depositors at these banks are small businesses, including those driving the innovation economy, and their success is key to New York's robust economy," she said.

The state of California shuttered SVB on Friday, just two days after the nation's 16th largest federally insured bank announced that it needed to raise more than $2.2 billion to remain solvent, which sent its stock price plunging over 60% in 48 hours. The bank had achieved financial stardom during the COVID-19 pandemic because major cash deposits from the booming firms. Its securities portfolio rose from roughly $27 billion in 2020's first quarter to approximately $127 billion at the end of 2021.

The fact that most of SVB's assets were seemingly secure — they were mainly longer-term government bonds — led many investors to feel the bank was secure. The government securities bought by SVB pay a fixed rate, so when market interest rates were raised, a gap began to grow between how much the securities were worth on the open market and what they were valued on the bank's books. The unrealized losses in SVB's securities portfolio in December had grown to more than $17 billion, a number expected to rise as the securities could only be sold at a loss.

Silicon Valley Bank collapse: Mark Warner argues 'best outcome will be an acquisition'

Ryan King

March 12, 01:51 PM March 12, 01:51 PM

Sen. Mark Warner (D-VA) argued that the best remedy for the Silicon Valley Bank collapse would be an acquisition.

Stopping short of ruling out support for a bailout, Warner underscored the importance of SVB depositors receiving their money back and emphasized the speed with which SVB's collapse came about.

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"The best outcome will be – can they find a buyer for this SVB bank today, before the markets open in Asia later in the day. That would be the best," Warner told ABC's This Week host Martha Raddatz.

Last Wednesday, SVB revealed that it sold off a trove of securities at a loss and moved to raise capital, which sparked panic from venture capital firms and catalyzed a run on the bank. By Friday, SVB collapsed and was taken over by federal regulators.

SVB was the 16th largest federally insured bank and the largest to plunge into turmoil since Washington Mutual crashed during the 2008 financial crisis. Warner, who sits on the Senate Committee on Banking, Housing, and Urban Affairs, noted the timeline of its demise.

"This bank bought long-term treasuries, interest rates went up, and they got caught in a bind. But what was different in your report made clear, $42 billion came out of this bank on one day — on Thursday. And frankly, some actors, I think, we're accelerating that run. To put in comparison, Washington Mutual during the crisis ... lost $16 billion dollars over 10 days," Warner stressed.

During the Trump administration, Warner was one of 17 Democrats who backed a mid-sized bank rollback in Dodd-Frank, a comprehensive banking regulation package passed in the aftermath of the 2008 financial crisis. Warner helped author the original Dodd-Frank bill.

"I do think these mid-sized banks needed some regulatory relief," Warned said.

Federal Deposit Insurance Corporation policy dictates that bank deposits are insured up to $250,000, but the vast majority of SVB's deposits were worth over $250,000. Regulators have reportedly been working to ensure that depositors who had over $250,000 stashed in SVB will get their money back.

"Shareholders and the bank are going to lose their money, let's be clear about that. But the depositors can be taken care of," Warner stressed. "There's generally been a feeling that the people responsible, the shareholders of the bank, ought to lose their money. Depositors have been a different circumstance."

Warner also emphasized the risks posed by SVB's collapse to working families.

"I know it's called Silicon Valley Bank, but the startups literally are all across the country, and they've got to pay their bills this week," Warner said. "If other regional banks, midsize banks, if people get nervous, they may start taking their money out of those banks and putting it into the large money center banks. We don't want further consolidation."

Silicon Valley Bank collapse: CEO cashed out millions while employees got bonuses

Emily Jacobs

March 11, 08:39 PM March 11, 08:39 PM

Silicon Valley Bank CEO Greg Becker cashed out stock and options in the weeks leading up to Friday's collapse, netting him a $2.27 million profit, public filings reveal.

The state of California shuttered SVB on Friday, just two days after the nation's 16th largest federally insured bank announced that it needed to raise more than $2.2 billion to remain solvent, which sent its stock price plunging over 60% in 48 hours. The Federal Deposit Insurance Corporation took the embattled bank into receivership in what is being described the worst U.S. bank failure since the Great Recession of 2007-2009.

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Becker exercised his stock options before immediately selling them on Feb. 27 as part of a prearranged executive stock sale plan, according to Securities and Exchange Commission filings. He had filed sales as part of that plan as recently as Jan. 26. He also sold stock on Jan. 31 for an additional $1.1 million, though the SEC filing for this sale states that the transaction was conducted to cover a tax liability.

News of Becker's recent profits comes amid multiple reports that the bank, which mostly served technology workers and venture capital-backed companies, paid out bonuses to employees just hours before the FDIC takeover on Friday. Multiple sources told Axios that the bonuses had been previously scheduled to be disbursed on Friday for work done in 2022. Bonuses for employees working abroad were scheduled for later this month and have yet to be paid out.

SVB achieved financial stardom during the COVID-19 pandemic because major cash deposits from the booming firms increased its deposits from $60 billion in the first quarter of 2020 to over $200 billion in December 2022, the Wall Street Journal reported. Its securities portfolio rose from roughly $27 billion in 2020's first quarter to approximately $127 billion at the end of 2021.

The fact that most of SVB's assets were seemingly secure — they were mainly longer-term government bonds — led many investors to feel the bank was secure. The government securities bought by SVB pay a fixed rate, so when market interest rates were raised, a gap began to grow between how much the securities were worth on the open market and what they were valued on the bank's books. The unrealized losses in SVB's securities portfolio in December had grown to more than $17 billion, a number expected to grow, as the securities could only be sold at a loss.

The FDIC moved SVB's remaining assets on Friday to the newly created Deposit Insurance National Bank of Santa Clara. Prior to the collapse, SVB had 17 branches located across California and Massachusetts. At the close of last year, the bank had roughly $209 billion in total assets and approximately $175.4 billion in total deposits.

Reacting to the shocking collapse in a WHD News interview Saturday, billionaire Home Depot co-founder Bernie Marcus said that blame should be placed on the "woke" bank and the Biden administration for its persistent push for financial institutions to prioritize "global warming" over shareholder returns.

"I think that the system, that the administration has pushed many of these banks into [being] more concerned about global warming than they do about shareholder return," Marcus told host Neil Cavuto. "And these banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is, shareholder returns."

"Instead of protecting the shareholders and their employees, they are more concerned about the social policies," he continued. "And I think it's probably a badly run bank. They've been there for a lot of years. It's pathetic that so many people lost money that won't get it back."