Rumors and misconceptions responsible for SVB’s failure, claims ex-CEO

Greg Baker, the former CEO of Silicon Valley Bank, plans to blame an “unprecedented” run on deposits driven by “rumors and misconceptions” for the lender’s downfall, according to testimony released ahead of a high-stakes congressional hearing. According to.

In his first public appearance since the collapse of SVB on March 10, which triggered the worst period of banking turmoil since the 2008 crisis, Becker is expected to say that no lender could “collapse of that velocity and magnitude”. Can’t escape running the bank”.

According to pre-written testimony before hearings Tuesday before the Senate Banking Committee, Baker said he was “devastated” by the collapse of SVB — which now ranks as the third-largest US bank failure — and “really Sorry” for the impact on employees, customers and investors.

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

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

Baker wrote, “I never imagined these unprecedented events could happen to SVB and firmly believe that the leadership team and I made the best decisions with the facts, forecasts and outside expert advice available at the time.” SVB for 12 years.

The former SVB chief appeared to pin some of the blame on the US Federal Reserve and incorrectly predicted that an inflation surge starting in 2020 would be “fleeting”. Because of that “messaging”, SVB and other banks “invested in their securities portfolios”, Becker argued.

Meanwhile, Baker took issue with an article in the Financial Times published in February, which reported that SVB was facing scrutiny over its decision to transfer assets in the Securities Portfolio, along with another lender called Silvergate. with. Silvergate decided to close on March 8, two days before the collapse of SVB.

“The Silvergate failure and its link to SVB led to rumors and misconceptions spreading quickly online, triggering an unprecedented bank run,” Baker wrote.

He added: “The next day, the bank run picked up steam. By the end of the day on March 9, $42 billion in deposits had been withdrawn from SVBs in 10 hours, or roughly $1 million every second.

The next day the FDIC took over SVB, prompting $100bn of deposit withdrawals. This meant that 80 percent of total deposits had disappeared in just two days, the fastest run at a bank in US history.

In a report released by the Fed late last month, the US central bank blamed the SVB’s failure on mismanagement by Baker and other officials, as well as regulatory changes made during Donald Trump’s administration and problems with Fed supervisors acting quickly. Failure to resolve followed by their exposure.

Former top executives at Signature Bank, which were seized by regulators parallel to SVB, are due to appear at the same hearing with Baker on Tuesday.

According to prior written testimony, Signature’s former president, Scott Shay, plans to tell lawmakers that the FDIC was wrong in taking over the lender.

“The bank had a well-defined and concrete plan to continue operating and cope with additional withdrawals,” Shay wrote. “Although I believed the bank was in a strong position to weather the storm, regulators clearly saw things differently.”

The grilling of top executives from SVB and Signature will cap off a day of soul-searching in Washington over the causes of the bank’s collapse, which shook confidence in US regional lenders and which the Fed blamed for the credit crunch.

Regulators, including Fed Vice-Chair for Supervision Michael Barr and FDIC Chairman 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 the current economic environment may affect banks”. Are.

Baker’s testimony also addressed criticism about his pay, including the disclosure that he had sold $3.6mn in SVB shares shortly before the bank’s collapse. He said he “believed very strongly” in SVB’s stock and that his stake was about five times the size required by the board.

He said the selling of shares in February started after SVB announced its fourth quarter results. “I did nothing to trigger that trade and only learned it was executed after the fact.”

SVB’s market capitalization reached a high of $44bn in 2021 at the peak of a pandemic-fuelled tech boom, but had fallen to around $17bn in February following concerns about a slowdown in the venture capital industry that is its main focus. was the customer 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