Ocean State Today

WASHINGTON, DC – On may 16, during a hearing of the Senate Banking, Housing and Urban Affairs Committee, U.S. Senator Jack Reed (D-RI), a senior member of the committee, grilled a trio of executives from a pair of failed banks. 

The former heads of Silicon Valley Bank (SVB) and Signature Bank, which both failed earlier this year -- costing the government’s deposit insurance fund billions of dollars -- sought to deflect responsibility for their mismanagement and instead blamed their collapses on financial misfortune. 

Even as their banks were collapsing, the banking executives accepted multi-million payments and bonuses, with former SVB CEO Greg Becker testifying on may 16 that he was unaware the bank was in trouble when he sold stock in the months leading up to the collapse.  That’s despite supervisors from the Federal Reserve downgrading SVB in May 2022, so that it was no longer a “well-managed” institution under the law, and criticizing SVB’s management for “deficiencies that put the Firm’s prospects for remaining safe and sound at significant risk.” But Becker enriched himself by selling SVB shares through the first quarter of this year – including a multi-million dollar sale on February 27, less than two weeks before the bank collapsed on March 10, triggering billions of dollars of additional losses to the deposit insurance fund.

“I heard a lot of empty excuses and deflections on may 16 and I didn’t buy it.  The bottom line is: There must be stronger oversight of these banks and accountability for failed executives who gamble with other people’s money and the U.S. economy.  They never want any scrutiny or supervision when times are good, but as soon as things go wrong they need the government to clean up the mess and for healthy banks and their customers to pick up the tab.  It’s not fair to hardworking Americans.  We need stronger tools to prevent bank directors and senior executives who mismanage these institutions into the ground from enriching themselves when their risky bets destabilize the financial sector and saddle the public with the costs,” said Reed, a senior member of the Banking Committee.

To improve accountability at big banks and ensure managers of failed banks don’t profit from their mismanagement and negligence while taxpayers shoulder the burden, Senator Reed called for failed banking executives to repay prior years of their big paychecks and be barred from similar employment in the financial industry. 

In April, Reed, along with Senator Chuck Grassley (R-IA), introduced the bipartisan Bank Management Accountability Act (S. 1181).

During his questioning of witnesses at the hearing on may 16, Senator Reed focused on SVB’s executive compensation policies that incentivized risk-taking and the fact that the bank consistently breached limits for interest rate risk and liquidity risk.  He also asked Mr. Becker about SVB lacking a risk officer in the months leading up to its collapse.

A transcript of Reed’s questioning at the hearing follows:

U.S. SENATOR JACK REED (D-RI): Gentlemen, this is a moment in which the American public wants some very direct answers. Let me turn first to Mr. Becker. The Federal Reserve report found that SVB repeatedly breached its internal risk limits for interest rate exposure for years. SVB also had persistent shortfalls in its liquidity positions, following repeated poor performance on internally conducted stress tests.  Mr. Becker, did you know about these breaches and shortfalls?

FORMER SILICON VALLEY BANK (SVB) CEO GREGORY BECKER: Senator, as far as the interest rate risk breaches, I don't recall. I do recall the liquidity breaches, and it really came from the feedback that we received from the regulators towards the end of 2021 and as previously stated, to my memory, the majority of those were resolved, and in fact, in February of 2023, my recollection is the breaches were all remediated with the exception of one that we expected to remediate in the short term.

REED: But you had no knowledge of interest rate exposures that were reported by the Federal Reserve?

BECKER: I know we received the MRA [Matters Requiring Attention] towards the end of 2022. That is my recollection, and I remember our team was working on resolving that.

REED:  It's hard to conceive of a CEO of a bank not being attuned on an almost minute-by-minute basis to interest rate exposures, since that’s one of the essentials of banking. I am not an expert, but I don't think I'd be contradicted. So, you did not share with the board any knowledge of interest rate difficulties?

BECKER: Senator, any regulatory finding was disclosed with our board of directors. So all of that information would have been shared with them, and the specific committee that was involved in interest rate risk management in the decisions around investments would have been our finance committee.

REED: And who chairs that finance committee? Who chaired it the last year?

BECKER: The chair of the finance committee was Joel Friedman.

REED: But you claim that you have no knowledge of these interest rate difficulties?

BECKER: Senator, we treat all regulatory findings seriously. That was a matter requiring attention which is the lowest level of feedback that we would receive. And, yes, we were in the middle of addressing it. From our standpoint, it, was again at the lowest level of feedback.

REED: I understand that you did not have a risk officer in place for the last year in the operations of the bank, that that officer resigned early in the year and there was no replacement, is that accurate?

BECKER: Senator, it was a mutual decision for the CRO [Chief Risk Officer] to leave the organization in April. And we covered that in two ways. One is by putting together an office of the CRO, which had the leadership team and risk manager reporting into me as well as the Chair of the Risk Committee. We kept our chief risk officer on board as a consultant in case questions came up, to make sure we didn't have any gaps during that period in time. We hired our new chief risk officer in October of 2022, and she started in December.

REED: Was the focus of the disagreements the fact that the risk officer was warning you of the dangers that you were deliberately running, and as a result, you wanted that person to be removed from the bank and that the consultant fee is a convenient way to pay someone to go away?

BECKER: Senator, the feedback on making a change with the chief risk officer was actually from our regulators and from our board of directors. So, no, from my perspective that was not the reason behind it.

REED: Well it just seems that for a whole year, almost, preceding the collapse of the bank, you had an ad hoc risk organization when you were facing serious challenges, which have been identified here in terms of your assets, in terms of your uninsured deposits, in terms of a host of things. So it gives the impression that there was not a lot of sensitivity or interest in fixing the problems that you faced. And, consequently, the U.S. Government had to bail out you and many of your uninsured depositors and that can't happen again. Thank you.

Original source can be found here.