The US Federal Reserve's aggressive interest rate rises and a torrent of negative information on social media were key contributors to the collapse of Silicon Valley Bank, former chief executive Greg Becker said on Tuesday.
“Throughout 2021, the Federal Reserve described inflation as a transitory risk, suggesting that interest rates would not increase significantly in the short term,” Mr Becker said in prepared remarks before the Senate Banking Committee.
From 2020-2021, “banks collectively purchased nearly $2.3 trillion of investment securities in this low-yield environment created by the Federal Reserve”, he added.
SVB's collapse led to a run on other mid-size US banks including Signature – which collapsed soon after – and is still being felt across the banking sector.
His remarks before the committee were his first since SVB was placed into receivership in March.
Mr Becker's characterisation of SVB's failure was rejected by Tim Scott, the committee's ranking Republican, who said a lack of judgment showed Mr Becker should not have been running SVB.
“Anyone that pays close attention to the economy over the past two years could have plainly seen that the Federal Reserve was going to continue to increase interest rates,” he said.
Committee chairman Sherrod Brown said the bank's mismanagement was attributed to “the executives getting rich”.
Fed vice chairman Michael Barr, who led the central bank's review of the regulation of SVB, has characterised the regional bank's collapse a “textbook case of mismanagement”.
In a separate hearing before a US House of Representatives committee, Mr Barr said SVB's board of directors had failed to manage risks as they grew, while also acknowledging that federal supervisors did not fully understand the extent of the bank's vulnerabilities.
The separate hearings point to duelling narratives presented by federal regulators and the failed banks' executives, with Mr Becker accusing online media of incorrectly comparing SVB to Silvergate, a bank that was almost entirely focused on cryptocurrencies.
Media comparisons made between SVB and Silvergate, which voluntarily wound down, “caused rumours and misconceptions to spread quickly online, leading to the start of what would become an unprecedented bank run”, Mr Becker said.
“The next day, the bank run picked up steam. By the end of the day on March 9, $42 billion in deposits were withdrawn from SVB in 10 hours, or roughly $1 million every second,” he added.
Mr Becker also says SVB had hired a risk officer in 2022 after consulting with the Fed as the mid-size lender approached $250 billion in assets. He adds that the bank had hired additional risk professionals to support the group.
He says federal regulators had informed SVB that it had sufficient capital and liquidity during this time.
Former Signature executives said the bank could have survived if federal regulators had not stepped in.
“Although I believed that the bank was in a strong position to weather the storm, regulators evidently saw things differently,” former Signature chairman Scott Shay told the committee.
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