Former Silicon Valley bank CEO Greg Baker plans to blame an “unprecedented” deposit run fueled by “rumors and misconceptions” for the lender’s collapse, according to testimony released ahead of a high-stakes congressional hearing.
In his first public appearance since the March 10 collapse of the SVB, which unleashed the worst bout of banking turmoil since the 2008 crisis, Baker is expected to say that no lender “can survive an influx of banks of this speed and magnitude.”
According to pre-written testimony before Tuesday’s questioning before the Senate Banking Committee, Baker said he was “devastated” by the collapse of SVB — now ranked as the third largest failed US bank — and “truly sorry” for the impact on employees, customers and investors.
wrote Becker, who has run SVB for 12 years.
In comments potentially uncomfortable for Goldman Sachs, Baker noted that SVB decided to sell part of its securities at a loss on advice from a Wall Street group, a move that spooked investors and depositors. The ensuing banking race prompted regulators at the US Federal Deposit Insurance Corporation to take control of the bank.
Goldman said it “assisted SVB with the proposed capital raise and later purchased a portfolio of securities from it. Prior to this sale, Goldman Sachs notified SVB in writing that we would not act as an advisor to them in the sale, and that SVB should not rely on any advice from the bank.” In this regard, a third party financial advisor should instead be appointed.
Baker also seemed to place some blame on the Fed and its incorrect prediction that the jump in inflation starting in 2020 would be “temporary”. It was because of these “messages”, he said, that SVB and other banks invested in their securities portfolios.
The former SVB chief took issue with a Financial Times article, published in February, which reported that the bank was facing scrutiny over its decision to move assets into the securities portfolio, along with another lender called Silvergate. Silvergate decided to close on March 8, two days before the SVB collapse.
“The Silvergate fiasco and the association with SVB caused rumors and misconceptions to spread rapidly online, initiating what would become an unprecedented bank scramble,” Baker wrote.
He added, “The next day, bank activity picked up. By the end of March 9, $42 billion worth of deposits had been withdrawn from SVB within 10 hours, or roughly $1 million every second.”
The next day, the FDIC acquired SVB, prompting another $100 billion in deposit withdrawals. This means that 80 percent of all deposits disappeared in just two days, the fastest operation ever run by a bank in US history.
In a report released late last month by the Federal Reserve, the US central bank blamed the SVB’s failure on mismanagement by Baker and other executives, as well as regulatory changes made during Donald Trump’s administration and the failure of Fed supervisors to quickly address the problems. after they were detected.
The former top executives from Signature Bank, which was taken over by regulators in parallel with SVB, are set to appear at the same hearing as Becker on Tuesday.
According to previously written testimony, Scott Shay, the former president of Signature, plans to tell lawmakers that the FDIC was wrong to take on the lender.
“The bank had a solid and well-defined plan to continue operating and withstand additional withdrawals,” Shay wrote. “While I had thought the bank was in a strong position to weather the storm, it is clear that regulators saw things differently.”
Questioning senior executives from SVB and Signature will begin a day of soul-searching in Washington about the causes of the collapse of the bank, which has shaken confidence in US regional lenders and which the Federal Reserve has blamed for the credit crunch.
The regulators, including Federal Reserve Vice Chairman of Oversight Michael Barr and FDIC Chairman Martin Gruenberg, will testify about the failing banks in a separate hearing before the House Financial Services Committee.
In his opening remarks, Barr is set to tell lawmakers that he is “committed” to addressing “weaknesses in regulation and oversight” while being “sensitive to how changes affect banks in the current economic environment.”
Meanwhile, Gruenberg is set to defend the “highly competitive” process that led to First Republic’s sale to JPMorgan after it failed and was seized by regulators earlier this month, amid criticism that the deal allowed the largest US bank to become even bigger.
Gruenberg said 21 banks and 21 non-bank financial services firms were invited to participate in the process and that the sale to JPMorgan “clearly represents” the lowest cost for the FDIC, as required by law.
Baker’s testimony also addressed criticism about his salary, including disclosures that showed he sold $3.6 million in SVB stock shortly before the bank collapsed. He said he “believes deeply” in SVB shares and that his stake was roughly five times larger than the size required by the board.
He said the February stock sell-off was prompted by SVB’s announcement of its fourth-quarter results. “I did nothing to speed up this trade and only knew they executed it after the fact.”
Additional reporting by Antoine Gara, Stephen Gandel, Brock Masters and Joshua Franklin in New York, Colby Smith in Washington and Tabby Kinder in San Francisco
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