- Written by Natalie Sherman
- Business Reporter, New York
The former heads of two US banks that collapsed in March, raising global concerns about the state of the financial industry, say the failures were caused by “unprecedented” circumstances.
The comments come in testimony prepared for a hearing in Washington on Tuesday.
Lawmakers are considering the episode amid debate over what should have been done to prevent it.
Former Silicon Valley bank chief Greg Baker is set to tell Congress he “never imagined” such events.
In his prepared remarks, he blamed the bank’s collapse on rumors on social media and conflicting messages about the US central bank’s borrowing costs.
“I never imagined these unprecedented events could happen to SVB, and I strongly believe that the leadership team and I made the best decisions we could with the facts, predictions and outside expert advice available to us at the time,” he says.
“The SVB takeover was personally and professionally devastating, and I am truly sorry about how this affected SVB employees, customers and shareholders.”
The comments mark Baker’s first public remarks since SVB was seized by regulators in March, after announcing its need to raise funds, prompting clients to worry about the safety of their funds to withdraw tens of billions of dollars in hours.
The sudden failure of the company, then the 16th largest lending bank in America, came as a shock to the industry.
Stock prices at many other lenders have plummeted and billions of dollars have been diverted from companies seen as potentially risky.
Eventually, US regulators took over two other medium-sized banks, Signature Bank and First Republic, which had been hit by the concerns. In Europe, turmoil sparked the forced takeover of troubled Swiss giant Credit Suisse.
This incident continued to destabilize financial markets and sparked debate in the United States about financial regulation and whether the authorities took appropriate action.
SVB has been criticized for its over-reliance on technology companies for business and for not preparing its portfolio for the sharp rise in interest rates that occurred last year. The Fed said its failure was due to a “typical case of mismanagement”.
Baker’s compensation, including sales of company stock, has also come under scrutiny.
In his remarks, Baker defends the bank’s investments, which he says have been guided by assurances from the Federal Reserve that price inflation is likely to be “temporary.”
He says clients were alarmed by SVB’s announcement in March of its need to raise funds because they unfairly compared its situation to cryptocurrency lender Silvergate Capital, which said the same day it was closing.
“The Silvergate failure and the association with SVB caused rumors and misconceptions to spread rapidly online,” he says, adding that “SVB and Silvergate were two completely different banks,” as SVB was less involved in cryptocurrency.
“I don’t think any bank can survive running a bank with such speed and scale,” he says.
Meanwhile, in his own comments, former Signature Bank president Scott Shay calls the set of events “truly extraordinary and unprecedented” and says he disagrees with regulators’ decision to acquire the company.
“I was confident that Signature Bank could withstand the economic earthquake that happened that day,” he says.
The two executives are scheduled to appear before the Senate Banking Committee on Tuesday in the first of three scheduled hearings related to banking system failures and oversight.
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