Baker plans to say, according to a copy of his written statement posted on the committee’s website: “The leadership team and I made the best decisions we could with the facts, projections, and outside expert advice available to us at the time.”
His testimony comes less than three weeks after the Federal Reserve reviewed the collapse of the bank, which criticized its board and executive team for failing to “manage their risk.”
In early March, after what Baker’s written statement called “rumors and misconceptions” about SVB’s health spread online, the bank lost $42 billion in deposits in one day. The clients required an additional $100 billion to be withdrawn for the next day, which proved to be the last for the bank.
During those two days, the bank experienced $142 billion in actual and required withdrawals — a multiple of the previous largest bank withdrawal in U.S. history, which saw $19 billion exit Washington Mutual over 16 days in 2008, according to Baker’s testimony.
He is expected to say: “I don’t think any bank can survive running a bank of this speed and size.”
Baker links the bank’s failure to government spending and the Fed’s interest rate decisions. Government stimulus in response to the pandemic injected nearly $5 trillion in new deposits into commercial banks, while the Fed’s near-zero interest rates left the SVB with few options to deploy the new money other than investing it in low-rate government securities, according to him. statement.
The bank grew to $212 billion in assets by the end of 2021, nearly three times what it held two years earlier.
Once SVB surpassed $100 billion in assets, it has attracted increasing regulatory scrutiny. SVB hired several experienced executives from organizations such as Citigroup and Bank of America to strengthen its risk assessment team, while conducting the search for a new Chief Risk Officer.
The position remained vacant for most of last year, with the new CEO only starting in December, according to Baker’s testimony.
By the end of last year, the SVB had “nearly 1,000 people with all or a majority of their responsibilities focused on risk management of some kind,” according to Baker’s statement.
Throughout 2020 and 2021, SVB executives were reassured by the Fed’s remarks that higher inflation would prove “temporary,” allowing the central bank to keep interest rates low.
When inflation persisted and the Fed started to raise interest rates in March 2022, government securities in the SVB began to rapidly lose value. To boost its fortunes, the bank has desperately sought additional capital in its final weeks.
Baker will also defend his annual compensation of nearly $10 million, amid complaints from lawmakers in both parties. In March, President Biden called on Congress to give federal regulators greater power to recover compensation from executives at failing banks.
At the time, the White House cited reports that Baker sold more than $2 million in SVB stock two weeks before it failed.
In his testimony, Baker will say the shares were sold as part of a trading plan that began in late January and was approved by the bank’s legal team. “I did nothing to speed up this trade and only learned that it was done after the fact,” he plans to say.
Baker’s appearance on Capitol Hill Tuesday followed the release of last month’s Fed review, which identified several shortcomings by federal regulators and also delivered harsh words to SVB’s top executives.
“Silicon Valley Bank (SVB) failed due to a written case of bank mismanagement. Its top leadership failed to manage key interest rate and liquidity risks. “Its board has failed to supervise and hold senior leadership to account,” said Michael Barr, the Fed’s vice chair for oversight.
“I never envisioned myself or an SVB in this position,” Baker plans to say.
Senior executives at another failed bank, Signature Bank, are also scheduled to testify on Tuesday and will tell the Senate committee that they believe regulators acted prematurely to shut down their institution, according to their statements posted on the committee’s website.
Eric Howell, who became Signature’s chairman just 11 days before its fiasco, said the bank was “well capitalized” and could have survived the sudden influx of deposits that occurred the same day regulators shut down SVB.
The New York-based bank has been catering to companies involved in the digital asset industry, which has been affected by the bankruptcy of cryptocurrency exchange FTX in November 2022. On March 8, as SVB struggled for survival, Silvergate Capital, a cryptocurrency-focused bank, announced that It terminates its operations voluntarily.
“I was confident that Signature Bank could withstand the economic earthquake that occurred that day,” said Scott Shay, Chairman of Signature. “While I had thought the bank was in a strong position to weather the storm, it is clear that regulators saw things differently.”
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