In his first public remarks since the Silicon Valley bank collapse, sparking widespread industry unrest, the lender’s former CEO has pointed the finger at almost everyone but himself for the lender’s demise, blaming regulators, the media, its board and even the bank’s private depositors.
Gregory Baker, who was fired from the SVB shortly after his failure in March, drew bipartisan derision on Tuesday for his explanations during his testimony before the Senate Banking Committee. Although Mr. Baker has repeatedly said that the dismantling of the SVB was due to unforeseen circumstances, the senators took a much clearer view of his decision-making.
“That was very profound stupidity,” Senator John F. Kennedy, R-Louisiana, told him.
SVB’s collapse two months ago drew criticism from all angles. The San Francisco lender, with a large concentration of clients in the technology and venture capital industries, collapsed after the bank’s run of only a few days. In the aftermath, two other lenders, Signature Bank and First Republic, also collapsed, while several other mid-sized banks remain the subject of serious concern among investors.
The cause of the crash was the bank’s decision to buy government bonds in an era of low interest rates, particularly during the pandemic. These bonds fell in value when runaway inflation caused policymakers to quickly raise interest rates, making relatively low-yielding, older bonds less attractive to investors and blowing a hole in SVB’s books.
SVB also had an unusually high percentage of accounts with deposits of more than $250,000, the cut of government insurance in case of failure, making it particularly vulnerable to bank outflows – as depositors worried about their money scrambled to withdraw it – she.
Mr. Baker did not speak publicly about the collapse until Tuesday’s hearing. He worked at SVB for three decades, becoming CEO in 2011 and overseeing its rapid growth in the following years.
“I worked in a place that I really loved,” he said, describing himself as “really sorry” for what happened.
Mr Baker said that at the time of the SVB failure, he was working with regulators to support the bank. He said SVB’s large uninsured accounts were a result of his focus on companies and individuals whose private wealth was growing, and that he could not have imagined they would all withdraw en masse due to their long history with the bank.
He blamed the media for raising questions about the company’s financial disclosures and government officials for allowing inflation to rise to the point where rapid increases in interest rates are necessary. When asked to specify any of his failures, he could not.
“It’s as if my dog ate my homework,” said Sen. Sherrod Brown, D-Ohio.
And last month, the Federal Reserve, which regulates banks, partly blamed itself for ignoring the SVB’s warning signs. However, his strongest criticism was directed at the bank’s leaders, including Mr Baker, who he said was taking unsustainable financial risks to keep the lender growing rapidly.
In a separate hearing Tuesday, Michael Barr, the Fed’s vice chair for supervision, said that when SVB executives found a problem with the liquidity stress test, they changed the test to make it less conservative, calling it “the opposite of what you’d want a bank to do” when it was. He faces risks.
Many of the questions Mr. Baker faced on Tuesday involved his salary, which has risen as the bank has grown. He earned nearly $10 million in 2022 and cashed out millions in stock options in the weeks leading up to the lender’s collapse. He testified that these sales were planned in advance and that he was not acting on any non-public information.
From the point of view of compensation, this is determined by the board of directors. I know they thought it was fair, and I think they were accurate.”
When senators from both parties asked if he would return any of his bonuses, Mr. Baker said repeatedly that he was waiting to see if regulators would force him to.
“Let’s say it was legal,” asked Sen. J.D. Vance, R-Ohio. “Was it ethical?”
Mr. Baker refused to answer.
Jenna Smyalek Contribute to the preparation of reports.
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