Senators condemned former Silicon Valley Bank (SVB) CEO Greg Becker for dishing out bonuses and selling stock in the bank shortly before its collapse during Tuesday’s Senate Banking Committee hearing.
“You were paying out bonuses until literally hours before regulators seized your assets,” Sen. Sherrod Brown (D-Ohio), the committee’s chairman, told Becker during a hearing on the failure of SVB and Signature Bank. “To people in Ohio and around the country, this feels sickeningly familiar.”
The background: Fed blames oversight, management for Silicon Valley Bank collapse
“Workers face consequences, executives ride off into the sunset. Only in corporate boardrooms can you run your business into the ground, take the whole economy along with you and come out ahead. We can’t let that happen again,” he added.
Becker sold $3.6 million in SVB stock on Feb. 27, shortly before it suffered a bank run and was taken over by regulators in early March. He and other SVB executives sold $84 million in company stock over the past two years.
Brown is working on a bill to empower regulators to claw back compensation from executives of failed banks.
Becker defended the stock sales, stating he regularly sold shares as part of his compensation plan and was not aware of SVB’s troubles when he planned the sale. He said the executive bonuses were planned before SVB’s collapse.
Sen. Bob Menendez (D-N.J.) noted that the Federal Reserve issued more than 30 supervisory warnings to SVB before its failure, information that wasn’t public at the time. He suggested Becker may have engaged in insider trading by relying on that information.
When asked whether the warnings were material information, defined as nonpublic information that could impact the company stock price, Becker said he believed it wasn’t.
“Thirty different supervisory findings, all of which are elements of the collapse of the bank, and you didn’t believe those were material findings. Maybe you can understand why our shareholders observing from the outside might feel differently,” Menendez said.
Becker also declined to answer whether his stock trades were ethical when pressed by Sen. JD Vance (R-Ohio).
Senators blast SVB mismanagement, greed
Throughout the hearing, Democrats and Republicans criticized SVB for growing too quickly and crafting compensation rules that rewarded executives for taking on excessive risk and refusing to hedge against the risk of rising interest rates.
SVB loaded up on Treasury bonds that lost value when the Federal Reserve hiked interest rates to tackle inflation, which saddled the bank with massive unrealized losses.
“If you’d bought those hedges, that would have cut into your profits, wouldn’t it? If you’d made less money, that would have affected your bonus, wouldn’t it?” Sen. John Kennedy (R-La.) told Becker. “You put all your eggs in one basket.”
Senators are targeting Becker because SVB’s collapse sparked a crisis of confidence in banks, forcing the Federal Deposit Insurance Corporation (FDIC) to insure all of SVB’s uninsured deposits to prevent more banks from going under.
“The fallout of this isn’t just Silicon Valley Bank going down,” Sen. Jon Tester (D-Mont.) told Becker. “It’s the fact that we’re going to have a lot of banks out there that will get the screws put to them because you guys didn’t react to the recommendations that were made by the Fed.”
Sen. Elizabeth Warren (D-Mass.) criticized Becker for lobbying for a 2018 law to lesser regulations on midsize banks that a Fed report said contributed to the banking crisis.
Warren asked Becker whether he would donate his salary and bonuses to help plug the $20 billion hole in the FDIC’s insurance fund. The regulator used that money to protect SVB depositors and will replenish it with new fees on banks.
“How much of the $40 million that you earned from loading up SVB with risk are you planning to return to the FDIC?” Warren asked Becker. “Are you planning to return a single nickel to what you cost the fund?”
“Senator, I know there’s going to be a process review of compensation, and I will …” Becker responded.
“I’ll take that as a no,” Warren said.
Three of the four largest U.S. bank failures have taken place since March. First Republic Bank became the biggest and most recent casualty of SVB’s collapse earlier this month when regulators shuttered the San Francisco-based regional lender and orchestrated its sale to JPMorgan Chase.
Regional banks, which are top lenders to local businesses, are still struggling with weaker deposits and deflated stock prices following SVB’s failure.
“It is first and foremost the bankers’ fault that the banks crashed,” Brown said.
SVB chief defends his tenure
Throughout the hearing, Becker refused to acknowledge he and other SVB executives made mistakes amid tense questions from lawmakers.
Becker told senators no bank could have survived the online and social media-fueled bank run on SVB. Its tech and venture capitalist depositors pulled $42 billion in a day after they got wind that SVB faced financial troubles, marking the fastest-ever bank run.
He also defended SVB’s decision to invest heavily in Treasury bonds. He noted lenders of all sizes made the same decision, and he argued the Fed misled bankers about the course of rate hikes.
“Importantly, throughout 2020 until late 2021, the messaging from the Federal Reserve was that interest rates would remain low and that the inflation that was starting to bubble up would only be ‘transitory,’” Becker said in his testimony.
Senators didn’t appear to buy that argument, noting that supervisors pointed out SVB’s interest rate risk many times. Lawmakers said Tuesday that SVB was too greedy, noting the company never filled key risk management roles.
“Anyone who paid 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,” said Sen. Tim Scott (R-S.C.), the top Republican on the Senate Banking Committee.
“SVB was an anomaly, and your lack of judgment, Mr. Becker, shows that you should not have been running the bank,” he added.
Updated at 12:08 p.m.