By Chris Dorrell
The bosses of the three US banks that collapsed over the last few months have blamed a range of factors for their collapse – but not bad management.
The heads of First Republic, Silicon Valley Bank (SVB) and Signature Bank all appeared in front of the Congressional committees over the last few days as lawmakers scrutinised the ongoing banking crisis.
In a statement released ahead of a committee hearing today, the ex-boss of First Republic, Michael Roffler, argued “we could not have anticipated that Silicon Valley Bank and Signature Bank would fail, or that the failure of those banks would trigger substantial deposit outflows at our bank.”
First Republic collapsed after more than $100bn was pulled by depositors in the weeks following the collapse of SVB.
Like SVB, First Republic catered mainly to the wealthy meaning it had a high proportion of uninsured depositors, who are much less sticky than other depositors.
Roffler argued that regulators raised no concerns with the bank’s business model and that it was fundamentally stable before the chaos began in March.
“First Republic was contaminated overnight by the contagion that spread from the unprecedented failures of two regional banks,” he said, arguing that this was “exacerbated by traditional media and social media”.
SVB’s ex-boss Greg Becker also blamed the collapse of his bank on social media, which he said fuelled “rumours and misconceptions” around the bank’s health.
Becker argued that SVB’s management had not been excessively risky. “I truly do believe that with the information we had at the time when we made our decisions, that we made the best decisions that we could have.”
Becker also argued that the Fed’s mischaracterization of inflation as transitory gave banks unjustified confidence to invest in government bonds. The Fed’s rate hikes caused a sharp decrease in the value of long-dated assets.
He said, however, that he was “truly sorry” for the impact on staff and clients.
Lawmakers were more than happy to lay the blame at the banks’ door. The Democratic chair of the committee Sherod Brown asked Becker “Why did you let things get this bad? Why did you ignore admonitions from regulators?”
Brown answered his own question. “There is a simple answer,” he said. “The same answer we find to most questions about big banks’ failures: because the executives were getting rich.”
Similarly John Kennedy, a Republican, told Becker: “The taxpayers of America had to pick up the tab for your stupidity.”
The hearings come shortly after the Fed blamed Congress for relaxing banking regulations in the Trump era. This reduced the capital requirements on smaller banks such as SVB and exempted them from stress tests.
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