May 20, 2024

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Former SVB CEO tells Senate he’s “really sorry” for the crash but deflects blame

Former SVB CEO tells Senate he’s “really sorry” for the crash but deflects blame

In his first public remarks since the collapse of the Silicon Valley bank, which unleashed widespread industry turmoil, the lender’s former CEO pointed the finger at almost everyone but himself, blaming regulators, the media, its board and even the bank’s 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 said repeatedly that the SVB’s dissolution was unexpected, the senators took a much clearer view of his decision-making.

“That was very profound stupidity,” Senator John F. Kennedy, R-Louisiana, told him.

The SVB fiasco 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, a government-insured cut in the event of failure, making it particularly vulnerable to a bank run — as depositors worried about their money scrambled to withdraw. He. She.

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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 because of their long history with the bank he could not have imagined they would all withdraw en masse.

He blamed the media for raising questions about the company’s financial disclosures, and he blamed government officials for allowing inflation to rise to the point where rapid increases in interest rates are necessary. He said SVB’s board chose not to hedge or offset the bank’s bond holdings, a move many analysts said would have reduced risk while reducing the lender’s overall profitability.

Asked by a senator to pinpoint any of his mistakes, Mr. Baker said he had thought about the question every day for the past eight weeks, and had been unable to come up with an answer.

It sounds a lot like ‘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.

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At a separate hearing Tuesday, Michael Barr, the Fed’s vice chair for supervision, said that when SVB executives found a problem with the stress test, which simulates the impact of a crisis, they changed the test to make it less stringent, calling it “the opposite of what you want the bank to do.” When he was in danger.

Democrats on Capitol Hill introduced legislation to increase banking regulation, saying the rapid collapse of SVB and others was evidence that the industry required more oversight. Some Republicans argue that events prove the opposite: that regulations already on the books are not being effectively enforced, and that adding more would be reckless.

Many of the questions Mr. Baker faced from both sides of the political aisle 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 a compensation point of view, this is determined by the board,” he said. “I know they thought it was fair, and I think they were accurate.”

Mr. Baker and another bank president who testified, Signature Bank co-founder Scott Shay, were asked if they would return any of their bonuses, given what happened to their banks shortly thereafter. Mr Shay said he wouldn’t, calling his failing institution a “responsibly managed bank”.

“Your opinion of what a responsibly run bank is now is funny,” Senator Elizabeth Warren, D-Massachusetts, told him.

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On the subject of his bonuses, Baker said he was waiting to see if regulators would force him to give them back.

“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.