Former Bank Executives Testify on Management Efforts Prior to Bank Failures

Former executives from Silicon Valley Bank ("SVB") and Signature Bank testified before the Senate Banking Committee on their management of events leading up to the banks' closings.

Senate Banking Committee Chair Sherrod Brown (D-OH) criticized former SVB CEO Gregory W. Becker for "dump[ing] millions of dollar in company stock" leading up to SVB’s crash. He called for an end to executives of the largest banks being "impervious to consequences." Committee Ranking Member Tim Scott (R-SC) said that the bank failures resulted from three "major issues": (i) bank mismanagement, (ii) supervisory failures and (iii) increasing inflation. Senator Scott called out Mr. Becker for allowing SVB to place "significant bets" on interest rates going down despite signs that the FRB intended to increase them. He also criticized both SVB and Signature for pursuing "rapid, unrestrained" growth without appropriate risk management practices.

• Former SVB CEO Gregory W. Becker. Mr. Becker reviewed factors leading to SVB’s failure, risk management measures to account for the bank's growth in assets and the eventual "unprecedented" bank run. Mr. Becker highlighted the Federal Reserve Board’s ("FRB’s") categorization of inflation between 2020 and 2021 as "transitory" which then turned to a "series of interest rate hikes" by the FRB beginning in early 2022. Mr. Becker underscored SVB’s responsiveness in addressing auditor and regulators’ feedback regarding improvements to governance, controls and second line risk management. Mr. Becker addressed "speculation" regarding his stock options and compensation from SVB. He asserted that he was not "in possession of any material non-public information" when he traded his stock options and that the incentive compensation he received was in line with the "normal course of business."
• Former Signature Bank Chair and Co-Founder Scott A. Shay. Mr. Shay reviewed the growth of Signature from a small bank with $40 million in start-up funds to a "successful middle-market bank with more than $100 billion in deposits." He said that Signature began accepting and "carefully monitoring" deposits from the digital asset sector in 2018 until 2022 when it "significantly" reduced these deposit types after the digital asset sector began experiencing increased volatility. Mr. Shay said that he initially "disagreed" with regulators’ decision to seize Signature but that he supported the guarantee of customers’ deposits.
• Former Signature Bank President Eric R. Howell. Mr. Howell said that while he was "disheartened" that Signature’s capital, solvency and "sufficient borrowing capacity" was unable to withstand depositors’ withdrawals; he said he was "reassure[ed]" by the FDIC’s full guarantee of customers’ deposits.