What they’re saying:
- Democrats and Republicans alleged that SVB prioritized short-term profits, ignoring the Fed’s supervisory warnings and dropping hedges that would’ve protected against rising rates because both threatened earnings.
- Democrats argued that lax capital requirements encouraged risky behavior at the two failed institutions.
- Republican Ranking Member Tim Scott (R-SC) contended that SVB should’ve accounted for future stress tests as it ballooned in size.
House Hearing: The joint hearing featured the Financial Institutions Subcommittee and the Oversight Subcommittee hearing from executives and state regulators. The executives included:
- Greg Becker, former Chief Executive Officer, Silicon Valley Bank
- Scott Shay, co-founder and former Chairman, Signature Bank
- Michael Roffler, former CEO and President of First Republic Bank
The panel also heard from:
Democrats and Republicans dug into the specifics of SVB and Signature’s failures and raised similar topics around risk management, supervision, and regulation.
First Republic, which wasn’t included in the Senate hearing, was framed as more of a victim of the social media hype and short-selling, rather than mismanagement. Unlike the other institutions, questioning pointed out that First Republic did not have any regulatory Matters Requiring Attention (MRA) or Matters Requiring Immediate Attention (MRIA). Members of both parities critiqued the role of social media in fueling the bank runs.
The bottom line: While both sides of the aisle had plenty of criticism for bank management, there still is a division over whether regulations or ineffective supervision shouldered more blame. Legislation continues to be unlikely in the near term, but increasing deposit insurance, executive comp clawback, and bank short sales could be areas of bipartisan agreement.
Contact David McCarthy (dmccarthy@crefc.org) with questions.