Former Silicon Valley Bank CEO Greg Becker intends to tell US lawmakers Tuesday that no bank could have weathered the $142 billion run on the California lender that triggered its collapse and spread panic through the rest of the financial system.
Depositors pulled $42 billion from the Santa Clara, Calif.-based institution in one day and asked to pull another $100 billion the day the lender was seized by regulators. The previous largest bank run in US history, Becker says in his testimony, was $19 billion in deposits over the course of 16 days.
“I do not believe that any bank could survive a bank run of that velocity and magnitude,” Becker says in his prepared remarks.
He plans to apologize for the bank's fall, calling its takeover "personally and professionally devastating" while noting "I am truly sorry."
He also plans to defend a decision to cash out stock and options in the weeks before the bank collapsed, while spreading the blame for the bank's problems between "rumors and misconceptions" fomented by social media to an aggressive series of interest rate hikes by the Federal Reserve that came as a surprise.
The Fed's rate increases lowered the value of Silicon Valley Bank's bonds, forcing it to sell assets at a loss once depositors began pulling their money. That sale, which it disclosed on March 8, contributed to doubt and panic among depositors and investors.
Two months of chaos
The bank's fall was the beginning of more than two months of chaos for the regional banking industry. Two other sizable banks, Signature Bank and First Republic, were also seized by regulators following similar deposit runs.
Two other executives from Signature Bank will also be testifying alongside Becker on Tuesday. Former chairman Scott Shay intends to say that "I believed that the bank was in a strong position to weather the storm" but that "regulators evidently saw things differently."
Becker's prepared remarks about Silicon Valley Bank offer a counter history to recent testimony from regulators and a report produced by the Federal Reserve that largely blamed mismanagement for the lender's eventual collapse.
Regulators have said they raised concerns with the bank about its risk management practices but should have pressed harder for fixes.
But Becker says as the bank got bigger in 2021 and 2022, triggering new levels of US oversight, it worked to improve its governance, controls, liquidity and risk management after getting feedback from regulators.
By the end of 2022, he says, the bank’s capital ratios were similar to or higher than its peers, and well above the regulatory thresholds for well-capitalized banks.
"During this time, the feedback from regulators was that SVB had sufficient capital and liquidity," he says.
But by then the Fed had also begun raising interest rates aggressively, causing unrealized losses for the bank's bond portfolio. Many other banks also amassed such unrealized losses.
Becker implies this was a surprise to the bank. It happened, he says, even though the Fed in 2021 had "described inflation as a transitory risk, suggesting that interest rates would not increase significantly in the short term."
The week the bank went down, it decided to sell some of those securities and take a $1.8 billion loss. It also said it planned to raise an additional $2.25 billion in capital to bolster its balance sheet. Those twin announcements spooked depositors and investors.
What didn't help, Becker says, was an earlier press report in the Financial Times that had compared Silicon Valley Bank to another crypto-focused lender named Silvergate Bank. Silvergate had decided in early March to wind itself down voluntarily.
That connection, he says, spread "rumors and misconceptions" online and led depositors to fear Silicon Valley Bank was in a similar position.
“SVB and Silvergate were very different banks, as Silvergate was a nearly 100 percent crypto focused bank while SVB only had around 3 percent of its deposits from crypto clients,” Becker says.
'I did nothing to accelerate that trade'
After his bank went down on March 10, Becker received criticism for selling stock and options before the collapse and receiving an earlier bonus.
The CEO in his testimony will defend that sale as routine and in line with his previous practice to periodically sell stock and stock options.
He says he held nearly five times the amount of shares required by the board of the bank and as CEO regularly sold the underlying shares of his stock options before they expired through 10b5-1 plans.
Becker says SVB’s legal team approved his plan to sell stock options on the basis that he was not in possession of any material non-public information at that time. Becker says the trade executed just 11 days before SVB’s bank failure was based on a pre-determined stock price and date trigger.
“I did nothing to accelerate that trade and only learned that it had executed after the fact,” said Becker.
As for the former executive’s bonus, he says that was set by the bank’s HR department in advance and there was nothing “irregular or accelerated” about the payment.