Tag: Silicon Valley Bank

SVB collapse was driven by ‘the first Twitter-fueled bank run’ | CNN Business

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The massive amount of customer withdrawals that led to the collapse of Silicon Valley Bank had all the hallmarks of an old-fashioned bank run, but with a new twist befitting the primary industry the bank served: much of it unfolded online.

Customers withdrew $42 billion in a single day last week from Silicon Valley Bank, leaving the bank with $1 billion in negative cash balance, the company said in a regulatory filing. The staggering withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by viral panic spreading on social media platforms and, reportedly, in private chat groups.

In the day leading up to the bank’s collapse, multiple prominent venture capitalists took to Twitter in particular, and used their large platforms to raise alarms about the situation, sometimes typing in all caps. Some investors urged startups to rethink where they kept their cash. Founders and CEOs then shared tweets about the concerning situation at the bank in private Slack channels, according to The Wall Street Journal.

On the other side of a screen, startup leaders raced to withdraw funds online – so many, in fact, that some told CNN the online system appeared to go down. Still, the end result was a modern race to withdraw funds, which House Financial Services Chair Patrick McHenry later described in a statement as ” the first Twitter-fueled bank run.”

“Even back in the ancient days, way before we had any form of modern communication, this stuff tended to be rumors that moved really fast. The reason it would happen is people would walk down the street and observe people standing outside of banks,” Andrew Metrick, Janet L. Yellen Professor of Finance and Management at the Yale School of Management, told CNN. “Now we don’t have that, but we have Twitter.”

The experience of the bank run was also far removed from prior eras when a large number of customers would physically show up at a bank to withdraw funds (though some did line up outside Silicon Valley Bank locations, too.) Now, many could do so online or through mobile devices.

“What made the Silicon Valley Bank run unique was (1) the ease with which its customers could execute withdrawals and (2) the speed with which news of Silicon Valley Bank’s impending demise spread,” Ben Thompson, an analyst who tracks the tech industry, wrote in a post on Monday. “It was the speed, fueled by zero distribution costs for both rumors and withdrawals, that was so destabilizing.”

Silicon Valley Bank was arguably uniquely susceptible to those factors given its tech-focused customer base. Moreover, its clients, many of whom were venture-backed businesses, were far more likely than the average consumer to keep more than the standard maximum FDIC insured amount of $250,000 in their accounts.

“The FDIC covers 250K, but am I going to recover my whole 8 figures?” one startup founder told CNN last week, after the bank had collapsed. Other large tech companies kept even larger sums with the bank. That likely made the bank’s customers even more susceptible to the panic spreading online.

Some prominent tech figures, including Mark Suster, a partner at venture capital firm Upfront Ventures, urged those in the VC community to “speak out publicly to quell the panic” around Silicon Valley Bank last week and cautioned against creating “mass hysteria.”

“Classic ‘runs on the bank’ hurt our entire system,” he wrote in a lengthy Twitter thread on Thursday. “People are making public jokes about this. It’s not a joke, this is serious stuff. Please treat it as such.”

His calls for calm weren’t enough. The next day, the US Federal Deposit Insurance Corporation stepped in and took control of the bank, which only added to the viral panic on Twitter.

“YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW,” Jason Calacanis, a tech investor, wrote on Twitter Sunday. “THAT IS THE PROPER REACTION.”

Hours later, the Biden administration stepped in and guaranteed the bank’s customers would have access to all their money starting Monday.

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March 17, 2023
Banks are running scared. Is the Federal Reserve about to make things worse?

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The lightning collapse of three banks and financial industry rescue of a fourth has put a spotlight on the Federal Reserve’s decision next week on whether to continue raising interest rates.

Just two weeks after Fed Chair Jerome Powell suggested rates could rise even higher than previously projected in a bid to quash inflation, many analysts expect a no more than 0.25 percentage-point hike, while some experts are urging policy makers to hold the line for fear of further unsettling the banking system.

The quandary highlights the multiple, and conflicting, issues facing the Fed. With key sectors of the economy going strong and inflation still more than double the Fed’s target rate of 2%, the central bank is keenly aware that any sign it is relenting in the battle against inflation could give rise to another wave of price increases.

At the same time, lifting the federal funds rate now could magnify the kind of problems at other lenders that led panicked depositors to yank their money out of Silicon Valley Bank.

“A financial accident has happened, and we are going from no landing to a hard landing,” Torsten Slok, chief economist at private equity firm Apollo Global Management, said in a note this week that predicted the Fed will keep rates steady when officials meet March 21-22.

Kathy Bostjancic, chief economist at Nationwide, also thinks the current stress on the nation’s banking system could make Fed officials think twice about hiking rates next week.

“Many people, even myself, had been surprised that the Fed raised rates by [4.5 percentage] points in 11 months and nothing did break. It’s finally vindicating the view that the Fed can’t raise rates that fast without something happening,” she told CBS MoneyWatch.

The Treasury problem

While SVB failed partly because of financial missteps, analysts say rising interest rates played a critical role in its collapse. Flooded with customer deposits during the pandemic, the bank grew rapidly and put much of these funds into long-term Treasury bonds and mortgage securities.

But as the Fed jacked up rates, SVB’s investments lost value. That left the bank short on deposits just as customers spooked by SVB’s potential losses were rushing to withdraw their money. The concern now is that this pattern could repeat itself at other banks ill-prepared for further rate hikes.

“We’re also seeing fear of balance-sheet issues at regional banks,” Bostjancic said. “There’s definitely evidence that banks, as they’ve received this tremendous inflow of deposits, a significant amount went into Treasury securities. There are other banks that are facing that issue.”

Already, some customers at small and regional banks are moving their funds to the largest institutions, Financial Times correspondent Stephen Gandel told CBS News.

Large banks see influx of new depositors following SVB collapse

05:59

Did the Fed make this mess?

What led to SVB’s fast growth in deposits in the first place? More Americans were flush with cash in the early years of the pandemic, while the tech industry saw explosive growth. According to economists, both factors were fueled by the government’s response to the COVID-19 crisis: hosing consumers and businesses down with cash, while also keeping interest rates at zero for many months after the initial crisis in 2020 had passed.

The danger now is that the Fed, having stepped on the gas too hard in recent years to keep the economy motoring forward, is now stomping on the brakes and risking a crash.

“Like the poor fool, the U.S. Federal Reserve overreacted to the inflation cold spell during the COVID crisis by easing financial conditions too far for too long,” Will Denyer of Gavekal Research wrote in a note this week. “The risk now is that the Fed has cranked the handle too far the other way … tightening conditions so much that it has initiated a disinflationary process that will overshoot to the downside, likely causing a recession.”

Financial conditions tightening

The Fed’s main tool for controlling inflation is to use its benchmark overnight lending rate to slow the economy. But many economists say inflation is now cooling enough on its own without the need for additional help from the Fed, especially given the lag between monetary policy and economic growth. The current tumult in banking and in financial markets will also make lenders far more cautious, further containing inflationary pressures.

“Going forward banks, especially small and medium-sized banks, are likely to tighten their credit standards significantly,” Nationwide’s Bostjancic prediicted. “Fed officials need to consider that more cautious bank lending will be an additional brake on economic activity, and it could be significant.”

Former FDIC chair Sheila Bair on turmoil in the banking sector

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By contrast, the Fed could very well decide that it has done enough to shore up the banking system following the collapse of SVB and New York’s Signature Bank and continue pushing up interest rates. After those failures, the Fed created a new lending program effectively insuring other banks’ Treasury holdings against losses for up to a year. The central bank could choose to stay the course on rate hikes as a sign of confidence in its policy measures and of its unremitting commitment to lower inflation.

“What decision sends a message that they’re still cautious about inflation and believe in the stability of the banking system? What message portrays stability and confidence?” asked Ed Mills, Washington analyst at Raymond James. “I think the Fed is fine having another week to digest that.”

“The banking industry works on confidence as much as it works on capital, and the banking industry is very well-capitalized at this point,” Mills added. “But there is a real question about confidence.”

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March 17, 2023
Failure of Silicon Valley Bank Could Reveal Surprising Extent of Corporate Fraud | Entrepreneur

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Opinions expressed by Entrepreneur contributors are their own.

The high-profile and sudden failure of Silicon Valley Bank — which has been accused of hid ing huge losses from its depositors, investors, and regulators — highlights the dangers of corporate fraud for our financial system. It confirms the kind of problems highlighted by a recent study published in the Journal of Financial Economics, estimating that only one-third of corporate frauds are detected, with an average of 10% of large publicly traded firms committing securities fraud every year. This means that the true extent of corporate fraud is much larger than what is currently being reported. The study also estimates that corporate fraud destroys 1.6% of equity value each year, which equals $830 billion in 2021.

These findings indicate a clear need for better risk management and oversight to address corporate fraud. As a highly experienced expert in this topic, I have consulted for many companies on how to mitigate the risk of fraud and the impact it can have on their business. In this article, I will share some insights and best practices for addressing corporate fraud, as well as some real-world examples of how this issue has affected companies.

Related: ‘I Never Thought It Could Happen to Me’ — How to Avoid Business Fraud

Real-world examples of corporate fraud

While the situation with Silicon Valley Bank is still under investigation, we have plenty of well-known examples of fraud. FTX, a trading platform for crypto investors, was accused by the U.S. Securities and Exchange Commission of defrauding its investors by steering money from the company into another venture between 2019 and 2022. The company’s majority owner, Sam Bankman-Fried, allegedly used the cash to purchase homes in the Bahamas, invest in other companies, and fund favored political causes. When crypto assets took a significant plunge in 2022, the cash spigot went dry at both FTX and the other venture, leading to federal prosecutors stepping in to issue fraud charges and bankruptcy for the company.

Theranos — initially heralded as an innovative healthcare technology company — was exposed as having unworkable technology in 2015. Federal and state regulators filed fraud charges against the company, which dissolved in 2018. The company’s founder, Elizabeth Holmes, and former president, Ramesh “Sunny” Balwani, were both found guilty and sentenced to prison in 2022. Top-tier investors such as Rupert Murdoch, Carlos Slim, and Betsy DeVos lost millions from Theranos investments, with little hope of getting the money back.

Wirecard, an electronic payments firm based in Munich, Germany, faced the biggest corporate fraud case in German history in 2022, with former CEO Markus Braun and two senior executives facing multiple years in prison if convicted. Another senior executive, Jan Marsalek, is on the run and is reportedly hiding out in Russia. Wirecard declared insolvency in 2020 after authorities discovered $1.9 billion was missing from the company’s accounts, amid allegations from German regulators that the money never existed at all.

Luckin Coffee, a China-based company, was embroiled in a legal quagmire stemming from a 2020 fake revenue scandal. Internal financial analysts discovered the company’s growth was artificially inflated due to bulk sales to businesses linked to the company’s chairman, and management had fraudulently engineered the purchase of raw materials from suppliers. When these investigations became public, investors fled and the company’s share price slid. With the company delisted from Nasdaq and the senior executives involved in the scandal out of the picture, Luckin Coffee is now trading over the counter.

These are just several examples of serious fraud in the news. However, I’ve seen fraud occur in many smaller and mid-size companies as well. In fact, such occurrences in my experience are more common at smaller companies, which have less rigorous risk management and oversight policies.

Related: Keep Your Business Fraud-Free With These 3 Steps

Addressing corporate fraud through risk management and oversight

To mitigate the risk of corporate fraud, companies — big and small — need to have strong risk management and oversight systems in place. This includes having clear policies and procedures for detecting and preventing fraud, as well as regular training and education for employees on how to recognize and report fraud.

One important aspect of risk management is having an effective internal control system. This includes having a system of checks and balances in place to prevent fraud from occurring in the first place, as well as systems for detecting and investigating fraud if it does occur. This can include measures such as separating duties among employees, implementing segregation of duties and conducting regular internal audits.

Another important aspect of risk management is having an effective compliance program. This includes having policies and procedures in place to ensure that the company is in compliance with relevant laws and regulations, as well as having a system in place for identifying and reporting any potential violations.

Addressing cognitive biases that facilitate corporate fraud

Cognitive biases can also play a role in corporate fraud, as they can lead individuals to make irrational decisions and overlook potential red flags. For example, confirmation bias can lead individuals to only pay attention to information that confirms their preconceived notions, while ignoring information that contradicts them. This can make it difficult for individuals to recognize and report fraud. Theranos might be an example: despite the lack of evidence for their technology working, stakeholders persistently refused to see this reality.

The sunk cost fallacy is another cognitive bias that can lead to fraud. This occurs when individuals continue to invest in a project or venture, even if it is no longer viable because they have already invested so much time and resources into it. This can lead to individuals engaging in fraudulent activities in order to justify their previous investments. The situation with FTX falls into this category, with Sam Bankman-Fried refusing to accept losses at his crypto trading firm Alameda Research, and using customer funding from the FTX exchange to cover these losses.

To mitigate the impact of cognitive biases on corporate fraud, companies need to be aware of these biases and take steps to counteract them. This can include regular training and education for employees on how to recognize and overcome cognitive biases, as well as implementing systems and processes that help to counteract these biases.

For example, companies can implement peer review systems where multiple individuals review and approve financial transactions, rather than relying on a single individual. This can help to counteract the confirmation bias, as multiple individuals will be looking at the same information and can point out any potential red flags.

Another example is implementing an independent fraud detection and investigation team within the company. This team can be responsible for reviewing financial transactions and identifying potential fraud. This can help to counteract the sunk cost fallacy, as the team will not be invested in the project or venture and can provide an objective assessment of its viability.

Related: Yes, You Are Getting Scammed. How to Combat Fraud and Increase Efficiency

Conclusion

Corporate fraud is a serious issue that affects companies of all sizes and industries. A recent study published in the Journal of Financial Economics estimates that only one-third of corporate frauds are detected, with an average of 10% of large publicly traded firms committing securities fraud every year. This highlights the need for better risk management and oversight to address corporate fraud.

Companies can mitigate the risk of fraud by having strong risk management and oversight systems in place, including an effective internal control system and compliance program. They also need to be aware of cognitive biases and take steps to counteract them, such as implementing peer review systems and independent fraud detection and investigation teams.

As a highly experienced expert in this topic, I have consulted for many companies on how to mitigate the risk of fraud and the impact it can have on their business. I strongly recommend that leaders of companies take the necessary steps to address corporate fraud, in order to protect their bottom line and reputation.

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Gleb Tsipursky

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March 16, 2023
Who Is CEO of Silicon Valley Bank? From Becker to Mayopoulos | Entrepreneur

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All eyes are on Silicon Valley Bank after its spectacular crash, the second-largest in U.S. banking history. The Federal Deposit Insurance Corporation (FDIC) took control of the bank on Friday and moved to replace its CEO, Greg Becker, who had served in the role since 2011.

The FDIC appointed Tim Mayopoulos as CEO of the newly renamed Silicon Valley Bridge Bank on Monday. He got to work quickly, urging clients to bring their money back to the bank during a Zoom call on Wednesday, according to CNBC.

Keep scrolling for more details on the CEOs.

RELATED: Billionaire Charles Schwab Has Lost Nearly $3 Billion of Personal Wealth Since Silicon Valley Bank Collapse

What happened to former SVB CEO Greg Becker?

Greg Becker started at Silicon Valley Bank as a loan officer and was with the company for nearly three decades. He’s credited with steering the bank through the 2008 financial crisis and was appointed CEO in 2011, according to Reuters.

Before the bank’s collapse, he was viewed as a “champion of the innovation economy,” as he was referred to in a since-deleted profile on the Silicon Valley Bank website.

RELATED: Kevin O’Leary Rips Into Silicon Valley Bank Amid Collapse: ‘It’s No Better Than Radioactive Waste’

Becker has been scrutinized for reportedly selling $3.6 million in company stock just two weeks before the collapse, per Bloomberg. The sale was made under a trading plan he filed in January.

Becker’s 2022 compensation was $9.9 million, per the Wall Street Journal. SVB’s compensation committee noted in a filing that his 2022 bonus — and that of SVB CFO Daniel Beck — was reduced to hold the executives accountable “for balance sheet pressures stemming from declining deposits and overall market environment.”

Before his departure, Becker apologized to employees in a video message sent Friday. A Fed spokesperson also announced Friday that Becker was no longer on the board of the San Francisco Federal Reserve, per Bloomberg.

Becker has sold SVB stock worth nearly $30 million over the past two years, per CNBC.

RELATED: SVB Insider: Employees Angry With CEO Greg Becker

Who is SVB’s new CEO Tim Mayopoulos?

The FDIC appointed banking veteran Tim Mayopoulos to replace Becker as SVB CEO.

Mayopoulos was Bank of America’s general counsel during the 2008 financial crisis and then served as president and CEO of the Federal National Mortgage Association, or Fannie Mae, per the New York Times.

According to Time, Mayopoulos is a graduate of Cornell University and the New York University School of Law. In the 1990s he was part of the team that investigated Bill and Hillary Clinton’s real estate dealings, and his resume also includes time at Deutsche Bank and Credit Suisse. Before taking on the CEO role at SVB, Mayopoulos was president of Blend, a cloud-based software company for mortgages and consumer banking.

RELATED: Employees Are Hawking Their Silicon Valley Bank Merch on eBay

Mayopoulos sent a memo to clients on his first day as CEO.

“I look forward to getting to know the clients of Silicon Valley Bank,” he wrote Monday, per Insider. “I come to this role with humility. I also come to this role with experience in these kinds of situations.”

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March 16, 2023
Video: U.S. Banking System ‘Is Sound,’ Yellen Says

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Treasury Secretary Janet Yellen testified before the Senate Finance Committee, days after regulators were forced to step in and take over Silicon Valley Bank and Signature Bank.

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March 16, 2023
Treasury Secretary Janet Yellen tells Senate panel nation’s “banking system is sound” after Silicon Valley Bank collapse

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Washington — Treasury Secretary Janet Yellen on Thursday sought to quell concerns from Congress that despite the collapse of two banks in the last several days and ongoing consumer jitters about the state of the financial services sector, the nation’s banking system nonetheless remains strong.

In testimony before the Senate Finance Committee, Yellen touted the government’s “decisive and forceful actions to strengthen public confidence in our banking system” after Silicon Valley Bank abruptly failed nearly one week ago and was taken over by the Federal Deposit Insurance Corporation (FDIC).

“I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them,” she said. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remains strong and that depositors’ savings remain safe.”

In response to the failure of California-based Silicon Valley Bank, federal regulators scrambled to craft a plan to bolster public’s confidence in the soundness of the financial system and limit spillover effects. The Biden administration announced Sunday the emergency action it would take to shore up the banking system, which included ensuring depositors with accounts at Silicon Valley Bank would have access to all of their money.

US Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on the proposed budget request for 2024, on Capitol Hill in Washington, DC, March 16, 2023.

ANDREW CABALLERO-REYNOLDS/AFP via Getty Images

Yellen highlighted in her opening comments the Treasury Department’s work with the Federal Reserve and FDIC to protect all depositors and reiterated that taxpayers would not be bailing out Silicon Valley Bank’s investors.

“Customers were able to access all of the money in their deposit accounts so they could make payroll and pay the bills,” Yellen said, stressing that investors in those banks will not fare as well. “Shareholders and debtholders are not being protected by the government. Importantly, no taxpayer money is being used or put at risk with this action. Deposit protection is provided by the Deposit Insurance Fund, which is funded by fees on banks.”

The plan rolled out by Yellen and top banking officials in the Biden administration also included a new lending facility set up by the Federal Reserve, called the Bank Term Funding Program. Yellen told senators the program “will help financial institutions meet the needs of all of their depositors.”

Still, Sen. Ron Wyden, the chair of the committee, acknowledged the events of the last week in the banking sector have left Americans concerned, and said it underscores the need for Congress to raise or suspend the debt limit.

“Nerves are certainty frayed at this moment,” the Oregon Democrat said in opening remarks. “One of the most important steps Congress can take now is to make sure there are no questions about the full faith and credit of the United States. That means paying the bills incurred by presidents of both parties and taking a default off the table.”

Silicon Valley Bank, which was 40 years old and was the 16th largest bank in the U.S., catered largely to the tech industry and was used by many start-ups and venture capital firms. It is the largest financial institution to collapse since Washington Mutual at the height of the financial crisis in 2008.

In unveiling their emergency measures in response to Silicon Valley Bank’s closure, federal banking officials also revealed a second institution, Signature Bank of New York, was taken over by state regulators Sunday.

Yellen said Silicon Valley Bank had to be closed after depositors rushed to withdraw money last week amid concerns about its balance sheet — which Sen. Mark Warner, a Virginia Democrat, said may mark “history’s first internet-driven run.”

“It had a high reliance on uninsured deposits and there was a massive withdrawal of deposits that led to liquidity problems,” she said.

Yellen said U.S. financial agencies moved to intervene amid the fallout from Silicon Valley Bank’s collapse and declare a systemic risk exception, protecting all depositors, because they recognized the risk of contagion.

“No matter how strong capital and liquidity supervision are, if a bank has an overwhelming run that’s spurred by social media or whatever so that it’s seeing deposits flee at that pace, a bank can be put in danger of failing,” she said.

The circumstances that led to the failure of two banks in a matter of days is expected to be a major focus of Yellen’s appearance before the finance panel, as well as inflation and the debt ceiling.

The Congressional Budget Office estimates the U.S. could be at risk of defaulting on its debt as soon as July if Congress doesn’t lift or suspend the debt limit, setting up a high-stakes fight between President Biden and the House Republican majority.

While the White House is pushing Congress to approve a debt-limit increase with no conditions attached, House Speaker Kevin McCarthy and GOP lawmakers have said any deal must be paired with cuts to federal spending.

Yellen told senators that Mr. Biden is prepared to discuss limits on government spending but emphasized that negotiations over spending cuts should be separate from the debt limit fight.

“The debt ceiling simply must be raised, and to put at risk the full faith and credit of the United States, and to threaten to cause an economic and financial catastrophe isn’t an acceptable requirement,” she said.

On inflation, Yellen said in her opening testimony that there has been some moderation in headline inflation, but “more work needs to be done.” In February, inflation cooled, but remains stubbornly high, at 6%. The Fed must decide soon whether to keep boosting interest rates to try to slow inflation, or to ease up because of the pressure higher rates exert on the banking industry.

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Sarah Ewall-Wice

CBS News reporter covering economic policy.

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March 16, 2023
Credit Suisse shares plunge amid bank sector fears

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Credit Suisse shares plunge amid bank sector fears – CBS News

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The fallout from the collapse of Silicon Valley Bank continued to reverberate across the financial world Wednesday, when Credit Suisse, one of Europe’s largest banks, saw its shares plummet. Stocks also fell across the board. Errol Barnett has the latest.

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March 15, 2023
New CEO of failed Silicon Valley Bank was once fired from his Charlotte banking job

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The new CEO of failed Silicon Valley Bank is a familiar name to many in Charlotte’s banking community — Tim Mayopoulos was fired as general counsel of Bank of America in 2008 in the midst of the financial crisis and escorted out of the office by an HR representative.

The Silicon Valley Bank failure was the second-largest in U.S. history.

The FDIC closed Silicon Valley Bank on March 10, started a new bank called Silicon Valley Bridge Bank, and named Mayopoulos as CEO on Monday.

Silicon Valley Bank failed after numerous companies transferred their cash from the bank when it couldn’t raise more capital after a $1.8 billion loss, TheStreet reported Saturday. The huge loss stemmed from a bond investment that was sold since depositors wanted to recoup their cash deposits, according to the financial news site.

In a message on LinkedIn and the new bank’s website clients Monday, Mayopoulos never mentions his ties to Bank of America. He referred to the job he landed next, noting that he was part of the new leadership at mortgage financing company Fannie Mae after the 2008-09 financial crisis.

Mayopoulos was CEO of Fannie Mae from 2012 to 2018, he said. He commuted from Charlotte to Fannie Mae headquarters in Washington, D.C., The Charlotte Observer reported in 2014.

“I am very proud of work we did there to restore the company to profitability and to stabilize the housing finance system in a period of unprecedented challenge,” Mayopoulos wrote in his message.

Fired by Bank of America

In testimony on Capitol Hill in 2009, Mayopoulos said he was stunned when Bank of America fired him in December 2008 and told him to leave immediately, The Charlotte Observer reported at the time.

He was the bank’s top lawyer during its negotiation to buy Merrill Lynch for $50 billion at the height of the financial crisis in September 2008. Mayopoulos gave prepared remarks to a House committee examining the bank’s purchase of Merrill Lynch and the accompanying $20 billion federal loan.

His termination came in December 2008, nine days after he advised the bank that it didn’t have the grounds to back out of its bid for Merrill Lynch despite that company’s mounting losses, the Observer reported.

Mayopoulos testified that he was in a meeting on Dec. 10, 2008, planning how to merge the legal departments of Bank of America and Merrill, when his assistant interrupted him.

An HR representative was waiting outside his office. The rep immediately took his company ID card, company credit card, Blackberry and office keys, and told him he couldn’t take anything with him, Mayopoulos told the committee.

The HR rep escorted him out to the executive parking garage, and Mayopoulos said he drove home.

The Moynihan connection

It wasn’t clear at the time if the advice about Merrill got Mayopoulos fired or if it was an executive drama involving Brian Moynihan, the current CEO of Bank of America, the Observer previously reported.

In fact, Moynihan came close to leaving the bank in late 2008 and Bank of America even prepared a news release announcing the departure, according to 2010 court filings, the Observer reported at the time.

Bank of America CEO Brian Moynihan was offered the bank’s general counsel role in 2008, a day before general counsel Tim Mayopoulos was fired from the post, The Charlotte Observer previously reported. Diedra Laird FILE PHOTO

Moynihan, who became CEO in January 2010, likely wouldn’t have gotten the job if he’d left the bank in December 2008, according to the Observer archives. He was head of the investment bank at the time, but would have lost the job to Merrill Lynch CEO John Thain after Bank of America closed on its purchase of Merrill, the Observer reported.

According to the 2010 court filings, the bank even prepared a draft news release announcing Moynihan’s departure. But after several board members objected, CEO Ken Lewis and another bank executive offered Moynihan the general counsel job. The bank fired Mayopoulos the next day, the Observer reported.

Romantic relationship headlines

In 2016, Mayopoulos made headlines of a different sort.

Fifth Third Bancorp fired its general counsel, a former lawyer for Bank of America, because of her romantic relationship with Mayopoulos, The Wall Street Journal reported at the time.

Mayopoulos, who was 57 and separated from his wife, disclosed the relationship to Fannie Mae’s compliance and ethics office in March 2016, according to The Wall Street Journal.

In a statement to the Observer at the time, Fannie Mae said Mayopoulos disclosed the relationship to the company’s office of compliance and ethics, and that its CEO followed the office’s guidance.

Mayopoulos “has no involvement in Fannie Mae’s relationship with Fifth Third Bank,” according to the statement.

More about Mayopoulos

Until recently, Mayopoulos was president of a Silicon Valley-based software firm that provides technology to financial institutions to serve consumer banking customers. He led digital mortgage platform Blend, Reuters reported in 2021.

“I know how important Silicon Valley Bank has been and continues to be to the success of its clients and the innovation ecosystem,” he wrote on the bank’s website.

Mayopoulos said the bank was “doing everything we can to rebuild, win back your confidence, and continue supporting the innovation economy. We recognize the past few days have been an extremely challenging time, and we are grateful for your patience.”

Business editor Adam Bell contributed to this report

This story was originally published March 15, 2023, 4:53 PM.

Related stories from Charlotte Observer

Joe Marusak has been a reporter for The Charlotte Observer since 1989 covering the people, municipalities and major news events of the region, and was a news bureau editor for the paper. He currently reports on breaking news.

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March 15, 2023
Credit Suisse shares tumble, fueling more concerns about banking

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Credit Suisse shares tumbled to an all-time low on Wednesday, stoking fresh jitters over the health of the broader banking sector following the collapse of two U.S. banks.

The Swiss bank’s stock was down 20% as of 2:29 p.m. Eastern time trading at $2 per share. The stock plummeted just hours after Credit Suisse’s top shareholder, Saudi National Bank, ruled out increasing its stake in the bank due to limitations imposed by regulators from the various jurisdictions overseeing its investment.

“If we go above [a] 10% [stake], all new rules kick in whether it be by our regulator or the Swiss regulator or the European regulator,” Saudi National Bank Chairman Ammar Al Khudairy told Bloomberg TV on Wednesday. “We’re not inclined to get into a new regulatory regime.”

The Saudi backer’s decision not to provide more funds comes just one day after Credit Suisse rattled investors by disclosing that it had discovered “material weaknesses” in its 2021 and 2022 financial reports.

“[Credit Suisse] Group’s internal control over financial reporting was not effective as it did not design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its financial statements,” the bank said in its annual report, released Tuesday.

Federal agencies investigate Silicon Valley Bank’s collapse

04:16

Concerns over the accuracy of Credit Suisse’s financial reporting and its relationship with investors came under scrutiny after the meltdowns of Greensill Capital and Archegos Capital Management, which battered the bank in 2021, causing it to lose billions of dollars.

Credit Suisse racked up $8 billion in net losses in 2022, its largest ever annual losses, according to the bank’s filings. Credit Suisse’s wealth management unit also posted roughly $133 billion in net asset outflows for 2022 as customers took their business elsewhere, SEC filings show.

Those financial woes, along with the recent collapse of tech-focused Silicon Valley Bank (SVB) and Signature Bank, likely intensified the market’s reaction to statements Wednesday by the bank’s top investor, said Andrew Kenningham, chief Europe economist with Capital Economics.

“Much bigger concern”

“Credit Suisse has been a slowing moving car crash for years, it seems, but now today’s news of course is happening in the vortex of SVB,” he told investors in a report.

Kenningham described Credit Suisse’s struggles as a “much bigger concern for the global economy” than the health of regional U.S. banks like SVB. The Swiss company, which has a much larger balance sheet than SVB, is categorized by financial regulators as a “global systemically important bank” and is deeply interconnected with financial entities, including subsidiaries in the U.S.

“[T]he problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” he wrote. “Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”

As the selloff in Credit Suisse shares fuels concerns about the global banking system, the broader markets have also retreated. The S&P 500 fell 1.2% on Wednesday, while the KBW Bank Index, which measures the performance of 24 national and regional banks, declined 3.4%.

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March 15, 2023
What fintechs are saying about SVB collapse | Bank Automation News

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In the wake of Silicon Valley Bank’s failure, several fintechs are looking at the effects of SVB’s collapse on the market, regardless of whether they had accounts with the bank. Money movement platform Astra did not have deposits with SVB, but Chief Executive Gil Akos believes that even companies that did not have exposure will […]

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Brian Stone

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March 14, 2023
SVB, Stripe Expose Shockwaves of a Long-Shuttered US IPO Market | Bank Automation News

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Silicon Valley Bank’s collapse is just the latest example of how a historic slowdown in IPOs is producing a minefield of unexpected consequences. The shuttered market for US initial public offerings — and the resultant lack of proceeds for cash-strapped firms — has created myriad complications for Corporate America. From contributing to the collapse of a bank […]

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March 14, 2023
What’s Next Following The Collapse Of Silicon Valley Bank

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WASHINGTON (AP) — Two large banks that cater to the tech industry have collapsed after a bank run, government agencies are taking emergency measures to backstop the financial system, and President Joe Biden is reassuring Americans that the money they have in banks is safe.

It’s all eerily reminiscent of the financial meltdown that began with the bursting of the housing bubble 15 years ago. Yet the initial pace this time around seems even faster.

Over the last three days, the U.S. seized the two financial institutions after a bank run on Silicon Valley Bank, based in Santa Clara, California. It was the largest bank failure since Washington Mutual went under in 2008.

How did we get here? And will the steps the government unveiled over the weekend be enough?

Here are some questions and answers about what has happened and why it matters:

Why Did Silicon Valley Bank Fail?

Silicon Valley Bank had already been hit hard by a rough patch for technology companies in recent months and the Federal Reserve’s aggressive plan to increase interest rates to combat inflation compounded its problems.

The bank held billions of dollars worth of Treasuries and other bonds, which is typical for most banks as they are considered safe investments. However, the value of previously issued bonds has begun to fall because they pay lower interest rates than comparable bonds issued in today’s higher interest rate environment.

That’s usually not an issue either because bonds are considered long term investments and banks are not required to book declining values until they are sold. Such bonds are not sold for a loss unless there is an emergency and the bank needs cash.

Silicon Valley, the bank that collapsed Friday, had an emergency. Its customers were largely startups and other tech-centric companies that needed more cash over the past year, so they began withdrawing their deposits. That forced the bank to sell a chunk of its bonds at a steep loss, and the pace of those withdrawals accelerated as word spread, effectively rendering Silicon Valley Bank insolvent.

What Did The Government Do Sunday?

The Federal Reserve, the U.S. Treasury Department, and Federal Deposit Insurance Corporation decided to guarantee all deposits at Silicon Valley Bank, as well as at New York’s Signature Bank, which was seized on Sunday. Critically, they agreed to guarantee all deposits, above and beyond the limit on insured deposits of $250,000.

Many of Silicon Valley’s startup tech customers and venture capitalists had far more than $250,000 at the bank. As a result, as much as 90% of Silicon Valley’s deposits were uninsured. Without the government’s decision to backstop them all, many companies would have lost funds needed to meet payroll, pay bills, and keep the lights on.

The goal of the expanded guarantees is to avert bank runs — where customers rush to remove their money — by establishing the Fed’s commitment to protecting the deposits of businesses and individuals and calming nerves after a harrowing few days.

Also late Sunday, the Federal Reserve initiated a broad emergency lending program intended to shore up confidence in the nation’s financial system.

Banks will be allowed to borrow money straight from the Fed in order to cover any potential rush of customer withdrawals without being forced into the type of money-losing bond sales that would threaten their financial stability. Such fire sales are what caused Silicon Valley Bank’s collapse.

If all works as planned, the emergency lending program may not actually have to lend much money. Rather, it will reassure the public that the Fed will cover their deposits and that it is willing to lend big to do so. There is no cap on the amount that banks can borrow, other than their ability to provide collateral.

How Is The Program Intended To Work?

Unlike its more byzantine efforts to rescue the banking system during the financial crisis of 2007-08, the Fed’s approach this time is relatively straightforward. It has set up a new lending facility with the bureaucratic moniker, “Bank Term Funding Program.”

The program will provide loans to banks, credit unions, and other financial institutions for up to a year. The banks are being asked to post Treasuries and other government-backed bonds as collateral.

The Fed is being generous in its terms: It will charge a relatively low interest rate — just 0.1 percentage points higher than market rates — and it will lend against the face value of the bonds, rather than the market value. Lending against the face value of bonds is a key provision that will allow banks to borrow more money because the value of those bonds, at least on paper, has fallen as interest rates have moved higher.

As of the end of last year U.S. banks held Treasuries and other securities with about $620 billion of unrealized losses, according to the FDIC. That means they would take huge losses if forced to sell those securities to cover a rush of withdrawals.

How Did The Banks End Up With Such Big Losses?

Ironically, a big chunk of that $620 billion in unrealized losses can be tied to the Federal Reserve’s own interest-rate policies over the past year.

In its fight to cool the economy and bring down inflation, the Fed has rapidly pushed up its benchmark interest rate from nearly zero to about 4.6%. That has indirectly lifted the yield, or interest paid, on a range of government bonds, particularly two-year Treasuries, which topped 5% until the end of last week.

When new bonds arrive with higher interest rates, it makes existing bonds with lower yields much less valuable if they must be sold. Banks are not forced to recognize such losses on their books until they sell those assets, which Silicon Valley was forced to do.

How Important Are The Government Guarantees?

They’re very important. Legally, the FDIC is required to pursue the cheapest route when winding down a bank. In the case of Silicon Valley or Signature, that would have meant sticking to rules on the books, meaning that only the first $250,000 in depositors’ accounts would be covered.

Going beyond the $250,000 cap required a decision that the failure of the two banks posed a “systemic risk.” The Fed’s six-member board unanimously reached that conclusion. The FDIC and the Treasury Secretary went along with the decision as well.

Will These Programs Spend Taxpayer Dollars?

The U.S. says that guaranteeing the deposits won’t require any taxpayer funds. Instead, any losses from the FDIC’s insurance fund would be replenished by a levying an additional fee on banks.

Yet Krishna Guha, an analyst with the investment bank Evercore ISI, said that political opponents will argue that the higher FDIC fees will “ultimately fall on small banks and Main Street business.” That, in theory, could cost consumers and businesses in the long run.

Will It All Work?

Guha and other analysts say that the government’s response is expansive and should stabilize the banking system, though share prices for medium-sized banks, similar to Silicon Valley and Signature, plunged Monday.

“We think the double-barreled bazooka should be enough to quell potential runs at other regional banks and restore relative stability in the days ahead,” Guha wrote in a note to clients.

Paul Ashworth, an economist at Capital Economics, said the Fed’s lending program means banks should be able to “ride out the storm.”

“These are strong moves,” he said.

Yet Ashworth also added a note of caution: “Rationally, this should be enough to stop any contagion from spreading and taking down more banks … but contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.”

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March 14, 2023
Asian markets tumble as SVB fallout fears rattle banking sector | CNN Business

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Hong Kong
CNN
—

Asian stocks fell broadly on Tuesday, dragged down by banking shares, as fears over the fallout of Silicon Valley Bank’s collapse gripped the market despite US government efforts to stabilize the financial system.

Japan’s Nikkei 225

(N225) tumbled 2.19% to post its third straight day of declines. Hong Kong’s Hang Seng

(HSI) briefly dropped 2.5%, before trimming losses in the afternoon. Korea’s Kospi lost almost 3%. China’s Shanghai Composite shed 0.65%.

Banks were the hardest hit sector across the region.

HSBC

(HBCYF) Holdings plunged more than 5% in Hong Kong after the banking giant pledged to inject 2 billion pounds ($2.4 billion) of liquidity into SVB’s UK unit, which it had bought for 1 pound. Standard Chartered Bank sank nearly 7%.

The sell-off happened despite extraordinary measures by US regulators over the weekend to avert a potential banking crisis following the collapse of SVB. The California-based lender fell with astounding speed on Friday, marking America’s biggest bank shutdown since 2008.

Investors are now on edge over whether the demise of SVB could spark a broader banking sector meltdown. On Monday, US stocks were mixed, with banking shares taking a hit.

“Investors fear other financial institutions are sitting on significant unrealized losses on their balance sheets because of markedly higher interest rates,” said DBRS Morningstar analysts on Monday.

The fear was “irrespective of fundamentals,” they said.

US Treasury yields were sharply lower on Monday as investors flocked to safe-haven assets. The yield on the 2-year Treasury was briefly down more than 50 basis points, the biggest daily drop in decades.

“At the moment, markets are speculating on a Fed’s U-turn, but are equally pricing in a greater degree of contagion in the banking sector turmoil, which is ultimately weighing on risk sentiment,” ING analysts wrote in a research note on Tuesday.

Should the Federal Reserve accommodate market hopes and end its interest rate tightening cycle, there would be ample room for market sentiment to rebound, they said.

Other Asia Pacific banking shares also fell.

In Hong Kong, shares in Bank of China (Hong Kong) and Hang Seng Bank fell 3.7% and 1.3% respectively. Pan-Asian insurer AIA Group traded down 4.7%.

In Tokyo, Mitsubishi UFJ Financial Group, Japan’s biggest bank, lost 8.4%. Sumitomo Mitsui Financial Group and Mizuho Financial Group both dropped more than 7%.

In Seoul, KB Financial Group and Shinhan Financial Group fell 3.6% and 2.5% respectively.

In Shanghai, China Merchants Bank dropped 1.2% and China Minsheng Banking Corp retreated by 0.3%.

In Sydney, Macquarie Group pulled back by 3.1% and ANZ Group was 1.5% lower.

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March 14, 2023
China’s Andon Health says it has full access to funds parked at collapsed lender SVB | CNN Business

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Hong Kong
CNN
—

China’s Andon Health, a maker of medical devices, says it has full access to funds parked at Silicon Valley Bank, after the US government intervened to backstop all the deposits at the failed lender.

The Tianjin-based company, which manufactures consumer health devices and supplied Covid test kits to the United States during the pandemic, has cash deposits at SVB worth 5% of its total cash and cash equivalents.

That amounts to approximately 675 million yuan ($98 million), according to calculations based on its most recent earnings report.

“Our deposits at Silicon Valley Bank can be used in full and have not suffered any losses,” the company said in a Tuesday filing to the Shenzhen Stock Exchange.

The announcement comes after the US government took extraordinary measures on Sunday to avert a potential banking crisis following the collapse of SVB. Those measures include guaranteeing that customers of the bank will have access to all their money starting Monday.

By doing that, US regulators aimed to prevent more bank runs and to help companies that deposited large sums with affected banks to continue to make payroll and fund their operations

The collapse of SVB, which courted Chinese start-ups, has caused widespread concern in China, where a string of founders and companies rushed to appease investors by saying their exposure was insignificant or nonexistent.

So far, more than a dozen of firms have issued statements trying to pacify investors or clients, saying that their exposure to SVB was limited. Most were biotech companies.

SVB, which worked with nearly half of all venture-backed tech and healthcare companies in the United States before it was taken over by the government, has a Chinese joint venture, which was set up in 2012 and targeted the country’s tech elite.

The SPD Silicon Valley Bank, which was owned 50-50 owned by SVB and local partner Shanghai Pudong Development Bank, said Saturday that its operations were “sound.”

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March 13, 2023
CBS Evening News, March 13, 2023

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CBS Evening News, March 13, 2023 – CBS News

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Biden says banking system safe after two banks fail in a matter of days; Highlights from the 95th Academy Awards

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March 13, 2023
3/13: Red and Blue

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3/13: Red and Blue – CBS News

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Federal government takes action after collapse of two banks; Trump visits Iowa, drawing comparisons with DeSantis.

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March 13, 2023
CNBC’s Andrew Ross Sorkin says covering the SVB meltdown is like ‘walking a tight rope’ | CNN Business

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New York
CNN
—

Andrew Ross Sorkin woke up early Monday morning, long before the crack of dawn, after managing to sneak in a handful of hours of sleep.

The New York Times columnist had been up late into the night working on his DealBook newsletter. And now he needed to rise for a special edition of “Squawk Box,” the CNBC program he has co-hosted since 2011.

The special 5am edition of “Squawk” had been tasked with covering the continuing fallout stemming from the sudden collapse of Silicon Valley Bank, a massive financial news story that has drawn some eerie comparisons to the beginnings of the 2008 financial disaster.

A version of this article first appeared in the “Reliable Sources” newsletter. Sign up for the daily digest chronicling the evolving media landscape here.

It is a story Sorkin described covering as “a balancing act, a little bit like walking a tight rope.” On one hand, he said, journalists must avoid sparking panic and causing a catastrophic run on the banks. But, on the other hand, journalists also owe it to their audiences to deliver them a clear-eyed assessment of the state of affairs.

“Our job as journalists is to tell the public what is happening — and if you believe in transparency, we should all want that,” Sorkin said. “The downside of transparency in real-time is sometimes news that may not be positive can pile on itself in a way. And so I think it is really just about trying to contextualize what we’re seeing.”

“You don’t want to cause a run on a bank,” Sorkin added, “but then at the same time, if everyone is running and they have reason to run, I think it’s important that the public understands what’s happening.”

The approach to delivering the news and covering the implosion of SVB that Sorkin described stands in stark contrast to some of the commentary saturating the internet and at other media outlets.

Over the weekend, some venture capital influencers amplified fear and suggested the entire US banking system was on the verge of collapse. The investor Jason Calacanis, who hosts a podcast and commands a Twitter audience of nearly 700,000 followers, tweeted, “YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW.” On the right-wing talk channel Fox News Monday morning, “Fox & Friends” co-host Ainsley Earhardt suggested Americans needed “to go to our banks and take our money out.”

Unprecedented in its sheer speed and volume, SVB’s collapse is “fascinating,” Sorkin said, causing a meltdown only now possible in the “true age of social media, as well as what might be described as digital banking.”

“The ability for information to spread rapidly, both good information and bad, and for people to act on that information and then going to a bank app and transferring funds from one place to another, makes the responsibility [for journalists] even greater,” Sorkin said.

Sorkin said banking is ultimately a “confidence game,” explaining that it is “genuinely about whether people have confidence in leaving their money in a particular institution.” And in this current environment where social media influencers and other irresponsible voices thrive, Sorkin said it “inherently makes things less stable.”

“You have a lot of people who are on social media who don’t necessarily feel the same responsibilities to contextualize the news in the same way I might try,” Sorkin said. He suggested that in the case of SVB, there may have been “a little smoke in the corner of the theater” that could have been addressed before a fire burst out and prompted danger.

“If you scream ‘fire,’ everyone runs out of the theater,” Sorkin said. “Could the smoke have been put out before everyone ran out of the theater? Maybe.”

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March 13, 2023
Biden says banking system safe after two banks fail in a matter of days

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Biden says banking system safe after two banks fail in a matter of days – CBS News

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President Biden on Monday said that the U.S. banking system is safe in the wake of the collapse of Silicon Valley Bank in California and Signature Bank in New York. The federal government scrambled to backstop deposits at the two banks, but worries persist that other small regional banks could face similar issues. Ed O’Keefe has the details.

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March 13, 2023
Chinese companies and founders rush to calm investors after SVB collapse | CNN Business

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Hong Kong
CNN
—

The collapse of Silicon Valley Bank (SVB), which courted Chinese start-ups, has caused widespread concern in China, where a string of founders and companies rushed to appease investors by saying their exposure was insignificant or nonexistent.

SVB, which worked with nearly half of all venture-backed tech and healthcare companies in the United States before it was taken over by the government, has a Chinese joint venture, which was set up in 2012 and targeted the country’s tech elite.

The SPD Silicon Valley Bank, which was owned 50-50 owned by SVB and local partner Shanghai Pudong Development Bank, said Saturday that its operations were “sound.”

“The bank has a standardized corporate governance structure and an independent balance sheet,” it said in a statement. “As China’s first technology bank, SPD Silicon Valley Bank is committed to serving Chinese science and technology companies, and has always had sound operations in accordance with Chinese laws and regulations.”

It’s unclear what will happen to SVB’s ownership of the joint venture.

SVB Financial Group, the parent company of SVB, also has two business consulting firms and one financial services firm in mainland China, according to corporate database Tianyancha.

Concerns about the failure of SVB have spread around the world, as investors fretted about the broader risks to the global banking sector and any potential spillover effect.

In an extraordinary move to restore confidence in America’s banking system, the Biden administration on Sunday guaranteed that customers of SVB and Signature Bank, which was closed by regulators, will have access to all their money.

That action appears to have appeased global markets, with US futures rallying in response and some Asian markets paring earlier losses.

In China, at least a dozen firms have issued statements since SVB collapsed trying to pacify investors or clients, saying that their exposure to the lender was limited. Most were biotech companies.

BeiGene, one of China’s largest cancer-focused drug companies, said Monday it had more than $175 million uninsured cash deposits at SVB, which represents approximately 3.9% of its cash, cash equivalents and short-term investments.

“The company does not expect the recent developments with SVB to significantly impact its operations,” it said.

Zai Lab, a pharmaceutical firm, announced that its cash deposits at SVB were “immaterial” at about $23 million.

The closure of SVB “will not have an impact” on the company’s ability to meet its operating expenses and capital expenditure requirements, including payroll, it said.

Other companies that publicly assured investors included Andon Health, Sirnaomics, Everest Medicines, Broncus Medical, Jacobio Pharmaceuticals, Brii Biosciences, CStone Pharmaceuticals, Genor Biopharma and CANbridge Pharmaceuticals.

Mobile ad tech firm Mobvista and wealth management firm Noah Holdings said their cash holdings at SVB were “minimal” or “immaterial.”

Popular selfie app Meitu said it hadn’t held any bank accounts at SVB since 2020. It issued a statement “to avoid any potential public misunderstanding.”

Ascletis Pharma, MicroPort NeuroTech, Antengene Corp, and Suzhou Basecare Medical Corporation also denied they had any deposits or business dealings with SVB.

Pan Shiyi, co-founder and former chairman of Soho China, a major Beijing-based property developer, denied he had any money at SVB after reports went viral on social media that he had lost billions of yuan.

“We never opened an account with Silicon Valley Bank, nor placed a deposit,” he said late Sunday on his Weibo account.

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March 13, 2023
Biden aims to reassure Americans after high-profile bank failures

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Biden aims to reassure Americans after high-profile bank failures – CBS News

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President Biden is telling Americans the banking system is sound despite the high-profile failure of Silicon Valley Bank and several others. CBS News senior White House and political correspondent Ed O’Keefe joins John Dickerson on “Prime Time” with more.

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March 13, 2023