The former parent company of Silicon Valley Bank is nearing a deal to sell its VC and credit-investment arm out of bankruptcy, according to a Wall Street Journal report Friday, citing people familiar with the matter. SVB Financial Group
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is in talks with two bidders for SVB Capital: Anthony Scaramucci’s SkyBridge Capital and Atlas Merchant Capital, and private-equity firm Vector Capital. A court decision on a winner is expected in the next few weeks in a deal that could fetch between $250 million and $500 million. Silicon Valley Bank failed in March and was taken over by regulators, cascading into a banking crisis that later took down Signature Bank and First Republic.
Tag: SVB Financial Group
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SVB Capital closes in on deal to be bought out of bankruptcy: report
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Fed report on SVB collapse faults bank’s managers — and central bank regulators
Silicon Valley Bank’s dramatic failure in early March was the product of mismanagement and supervisory missteps, compounded by a dose of social media frenzy, the Federal Reserve concluded in a highly anticipated report released Friday.
Michael S. Barr, the Fed’s vice chair for supervision appointed by President Joe Biden, said in the exhaustive probe of the March 10 collapse of SVB that myriad factors coalesced to bring down what had been the nation’s 17th-largest bank.
Among them were bank executives who committed “textbook” failures in managing interest rate risk, Fed regulators who failed to understand the depth of SVB’s problems and then were too slow to react, and a social media frenzy that may have accelerated the institution’s demise.
Barr called for broad changes in the way regulators approach the nation’s complex and interwoven financial system.
“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” he said.
“As risks in the financial system continue to evolve, we need to continuously evaluate our supervisory and regulatory framework and be humble about our ability to assess and identify new and emerging risks,” Barr added.
A senior Fed official said increased capital and liquidity might have helped SVB survive. Central bank officials likely will turn their attention to cultural changes, noting that risks at SVB were not thoroughly examined. Future changes could see standardized liquidity requirements to a broader range of banks, and tighter supervision of compensation for bank managers.
Bank stocks were higher following the report’s release, with the SPDR S&P Bank ETF up about 1.3%.
In a stunning move that continues to reverberate across the banking system and through financial markets, regulators shuttered SVB following a run on deposits triggered by liquidity concerns. To meet capital requirements, the bank was forced to sell long-dated Treasury notes at a loss incurred as rising interest rates ate into principal value.
Barr noted that SVB’s deposit run was exacerbated by fear spread on social media outlets that the bank was in trouble, combined with the ease of withdrawing deposits in the digital age. The phenomenon is something that regulators need to note for the future, he said.
“[T]he combination of social media, a highly networked and concentrated depositor base, and technology may have fundamentally changed the speed of bank runs,” Barr said in the report. “Social media enabled depositors to instantly spread concerns about a bank run, and technology enabled immediate withdrawals of funding.”
He used a broad brush in discussing the Fed’s failures, not mentioning San Francisco Federal Reserve President Mary Daly, under whose jurisdiction SVB sat. Senior Fed officials, speaking on condition of anonymity in order to speak frankly, said regional presidents aren’t generally responsible for direct supervision of the banks in their districts.
Fed Chairman Jerome Powell said he welcomed the Barr probe and its internal criticism of Fed actions during the crisis.
“I agree with and support his recommendations to address our rules and supervisory practices, and I am confident they will lead to a stronger and more resilient banking system,” Powell said in a statement.
SVB was a darling of the tech industry as a place to turn to for high-flying companies in need of growth financing. In turn, the bank used billions in uninsured deposits as a base for lending.
The collapse, which happened over the matter of just a few days, sparked fears that depositors would lose their money as many of the accounts were above the $250,000 threshold for Federal Deposit Insurance Corp. insurance. Signature Bank, which used a similar business model, also failed.
As the crisis unfolded, the Fed rolled out emergency lending measures while guaranteeing that depositors wouldn’t lose their money. While the moves have largely stemmed the panic, they spurred comparisons to the 2008 financial crisis and have led to calls for reversing some of the deregulatory measures taking in recent years.
Senior Fed officials said changes to the Dodd-Frank reforms helped spur the crisis, though they also acknowledge that the SVB case also was a failure of supervision. A change approved in 2018 reduced the stringency of stress testing for banks with less than $250 billion, a category in which SVB fell.
“We need to develop a culture that empowers supervisors to act in the face of uncertainty,” Barr wrote. “In the case of SVB, supervisors delayed action to gather more evidence even as weaknesses were clear and growing. This meant that supervisors did not force SVB to fix its problems, even as those problems worsened.”
Areas the Fed is likely to focus on include the types of uninsured deposits that raised concerns during the SVB drama, as well as a general focus on capital requirements and the risk of unrealized losses that the bank had on its balance sheet.
Barr noted that supervisory and regulatory changes likely won’t take effect for years.
The General Accountability Office also released a report Friday on the bank failures that noted “risky business strategies along with weak liquidity and risk management” that contributed to the collapse of SVB and Signature.
Correction: The General Accountability Office also released a report Friday. An earlier version misstated the name of the agency.
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First Republic’s dramatic slide continues, stock falls nearly 20% as bank looks for rescue deal
Los Angeles, CA – March 13: People pass the First Republic Bank downtown on Monday, March 13, 2023 in Los Angeles, CA.
Dania Maxwell | Los Angeles Times | Getty Images
First Republic‘s stock sank again on Wednesday as investors kept an eye on a potential rescue deal for the troubled regional bank.
Its shares were down about 19% on Wednesday, extending losses of nearly 50% on Tuesday. The stock has fallen more than 90% year to date and hit an all-time low Wednesday, being halted multiple times for volatility.
First Republic’s stock was under pressure again on Wednesday.
This week’s drop for First Republic comes after the San Francisco-based lender late Monday said it lost roughly 40% of its deposits in the first quarter. First Republic was seen by customers and investors alike as a risky bank after the collapse last month of Silicon Valley Bank, which had a similar financial profile.
First Republic also said in its quarterly report Monday that it was reviewing strategic options to help reshape its balance sheet.
The steep decline in deposits came despite a group of 11 larger banks infusing $30 billion of deposits into First Republic in an attempt to instill confidence and prevent bank runs from spreading. Advisors to First Republic are trying to convince at least a few of those banks to provide further support by buying some of First Republic’s assets at above-market rates, CNBC has learned.
Those purchases would result in losses for the other banks, but First Republic’s advisors are trying to sell the banks on the idea that letting First Republic fail would be even more expensive if it led to still higher regulatory costs and fees.
If First Republic is successful in selling off some of its assets, it will then look to raise equity, according to sources, which would dilute current shareholders.
Sources told CNBC’s David Faber on Wednesday that government officials are currently unwilling to intervene in the First Republic rescue process.
— CNBC’s Hugh Son contributed reporting.
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Social media raises bank run risk, fueled Silicon Valley Bank’s collapse, paper says
People line up outside of a Silicon Valley Bank office on March 13, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images
After the sudden end of Silicon Valley Bank in March, market participants were quick to point out the role social media played in the velocity of its failure.
Now, about six weeks later, a working paper co-authored by a group of university professors digs deeper into the cause and effect of social media in the case of SVB, arguing that greater exposure to social media amplifies bank run risk and warning that other banks could face similar risks.
related investing news
“Communication and coordination pose a risk to banks, especially when many of the deposits in the bank are uninsured,” the academic paper says. “The amplification of bank run risk via Twitter conversations is a unique opportunity to observe communication and coordination that shapes a critically important economic outcome − distress in banks.”
Furthermore, “given the increasingly pervasive nature of social communication on and off Twitter, we do not expect this risk to go away, but rather, it is likely to influence other outcomes, as well.”
In March, Silicon Valley Bank, a firm that primarily served startup businesses, became the biggest bank failure in the U.S. since the 2008 financial crisis and the second-largest ever – all in a 48-hour period. Members of the venture capital community of investors in the very companies that got caught in the crisis have lamented their own role in it, spreading panic. One called it a “hysteria-induced bank run caused by VCs.”
The authors of the working paper examined original tweets (no retweets) from between Jan. 1, 2020 and Mar. 13, 2023 that include a financial institution’s cashtag (the stock ticker followed by the $ sign). They also looked at stock price data and hourly stock returns from the first half of this March to identify the impact of bank-related tweets on the stock return.
“During the run period, we find the intensity of Twitter conversation about a bank predicts stock market losses at the hourly frequency,” the paper says. “These results are consistent with depositors using Twitter to communicate in real time during the bank run.”
“More importantly, SVB is not the only bank to face this novel risk channel,” the authors wrote. “Open communication by depositors via social media increased the bank run risk for other banks that were ex ante exposed to such discussions in social media.”
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Democratic presidential longshot Marianne Williamson on challenging Biden: ‘We should have as many people running in an election as feel moved’
Democrats largely have closed ranks behind President Joe Biden ahead of next year’s election, but he isn’t completely without challengers for the party’s nomination.
Author and activist Marianne Williamson has thrown her hat in the ring, pursuing a longshot bid that comes after her 2020 presidential campaign fizzled out before the Iowa caucuses.
Why isn’t she falling in line and supporting her party’s incumbent president? What’s her pitch to people who think she’s not a serious candidate? What are her top economic proposals?
Williamson, 70, tackled those questions and more in a phone interview earlier this week.
Our Q&A with the Democratic presidential hopeful has been edited for clarity and length.
MarketWatch: In a nutshell, could you explain why you’re running for president?
Williamson: I’m running for president because I believe that some things need to be said and some changes need to be made, in order to repair some serious damage that’s been done to our democracy, to our country, to our people and to our environment over the last 50 years.
MarketWatch: You’ve talked about running to address “systemic economic injustices endured by millions of Americans” because of the “undue influence of corporate money on our political system.” What do you see as the top examples of that?
Williamson: During the 1970s, the average American worker had decent benefits, could afford a home, could afford a yearly vacation, could afford a car and could afford to send their child to college. In the last 48 years, there has been a $50 trillion transfer of wealth from the bottom 90% to the top 1% of Americans. That transfer has decimated our middle class. We are now at a point where if you are among 20% of Americans, then the economy’s doing pretty well for you. But, unfortunately, that 20% is surrounded by a vast sea of economic despair. We have 60,000 people in the United States who die every year because they can’t afford healthcare
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-1.11% ,
one in four Americans living with a medical debt, and 18 million Americans unable to fill the prescriptions that their doctors give to them.If you are in the club in America, if you are making it in America — and I have sold some books, so I understand the high side of the free market and have benefited, and I’m grateful for that — but no conscious persons wants to feel that they create wealth at the expense of other people having a chance. That is not American. It’s not what the American Dream is supposed to be.
I’m not trying to whitewash and romanticize American capitalism before this era. I’m not saying we were ever perfect, but it does seem to me that when I was growing up, the social consensus is that we were supposed to try. We knew that the higher good was that there would be this balance between individual liberty, including economic liberty, and a concern for the common good. But today concern for the common good has become almost derided as some quaint notion, and that we shouldn’t really give much more than lip service to it. And that’s a lot of human suffering that occurs because of that change in the social contract.
MarketWatch: Here’s kind of a two-part question. What would be your top economic priorities, and how in particular would you address high inflation and the recent banking
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crisis?Williamson: I’d like to see universal healthcare. I want to see tuition-free college at state colleges and universities, which is what we had in this country until the 1960s. There should be free childcare. There should be paid family leave. There should be guaranteed sick pay and a livable wage. And I think Americans are waking up to the fact that those things that I just mentioned are considered moderate issues in every other advanced democracy. They should not be considered left-wing fringe issues. They are granted to the citizens of every other advanced democracy.
That was your first question. The second has to do with high inflation. A lot of that high inflation has to do with price gouging by huge corporations, whether it has to do with food companies, transportation companies and so forth. All of those CEOs should testify before Congress and talk about the ways that they have — for the sake of their own profits — gouged the American people, particularly at such a time as this. And this is what happens when we normalize such a lack of conscience and such a lack of ethics within our system.
In terms of what happened with the bank in Silicon Valley
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which is what your third question was, right? I think the depositors should be made whole, but the bank executives who were taking multimillion-dollar bonuses for themselves, both before and right after the crash, they certainly should not get those bonuses. And also it’s concerning that some of the tech investors that would benefit the most from those deposits were the ones who caused the run on the bank. I don’t think that they should receive the benefit of what happens when those deposits are made whole. But the average depositor absolutely should be made whole in such cases.MarketWatch: You mentioned free tuition and child care. Where would the funding for that come from?
Williamson: The funding should come, first of all, from taxation. The 2017 tax cut in this country was a $2 trillion tax cut, and 83 cents of every dollar went to the highest-earning corporations and individuals. Now that tax cut also included the middle-class tax cut, and the middle-class tax cut was good.
That tax cut for the highest earners should be repealed, but the middle-class tax cut should be put back in immediately.
Secondly, we should stop all the corporate subsidies. Why are we giving subsidies to these companies that are already making multibillions of dollars in profit and often then price gouging the American people?
Third, I believe there should be a wealth tax. If somebody has $50 million, I don’t have any problem with their paying an extra 2% tax. And if they have $1 billion, let them pay another 1%. Somebody with a $50 million portfolio, much less $1 billion in assets, would not even feel that change, but the changes in people’s lives that would be created by those shifts would be huge.
MarketWatch: Your campaign often gets described as a real longshot bid. Why are you running when so many people say you have a low chance for success?
Williamson: Well, certainly Donald Trump was considered a longshot. For that matter, when he began Barack Obama was considered a longshot. Surely we remember when Hillary Clinton was considered a shoo-in.
MarketWatch: A recent Monmouth University poll of Democratic voters found 11% had a favorable view of you, 16% had an unfavorable view, 21% had no opinion, and 52% had not heard of you. How do you win over those voters who have an unfavorable view, and how do you reach the folks who haven’t heard of you?
Williamson: Well, there was a poll that came out last week that put me at 10%, including 18% with independents and 21% with people under 30.
It’s very difficult for someone like myself to get the message out when you have such institutional resistance to my even being in the conversation, and that is displayed in various ways. But there is independent media today. God knows there’s TikTok, where my information seems to be doing quite well.
This early, no candidate should be allowing the polls to determine their path forward. I didn’t go into this expecting the approval of institutional forces. And I, as a matter of fact, expected the kind of resistance that I’ve received, but that doesn’t matter. What matters is that a certain agenda be placed before the American people, and I am providing that option — the option of that alternative agenda.
I believe that agenda is the way for the Democrats to win in 2024. But even more importantly, I think it’s the agenda that will lead to the repair of this country.
MarketWatch: You mentioned TikTok, and that has been a hot topic in Washington, D.C., in recent weeks. Do you have a view on the Democratic and Republican proposals to ban TikTok in the U.S.?
Williamson: I think the United States government does need to be concerned with tech
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-1.00%
surveillance, but I wish they were as concerned when it comes to American-run companies as when it comes to Chinese. It’s a serious issue, it’s a valid issue — the whole issue of surveillance. But it’s a gnarly issue as well, and rushing to shut something down, which is so obviously a platform depended on by millions and millions of Americans for information sharing, is never something that should be done lightly.MarketWatch: Some Americans may know you only for your spiritual work, and these folks may not think you’re a serious presidential candidate. The White House press secretary indicated she’s in that camp. What’s your message to win those folks over?
Williamson: First of all, I don’t think of my campaign as quote-unquote trying to win anyone over. There’s something that I read years ago that has always guided my work: “If there’s something you genuinely need to say, there’s someone out there who genuinely needs to hear it.” I am speaking to people who I know agree with me. I wouldn’t be doing this if I weren’t aware that millions of people agree with me.
I think it’s very sad that the president would allow a presidential press podium to be used to mock a political opponent, and I think that many people were and are offended by that. This is a democracy. We should have as many voices out there as possible. We should have as many people running in an election as feel moved. Nobody has a monopoly on good ideas. There are ideas on the left and ideas on the right. There are ideas all across the spectrum, and this is a point in American history where we as Americans should hear them all.
MarketWatch: What do you think are some of the main things that President Biden has gotten right, and in what areas has he gone wrong?
Williamson: Well, the first thing he did right was he defeated Donald Trump. The president has taken an incremental approach to America’s problems, and I believe that he does wish to alleviate the suffering of many people whose lives are affected by some deeply unjust systems. But I don’t think that the alleviation of stress is enough right now. We need fundamental economic reform.
We also need a serious answer to climate change, and the president’s approval of the Willow project is not that. The president has said that he recognizes that climate change is an existential crisis, and yet he has given more oil
CL00,
+0.34%
permits than even Donald Trump did, and he has approved the Willow project.He also said that there will be a raise in the minimum wage. He did that for federal workers, but when it came to the Senate parliamentarian saying that he couldn’t put that raise in a bill, then he conveniently stopped right there and simply acquiesced to what the parliamentarian had said.
The Democratic House and Senate — they did cut child poverty in half with the child tax credit, but then, when that expired six months later, they didn’t bother to permanentize it.
These are the kinds of half-measures and incremental measures which are not enough to change the fundamental economic patterns in this country that lead to so much chronic economic anxiety and despair.
Joe Biden is shown in conversation in August 2019 with Marianne Williamson during an event for Democratic presidential candidates in Clear Lake, Iowa.
AFP via Getty Images
MarketWatch: One thing that comes up often with President Biden is his age, which is 80, while you’re 70. Do you think his age should be a concern, or is it ageism to bring it up?
Williamson: I think the individual has to consider this themselves. I have a problem, of course, contributing to the conversation because of the issue of ageism. But on the other hand, everybody can see for themselves what they can see for themselves.
I can only say if I were 80, I wouldn’t be running. But you know, I will not take potshots at the president, and I think that veers into potshots.
MarketWatch: Let’s talk about taking on Donald Trump, Ron DeSantis or whomever the Republican nominee ends up being. Why do you think you’re the Democrat who could end up beating one of them?
Williamson: Republicans are going to throw some big lies at the Democrats in 2024, and the only way that we’re going to defeat them, in my opinion, is to tell some big truths. Franklin Roosevelt said we would not have to worry about a fascist takeover in this country as long as democracy delivered on its promises. Democracy has not delivered on its promises. The only way to beat Donald Trump or Ron DeSantis in 2024 is to propose an agenda in which democracy once again delivers on its promises to the majority of the American people. And that would mean the issues I mentioned before: universal healthcare, tuition-free college, free child care, a guaranteed livable wage and paid family leave. Those are given to the citizens in every other advanced democracy, and there is no good reason whatsoever why they are not delivered to the average citizen in the United States.
MarketWatch: There are Democrats who could be challenging President Biden for the party’s 2024 nomination, but they aren’t and instead they’re supporting him. Why aren’t there more efforts in the party to get people to run for president?
Williamson: Well, you’d have to ask them why they’re not running. But there’s clearly a trope that the field should clear, and everybody should simply get in line with the opinion of the Democratic establishment that Biden is the man because they have decided so. I don’t see it that way. I believe the Democratic primary voters — and independent voters and anyone else, if it’s an open primary — they should decide who the Democratic candidate is. To me, that’s what democracy is. That’s what elections are about.
MarketWatch: The Democratic Party is not expected to hold presidential primary debates for 2024. What can you do to change that and get some time on a debate stage?
Williamson: Well, I hope to have a successful campaign. I hope to have high poll numbers. I hope to have a lot of people in those primary states yelling foul. It’s a government of the people, by the people, for the people. The American people should hear what their options are, and that’s what a debate would be. If enough people realize that and believe it and make laws about it, then that is what will happen.
I think sometimes there’s a kind of learned powerlessness on the part of the American people today. We forget the radicalism of the American experiment, which is that the governance of this country is supposed to be in our hands. But the American people have been trained to expect too little and almost trained to give up the power of independent thought. I hope that my campaign and other things that occur in this campaign season will awaken people, and I think a certain kind of awakening is happening already.
MarketWatch: We’re a financially focused publication, so here’s a question along those lines. I looked at your financial disclosure from your 2020 presidential run. It showed some investments in big public companies like Apple
AAPL,
-0.58%
and Mastercard
MA,
+0.27%
…Williamson: Wait, what are you talking about?
MarketWatch: That’s from your 2019 executive-branch personnel public financial disclosure report. It shows investments in various stocks and funds. The question — for our readers who are investors or people saving for retirement — is could you describe your own approach to investing and preparing for retirement?
Williamson: Socially responsible investing, and that’s why I said, “Whoa, what?” Because I believe in investing in socially responsible companies.
MarketWatch: One last question: What else would you like people to know?
Williamson: America has some serious problems, but we have infinite potential to solve those problems. We need to revisit our first principles, as John Adams said, and find that place in our hearts where, as Americans, as adults in this generation, we recognize that this profound idea of American democracy is put in our hands for safekeeping. And that doesn’t just give us rights; it gives us responsibilities. The political system in the United States speaks to us too often like we’re children, like we’re seventh-graders. Our public dialogue is too often on this kind of seventh-grade level. This is not a time to be an immature thinker, and it’s not a time to get into mean-spiritedness or cynicism either. If we allow ourselves to rise to the occasion, no matter what our politics are, we’re going to repair what has been broken, and we are going to initiate a new beginning. I think that’s possible. Other generations have done it, and we can do it, too.
MarketWatch: Thank you for being available to chat.
Williamson: Thank you very, very much.
Now read: Here are the Republicans running for president — or seen as potential 2024 candidates
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Citigroup shares rise after first-quarter revenue tops expectations
Citigroup reported rising net income and better-than-expected revenue for the first quarter, boosting its stock Friday even as the bank’s executives expressed caution about the path of the U.S. economy.
Here is how Citigroup’s key metrics compared with expectations.
- $4.6 billion in net income vs. $4.3 billion in the same period last year
- $21.45 billion in revenue vs. $19.99 billion expected, according to Refinitiv.
Citigroup reported earnings of $2.19 per share for the quarter. It was not clear how comparable that number is to estimates, but it appeared to be a solid beat, based on both GAAP and adjusted earnings per share.
Shares of the bank rose about 4.8%.
Citi’s stock rose after the bank reported better-than-expected results for the first quarter.
The results were fueled in part by personal banking revenue rising 18% year over year, reflecting higher interest rates. Fixed income markets revenue rose 4% year over year, though that was offset by declines in investment banking and equity market revenue.
One key area for investors is how Citi adjusts its buffer for loan losses given the uncertain outlook for the economy. Citigroup reported a total provision for loan losses of $1.98 billion, slightly above the $1.89 billion provision for credit losses expected by analysts, according to StreetAccount, and up 7% from the prior quarter.
The outlook for the economy has been muddled by the failure of Silicon Valley Bank and Signature Bank last month, which could potentially slow loan growth throughout the economy.
“We are in a strong position to navigate whatever environment we face, which is particularly relevant given the degree of uncertainty today. … We expect the recent events to be disinflationary and credit to contract. We believe it is now more likely that the U.S. will enter into a shallow recession later this year,” Citigroup CEO Jane Fraser said on an investor call.
The CEO added that Citi saw a “notable softening” in consumer spending over the course of the quarter.
The bank kept its full-year guidance the same despite the strong first quarter, and CFO Mark Mason cited the uncertainty around the economy and the path of interest rates as the reason.
Citigroup reported that its deposits at the end of March were down 3% quarter over quarter to $1.33 trillion, but Mason said on the investor call that the bank did see about $30 billion of deposit inflows over the last three weeks of March. After the collapse of the two regional banks, many analysts expected the larger U.S. banks to see deposit inflows.
Fraser said she feels “very comfortable” with the diversity of Citi’s deposit base.
As part of a broader restructuring plan away from international retail banking, Citigroup closed two divestitures during the first quarter, including its consumer business in India that generated a gain on the sale. Net income was down 19% year over year when excluding the impact of the sales.
Revenue rose 12% year over year, and 6% when excluding the impact of those sales.
Fraser, who has spearheaded the sales since taking over as CEO in 2021, said Friday that the bank will exit its remaining retail markets in Asia later this year.
Entering Friday, Citigroup’s stock was up more than 4% year to date, outperforming key peers including JPMorgan Chase and Bank of America. Shares of JPMorgan rose more than 7% on Friday following its quarterly report.
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Fed expects banking crisis to cause a recession this year, minutes show
WASHINGTON – Fallout from the U.S. banking crisis is likely to tilt the economy into recession later this year, according to Federal Reserve documents released Wednesday.
Minutes from the March meeting of the Federal Open Market Committee included a presentation from staff members on potential repercussions from the failure of Silicon Valley Bank and other tumult in the financial sector that began in early March.
Though Vice Chair for Supervision Michael Barr said the banking sector “is sound and resilient,” staff economists said the economy will take a hit.
“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” the meeting summary said.
Projections following the meeting indicated that Fed officials expect gross domestic product growth of just 0.4% for all of 2023. With the Atlanta Fed tracking a first-quarter gain around 2.2%, that would indicate a pullback later in the year.
That crisis had caused some speculation that the Fed might hold the line on rates, but officials stressed that more needed to be done to tame inflation.
FOMC officials ultimately voted to increase the benchmark borrowing rate by 0.25 percentage point, the ninth increase over the past year. That brought the fed funds rate to a target range of 4.75%-5%, its highest level since late 2007.
The rate hike came less than two weeks after Silicon Valley Bank, at the time the 17th largest institution in the U.S., collapsed following a run on deposits. The failure of SVB and two others spurred the Fed to create emergency lending facilities to make sure banks could continue operations.
Since the meeting, inflation data has been mostly cooperative with the Fed’s goals. Officials said at the meeting that they see prices falling further.
“Reflecting the effects of less projected tightness in product and labor markets, core inflation was forecast to slow sharply next year,” the minutes said.
But concern over broader economic conditions remained high, particularly in light of the banking problems. Following the collapse of SVB and the other institutions, Fed officials opened a new borrowing facility for banks and eased conditions for emergency loans at the discount window.
The minutes noted that the programs helped get the industry through its troubles, but officials said they expect lending to tighten and credit conditions to deteriorate.
“Even with the actions, participants recognized that there was significant uncertainty as to how those conditions would evolve,” the minutes said.
Half-point hike if not for crisis?
Several policymakers questioned whether to hold rates steady as they watched to see how the crisis unfolded. However, they relented and agreed to vote for another rate hike “because of elevated inflation, the strength of the recent economic data, and their commitment to bring inflation down to the Committee’s 2 percent longer-run goal.”
In fact, the minutes noted that some members were leaning toward a half-point rate rise prior to the banking problems. Officials said inflation is “much too high” though they stressed that incoming data and the impact of the hikes will have to be considered when formulating policy ahead.
“Several participants emphasized the need to retain flexibility and optionality in determining the appropriate stance of monetary policy given the highly uncertain economic outlook,” the minutes said.
Inflation data has been generally cooperative with the Fed’s aims.
The personal consumption expenditures price index, which is the inflation gauge policymakers watch the most, increased just 0.3% in February and was up 4.6% on an annual basis. The monthly gain was less than expected.
Earlier Wednesday, the consumer price index showed a rise of just 0.1% in March and decelerated to a 5% annual pace, the latter figure down a full percentage point from February.
However, that headline CPI reading was held back mostly by tame food and energy prices, and a boost in shelter costs drove core inflation higher by 0.4% for the month and 5.6% from a year ago, slightly above where it was in February. The Fed expects housing inflation to slow through the year.
There was some bad news on the inflation front: A monthly survey from the New York Fed showed that inflation expectations over the next year increased half a percentage point to 4.75% in March.
Markets as of Wednesday afternoon were assigning about a 72% chance of one more quarter percentage point rate hike in May before a policy pivot where the Fed cuts before the end of the year, according to CME Group data.
Though the FOMC approved an increase in March, it did alter language in the post-meeting statement. Where previous statements referred to the need for “ongoing increases,” the committee changed the phrasing to indicate that more hikes “may be appropriate.”
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Watch CNBC’s full interview with former TD Ameritrade CEO Joe Moglia
Joe Moglia, former TD Ameritrade chairman and CEO, joins ‘Squawk Box’ to discuss what Moglia is seeing from the banking sector, the consequences from the speed of money flight and more.
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Wed, Apr 5 202311:06 AM EDT
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There are some positives that came from SVB’s collapse: former TD Ameritrade CEO
Joe Moglia, former TD Ameritrade chairman and CEO, joins ‘Squawk Box’ to discuss what Moglia is seeing from the banking sector, the consequences from the speed of money flight and more.
03:00
Wed, Apr 5 202311:05 AM EDT
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Small business owners reconsider regional bank relationships after SVB collapse
CNBC's Kate Rogers reports on the changing relationship between small businesses and regional banks.
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March’s bank failures show options can be tricky even when retail traders pick big winners
A woman leaves a Signature Bank branch on March 13, 2023 in New York City. The bank was closed by regulators Sunday.
Leonardo Munoz | View Press | Corbis News | Getty Images
The sudden failures of Silicon Valley Bank and Signature Bank last month created a nervous waiting game for options investors, showing that even winning trades can be risky in the derivatives market.
The closures of SVB on March 10 and Signature on March 12 led to halts for the stocks — at $106 per share for SVB and $70 per share for Signature.
This halt, and how regulators and brokerage firms handled the outstanding options contracts, turned simple trades into a big headache for retail investors. In some cases, traders had to put up additional cash and take on potential risk or see their timely bets expire worthless.
This was a problem for even more sophisticated retail traders such as Shaun William Davies, an associate professor of finance at the University of Colorado-Boulder, who had purchased Signature put options on brokerage platform Robinhood with a $50 strike price as a hedge against market volatility.
A put option gives the holder the right to sell the stock at the strike price and serves as a bet that the stock will go down. A put contract is also attractive because it has limited downside for the holder.
Logically, that trade should have been a big winner, but Davies’ options were technically out of the money, based on the last traded price — that is, the share price at the time was above his $50 strike price — and the stocks were now illiquid. The put options were set to expire March 17.
Shares of Signature Bank were halted for about two weeks in March.
Davies said that usually he would sell his winning options trades before expiration, so he does not have to deal with the settlement process. But the halt meant that he had to convince Robinhood to open a short position to exercise his options and then allow him to close out the short position whenever the stock began to trade again.
The brokerage firm originally told Davies that it would not allow him to open a short position, according to messages with customer support viewed by CNBC. He said there was no mention in the options agreement with Robinhood that highlighted this risk if stocks were halted.
“In hindsight, I should have bought puts on First Republic or something … First Republic traded all day on Monday [March 13]. I just happened to trade the one that was shut down — which should have been the best hedge, but it turned out to be the worst hedge,” Davies said March 15, when he thought his options would expire before he could exercise them.
Robinhood later allowed Davies to create the naked short position and therefore to exercise his option. A Robinhood spokesperson told CNBC that the firm was reaching out to customers individually to help work through the issues.
However, there was still a uneasy waiting period for Davies and other traders in his position. The naked short positions showed an on-paper loss in his account until the stock began trading over the counter on March 28. While he had enough cash in his account to cover margin requirements, Davies said he was restricted from doing further trades until the short position was covered.
Other brokerages
While some of Davies’ confusion may have been related to Robinhood, the broader issues were not limited to one broker. The Options Clearing Corporation declared that the options should be closed on a broker-to-broker basis, sending investors digging through their options agreements to figure out next steps.
Scott Sheridan, the CEO of tastytrade, said the OCC’s decision meant the firm had to work with customers individually to help close out their positions.
“It’s unusual to see the OCC kind of wash their hands of a situation. They are the judge, the jury and execution for all options-related matters,” he said.
Similarly, in a post on Reddit, Fidelity explained that investors who held put options would likely need to call a company representative in order to exercise the put option. Creating the necessary short position would require posting a cash margin of $10 per share, even though Fidelity had marked the price of Signature and SVB down to zero.
The trades with simple put options were relatively easier to figure out, but some accounts had put-spread positions that include multiple options and were trickier to unwind, Sheridan said. Some others had short put positions, requiring them to buy the stock at the strike price, which resulted in losses for the traders.
Additionally, Sheridan said, there are regulatory minimums for margins that brokerages have to impose on short positions and sometimes additional margin is necessary for risk management for the firms — not a way to generate more profit.
“Customers never want to hear from a risk margins department, because that means something doesn’t look good to the firm. But there’s a reason firms have risk margins department. You just have to control the business. We had a couple of accounts that were debit, but from my perspective, it was a minor wound for us relative to what was out there,” Sheridan said.
Another wrinkle is that some types of accounts, including retirement accounts, are not allowed to hold short positions, which created additional steps for traders and brokers to close out the trade.
Lingering uncertainty
Even once Davies was able to enter his short position against Signature Bank, the stress of the trade did not go away. He said there was concern about whether the stock would begin trading at a higher price as options traders rushed to close out their positions, leaving him with only a small gain or even, in theory, a loss on the trade.
“I was super nervous about that, that they would close it out at some ridiculous GameStop-sort of price,” Davies said, referencing the meme-stock craze that caught some retail brokerages off guard in 2021.
Eventually, Davies was able to cover his short position at just 20 cents per share — netting a nice profit. But the ordeal made him think back to the basics he preaches to his college students.
“I have to admit I had my tail between my legs, because I teach derivative securities at CU-Boulder and I teach my students not to trade derivatives and to be passive investors,” Davies said.
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Here’s how banks fail
The recent collapse of Silicon Valley Bank, Signature Bank and Credit Suisse is a harsh reminder of how quickly a trusted institution could fail, putting billions of dollars at risk. Over 550 banks have failed since 2001, according to the Federal Deposit Insurance Corp. So what exactly causes a bank to fail? And what are the broader implications on the U.S. economy?
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‘SVB’s failure could and should have been prevented’: Experts argue for better regulation and supervision by the Fed
Like any other trusted institutions, banks are capable of failing. Over 550 banks have collapsed since 2001, according to the Federal Deposit Insurance Corp.
Nonetheless, the recent collapse of Silicon Valley Bank, Signature Bank and Credit Suisse was a harsh reminder of how quickly a trusted institution could fail, putting billions of dollars at risk.
But experts say these financial disasters could have been prevented.
“Silicon Valley Bank’s failure could and should have been prevented by better regulation and supervision by the Federal Reserve,” said Aaron Klein, a senior fellow of economic studies at the Brookings Institution. “The Federal Reserve needed to be the one saying, ‘Wait a second, you have some serious interest rate risk that you need to hedge against.’ And they failed [to do that].”
Experts say the focus should be on ensuring that the rules are being enforced.
“As recently as 2019 and more recently even, there were warnings that things needed to be changed here, that they’re taking on additional interest rate risk, and that they’re going to have some potential liquidity problems in the event that interest rates begin to rise,” said William T. Chittenden, an associate professor of finance and economics at Texas State University.
The collapse of SVB also revealed the danger of deregulation. Several politicians and researchers have pointed to the rollback of Dodd-Frank regulations by the Trump administration as one of the main reasons for the bank’s failure.
“What happened in Dodd-Frank was they said that all banks over $50 billion would be subject to enhanced prudential standards,” explained Klein. “The rollback said nobody’s subject to that between $50 billion and $100 billion, and between $100 billion and $250 billion, it is optional.”
“SVB happened to fall in that category of between $50 billion and $250 billion so when they raised that, they weren’t subject to this great scrutiny,” said Chittenden.
Watch the video to find out more about why banks fail in the U.S.
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Sen. Elizabeth Warren says she wants to make banking boring again
Sen. Elizabeth Warren wants banking to be “boring” again following the failures of Silicon Valley Bank and Signature Bank.
“What I want to do is get banking back where it ought to be, and that is boring,” Warren, D-Mass., said Friday morning on CNBC’s “Squawk on the Street.” “Banking is supposed to be there for putting your money in and you can count on it’s going to be there, and that’s true if you’re a family, that’s true if you’re a small business.”
Warren said the problem started under the Trump administration, when bank CEOs lobbied Congress to weaken regulation for regional and midsized banks. Silicon Valley Bank was among those who lobbied for the changes, Warren pointed out, noting the bank’s profits surged in the years regulations were loosened.
During a hearing this week, Warren, a longtime critic of the financial industry, pressed the nation’s top banking regulators on how SVB and Signature were able to fail practically overnight earlier this month. Financial regulators shuttered the two banks, citing systematic contagion fears, after negative news triggered bank runs. The failed banks disproportionately serviced startup and cryptocurrency companies.
The incident marked the largest U.S. banking failures since the 2008 financial crisis, and the second- and third-biggest bank failures in U.S. history.
In the weeks since the collapse of the banks, Warren has authored or sponsored three new bills related to bank oversight.
The first would reverse a Trump-era bill that weakened oversight of medium-sized banks. The second would create an inspector general position within the Federal Reserve, and the third would prohibit executives at publicly traded companies from selling stock options for three years.
U.S. Senator Elizabeth Warren (D-MA) is interviewed on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 31, 2023.
Andrew Kelly | Reuters
“What we want to do is align the incentives,” Warren said Friday. “I have a bipartisan bill for clawbacks and the whole idea is to say to these CEOs going forward ‘hey if you load this bank up on risk and the bank explodes, you’re going to lose that fancy bonus, you’re going to lose that big salary, you’re going to lose those stock options.’”
Banking should not be an industry that attracts risk-takers, Warren said.
“I really want to say to bank CEOs, if you’re the kind of guy or gal who wants to roll those dice and take big risks, don’t go into banking,” Warren said. “Banking is about steady profits. Banks should absolutely be able to make profits, but when banks load up on risks, they put depositors at risk, they put small businesses at risk, and ultimately as we’ve learned with these million-dollar banks, they put our whole economy at risk.”
Warren chided banking regulators for not doing enough and called on Congress to join her in putting safeguards back into place.
“You’ve got to look at everything that broke here,” Warren said. “We permitted the regulators to take their eye off the ball. Banking is a regulated industry for a reason because of its impact on the rest of the economy. Just as Joe Biden said yesterday – they need to start tightening those regulations down right now.”
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House lawmakers tear into top bank regulators in second hearing this week on SVB collapse
House lawmakers tore into top U.S. bank regulators Wednesday, questioning their competency and saying examiners were asleep at the wheel, at a second day of congressional hearings this week about how Silicon Valley Bank and Signature Bank collapsed practically overnight on March 10 and March 12.
“We need competent financial supervisors, but Congress can’t legislate competence,” House Financial Services Chairman Rep. Patrick McHenry, R-N.C., told top officials at the Federal Reserve, Treasury and FDIC at the beginning the hearing.
The committee’s ranking member, Rep. Maxine Waters, D-Calif., questioned whether the repeated warnings regulators delivered to SVB about its balance sheet and long-term interest risks were sufficient.
“The light touch cautions from the Fed to SVB management are clearly not what Congress intended for bank supervision,” said Waters.
Rep. Juan Vargas, D-Calif., put it more bluntly. “It seems like [SVB] blew you guys off, and you didn’t do anything.”
Federal Reserve Vice Chair Michael Barr did not disagree with this assessment. “I expect that we’re going to find that we need to have more of an emphasis on supervisors using the tools they have more promptly, and putting in mitigations in place more promptly when they see problems at banks that they’re supervising,” he said.
McHenry slammed the panel for a lack of transparency over that fateful weekend when the three regulators hastily arranged backup financing to ensure depositors at the two banks wouldn’t lose any money in their collapse.
There are no notes publicly available from regulators’ emergency meetings the weekend the banks collapsed, McHenry said. “That lack of transparency has a negative effect on the public view of the safety of the financial arena,” he added.
The question of what records would be given to Congress came up repeatedly in the contentious hearing.
Rep. Brad Sherman, D-Calif., requested a broad survey of banks that are undercapitalized the same way SVB was.
“Are there any banks out there, and roughly how many, that have capital of under 5% if you subtract from their stated capital their unhedged, unrealized losses on long-term debt?” Sherman asked the regulators.
“Let us get back to you on that,” said Martin Gruenberg, chairman of the Federal Deposit Insurance Corp. “We’ll get the numbers and share them with you very quickly.”
Republican Rep. Bill Huizenga of Michigan, demanded raw, confidential supervisory information about the banks, available to regulators ahead of the collapses.
Gruenberg did not agree explicitly to provide confidential information, instead suggesting the committee would need to issue a subpoena for this information. “I think you have the authority to compel that information,” he said, “and [the FDIC] will be responsive to you.”
Members of the Republican majority House challenged many of the decisions made by regulators in the hours and days after SVB collapsed and Signature Bank followed 48 hours later. Chief among these was what regulators did, or didn’t do, in the three days from the time they each learned of SVB’s looming collapse, on Thursday to Sunday, when they decided that the failures of SVB and Signature Bank posed a systemic risk to the financial system.
“Despite U.S. regulators having clear knowledge of insufficient risk management, it seems the examiners and your supervisors were asleep at the wheel while signs that Silicon Valley Bank was heading towards a collapse were staring them right in the face for many, many months,” Rep. Ann Wagner, R-Mo., said to Barr.
On Tuesday, bank stocks turned negative following a similar hearing before the Senate Banking Committee. Investors may have been spooked by the three top regulators each saying they favored more stringent rules for banks with more than $100 billion in assets.
Nellie Liang, undersecretary for domestic finance at the Treasury Department, testified alongside Gruenberg and Barr before the House committee after appearing Tuesday before the Senate Banking Committee.
Sens. Elizabeth Warren, D-Mass., and Catherine Cortez Masto, D-Nev., both members of Senate Banking, introduced bipartisan legislation on Wednesday that would require federal regulators to claw back all or part of compensation earned by bank executives in the five-year period preceding a banking failure.
“Americans are sick and tired of fat cat bankers paying themselves handsomely while risking other people’s hard-earned money,” Warren said in a statement. “It’s time for Congress to step up and strengthen the law so bank executives bear the cost of failure, not line their pockets and walk away scot-free.”
Sens. Josh Hawley, R-Mo., and Mike Braun, R-Ind., also sponsored the bill.
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Bank turmoil is boosting appetite for specific sector ETFs. Here’s why
It appears specific sector ETFs are gaining popularity as a way to cushion bank-turmoil fallout.
According to VettaFi’s Todd Rosenbluth, the trend applies to ETFs holding only a few large companies in particular industries.
“[They’re] going to be a complement to a broader S&P 500 strategy,” the firm’s head of research told CNBC’s “ETF Edge” on Monday. “We’re seeing this year that active management and actively managed ETFs in particular have been relatively popular in complement to an existing core strategy.”
Rosenbluth asserts the narrow focus of big-cap sector ETFs can boost potential gains.
“[In] the same way that you might do individual stocks of favored names … now you’re getting the benefits of five or six of these companies to augment that,” he added.
When asked whether these sector ETFs were attempting to reintroduce FAANG stocks — which refers to the five popular tech companies Meta, formerly Facebook, (META); Amazon (AMZN); Apple (AAPL); Netflix (NFLX); and Alphabet (GOOG) — Rosenbluth explained it’s difficult to build ETFs with exposure to only big-cap stocks because companies might be classified in different sectors.
“You can’t get that right now easily with an ETF [holding] just those five or six stocks,” he said. “If you really wanted to make a call on just those five or six companies, there’s an ETF that soon is coming.”
Yet, last week on “ETF Edge,” Astoria Advisors’ John Davi suggested bank upheaval could expose problems lurking in ETFs tied to specific sectors.
“You need to be mindful of your risk,” said Davi, who runs the AXS Astoria Inflation Sensitive ETF.
For others, the bank turmoil is creating opportunities.
‘Not just a stand-alone opportunity’
Roundhill Investments, an ETF issuer, is planning to launch three big-cap sector ETFs: Big Tech (BIGT), Big Airlines (BIGA) and Big Defense (BIGD).
These “BIG ETFs” will join its Big Bank ETF (BIGB), which launched last Tuesday. Its median market cap is $145.5 billion, per the company’s website.
Dave Mazza, the firm’s chief strategy officer, sees similar opportunities for growth beyond the financials sector.
“People are bidding up some of the larger names, especially in the banking space, because they may be the beneficiaries over the greater regulation coming there,” he said. “The intention here is that [the BIGB] is not just a stand-alone opportunity, but the idea [of] being a leader and potential sweep down the line.”
The Roundhill Big Bank ETF is down almost 5% since its launch based on Friday’s close.
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Nearly $100 billion in deposits pulled from banks; officials call system ‘sound and resilient’
A First Citizens Bank branch in Dunwoody, Georgia, on Thursday, March 23, 2023.
Elijah Nouvelage | Bloomberg | Getty Images
Regulators again assured the public that the banking system is safe, as fresh data showed customers recently pulled nearly $100 billion in deposits.
Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and more than a dozen other officials convened a special closed meeting of the Financial Stability Oversight Council on Friday.
A readout from the session indicated that a New York Fed staff member briefed the group on “market developments.”
“The Council discussed current conditions in the banking sector and noted that while some institutions have come under stress, the U.S. banking system remains sound and resilient,” the statement said. “The Council also discussed ongoing efforts at member agencies to monitor financial developments.”
There were no other details provided on the meeting.
The readout, released shortly after the market closed Friday, came around the same time as new Fed data showed that bank customers collectively pulled $98.4 billion from accounts for the week ended March 15.
That would have covered the period when the sudden failures of Silicon Valley Bank and Signature Bank rocked the industry.
Data show that the bulk of the money came from small banks. Large institutions saw deposits increase by $67 billion, while smaller banks saw outflows of $120 billion.
The withdrawals brought total deposits down to just over $17.5 trillion and represented about 0.6% of the total. Deposits have been on a steady decline over the past year or so, falling $582.4 billion since February 2022, according to the Fed data released Friday.
Money market mutual funds have seen assets rise over the past two weeks, up $203 billion to $3.27 trillion, according to Investment Company Institute data through March 22.
Earlier this week, Powell also sought to assure the public that the banking system is safe.
“You’ve seen that we have the tools to protect depositors when there’s a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools,” Powell said Wednesday during a news conference that followed the Fed’s decision to hike benchmark interest rates another quarter percentage point. “And I think depositors should assume that their deposits are safe.”
Powell noted that deposit flows “have stabilized over the past week” following what he called “powerful actions” from the Fed to backstop the system.
Banks have been flocking to emergency lending facilities set up after the failures of SVB and Signature. Data released Thursday showed that institutions took a daily average of $116.1 billion of loans from the central bank’s discount window, the highest since the financial crisis, and have taken out $53.7 billion from the Bank Term Funding Program.
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Key lawmakers say upcoming hearings on bank failures aim to boost U.S. confidence in banking sector
WASHINGTON — A bipartisan group of lawmakers overseeing the recent turmoil in the banking sector said Wednesday that they aim to increase Americans’ confidence in the banking industry after Silicon Valley Bank and Signature Bank collapsed over the last two weeks.
The two House and Senate committees that oversee banking have announced back-to-back hearings next week to examine regulatory lapses that missed signs the banks were in trouble. Federal Deposit Insurance Corp. Chairman Martin Gruenberg, Federal Reserve Vice Chair for Supervision Michael Barr and Treasury Undersecretary for Domestic Finance Nellie Liang are scheduled to testify at both hearings.
The high-profile hearings come as lawmakers try to understand what caused the two institutions to fold, and as many Democrats float legislation to bolster safeguards for the financial system. Regulators and lawmakers are also trying to contain further damage to the economy and reinforce confidence in the banking system.
“My hope is that this first hearing, we can actually get a lot of the information out and establish [the facts],” Rep. Patrick McHenry, a North Carolina Republican and chairman of House Financial Services Committee, said during a summit of the American Bankers Association. “I think this will bring a great deal of certainty and confidence to the market.”
Last week, the Fed appointed Barr to lead a review of the SVB failure. McHenry said he welcomed the probe and “the other views of financial regulators, as well.”
The Republican said Congress has a “very important role to play” in reviewing how the banks failed. But he stopped short of calling for legislation to prevent future collapses.
McHenry said he wanted to ensure the push for legislation matches “the realities of the situation.”
Sen. Tim Scott, a South Carolina Republican and ranking member of the Senate Banking Committee, also said writing new laws should take a back seat at the hearings to investigating what happened.
“Unfortunately, in Washington, that’s often what occurs, that those on the committee on the left will talk about Dodd-Frank and the reforms that were done in 2018,” he told the bankers’ group. He was referring to calls in Congress to unwind some of the provisions in the 2018 law that weakened regulatory powers in the landmark 2010 Dodd-Frank law.
“Nothing could be a clearer red herring than that,” he added.
Former SVB CEO Greg Becker lobbied lawmakers for certain exclusions from Dodd-Frank. But Scott said regulators already had the authority they needed to safeguard the banking system and failed to do so.
He also said bank executives had a responsibility to adjust their strategies as the Fed embarked on an aggressive interest rate hiking cycle to stem inflation.
McHenry also questioned the value of adding new regulatory authority or laws to govern the financial sector.
“It’s important to note that we can’t regulate competence,” McHenry said. “Management of institutions need to be competent, boards of directors need to be competent. We can’t legislate that either in the financial sector or among financial institutions management, nor with the regulators.”
Sen. Sherrod Brown, an Ohio Democrat and chairman of Senate Banking Committee, compared the SVB collapse to the devastating train crash in East Palestine, Ohio. He said the disaster in his state and the bank failures stemmed in part from companies pushing for fewer regulations and putting less effort into their own safeguards.
“They have one thing in common: corporate lobbyists pushed for weaker rules, less oversight,” he told the ABA in opening remarks. “Companies cut costs, failed to invest in safety – or perhaps in the case of SVB, were too incompetent to realize they too should care about safety.”
Brown, who said the congressional hearings can remain “mostly” bipartisan, warned banking lobbyists against using the crisis as a chance to lobby Congress for weaker oversight. He said “we continue to pay the price” when policymakers allow weaker regulations.
Rep. Maxine Waters, ranking member of the House Financial Services Committee, told the ABA that Congress will have to “take a deep dive” into what took place at Silicon Valley Bank. The California Democrat, who has called for legislation to strengthen congressional authority over clawbacks for bank executives, said she is taking a close look at the high rate of uninsured deposits at SVB.
At the time of its failure, 94% of the bank’s deposits sat above the FDIC’s $250,000 insurance limit.
“And of course, I’m looking to see whether or not all of the oversight agencies … really did miss the opportunity to see what was happening and to know what was going on with the balance sheet and to be able to correct things before they got to the point of collapse,” Waters said.
She added that the financial regulators’ quick decision to close SVB and secure customers’ deposits demonstrated the Biden administration’s competence.
“The way that the FDIC, the Treasury, president, they way that they handled this should be a message to everybody that your government is at work and can solve problems — serious problems — if they are working together,” she said.
