U.S. SENATE – U.S. Senator Steve Daines today at a Senate Banking Committee hearing grilled former executives from Silicon Valley Bank (SVB) and Signature Bank on their bank failures and the recent turmoil in the banking sector.
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Senator Daines: I wouldn’t trade your guys’ places there this morning, I can tell you that. The failures of Silicon Valley Banks, Signature Bank and the general turmoil in the banking sector are the direct result of the failures of executives we have before us today. There’s also a failure of financial regulators. I served on an executive team of a financially sound company but also publicly traded for many years. I know what it’s like to be in an executive team as part of a publicly traded company. But let’s not forget the inflationary environment sparked in no small part by the Biden administration’s reckless spending over the past two years also were part of this crisis. To put a finer point on it, all of these groups failed to prioritize clear and present risks of this inflationary environment. I remember sitting in this same committee, the Finance Committee and others and we kept hearing about this transitory nature of inflation when we were screaming that inflation is real, it’s coming and interest rates are going up.
But here’s the shocking point, as we looked and kind of started to unpack what happened out on the West Coast, is while all this is going on with these inflationary risks, mitigating risks from climate change was their priority from the San Francisco district while inflation was wreaking havoc on this economy. We went back and looked at their guideline bulletins they put out. You compare what the San Francisco fed published last fall in San Francisco, in New York in the 12th and the 2nd fed districts. It was about climate change—was the was the top risk identified.
The Federal Reserve’s recent report did not examine whether there was any discrepancy in the quality of supervision across the various districts. But I think that’s a very relevant question. Vice Chair Barr’s review found that staff of the San Francisco Fed felt there was a shift in culture that contributed to a less assertive supervisory approach. We looked at the 12th District the San Francisco Fed, talked about climate change—it was listed number one, priority, stack ranked as the top risk back in October of last year—compare that to the 5th District, the Richmond District where they said rising interest rates might be the top risk factor. I mean, I did not come from the banking sector, but we were screaming about that here on Capitol Hill saying rising interest rates are going to be a major risk factor for consumers in this economy going forward.
Vice Chair Barr also simultaneously states that this was the result of tailoring following the passage of S. 2155. That landmark bipartisan bill that was enacted into law in ‘18. I think this is an overly broad conclusion, without a review of whether this something that occurred across all 12 fed districts. I’d also like to see the Federal Reserve and the FDIC examine whether any specific individuals were negligent in their duties and should be fired. The executives sitting before this committee today lost their jobs. And I think this was appropriate given the harm caused by mismanagement. We should also hold negligent regulators to the exact same standard.
Turning to my questions. Mr. Becker, Chairman Brown mentioned his opening remarks and you confirm that at the time of SVB’s failure, the bank had 31 unaddressed, safe and soundness supervisory warnings—by the way, triple the average number when you compare to peer banks. Your testimony is full of metrics suggesting that SVB was comparable to its peers. Well, part of that could be true. There’s clearly one metric where SVB was an outlier. You stated earlier in this hearing that almost all the deficiencies were addressed. So, my question, and you can to help us out on this, did you receive confirmation from regulators that these 31 deficiencies were adequately addressed? Written confirmation, verbal confirmation, some kind of confirmation?
Mr. Becker: Senator, to be specific, my comments were about they were being addressed because part of the discussion is about were we responsive to the regulatory feedback that we received in the answer that I gave is, we were responsive to them. They were definitely not remediated.
Senator Daines: Okay so, they weren’t addressed. It was, it was in process but not complete.
Mr. Becker: Some of them would have been signed off on by –
Senator Daines: How many of the 31 would you say would have been signed off? Do you recall?
Mr. Becker: That were signed off, would have been signed off by internal audit, again, I don’t recall specifically but I know more familiar with the ones on liquidity and liquidity again, to the best of my memory, the vast majority of those were remediated and signed off on by internal audit.
Senator Daines: Lastly, it’s well known SVB did not have a Chief Risk Officer, the CRO, for the last eight months of ‘22. In your testimony, you mentioned that SVBs prior CRO was still available as a consultant until October of ’22, and that you made several hires to supplement your risk management team. Can you explain why your CRO left the company and did you lean on her services while she was in a consulting capacity?
Mr. Becker: Yes, the feedback on looking to find a CRO with even deeper LFI experience was really the beginning end of ‘21 beginning of ‘22. And that feedback came from regulators, from the board of directors, from internal audit. And so that feedback was given. We decided to make that change again with board input and even before we made the change, informing the regulators that this was going to happen. My experience is that it takes, to find the best executive, six to nine months to find that if you’re using an outside search firm, looking for the best person. We did two things to make sure that we had coverage. One is we created an office of this Chief Risk Officer. Those individuals which is the “Risk Leadership Team” of the risk group reported to me and they reported into the chair of our risk committee. Second thing we did to your point, we kept our Chief Risk Officer on board as a consultant in case something came up. But the predominant oversight was really done by the Office of the Chief Risk Officer. As far as your question how many interactions or how much engagement was there with the prior Chief Risk Officer? I can’t say specifically. I had a couple but I don’t know about the rest of the team.
In a previous Banking hearing, Daines demanded answers from regulators on the cause of the banking crisis, including how the San Francisco Federal Reserve was focused on climate change policy rather than the Federal Reserve’s dual mandate of price stability and full employment.
Following SVB’s failure, Daines demanded answers and asked for records from the Federal Reserve Board of Governors and the Federal Reserve Bank of San Francisco regarding their supervision of SVB in the leadup to its failure.
Daines has made clear that Biden’s calls for stricter regulations over the banking sector would put undue burdens on Montana banks that operate responsibly.
At the weekly Republican Senate Leadership press conferences in March, Daines slammed bank regulators for being asleep at the wheel and the Biden administration for bailing out the banks at the expense of Montanans.