The US Federal Deposit Insurance Corp (FDIC) has launched investigations into managers’ conduct in the Silicon Valley Bank (SVB) and Signature Bank failures.
“It is worth noting that these two institutions were allowed to fail,” FDIC chairman Martin Gruenberg said in prepared remarks for a US Senate Committee on Banking, Housing, and Urban Affairs hearing set for yesterday.
“Shareholders lost their investment. Unsecured creditors took losses. The boards and the most senior executives were removed,” he said.
Photo: Reuters
As Gruenberg and Michael Barr, the US Federal Reserve’s vice chairman for supervision, provided reassurances that the financial system is sound, they also came out swinging hard against managers of the collapsed banks.
Barr, who is leading a Fed review of what led to SVB’s collapse, called it a “textbook case of mismanagement.”
He pointed to a concentrated business model catering to tech and venture-capital firms, a failure to manage the risks of liabilities, and the bank’s significant asset and deposit growth.
“The bank invested the proceeds of these deposits in longer-term securities, to boost yield and increase its profits,” he said in his prepared remarks for the hearing. “However, the bank did not effectively manage the interest rate risk of those securities or develop effective interest rate risk measurement tools, models, and metrics.”
Barr said that SVB waited too long to tackle its issues, and when it did, “ironically, the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank’s failure.”
The FDIC stepped in and took control of the two lenders earlier this month as depositors yanked money from the two lenders.
Gruenberg said the FDIC can probe and hold accountable the directors, officers, professional service providers and “other institution-affiliated parties” for losses tied to the banks, as well as any misconduct in the management of the banks.
“The FDIC has already commenced these investigations,” he said.
The 10 largest deposit accounts at SVB held a total of US$13.3 billion, Gruenberg said.
Losses to the FDIC’s Deposit Insurance Fund tied to uninsured deposit insurance coverage is to be repaid through a special assessment on banks.
The regulator is reviewing the deposit insurance system and plans to release a report by May 1 that would consider the coverage levels and excess deposit insurance, Gruenberg said.
The agency plans to seek public comment on the assessment in May.
A coalition of midsize banks has asked regulators to lift the US$250,000 cap on deposit insurance for the next two years, saying it is needed to stop the outflow of deposits from smaller banks.
The US Department of the Treasury’s top domestic policy official was set to tell US Congress regulators to be ready to repeat the extraordinary steps taken after recent bank failures.
“We have used important tools to act quickly to prevent contagion, and they are tools we would use again if warranted to ensure that Americans’ deposits are safe,” US Under Secretary for Domestic Finance Nellie Liang (梁內利) was yesterday to tell lawmakers in a hearing about recent bank failures and the government’s regulatory response, according to a text of her prepared remarks released by the treasury department on Monday evening.
Her pledge came alongside an emphasis on smaller lenders.
“Small and mid-size banks, including community banks, serve a vital role in providing credit and financial support to families and small businesses,” she planned to say.
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