Former CEO Greg Becker should be questioned by Congress to understand the reasons behind the failure of Silicon Valley Bank

 

To gain deeper insights into the reasons behind the failure of Silicon Valley Bank, it is imperative for Congress to summon former CEO Greg Becker for questioning. By directly engaging with Greg Becker, Congress can delve into the intricate details and unravel the underlying factors that contributed to the bank's downfall.

Silicon Valley Bank's demise was not an isolated incident, as it was plagued by persistent compliance and internal control issues dating back to 2016, as revealed in a comprehensive report by the Federal Reserve. This report sheds light on the fact that the bank's immediate regulators, including the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB), were aware of these problems. The report, authored by Michael Barr, the vice chair for supervision of the Fed's board of governors, scrutinizes the Fed's own oversight of Silicon Valley Bank and offers valuable insights into the bank's troubled history.

Examining the Silicon Valley Bank Review Supervisory Materials, which are part of the report, one can witness the extent of dysfunction within the bank. Aside from the glaring issues related to weak interest rate risk measurement and liquidity risk management since 2021, the disclosed documents shed light on additional problems that were not previously known to the public. Silicon Valley Bank had been flagged for non-compliance and deficiencies in internal controls regarding crucial aspects such as Bank Secrecy Act/Anti-Money Laundering protocols, Current Expected Credit Losses measurements, data protection, internal auditing framework, and even violations of the Volcker Rule, designed to restrict speculative activities in securities and derivatives. Astonishingly, some of these issues had persisted since 2016 and were left unresolved until the bank's ultimate failure in March of this year.

The ramifications of Silicon Valley Bank's failure have reverberated throughout the banking sector, causing significant disruption and amplifying concerns about the financial health of regional banks in the United States. In the aftermath of SVB's collapse, a multitude of stakeholders, including market participants, academics, politicians, and analysts, have weighed in on the lack of oversight, weak risk management practices, and deficiencies in interest rate and liquidity measurement and control at the bank. Notably, key figures such as Michael Barr, Martin Gruenberg (Chairman of the FDIC), and Nellie Lang (Under Secretary for Domestic Finance of the U.S. Treasury) have already faced intense questioning from members of the House Financial Services Committee and the Senate Banking, Housing, and Urban Affairs, providing preliminary insights into the matter.

However, to fully comprehend the intricate web of factors that led to Silicon Valley Bank's failure, it is essential to bring Greg Becker, the former CEO, before Congress. His firsthand knowledge and perspective can shed light on the decisions, strategies, and actions taken within the bank during his tenure, enabling Congress to gain a comprehensive understanding of the sequence of events and the systemic issues that contributed to the bank's downfall. By thoroughly examining Greg Becker's testimony, Congress can formulate effective regulatory measures, address weaknesses in oversight, and take proactive steps to safeguard the stability and integrity of the banking sector.

The absence of former Silicon Valley Bank CEO Greg Becker from the discourse surrounding the bank's failure raises questions and demands his participation in shedding light on the matter. Much like the multiple perspectives presented in Akira Kurosawa's renowned film "Rashomon," we have heard various accounts of the bank's demise, but the voices of those directly responsible, such as Greg Becker and SVB's board of directors, have been notably absent.

To ensure transparency and accountability, it is essential for the Senate Banking Committee and the House Financial Services Committee to summon key SVB executives, including both former and current CEOs, CFOs, and CROs, to testify before the public. These individuals were at the helm of the bank, making crucial decisions that led to its unfortunate downfall. It is only fitting that they face scrutiny and provide answers to pertinent questions that will contribute to a better understanding of the situation.

The following are just a few of the important questions that need to be addressed:

Given that the bank failed under your leadership, do you believe that you truly earned your salary and bonus?
In the event of employee layoffs, will you personally bear the responsibility of providing unemployment benefits instead of burdening unemployment coffers?
Can you provide a comprehensive definition of interest rate and liquidity risks and identify where these risks existed within the bank?
Did your asset and liability management group conduct regular gap analysis to assess the impact of interest rate fluctuations on your assets and liabilities?
Did you calculate the level of high-quality liquid assets required to maintain liquidity during periods of cash outflows or financial stress?
Why did your Chief Risk Officer leave, and why was there an eight-month gap before a replacement was appointed?
Mr. Becker, what prompted your decision to relocate to Hawaii?
In addition to the executive team, SVB's board members should also be called upon to testify. The Federal Reserve emphasizes the role of a bank's board in overseeing strategy, risk management, decision-making, and compliance. It is crucial to assess whether SVB's board fulfilled these responsibilities effectively.

Furthermore, the Federal Reserve's supervisory documents reveal significant weaknesses in Silicon Valley Bank's internal audit function. The chief auditor must be questioned regarding their independence, the frequency of audits conducted on the Asset Liability Management group, and any identified risks, particularly in the management of interest rate and liquidity risks. Additionally, it is vital to determine whether they were made aware of any urgent matters or regulatory notifications from entities such as the Federal Reserve or the California Department of Financial Institutions.

Without the testimony of Greg Becker, his executive team, and SVB's board of directors, a comprehensive understanding of the root causes behind the bank's failure will remain elusive. It is imperative to uncover these underlying factors in order to extract valuable lessons from this debacle. Bank failures have far-reaching consequences for ordinary Americans, and it is crucial to prevent such occurrences in the future.

As we await the insights of those directly involved, it is clear that the repercussions of Silicon Valley Bank's failure continue to impact the financial landscape, generating uncertainty and highlighting the need for rigorous oversight and risk management within regional banks across the United States.