Transcripts For CSPAN3 Fmr. 20240706

Housing, in urban affairs will come to order. The days after the run on Silicon Valley bank, when it was close by the california banking regulators and taken over by the fdic many in washington, new york, in california asked, how did this bank and Signature Bank, soon after, failed so spectacularly . Was it the regulators falling down on the job . Was it new technology . The first social media fueled bank ran . How on earth could this happen . In ohio, the, no one is surprised by the hubris of coastal Bank Executives. The old adage has become cliche because it is so often true. The simplest explanation is best. It is first and foremost the bankers fault that the banks crashed. We know that federal and state banking officials repeatedly told managers and directors of your banks where there were problems, big problems the kind of problems you cant ignore. The tiny you have to start fixing right away. Bank executives did not listen. That is a well documented fact Silicon Valley banking signature got too big too fast. You never slowed down to make sure you are doing basic Bank Management. From 2019 through 2021 so it connally bank more than tripled in size. Signature bank more than doubled in size. Always, always, insert a bigger profits good bankers know that banks cannot safely grow that fast. The Federal Reserve, fdic, and state regulators identified the Aggressive Growth at the banks and the risk years before the failures. Lets be clear, these dangers were not hard to spot. The Liquidity Risks, the unstable nature of uninsured deposits, the concentration of customer deposits. All were giant risks sitting there in broad daylight on your banks balance sheets. Uninsured posits at both banks reached over 90 of the deposits. That is about double the amount of ohio banks, like huntington fifth, or key banks. About banks the size of yours. Former Community Banks like mechanics in my hometown of mansfield. The uninsured deposits as a risk at svb as far back as 2018. The bank never fixed it. It looks like you never even tried. In 2021 in 2022, the fed identified weaknesses in svbs contingency funding plan, defects and its Interest Rate models, weak Risk Management, inadequate board oversight or management. This is banking oneonone. Every Bank Executive, probably every sophomore business major knows that these are fundamental that you must get right. The fdic saw similar signature on satisfactory Risk Management practices as a cause of its collapse. Again, those problems date back to 2018 and 2019. We know executives knew the fdic thought it was a problem because Bank Management would tell the fdic that they fixed some of the problems. In reality, you never did. In the end signatures inability to accurately track or monitor its own liquidity wowed faced a devastating bank run left the new york banking authorities with no other choice but to close your banks. We know your banks were fatally mismanaged. The next obvious question is, why . Why did you let things get this bad. Why did you ignore admonitions from regulators . From that question to there is a simple answer. The simple answer, in the same as we find for most questions about big Bank Failures. Because the executives were getting risk. The former ceo citigroup said, when the music stops in terms of liquidity, things will be complicated. As long as the music of playing, you have got to get up and dance. Well, we are still dancing. The wall street Business Model corporations fall over and over. Executives push short term profits above everything else. How do we know . Management said as much to wall street. Silicon valley Bank Executive bonuses were tied to the banks return on equity. So they bought securities with higher yields to chase higher and higher and higher profits. When the warning light started to flash, and those investments started to lose money, your bank did not change course. Instead, you double down. That signature Bank Executives had incentive competition plans that were tied to return on assets. Quote, to reflect additional focus on profitability. Reflect additional focus on profitability. Focusing on profitability you did to the exclusion of, pretty much, everything else. When it became obvious that your banks were on the verge of failure, you another executives trying to cash out. Svb executives, including mr. Becker in front of us today, dont millions of dollars of Company Stock in the days leading up to the crash. Millions of dollars in company crash leading up to the crash you are paying out bonuses until, literally, hours before regulators seized your assets. To people in ohio, and around the country, this feels sickeningly familiar. To most americans a lack of wall street accountability tracks with their entire experience with our economy. Workers face consequences, executives right off into the sunset. Only in corporate boardrooms can you run your business into the ground, take the whole economy along with, you and come out ahead. We cannot let that happen again. Both of your banks, prior to its fast growth, but not Risk Management, both of your banks pushed up your stock prices in your own executive computation but did not address the glaring risks from, im, sorry from customer and and the concentration. You put other peoples money, and our broader economy, at risk. There must be accountability for that level of mismanagement. Running a bank, as you know, or should, no running a bank is not like running any other company. If you manage your car parts business, or a Steel Company as i spoke to some steel executives, irritant into the ground than you and your employees use their jobs. The surrounding community may get hurt. Theyre usually are not broader consequences for the savings accounts of families on across the country. With your jobs, other peoples money that stake. That is why we recognize that banking is different. Why banks are subject to stricter rules. Or, they are supposed to be. Our committee is looking at ways to impose real accountability on those most to blame for big Bank Failures. The bankers themselves. That is why we discussed ways to increase accountability at last weeks hearing. That is why weve brought three of you together today to answer for the mistakes that you clearly made at these banks. Learning more about what went wrong what helped us craft the strongest possible rules to prevent more these failures. We, know of, course theres blame to go around. Your risktaking was aided by former Federal Reserve vice chair for supervision randleman quorum. Who led the regulatory rollback in 2018, 2019, and 2020. It is clear that those rollbacks of Bank Executives taking on more risk. This all comes back to the power of your industry. The rules of big banks, including your, are lobbying to weakening, to the impunity with which executives have been allowed to operate. The largest banks and people around them have been impervious to consequences for far too long. We need to change the, beginning now. Senator scott . Thank you mister durbin. The last few months have shaken the Banking Sector. Not only have we experience for the largest failures in the banking factor, we also found out that our banking regulators were elderly asleep at the wheel. As i said repeatedly, there are three major issues Bank Failures. First, bank mismanagement. Supervisory failure, and rocketing inflation. I am thankful that this committee has been able to come together to conduct oversight that is necessary for us to understand and appreciate the depth of the mismanagement and the challenges that have been presented to the american people. While todays bank focus will be on the management, thursday we will have an opportunity to talk about the supervisory failures. My democratic colleagues will avoid the economic failure that landed is where we are today. When you spend and print trillions of dollars leading to the highest inflation we have seen in my lifetime, ten Interest Rate hikes, this is what happens. Ten Interest Rate hikes in about a year, sends a signal one of what is actually happening in the marketplace. That seems to be completely ignored by the Bank Executives. On top of that, our colleagues on the left have decided to make jared bernstein, the architect of the biden economy in the biden failure. The chairman of the cia. Today it is high time that we figure out what went wrong from a Bank Management perspective. It is critically important that we understand how our Banking System experienced two of the largest failures in its history. That starts with getting answers from yall. I would like to start with mr. Becker. I ran a business for a while. I will tell you, honestly, i am shocked at the complete negligence and disregard for the economic realities that this country was facing. Under your leadership, svb made significant bets on Interest Rates falling when everything indicated exactly the opposite. Im not an economist. I owned insurance agencies. Anyone who paid close attention to the economy over the past two years couldve plainly seen that the Federal Reserve was going to continue to increase Interest Rates. Truth be told, i dont think you need to be an economist, insurance salesman, senator, to understand the direction, the trajectory, of the Interest Rate hikes that we were going to see. There was any jp morgan analysts who said that, svb was already in trouble. I remember a blogger, a financial blogger i think it was november of the previous year, came to the same conclusion that a Portfolio Risk was very high, and increasing. I hoped to hear your analysis on why you did not act on a ballooning risk. How you failed to adapt to the increasingly vulnerable increase inflationary environment. That impacted your bank. More importantly, the customers. The Federal Reserve report noted that youre banks practices did not keep pace with the rapid growth in size, and and risk. Further, the Federal Reserve report also says that the federal directors and Risk Management experience capabilities were lacking for a bank of 200 billion dollars. Not only did you fail to hire a chief risk officer in a timely manner, definition of timely manner is within several months, you went without a chief risk officer in place. That challenge exacerbates the situation that americans came to realize. To me, it sounds like a recipe for disaster. Sadly, in part, that is why we are here today. Even more concerning, the Federal Reserves report stated that, with respect to both liquidity and Interest Rate risks, your Management Team of more focused on chasing profitability that stability. Sounds like greed. Perhaps this is why your institution had 31 open supervisory findings when it failed. About three times the average number. 31 notices that you received. Flashing red lights. Something is desperately wrong. Let me say this. Svb was an anomaly. Your lack of judgment, mr. Becker, shows that you should not have been running the bank. To the american people, our true regional institutions are run by smart, competent individuals. And your money is safe. There is no doubt that the failure of svb fed the bank run leading to be liquidity crisis that ended up creating the contagion that also impacted Signature Bank. Signature banks board of directors and management also pursued rapid, unrestrained, growth. Without developing or maintaining adequate Risk Management practices for the size, complexity, and risk profile of the institution. Nor did the management prioritize good Corporate Governance practices. The fdic report further states that Signature Bank did not always abide by the fdic examiner concerns. Was not always responsive, more timely, in addressing the fdic supervisory comments and recommendations. Mr. Shea, mr. Howell. I will be eager to hear why you thought it was okay to not respond in a timely manner. The laws are not above you. I would like to understand why you thought they were. Like i said before, as charleston restaurant decided to just ignore a safety inspector, i am confident that they will be shut down. That management would be replaced. Americans watching this hearing today should see the examples of that management. Know that while we are demanding answers. Hopefully we will get something that sounds like an answer, this is not the norm. For the vast majority of our Financial Institutions, they are well run. Our Banking System is strong. Your money is safe. I thank the chairman for working with me to get these executives before us. I look forward to hearing their comments. Thank you, Ranking Member scott. Thank you for the cooperation on both sides. The staff on both sides were together for the hearing. I wont introduce todays witnesses. Great becker was the ceo of Silicon Valley bank. President and ceo of Svb Financial Group. The Polling Company for the bank since april, 2011. He first joined Svb Financial Group 30 years ago. He served at the number of executive Senior Management roles. Mr. Becker, welcome. Thank you for being here. Scott j. Was cofounder of saint duran served the chair at the bird since its inception since 1980. Mr. Xi has been involved in the Investment Banking, venture capital, mr. Shea welcome. Eric how was announced as president of Signature Bank february 16th of this year, effective march 1st. Was to succeed depaul after the transition period. Mr. Powell worked as chief operating officer since july, 2021. He was a member of the board of directors and signature since april 22. After senator were shut down, he now served as Senior Executive Vice President of flags to our bank. Welcome, mr. Howell. Initially the committee contacted Signature Banks former ceo, joseph paulo, about testifying before the committee. When Committee Staff contacted mr. Depaul owes advisor, he explained a health issue to the Committee Staff. The committee is interested in understanding the management decision the signature, it is important for us to allow mr. Depaul or to deal with his health issues. We agree that with the committee would hear from two of you instead mr. Becker please begin your testimony thank you. Chair brown, Ranking Member scott. Members of the committee. Thank you for the opportunity to appear before you today. My name is greg becker i was the chief executive officer of Silicon Valley bank. Im here today to answer your questions about what happened at svb to the best of my memory. At the outset, i want to be clear that i never envisioned myself, or svb, being in the situation. I was an employee of svb for nearly 30 years. Ceo for the last 12, until it is taken over by the fdic. I believed in the bank, and its mission. I cared deeply about are more than 8000 employees and their families. I was committed to our clients, to helping them succeed. Whether they were a Successful Technology company, or a Small Business founders in towns across the country. Svb was designed to meet the needs of the technology in life science industries. Where startups and later state companies could keep their deposits in order to expand their businesses and create jobs. We knew our client personally. We understood their needs and goals. We partnered with them as they grew. We took Risk Management seriously. We worked closely with, and were responsive to, the various regulators who oversaw svb. Overtime, we built an expanded a team of subject Matter Experts focused on analyzing risks and protecting the bank. We continually sought to add experience and to improve our Risk Management as the banking clients involved. Much has been said about the takeover of svb by the fdic, and why it happened. Ultimately, i believe that svbs failure was brought about by of unprecedented events. Between 2015 and 2019 svb grew from around 45 billion athletes 71 billion in assets at an annual rate of about 10 . This changed in 2020 due to the covid19 pandemic and the government stimulus measures. With nero zero Interest Rates, the largest government sponsored economic stimulus and history, more than five trillion dollars in new deposits flooded into commercial banks. By the end of 2020, svb had grown 63 over the prior year. In 21, svbs assets grew another 83 , to 212 billion. To support this growth svb raised more than eight billion dollars in new capital in 2021. Importantly, throughout 2020 and late 2021, the messaging from the Federal Reserve that Interest Rates would remain low. Inflation that was starting to bubble up would only be transitory. During this time, svb invested in low risk, highly rated, government backed securities. The security for safe assets, as they were backed by the u. S. Government. Could be used as collateral for borrowing for liquidity if svb needed it. These fixed Income Securities complemented a short duration Loan Portfolio. Approximately of which was a variable rate. In fact, other u. S. Banks collectively invested nearly 2. 3 trillion of their Security Portfolios in this low yield environment created by the Federal Reserve. To account for changing market conditions, namely higher Interest Rates, on march 8th we sold svbs available for sale available portfolio in a plan capital raise. Unexpectedly, on the same day, Silver Gate Bank announced its intent to voluntarily wind down and liquidate. Depositors triggered a bank run. Despite stark differences in our Business Models, news reports and investors wrongly lumped svb and silver gate together. Rumors and misconceptions quickly spread online culminating on march 9th with the first ever social media bank run. Leading to 42 billion in deposits being withdrawn from svb in ten hours. Roughly 1 million every second. Over two days, approximately 80 of total deposits were requested to be removed from svb. To put the unprecedented velocity of this bank run into context, the previous largest bank run in u. S. History was 19 billion in deposits over 16 days. In the face of these unprecedented events the Leadership Team and i made the best decisions that we could with the fast available to us at the time. The best interests of svb two employees and two clients. I worked at a place that i truly loved. Alongside dedicated employees to support our clients who were innovating in astonishing ways. I believe that svb had a positive impact on the roughly 100,000 companies we supported over multiple decades. The takeover of svb has been personally and professionally devastating. Im truly sorry for how this has impacted svbs employees, our clients, and our shareholders. I hope that i can provide insights that will help this committee and the American Public better understand what happened. Thank you. [inaudible] im sorry, if you could proceed, mr. Shay. Tank. You chairman brown. Ranking member scott. Members of the committee. Thank you for the opportunity to be here to discuss Signature Bank and my role as chairman of the board. In 2000, i cofounded Signature Bank. At the time, the Banking Industry was experiencing many mergers and many big banks were not serving the needs of middle market consumers. I felt the a mid sized bank would provide an important commercial service to businesses that preferred a smaller, more personal banking experience. Signature bank followed a single point of contact approach, which the banks client teams personally served the needs of small and medium sized businesses. Our bank had a Diverse Group of clients, including industrial companies, commercial real estate firms, health care providers, professional service firms, nonprofits, and many others. We placed a priority on providing financing to Affordable Housing providers in low and moderate income areas, and its so for many years. Through the herberg and dedication of our employees, we went from a small bank with 40 million of startups funds to a successful middle market bank with more than 100 million and deposits. We were a solid and thriving bank that played out an Important Role in our clients businesses, and i was enormously proud of our success. In 2018, we began accepting deposits for businesses and the Digital Assets sector. I supported this effort because i believe that Digital Asset Payment Systems can make Financial Transactions faster, easier, and cheaper. With funds moving from place to place in minutes, rather than hours or days. At a much lower cost than traditional Payment Systems. I was not alone in my enthusiasm for Digital Assets. Over the years, many other banks and Financial Institutions have entered the market for Digital Assets, and governments, both state and federal, have expressed support as well. And with other parts of Signature Banks business, and digital deposit grew overtime. Nonetheless, because this was a relatively new sector, Signature Bank carefully monitored the business in an effort to ensure that clients met our internal standards, including for compliance with antimoney laundering laws. We alsolimited the kind of business we would do. Signature banks Digital Business was focused on accepting u. S. Dollar deposits from businesses in the sector. Additionally i publicly supported increased government regulation of the Digital Asset sector, in order to ensure that businesses operating within the sector had regulatory oversight. In the latter part of 2022, the Digital Asset sector experience increased volatility and regulators expressed concern. Signature bank took these developments seriously and in just a few months, significantly reduced its Digital Asset deposits. Unfortunately, a series of truly extraordinary and unprecedented events unfolded quickly. On march 7th, a bank with strong ties to Digital Asset sector enough to going out of business, and three days later, on march 10th, a second bank was seized, Silicon Valley bank, ease by regulars. And then, within just a few hours, our depositors withdrew 16 billion dollars from the bank. Nonetheless, i was confident that Signature Bank could withstand the economic earthquake that occurred that day. The bank was well capitalized. The bank with solvent. Indeed, it was always solvent. With assets well in excess of liabilities even at the very end. And the bank had a welldefined and solid plan to continue in operation and withstand additional withdrawals. Although i believe that the bank wasnt a strong position to weather the storm, regulators evidently saw things differently. On sunday, march 12th, regulators seized Signature Bank. Although i disagreed with this decision, i recognize the importance of the Bank Regulator play in our Financial System. My First Priority to help, my First Priority in helping to build Signature Bank was to provide Excellent Service to our customers. I was therefore pleased that the government guaranteed the full amount of our customers deposits. Helping build a bank that for 22 years played an Important Role in the middle market sector of our economy was the pinnacle of my professional life. For that reason, on march 12th 2023 was a devastating day for me. Thank you mr. Shay. Mr. Howell, thank you for joining us. Good morning chairman brown, Ranking Member scott, and members of the committee. I grew up in orange county, new york. After graduating high school, i work to pay to action while attending the State University of new york and albany. It was there that i bet my wife, amy. After graduation, i enter the Banking Industry, first working at Republic National bank as a small staff auditor. I worked in various positions at republic for nearly eight years, and join Signature Bank in 2000. I had signature, i started at the banks controller, and three years of hard work, rose through its ranks. I later served as a banks chief Financial Officer for several years, and was promoted to a position in corporate and business development. In that role, i work to help them grow the banks core client base of small to medium sized businesses. I lead the addition of experience banking teams both in the banking traditional near market, as well as our expansion to california and nevada. In 2021, i transition to the role of chief operating officer and was given responsibilities for the banks operation and processing our clients activities. In april 2022, i joined the banks board of directors. And on march 1st, 2023, 11 days before the banquet seized, i was appointed president of the bank. Having worked at signature for more than 20 years, it was profoundly disappointing to see the banks easing closed. The unprecedented events of march 10th, 2023, including the speed and amount of withdrawal that afternoon, astonish the bank. I believe the bank was well capitalized, sullivan, and a had sufficient Borrowing Capacity to a stand these and future withdrawals. I was disheartened that this did not come to pass, however, it is reassuring that the fdic guaranteed the full amount of the banks clients deposits. One Greg Carmichael was appointed by the ftc to oversee signature bridge bank, i was asked to stay on as president and chief opening officer. And of those rules i worked to ensure the Ongoing Operations of the bridge bank and assisted in securing a sale of assets and liabilities to another bank. Im continuing to work hard for our clients. As they transition to this new bank, maintaining the relationships on which they rely, and im proud to played and continue to play a significant role in preserving employment for approximately 2000 of my colleagues. Im happy to answer any questions. Thank you, mister howell. I have questions for all three of. You im assuming the Ranking Member, as. Well mr. Becker, svb experienced astounding growth from 2019 to 2021. And assets grew 100 and 98 . Six times the medium growth for comparable banks. When svb was growing fast did it ever occur to you that new deposits funding that rapid growth could leave the bank as quickly as they came in . Senator, when the growth one of the currying i think it is important to note that the growth was from existing clients. Yes, we add a new clients. But it was mainly our existing clients who are raising more substantial amounts of money. We bill several things. One was we added to our liquidity. Making sure that we had Borrowing Capacity that we could support that outflow deposits that occurred. Again, i think it is important to note that was mainly from existing clients. By every measure, that kind of growth may sound good to. Wall street most Bank Managers that means more risk factors to keep track of. When your bank failed, it had 31 unresolved matters requiring attention. The feds term. 31 huge red flags identified by regulators. I think it is safe to say that rapid growth was not because Silicon Valley bank was six times better than other banks. Mr. Howell once you start a new business lines it was important to show investors that Signature Bank its will be profitable. Is that right . Profitability is certainly something that we always look to. It seems like big losses in a struggling stock price motivated management to jumpstart profits and boost the stock price. In doing so you didnt seem to care about increasing obvious risks. Mr. Becker, your version of that blames svbs failure on too many Interest Rate hikes. Its social media driven bank run, a closure of the much smaller silver liberty bank. Regulators to be slow to highlight it longstanding problems. It sounds a lot like the dog ate my homework. Explanations are without the fact that your bank was without a chief Compliance Officer for over a year i dont think that was in your testimony. He watched investments leave and youre version leaves out that you only tried to fix things when you are told svb was going to be downgraded. Is there any other explanation that he wouldnt make any effort to fix the growing problems because it wouldve cut into earnings . Chairman brown, we took Risk Management seriously. We both were proactive and Risk Management. We were also responsive to the regulatory feedback. I think in the report that outlined the responsiveness that we have, if you have an opportunity to talk to the regulators who were directly involved i think they would share that point of view. Regarding the chief risk officer, if i may add to that officer we decided. The board and i, along with feedback from the regulators, we would look for a even more experienced c r o. In my experience to take 6 to 9 months to find the best person for a role. We did two things to make sure that we had coverage thought we were looking for chief risk officer. First, we created an office of the crs. With a Leadership Team reporting to me, and reporting to the chair of our Risk Committee. Secondly, we kept our chief risk officer on board through a consultant through october 1st to make sure that there were no gaps during that period of time. Mr. Shay, one of Signature Banks fatal flaws was a concentrated depositor base that made it susceptible to a bank run. Fdic a new york banking regulators identified this as a problem. Signature Bank Management assured them the banks relationships and dedicated Customer Service would make the customers less likely to flee. In the end he bet on the hope that customers really value that relationship, ignoring common sense Risk Management. The bank ended up with an extraordinary level of client concentration. The numbers, frankly, are hard to believe. 60 clients held 40 of total deposits. For depositors accounting for 14 of total deposits. Did you need that kind of concentration to make quick profits, mr. Shay . The bank took steps to offset and ameliorate the concentration of uninsured depositors. The bank said aside and internal allocation of liquidity in order to offset, or in order to provide an internal collateral measure of maintaining high quality assets against uninsured deposits. In addition, the bank endeavored to diversify its deposits portfolio mix. Maintain liquidity availability to offset those higher concentrations of assets. Thank you, senator scott . Thank you, chairman. Mr. Becker. You said you took Risk Management seriously. It is hard to believe that comment as it relates to the uniqueness of your bank. Your bank had about 90 of its deposits uninsured. If you are taking Risk Management seriously, as you grew from 50 billion to over 200 billion in a very short period of time, i think iran a couple businesses that went from zero to several thousand clients, one thing i had to do is how to get out of my business so i could work on my business. As a ceo youre working in the witness. Its very challenging to see your own blind spots. You actually need the ability to step out of your role and to look out over your Overall Organization to come to the conclusion, where is the risk . When your bank is such an anomaly in an industry where 90 of your deposits were uninsured, how how did you see that risk . And then not respond to it . When you are a 50 billion dollar bank, you dont have to worry about the stress test. When you hit to 200 billion dollars, you should be constantly aware of what a stress test looks like and how do you pass that test . It is hard for me to appreciate that you are taking riskier sly when, in fact, the anomaly itself shouldve triggered a different type of stress test, in your own mind. From the boards perspective, as well. Walk me through how you missed that. That is core to what our nation has experienced in now having serious doubts about our Banking System. Senator, if i could make a few points. One is, on the level of uninsured deposits, i have been at the bank for 30 years. In my history, our clients have always had substantial amounts of cash. That is just their profile. It is not something that happened in the last three, four, or five years. It has always been that way. We tended to have, i think the ratings that were given to us by the regulators would show that, we have substantial amounts of the crudity. Let me ask your question, mr. Becker. Looking back 20 years ago, what was the uninjured deposits 20 years ago, 15 years ago . Senator, to my recollection the uninsured deposits were always, roughly, between 85 and 90 of our balance sheet. The growth from 50 billion to 200 billion, with that level of uninsured deposits, did not trigger that something could be different . At all . Let me add this to it, so, one of the things we have to do is learn to look outside of our industries, for the anomalies that we may see within our industries. When you see reddit and gamestop having the type of fluctuation that leads to massive increases in value, and then precipitous drops. Looking around the world, technology, seeing things are happening, how did you factor all that is . Did you factor it in . Senator, i think about it a couple different ways. One is, our capital levels. Our liquidity levels. And the advice and the expertise that we brought on board from other areas. Those on the board, it would be additional Management Team members. Finally, the last line of defense would be the regulators. When i looked at the capital holdings, we did that in the written testimony, our capital level i think there was questions about capital i do not have any questions about capital f relates to what happens. Im questioned about liquidity. The capital really wasnt the chance that you had. You had a concern and issues, of course, which manifested missiles and liquidity rates. Because you continue to maintain Interest Rate heights. The liquidity crunch became a real challenge. Look at union from a liquidity perspective. To address that i would speak from 2021, all the way to the end of 2022, we increased the liquidity. As i think about, it is both the cash that you have and your barring porosity, 300 . At the end of the year we had powering pasadena of 69 billion, plus the cash that we had. We basically had a liquidity of, roughly, 80 billion dollars at the end of the year. Again, as we looked at liquidity overall, relative to the size of the bank that we were, we certainly felt that we had ample liquidity. Even with the fastest bank run in history, 41 of the 42 billion dollar deposit up those, that day, thursday, recovered by svb. We could have handled even more. We removing collateral from the Federal Home Loan Bank to the Federal Reserve. The ability to cover that kind of the quantity, that kind of outflow, we certainly felt showed that we had ample liquidity. It was the unprecedented event, the fastest bank run in history, from our standpoint, that was the anomaly. Thank you senator scott senator warner from virginia is recognized. Thank you mister chairman. I know i just heard the end of that question. The 42 billion in six hours . How that was spurred on by the internet. Frankly, some folks, the night before how that merits them further consideration. I do want to thank you for holding this hearing today. I know the committee is pushing for its analysis on what went wrong on these banks. What regulators and Congress Need to do to make sure this doesnt happen again i know we will get the chance to see the regulators later this week. Today i just want to say a few things about the management and the board oversight. As a former Business Owner i feel very deeply that management of a complex organization is a 24 7, three and a 55day a year exercise. I think the responsibility to employees and the public means that you do not let up when dealing with the risks. That means staying on top of your organizations. Trying to make sure we always around the corner at what is happening. Later this week we will obviously have a chance to look at the supervision. However, the further we get into these postmortems, it feels to me i know people may have already raised this, but if there was a failure in both institutions on banking 101. In many ways whether you had been the size of the institution. I came from some Community Banks and virginia, days institution of five billion dollars, there should have been warning signs on Interest Rate mismanagement. The truth is, as well, both of your models, and im familiar with both your models, they had this really fast growth strategy. Clearly, taking on the question of the number, and volume, of uninsured deposits. When we have a change in Interest Rate environment i wouldve thought that wouldve sent off some warning signs. I know youre probably gonna get asked a lot to questions from law to members on a variety of topics. I guess i want to focus my questions on governance and the role of the boards and both of your institutions. The fed report, i think, found mr. Becker at mvp that the fed reported that growth far outpace the ability of the board and Senior Management. They failed to establish a Risk Management control infrastructure for the size and complexity of your institution. Both when you are a little smaller and then as you experienced this dramatic growth. The fdics report on signature states that the managements primary focus on growth, deposits, and profits took priority over responsibility to ensure sound Risk Management and responsiveness to supervisory recommendations. I am, probably, not gonna get through all my questions. I see and down to two minutes. I will submit them for the record. I would like to hear from all of you about how are you bored structured. And, particularly, as you had very progrowth structure, fitness models, how are the boards involved . And you start to get these indications from the regulators that things seem out of whack, how did you boards respond . Mr. Becker, i will start with you. Thank, you senator. The board was very involved, you know . It was the ceo for 12 years. The entire time. And we have various committees that had different committees, and finance committee, we had a conversation in the audit committee. Again, we were very actively involved. The finance committee was the Main Committee that had oversight of our Asset Liability Committee, which is subject to a lot of questions that have come up already. Im sure they will come up with the course of this hearing. In early 2022 we receive feedback from the regulators that we needed additional experience on the board. We needed more l fei experience. We middle i was actively involved and the board was actively involved in recruiting Even Stronger lfi focus board of directors. We had done, and we did, in the course of 22. Two very engaged board and in response. Aboard and your signature as well . Signature bank had a very active and very involved and engaged board. They had asked questions, challenged management, took the responsibilities seriously. It took the reports of the examiners, of the regulators very seriously, it also had committees from risk to credit to examining what was the audit committee. They went into ive got a series of questions i would put in the record, respectfully, guys, if you had this many notices from the examiners, i wouldve thought somebody from the board wouldve been calling timeout, this is a serious issue, and ive got questions for the record, that i hope we will get, and thank, you mister chairman. Sir of south dakota is recognized. Thank, you mister chairman. Let me begin, i am uncomfortable trying to be a monday morning quarterback looking back at what was a very challenging time for your banks. And as part of the due diligence, we are responsible for providing and the look back and the oversight. We are looking not just at what would have appeared to be a failure by management, but by the boards as well. And also a look at the regulators and how they responded. So mr. Becker, for you, according to the Federal Reserve supervisor report released on april 28th, Silicon Valley bank failed to assess and manage its Interest Rate risk and that it is rapidly growing Security Portfolio. It had reached its long term Interest Rate limits since 2017 because of the structural mismatch between Long Duration securities and short duration deposits. Over the same period s v b removed Interest Rate hedge that would protect against rising Interest Rates essentially when rising Interest Rates threatened profits and reduce the value with securities. The management of svb took a step to maintain a short term profits rather than effectively manage the underlying ban its risks. Ive never heard of it being to be considered manage the Interest Rate risks, and yet both Community Banks, regional, banks and even a larger bank that i have spoken to that have been involved in the south dakota activities all have the same point of view. But this was a banking oneonone issue. Could you to share with us the decision to stop hedging Interest Rate risks. That will have been utilized by the bank, but then you decided to stop it at a time in which it really probably couldve assisted you in weathering the storm . Senator, as i outlined in my written testimony, the specific decisions around hedges and investments were done with our alco committee and executed by our Treasury Team. I dont have access to my documents as i was incriminated on march 12th. I havent been given access to that information, so i dont have access to that. But to answer as best i can, when i think of the Interest Rate Risk Management, there are two parts to it. One of the Liquidity Risk and the Interest Rates overall. And as the Federal Reserve said in their findings, we have findings from november 21, and part of the story that, again, was told, is that we didnt respond to them. And, again, to my recollection, the feedback that i had directly from our internal audit feedback, i heard directly from our chief Financial Officer is that most of those, not all, but most of those were resolved by the middle of 22. May i just, but in may of 2022 . The Federal Reserve issued three governanceu n mri rates, matters require media attention, which required mediation plans by august 31st of 2022, and that maybe what you are speaking of. Did svb actually submit the remediation plan that was required by the regulators . Did you actually submit that to the regulators by the state due date . Yes, we did, senator. Did the examiners then at the Federal Reserve you your proposed corrective actions as satisfactory and, if, not what feedback did you receive . Senator, to the best of my memory, we submitted our response, as you do when you have a requirement to be responsive to the regulators, and my recollection is that we were still waiting on the specific feedback from the regulators. Were you expecting there to be an enforcement action at that point . My recollection is actually at the january board meeting, and shortly thereafter, the feedback for the regulators is that we were expecting an enforcement action of understanding which we acted on immediately. That was all the way back in january. I ask because in november of 2022 because the Federal Reserve veteran mra, a matter of requiring attention for Interest Rate risk. The supervisory findings stated that the firms Interest Rate risk simulations were unreliable and gave a false sense of safety in a rising rate environment, and masked the need to take actions earlier in the rate cycle. Examiners requiring corrective action by june 30th of 2023, i am just curious. The fact we identify deficiencies, they give you an m are i a, and then an mra, but they did not expect you to respond until 2023. Did that somehow suggest that they were relaxing their concerns . Is that the way that the bank saw this when they received this additional followup from the regulators . Senator, i cannot speak on behalf of the Federal Reserve and what they were thinking when they gave that. No, i am asking what you thought when you received it. Yes. I can say what my experience was. And what i believe the team did. So, in my experience, when we get any regulatory findings, we were very responsible. I believe the g i a report highlighted that feedback from the regulators. They believe we were responsive. And that was certainly my experience. That we were responsive to, whether it was mri, or am are a, we treated it the same to remediate them as fast as we possibly could. I think the 30 some odd outstanding at the time would probably suggest differently. Thank, you mister chairman. Thank you, senator menendez from new jersey is recognized. Mr. Becker, it has been reported that on january 26th, you filed a ten b 51 plan in accordance with that plan on february 27th, 11 days before your bank failed, you sold three point 6 million worth of stock. Were you aware that Silicon Valley bank was in trouble when you filed that ten b 51 . No, senator, i was not. You are not. In your written testimony, you claimed that when you crafted your plan, you believe you were, quote, not in possession of any material non Public Information at that time, close quote. However, in the past two years, the Federal Reserve issued not one, not to, but 30 supervisory findings which identified issues in areas like Risk Management, board effectiveness, and Interest Rate simulation and modeling. All of which directly contributed to the banks collapse. These findings were not publicly available. All of this happened in a twoyear span when you and other executives sold 84 million of s v b stop. So, mr. Becker, do you think supervisory warning about your firms Risk Management and government are Material Information . Senator, i completely understand the question. The regulatory findings are either private and confidential, or the regulators can choose to make a public enforcement action, which they chose not to do. The question is not, what is that process, the question is that they decided not to make it public. You had Material Information. The question is that, is it Material Information or not . I didnt believe it was, sir. You didnt believe it was. 30 different supervisory findings. All of which are elements of the collapse of the bank. And you didnt believe those were material findings. Maybe you can understand why shareholder observer on the outside might think differently. Let me ask you this, in january, 2023, you are firms Compensation Committee approved cash and stock bonuses to executives and employees for their performance in 2022. According to public reporting, those bonuses were paid on march 10th. Mere hours before regulators seized the bank. Do you believe you and your colleagues earned the bonuses paid on march 10th, yes or no . Senator, those bonuses were predetermined on a predetermined date which i was not familiar with when those were going to be paid. Do you think those bonuses reflected strong, healthy, performance for you and svb . Senator, those bonuses were determined, at least for the executive team, by the board. And by the independent composition committee. Do you intend to return any of the bonuses you receive, yes, or no . Senator, im going to cooperate with the regulators as they go to the process to look at that specific area. Mr. Pecker, i am sure you are aware that regulators have identified major weaknesses at svbs incentive compensation program. Noting that they, quote, encourage excessive risk taking to maximize Short Term Financial metrics, and of that quote. And other, words the incentive structure that you and your colleagues put in place reported breakneck growth and accountability, while the capping efforts to manage growing risk to the firm. In 2019, a bloomberg report found that svb, first republic, and signature, where the three highest paying publicly traded banks in the country. It is no coincidence then that those banks are now better known for three of the largest Bank Failures in u. S. History. Clearly, the compensations structure here in this institution was not in line with the long term interest of your shareholders and deposit holders. I hope to work with my colleagues on legislation to rein in risky, incentivebased compensation plans that leave a task payers footing the bill with task pairs. It seems to me, from meeting the supervisory reports from that in the fdic that one ask 20 1 55 pass and supervisory requirements, these were relaxed, both svb and signature sought that as a greenlight to rapidly expand without ensuring their Risk Management and Corporate Governance practices would keep up. So, mr. Shea, a simple yes or no. Is there a difference between the Risk Management and Corporate Governance needs of a 43 billion dollar bank and a 110 billion dollar bank . Could you put your microphone on. Yes, at all times, i advocated for measure and different regulation for banks. So i didnt think that a 51 Million Dollar bank should be regulated the same way as a two trillion dollar bank. Im glad to hear you say that now, because it is too little, too late. According to the fdic signature management, quote, pursued rapid, unrestrained growth, without developing and maintaining adequate Risk Management practice, controls, appropriate for the size, complexity, and risk profile of the institution. Now, as i said, here i hear you testify all collectively that you did everything right. Something happened because the banks failed, thank you, mister chairman. Senator from louisiana is recognized. Thank you, mister chairman, and thank you, gentlemen, for being here. Mr. Becca, when Interest Rates go up, the price of government bonds, especially long term, long deterred government bonds, goes down, doesnt it . Yes. And you dont have to be einsteins cousin to know that, do you . No, you dont. Okay. Now, your bank had a 55 of its assets invested in government bonds, didnt it . Roughly, yes. And the Federal Reserve raised Interest Rates, didnt it . Yes, it did. And the value of your assets went down dramatically, didnt they . Yes, it did. Okay. And you didnt have hedges, did you . Senator, as previously mentioned, the decision around hedges was made by our Asset Liability Committee. Mr. Becker, you are the ceo of the bank. You didnt have hedges, did you . Senator, there were hedges that were put in place, but i dont recall the details around when they were put in place. You are the ceo and you had 55 of your assets in government bonds, and you dont know whether you were hedged or not . Senator, as previously mentioned, i dont have access to my svb documents i know that, and i wasnt ceo. You werent hedged. Now, if you had bought those hedges, that would have cut into your profits, wouldnt it . Senator, i dont know the details of the decisions that the team were evaluating but if you bought a hedge, the head costs money. And it would have decreased your profits, wouldnt it . Do hedges cost money . Yes, they do. So if you bought hedges, you would have less money, right . Senator, it depends upon, yes, they would cost money, but it depends upon if you made less money, that wouldve affected your bonus, what is it . Senator, our compensation was predominantly long term in nature. So i know there has been lots of discussion about compensation being short term from my mr. Becker, you made a really stupid bet that went bad. Didnt you . Senator envy taxpayers of america had to pick up the tab for your stupidity, didnt they . Senator, they were a series of events, unprecedented events that occurred that led us to where we are today. No, this was not unprecedented. This was bone deep, down to the marrow, stupid. You put all of your eggs in one basket. You put all of your eggs in one basket. And unless you were living on the International Space station, you could see that Interest Rates were rising and you werent hedged. But can you play the video for me . Mr. Shea, i want to ask you but play it. That still looks like me. Fortunately or unfortunately, yes. The only way we are going to do this thing is if we start a bank from scratch. Scratch . Youve got to be kidding. How in the world you do that, is there a book, how to build a bank for dummies . All we have to do is apply to 19 federal and state baking companies. Isnt it easier to go and buy a bank . We looked at that, but the prices are too expensive, and we would be stuck with all of their issues. Yeah, we have to make our own mistakes. Then we have no one to unemployment ourselves. We have nobody to blame but ourselves. Well that is the stupidest thing that i have ever heard. What possible fate would become of our bank other than to diminish and fail. I happen to know for a fact, that wont happen. Seriously, why not . Because. Mr. Shea, you are in that video, arent you . Yes, i am. And you show that video to the public . That video was designed as a morale boosting did you show it to the public . It was shown at the employee parties and used and shown but did the public see it . They may have seen it, yes. And you were trying to invite people to take their hard earned money and trust it to you to spend it wisely, and you show them this video just . That video had a positive impact on yeah, i can see, your bank went broke. People who enjoyed watching and participating. How much time did you spent you had conducted pronoun seminars, didnt you . What is a pronoun seminar . I introduced a seminar organized by 300 of my colleagues, just as i went to pingpong tournaments you spent a lot of time doing pronoun seminars, lecturing people about how they ought to use the right pronouns, gender neutral pronouns, didnt you . I actually spent no time beyond introducing them. I can show those seminars but i wont do it. Mr. Kennedy, your time has expired. Thank you very much never mind. That for them, or for me, john . Okay, thank you. Gentlemen, this is a moment in which the American Public wants a very direct answers. Let me turn first, mr. Decker. The Federal Reserve report found that svb reportedly breached its internal risk limits for Interest Rate exposure for years. Svb also had its liquidity positions, following repeated poor performance on internally conducted stress tests. Mr. Pecker, did you know about these stressors in the short term . Senator, as far as the Interest Rate risk breaches, i dont recall i do recall the liquidity breaches, and it really came from the feedback that we received from the regulators becker towards the end of 2021 and as previously stated, to my memory, the majority of those were resolved, and in fact, in february of 23 my recollection is the breeches were all remediated with the exception of one that we expected to remediate in the short term. But you had no knowledge of Interest Rate exposures that were reported by the Federal Reserve . Its so i know we received the mrna towards the end of 22. That is my recollection, and i remember our team was working on resolving that. Its hard to conceive of a ceo of a bank not being into an oven almost minute by minister interest about the interest of Interest Rate exposures, since that is one of the essentials of banking. I am not an expert, but i dont think id be contradicted. So you did not share with the board any knowledge of Interest Rate difficulties . Senator, any regulatory finding was disclosed with our board of directors. So all of that information would have been shared with them, and the specific committee that was involved in Interest Rate Risk Management in the decisions around investments would have been our finance committee. And who chairs that finance committee . Who chaired the last year . The chair of the finance committee was joel friedman. And but you claim that you have no knowledge of these Interest Rate difficulties . Senator, we treat all regulatory findings seriously. That was a matter requiring attention which is the lowest level of feedback that we would receive. And, yes, we were in the middle of addressing it. From our standpoint, it, was again at the lowest level of feedback. I understand that you did not have a risk officer in place last year in the operations of the bank, to that officer resigned early in the year and there was no replacement, is that accurate . Senator, it was a mutual decision for cra to lead the organization in april. And we covered that in two ways. One is by putting together an office for the, cro, as well as the teams. In the case questions came up, we kept him on to make sure we didnt have any gaps in that period in time. We hired our new chief risk officer in october of 2022, and she started in december. Was the focus of the disagreements the fact that the risk officer was warning of the dangers that you were deliberately running, and as a result, you wanted that person to be removed from the bank and that the consultant fee is a convenient way to pay someone to go away . Senator, the feedback on making a change with the chief risk officer was actually from a regulators. And from our board of directors. So, no, from my perspective that was not the reason behind it. Well i just seems that for a whole year almost preceding the collapse of the bank, you had an ad hoc Risk Organization when you were facing serious challenges, which have been identified here in terms of your assets, in terms of your in uninsured deposits, in terms of a host of things. So it gives the impression that there was not a lot of sensitivity or interest in fixing the problems that you faced. And, consequently, the u. S. Government had to bail out you and many of your shareholders and that cant happen again. Thank you. Thanks, senator reed. Senator hagerty from tennessee is recognized. Thank you, senator. Mr. Becker. I would like to start with you, and turn the conversation from what seems to be an apparent failure of supervision by the San Francisco fed. I would like to break my questions with you up before you receive in place and what happened in the days that followed. First, just to mention your relationship, how frequently did you meet with the San Francisco fed supervisors . I met personally with the San Francisco fed members of the San Francisco fed Supervision Team roughly monthly and, in some months, it was even more frequent than that. How large was the team that they had dedicated to svb . I would estimate the team was around 15, i believe, which was what was quoted by the Federal Reserve. Were they working on site in person, or were they working remotely . My meetings that i had were mostly remote. And that really was a carryover from the pandemic and the remote work that took place. And the fact that svb had a hybrid structure, so we were working mostly remotely as well. What about in the weeks and the days leading up to the receivership . Did anything change with respect to on site, in person, supervision . Senator, i guess one point to make is that it happened so fast, so really the bank run started to occur on thursday, and then that was the day. Let me turn to another question. What kind of communications that you had from the San Francisco fed, i am not really interested in the balance between communications regarding Interest Rate risk, the 2d risk, versus other risks like climate risk. Can you share with me the balance of those communications . Senator, the vast majority, 95, 98 , maybe even 99 of the discussions we had were, what i would say would be traditional fundamental risk. It is governance, controls, liquidity, capital. That would include Climate Risks . Senator, i dont recall, with the Supervisory Team that we had directly were we spending time i dont recall any spending time. I know you are on the board of San Francisco fed, i just an interesting they were writing about climate risk when theyve no expertise doing that. Lets turn to what happened after the receivership took place. I actually was in california, and i visited your headquarters that we cant. I expected to see a parking lot full of cars, people working around the clock. Doing everything they can to try to help the fdic manage this auction process, to deliver the best possible result for taxpayers given where we were at that point in time that weekend. There were no cars in the parking lot. And that prompts the question, from your testimony, you said that you made, quote, every effort to, quote, minimize or eliminate any losses that might result in the fdics takeover of svb, including, quote, seeking to engage potential inquiries before you were let go sunday the 12 of march. If you can give me a simple answer, yes or no, were you involved in helping the fdic navigate the sale process . Senator, the fdic took over svb on that friday, march 10th. I offered several times to engage potential acquirers to run through a list of names or priorities from who i believe would be the most likely did they ever consult you . You said they offered, but did they . They did. Not great. On march the 9th, signature had 4. 9 billion in cash, and roughly 25 billion in Borrowing Capacity. If you combine that with the put of a place on march 11th and 12th, it appears that signature was neither absolving or illiquid. At the very least, it seemed that it wouldve had the tools at its disposal to navigate all of this. So my question to you, you noted this in your testimony, is that your view that signature was not only well capitalized insolvent, but that it had a welldefined and solid plan to continue an operation that would withstand additional withdrawals. If that was the case, why do you think signature was placed into receivership . I did believe that we have a plan to continue to be able to open on monday morning, and in the future, indefinitely. We were at all times solvent and well capitalized. And even with the sale of the available for sale securities, it still wouldve remained well capitalized so could it have been what somewhat said, even some of your Board Members have said, could it be because of your exposure to crypto industry into Digital Assets, could that be the rationale . Could that be the reason you are shut down . I dont know what the reasons i cant speak for the regulators and their decisionmaking process. I just think it is quite interesting that, to this day, the fdic sold of all the assets with the exception of the Digital Asset portfolio. Is that still the case . I dont know the answer. I have no involvement. What about with sikh math, the system that you built . Is that still i do not know what happened to it. Thank, you mister chairman. Thanks, senator. Senator ben holland of maryland is recognized. Thank you, mister chairman. Mr. Becker, you would agree, would you, not that you had a duty to your shareholders and a duty to your depositors . Yes, i would. So im looking at the year 2022. And im looking at a dramatic drop in the stock price of Silicon Valley bank. I am looking at a huge increase in the amount of uninsured deposits, and im looking at your end of 2022 bonus of one point 1 million. So my question to you is very simple. Sitting here today, do you believe that you should have received a 1. 5 Million Dollar bonus after the Performance Indicators i just referenced . Senator, if i could clarify one point, the uninsured to positive level from a percentage point did not change during 2022, at least to my knowledge, it didnt. It had been at that level for as long as i can remember. As far as the compensation, that was determined by the board of directors, signed off by the board of directors based on the performance. Their evaluation of that performance in 2022. Wow, i have to question, knowing the facts as we do today, the judgment of the board of directors. Mister chairman, i would like to submit, for the record, a article from the Financial Times entitled, executive hate Silicon Valley soared after big bet on riskier assets. Without objection. And i want to read from another Financial Times article that really in a list what happened in 2022. And they start by saying that weakening profitability of svb in 2022 lead f b svb to do something they say, really dumb in the First Quarter it on round five billion dollars in a fms hedges available for sale. Hedges to book, a 240 Million Dollar gain. And in the second quarter, it dumped another 6 million of hedges to lock in to law a nether to another 2 Million Dollar gain. Mr. Becker, do you challenge those facts . Senator, the only thing that, i dont know the details, on my understanding is that when you cash out a hedge the benefit of that is actually advertised over the life of that hedge, which could be anywhere from four, five, or six years so it wasnt taken into income at that time. So you dont contest the facts about what this article just print, right . With the exception of the period of time which that is taken into income. Well, okay. So do you agree with the Financial Times analysis that this is really dumb, maybe you didnt really know it at the time, but looking at where you are today, can you agree that that was a really dumb move . Senator, as outlined in my written testimony, the decisions around the edges were actually overseen by our Asset Liability Committee and our financial committee. I have every reason to believe that they were making the best decisions they could at that time, not in short term basis, but over the long run. And i dont have access to my documents to really confirm that. Well, mr. Becker, i think the problem we have here is the facts tell a very different story. And the facts suggest is that in the face of declining profitability, and following share price, you and the bank decided you in the bank decided to artificially goose your profits by making the sales which put the bank in a much more precarious situation with respect to Interest Rate risk, and it appears, from everything ive seen that when the board of directors provided the bonus, one of the things they considered was this short term, short term bump in the gains from the sales of these more liquid aspects. So the bonus was received in the end, as a result of taking the risky behavior that ultimately led to the collapse of svb, ultimately led to the loss of the complete value for shareholders, and ultimately led to the complete value of the fdic to come into support depositors. So, we are in the process of this committee, looking at different mechanisms to claw back executive compensation, that we think was wrongfully gained in the sense that it was not deserved. And you answered the question about how your board found that you deserved. Im asking you today, knowing everything you know, do you really think that taking in getting a bonus of one point 5 million, given the shelling in 2022 in just a short time before the total collapse of the bank, do you believe you deserve that up . Senator, to the point you made about focusing on short term. I respectfully disagree with that. I believe the board did the best job they could in evaluating the performance. That we had in 2022. Well, this is why i think people watching this hearing are just going to be scratching their heads and get angrier and angrier. Because this is clearly an example where bonus was not tied to performance. Not even at the end of the year, and certainly what the trench showed in terms of total collapse. And this is why people have very little faith in much of our Financial System. Thank you, mister chairman. Mr. Becker, please answer the beginning of the first part of senator van hollens question about whether you believe you deserve that senator, from the standpoint of that compensation, that is determined by the board of directors, so i know that they believed it was fair, and i believe that they were accurate. But senator of North Carolina is recognized. Thank you for being here, mr. Becker, i want to ask you a question, first of, for people watching this may not know that the abbreviations matters requiring attention or matters requiring immediate attention means that a supervisor is identified an area of risk that is unchecked. I just want to make sure that ive got my timeline right. By july, of 2022, following the issuance of numerous mris an mris, svb was placed into a supervisory review and flagged for poor governance. Controls, and over exposure to Interest Rate risks. This was in july of 2022. In early 2023, and incidentally, this is based on the feds supervisory review document we just received recently. And 2023, the supervisory review i was escalated to a horizontal review. And elevated tear that is designed to assess the liability of Risk Management in a firm. The horizontal review also identified additional deficiencies, is that the correct order that this occurred . Senator, you gave a lot of dates, and i have to go back and take a look at that to confirm. Okay, if that was in the fed report, i have no reason to believe that it was not accurate. Okay, and then a broader question i want to ask you over the past couple of weeks since, or months now, almost, since the failure, but im. The argument here has been all of the management was incompetent, it was a management failure, or the other end of the spectrum, all of these supervisors were incompetent, it was a supervisory failure. I kind of fit somewhere in the middle, saying that there were actions. I look at these mris an m rias, the fact that you did not have a chief Risk Management officer didnt mean that you didnt have a Risk Management function. But it does concern me with the length of time, and what it looked like, because we were also seeing where the fed was going to go with Interest Rate risks, that there had been, tell me about the Manhattan Project that you all were working on after you got the mras and mris that have not been discussed here, or if there was one. How aggressively were you trying to resolve these deficiencies that were identified by the supervisors . Senator, we were aggressively working on them. And i know in the federal report they talk about dates when findings were given, those findings and writing typically are done, you know, months and months after the initial verbal feedback. And when we respond, we respond, not waiting for what is in writing. We respond immediately upon the feedback we receive when it is given. And that is the approach that i have always taken, and that is the approach that our team took as well. When they escalate from a supervised review to a horizontal review, it seems like things werent getting better. What specific actions did you take in response to the supervisory function that you think were responsible, and do you feel like, in reaction to any of the supervisory involvement, that you acted promptly and decisively of the risk that you could manage . I believe, senator, that we were responsive to all the findings. Not just which findings, but all the findings. And let me, give if i could give you an example. So a lot of the discussion has been around liquidity and the findings around liquidity that occurred. And as you answer the question, i want to give you time, could you also tell me how many of those mris and mria are on the standing of the banks failure . Sure, i will answer your next question, there were 31 that i think has clearly been reported by the Federal Reserve. The ones that specifically related to Liquidity Risks that were actually given in, roughly, november of 2021, they were eating immediately reacted to buy our cfo, by our Treasury Team, and overseen by our Elko Committee and our finance committee of the board of directors. And, to my memory, by the middle of 22, the vast majority of those findings had already been remediated. And i believe, even an early 23, my recollection is that there was roughly one of those findings that were outstanding. So, the team, again, from my standpoint, was very responsive to the regulatory feedback. Specifically in the area of liquidity overall, they were, but specifically in the area of liquidity. Thank, you mister chair. Thanks, senator warren, of massachusetts is recognized. Thank, you mister chairman. For holding this hearing. You know, the last time this Committee Received testimony from mr. Becker, the ceo of Silicon Valley bank, he was lobbying congress, us, to do away with the dog frank rules designed to protect our nations Banking System. Now, unfortunately, too many people in congress listened, and now, here we are. Three bank collapses later, picking up the pieces of mr. Beckers successful efforts at deregulation. In recent reviews, the failures of svb and Signature Bank, regulators found that we can bank rules help cause this crisis. They also found that each of the witnesses here today were repeatedly warned that their extreme risktaking was dangerous. Now, instead of paying attention to those warnings, mr. Becker, mr. Shay, mr. Howell, took on more risks so they could boost their own paychecks. Mr. Becker, you are svb ceo from 2011 until it failed in march. In 2019, the year after Congress Gave you what you want and voted to weaken the Banking Systems guardrails, you got a 35 pay bump. Not bad for a single year. In fact, your pay increased by nearly 3 million. Now, that same year that you got the pay bump, nearly five years ago now, how many active, supervisory issues have the fed identified and warned your bank about . Senator, i dont recall the specific number that we would have had in 2019. Well, you ran the bank, mr. Becker. Do you want to take a guess . One, two, a dozen . I would guess it would be in the 10 to 15. Well, 17. 17, same year youve got a 10 Million Dollar paycheck. The fed had warned svb of 17 unresolved supervisory issues. Now, your bank had issued with capital planning, it had issues with liquidity Risk Management, and the bulk of the issues identified by the fed focused on weak governance. It was a litany of management failures. By the time s v b failed more than four years later, it had 31 unresolved, thats what the Public Record shows, 31 unresolved supervisory issues. But the big paychecks for you kept rolling in during that fouryear period, you collected almost 40 million. Mr. Becker, the collapse of your bank cost to the ftc i see fund about 20 billion dollars. Money that someone is going to have to make up. Big banks, Community Banks, depositors, consumers, somebody. So i want to know about the basic accountability. How much of the 40 million that you earned from loading up svb with risk are you planning to return to the f. D. I see . Senator, if i could clarify one point and then i will answer your question. Compensations, i know there has been a lot of discussion about, is it long term, or short term. And it is short term focused i have a very simple question. You caused the fdic fund 20 billion dollars. You made 400 million doing that. How much are you planning to return to the fund . Senator, i disagree with the number you just quoted. What, that is not your paycheck, or that is not how much it cost the fdic, those are both matter of Public Record. How much are you planning to return to the fund . Senator, the number you just quoted was 400 million. 40 million. Sorry. How much of the 40 million are you planning to return, how many times are we going to do this dance . Senator, i promised to cooperate with the regulators as they do are you planning to return a single nickel to what you cost the fund . Senator, i know there is going to be a process review of compensation. I will take that as a no. All right, so lets turn to our next one. Mr. Shea, mr. Shay, Signature Banks leadership was right there with mr. Becker. Mr. Shay, you are the chair of signatures board for the entirety of its 22 year existence. I understand you are also the chair of the Risk Committee for 22 years. So, let me ask you, in 2019, once Congress Weakened the laws, how many formal warnings from the fdic about your banks liquidity Risk Management issues were outstanding . Dont know, does the number 18 sound right . Yes. Okay. In fact, you are still chair of the Risk Committee in 2020, 2021, and 2022 when signature received more warnings from the fdic and, quote, never adequately addressed the liquidity Risk Management concerns. So, from 2019 to 2023, while the fdic identified an additional 45 Liquidity Risk issues, you racked up more than 20 million in pay. So, mr. Shay, the collapse of your bank cost the fdic fund, two and a half billion dollars. So how much of the 20 million that you earned from loading up Signature Bank with risk are you planning to return to the fdic . I believe that Signature Bank was responsibly managed bank, solvent until the end im sorry, your opinion on what is a responsibly managed bank is now laughable, so you are planning to return how much . The answer is none . Thats it . I am not planning to do so, no. Okay, so heres the thing. Right now, the law says that people like mr. Becker and mr. Shay can come to washington, they can lobby for weaker bank regulations, they can load up their banks with risk, they can pay themselves, tens of millions of dollars in bonuses and stock options, and when the banks blow up, mr. Becker and mr. Shay get to keep all the money. And that is just plain wrong. And if we dont fix it, every ceo for these multi billion dollar banks will keep right on, loading up on risks and blowing up banks, and everybody else is going to have to pay for it. And that is why senator cortez masto and senator hawley and senator braun and i have introduced a bill to claw back these crazy paychecks and make it, just a little less profitable for bank ceos to blow up the Banking System. I am working with a Bipartisan Group right here on the banking committee, and i Hope Congress does the right thing and that we get to mark this bill up, i ask respectfully, as soon as possible. Thanks, senator warren. Senator vance, of ohio, is recognized. Thanks to the chair and hosting this important hearing. Thanks, gentlemen, for coming for the committee and testifying today and answering our questions. As ive noted before this committee, the svb wanted me to focus my line of questioning out of a Business Model that relied heavily on cushy perks for clients i know well, it was the business i was in before i joined this body. Now, this undoubtedly did this heavy venture into capital, but now it exposed, not just their own banks, but our entire Financial System to peculiar type of risks. It made the Silicon Valley bank made a large number of uninsured deposits relative to other commercial banks, it also meant that Silicon Valley bank, it was engaged in a number of very Risky Business practices that eventually unwound the bank and led to the situation that we have before us. But if executives failure to manage risk wasnt enough, weve also seen some suspicious behavior in the lead up. And the failure of your former bank, mr. Becker, that is why im going to direct my question to you. So just as a starting point, mr. Becker, i want to focus more on the short term, senator warren was focused on the longer term here. But what were the amounts of your cash bonuses in 2021, do you recall . 2021, i believe, was 3 million. And your cash bonus in 2022 was . 1. 5 million. So in 2022 in particular, you paid yourself a 1. 5 Million Dollar cash bonus even as the stock, the value of the company that you are managing declined by two thirds, that is not bad work if you can get it, as senator kramer and i were joking. Well be yelling to spruce something up for much less than one point 5 million. The stock price fell in 2022. So it is pretty clear that the cash bonus was still 1. 5 million despite svb stop followed by two thirds that same year. Now, do you think it is appropriate to pay yourself one point 5 million when the stock of the Company Managed declines by 65 . Senator, the two points to your question, first, is that the determination of my compensation is made by the board of directors. And their assessment. And the second part relating to, this is question on stock, i held roughly three times the amount of stock that was required to, so clearly, i hold clear you see the decision was made by the board of directors, lets focus on them. Do you think they were wise to reward to one point 5 million in cash composition bonus on the decline of the stock price was 65 plus percent . Senator, i believe they looked at the performance against the goals that were set up, and they know that i was significantly impacted by the decline in the stock price. So, mr. Becker, it has been reported on february 27th you sold a significant amount of svb stop. What was the total market value of the shares that you sold on february 27th, just a couple of weeks before your bank was put into receivership . The ten b 51 plan that was entered into in january was four options that were set to expire, they were issued [silence] [silence] [silence] [silence] [silence] [silence] [silence] [silence] [silence] [silence] [silence] do you think that its ethical to take three and a half Million Dollars in sales to couple of weeks before the bank fails . Senator, that plan was legally entered into in january. I understand it was legal, im trying get to something a little bit deeper here. Do you have any idea two weeks before when you sold the stock publicly that something was amiss at your own bank, that it was weeks away from being placed into receivership by the fdic . No, i did not. So one final question, mr. Becker. I believe, maybe it is an old honor code, but when a ship is about to go down, the captain should go down with the ship. The first full day that your bank was in receivership was the monday after the bank was placed in receivership. By friday, the first full day was a monday, where were you on monday . Were you at the office and Silicon Valley bank . Senator, i was terminated on sunday. And i had no interaction with any of my team, and i offered to do anything i could to help the fdic to market the bank, to find the best home for our clients, and the best home for our employees. My wife and i made a decision. We decided we were going to go to one of two places to be with family. Either we would be with my family in indiana, or her family in hawaii, so let me just say, we went to hawaii. One more question. On that point. You were terminated on sunday, after the bank was put into receivership, mr. Becker, you are saying the fdic was not interested at all in your services or in your health the following week . Senator, i offered several times over that weekend to help prioritize potential acquirers because i felt that i was in the best position to help understand who were banks that competed with us. Who were the likely banks that were to acquire us, to find a home for our employees, to find a home for our clients. And they did not take me up on that advice. And they were put into a difficult situation, so i am not faulting them, i dont know why they did that. Im just telling you the facts around it. I appreciate that, mr. Becker. But thats an interesting fact in of itself. Mister chairman, i yield, thank you. Thank, you senator vance. Senator tester of montana is recognized. Thank, you chairman. Thank you for holding this hearing. Mr. Becker, at Silicon Valley bank, you were concentrated on having the industry at the time when things were looking rocky in many of your clients businesses. You did not just have a lot of uninsured deposits, you had mostly uninsured deposits. And those startup tech clients were in a position where they need to burn through cash faster that was coming in. In recent years, your bank has grown, rapidly. But investments your bank paired with that growth may have been safe assets, but they were going to lose value with Interest Rate increases. That the fed made clear and everybody in the street knew was coming. The fed did anybody pay any attention that, to get incompletion under control, theyre going to raise Interest Rates . And, in fact, you even sat on the San Francisco feds board of directors during that same time period, and the chairman of your board came from one of the big four accounting firms. Mr. Becker, if you couldnt see the real risk coming, what were you doing trying to lead this bank . Senator, when the decisions were made to decide in the government backed securities, that was in 2021 mostly, and that was when inflation was stated with this that was the case all the way up into the end of 21 when we had already invested the majority of those securities in government securities. So, you are in a situation where your Bank Increased in value, i will, say exponentially . We can debate that, but it increased the value very quickly. You are in a situation where you are in a high, high, high portion of your deposits were not insured by fdic because they were over the limit. You were in a situation where everybody saw the economy moving forward, coming out of the pandemic, lot of pentup demand and, quite frankly, we saw congress and others take actions. Your clients were highly concentrated in the tech industry. You invested a large portion into government paper. You had regulators that were telling you that you dont have to change what you are doing, or you are going to go broke. Maybe they werent that blunt, maybe they need to be that blunt. And it is my understanding that bank of your size, regulators literally have an office in your bank, is that correct . So under, as previously discussed. Due to the pandemic, most of the engagement was virtual. Youre saying that the regulators did not have an office in your bank . Most of the engagement was virtually into my knowledge, they did not have an office. That probably wouldnt change as we were coming out of the pandemic and people were coming back to the office in a more regular basis but at a time when was the first time that the fed or any of the three regulators, right . When was the first time they notified you that you had problems. Senator, i think about the matter is requiring attention of the feedback were getting that on a regular basis. For engaging the regulators. Were being very responsive to what were giving. Us what youre saying is, i would disagree that you are very responsive to the feedback i was given. Did you read the fed report . I did read the federal. Preet it shows the regulators identified efficiencies and quite frankly, you did not proceed with those deficiencies. I dont necessarily blame you for that by the, way. Although i do. I blame the regulators. Regulator shouldve been standing on your front doorstep, not allowing you to go through the door until you fix these problems. Well take that up later. I dont want to regulators overreacting and potentially folks are following the rules. But the fact of the matter is, it is very hard for me. I am not enough financial industry. My folks when i was raised as you can afford to buy it, dont go to a bank. I am not had a lot of work with the bank. The truth is its hard for me to understand how somebody who sat on the fed, somebody who is in tune with whats going on in the economy, somebody that had a regulators telling youve got stuff that has to be dealt with here. Didnt take the kind of response that should have been taken. Whether its u. S. President of the bank or people on your board of directors. I dont know what happened here. The fallout of this, by the way, the fallout of this isnt just Silicon Valley bank going down. Its the fact that were gonna have a lot of banks out there that are gonna get the screws put to them. Because you guys did not react to the recommendations that were made by the fed and hopefully other regulators. Absolutely by the fed. I just dont understand how for three years, this one on. And nothing was done. It ends up with that bank no longer exists. It does not. Senator daines from montana recognized. Chairman, thank you. I wouldnt trade your guys places this morning, ill tell you that. The failures of Silicon Valley banks Signature Bank in the general term one of the Banking Sector are the direct result of the failures of executives today. Also a failure of financial regulators. Our serve on the executive team financially. A sound company but also publicly traded for many years. I know what its like to be an executive team. Part of a publicly traded company. Lets not forget the inflationary environment sparked in no small part by the biden ministrations 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 the same committee. The finance committee and others. We kept hearing about this transitory nature of inflation. When we were screaming that inflation is real, its coming and Interest Rates are going up. Heres the shocking point. We started to impact what happened out on the west coast. While all this is going on with these 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 to look at their guideline as they put out. You compare what the San Francisco fed published last fall. In San Francisco in new york in the 12 and the second fed districts. It was about Climate Change was the top risk defied. The Federal Reserve to restore power did not examine whether there was any discrepancy in the quality of supervision across the various districts. I think its a very relevant question. Vice chair are barred 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 look at the 12 to San Francisco fed. It talked about Climate Change. Listed number one, priority, top risk. Back in october of last year. Compare that to the fifth district, Richmond District where he said rising Interest Rates might be the top risk factor. I did not come from the Banking Sector. We were screaming about that here in capitol hill saying rising Interest Rates are gonna be a major risk factor for consumers in this economy going forward. Vice chair barr also sided Tennessee State this was a result of tailoring following the passion and s. 2155. That land might bipartisan bill that was enacted in 18. I think this is an overly broad conclusion. Without a review of whether this is something that occurred across all 12 districts. Also like to see the Federal Reserve in the ftc exam and whether any specific individuals were negligent in their duties and should be fired. The executive sitting for this committee today lost their jobs. I think this is appropriate given the harm caused by mismanagement. We should also pull negligent regulators to the exact same standard. Returning to my questions. Mr. Pecker, chairman ron mentioned his opening remarks. Can you confirm that of the time of as vps failure, the bank had 31 unaddressed safe and sound supervisory warnings. By the way, triple the average number one compared to pierre banks . Your testimony is full of metric suggesting that svb was comparable to its peers. Part of that could be true. There is clearly one metric where svb was an outlier. You said earlier this hearing that almost all of the deficiencies were addressed. My question is, you can help us out on this, did you receive confirmation from regulators that this 31 deficiencies were adequately addressed. Written confirmation. Verbal confirmation. Some kind of confirmation. Senator, to be specific, my comments were about they were being addressed. Part of the discussion is about where we were responsive to the regulatory feedback that we received. The answer that i gave is we were responsive to them. They were definitely not it was in process but not complete. Some of them would have been signed off on. How many wouldve been signed off, do you recall . That were signed off. Wouldve been signed off by internal audit. I dont recall specifically. I know more familiar with the ones on liquidity. And liquidity to, the best of my memory, the vast majority of those were signed off on by an internal audit. Lastly, its one of that as we be did not have a chief risk officer. Zero for the last eight months of 22. In your testimony, you mentioned that suvs prior sorrow was Still Available as a consultant. Until october of 22. That you made several hires to supplement a Risk Management team. Can you explain why it your sorrow of the company and did you lean on her services while she was in a consulting capacity. Yes, the feedback on looking to find a sea or royal with even deeper experience was really beginning end of 21 beginning at 22. That feedback came from regulators. From the board of directors. Internal audit. That feedback was given. We decided to make that change with board input and even before we made the change, and for me regulators this was going to happen. My experience is that it takes to find the best executive 6 to 9 months to find that if youre using an outside search firm. And looking for the best person. We did two things to make sure that we had coverage. One is weak redone office of chief risk officer. Those individuals which is the risk Leadership Team of the rescue Group Reported to me and they reported it to the chair of our Risk Committee. The second thing we did to your point, we kept our chief officer on board as a consultant. In case something came up. Predominant oversight was really done by the office of the chief officer. As far as your question, how many interactions or how much engagement was there with the prior chief risk officer . I cant say specifically. I had a couple but i dont know about the rest of the team. Witnesses have asked for a bathroom break. Five minutes your dismissed for five minutes if that works. Senator smith remote will be next. Thank you. Taking a break from the Senate Banking Committee Hearing of the recent failures by Silicon Valley and Signature Banks. The hearing is expected to resume for ali. Live, here on cspan 3. Were enjoying this morning bio white house columnist for the hill newspaper. Hes here this morning to talk about how controversial issues are playing out in a state legislature. Good morning. It is. Eu you recently wrote a column in the whole newspaper. Talking about how the culture wars of the United States are playing out at the state level. Tell us a little bit about why were seeing this. I think it depends on the specific issues. Abortion has been a culture war issue forever. Clearly thats been moved to the states by the Supreme Court decision about 11 months ago. Then you have other additional issues. Like socalled crt laws. Which have really come to the floor as a matter of debate much more recently. And then in addition to that. You have some politicians. President ial ambitions called on as well. Governor santos in florida has quite clearly and quite ostentatiously been inserting himself into some of these debates. Sixweek abortion bans. Socalled anti woke why are we seeing this being dealt in state legislatures. Rather in washington, and congress of the white house. Why are we seeing this coming up in gubernatorial and legislative at the state level. I think a couple of reasons. One is relation to the laws. For example a very this morning for very sad reasons. There hasnt been a lot of federal action on that area. The progun control increasingly focused on thats one part of this picture. I think also there is also the fact of our politics has become increasingly nationalized. These big issues that excite such passions have become dominant even in state level races. As you said, gubernatorial races. Sometimes even at a more high pole level. Things Like School Board elections are not even fought on issues like that. Is this a good thing . Or is the bad that these are going on. Same conversation going on in different places. Likely coming to different solutions. Its a good thing or a bad thing. One of the experts i spoke to suggested it was a good thing. His argument was it is in a sense the job of the states to experiment a little bit more. He put it that the fed put its there as a guard rail if things go completely crazy. State legislature is another state bodies can deal with these issues at a level thats by its nature closer to the people. A law you might want in alabama is not necessarily in the same kind of law that voters in vermont are going to support. Having those state level disparities is not necessarily bad, i think. Especially when it comes to hot button issues like gun control, abortion. Banking Housing Urban Affairs committee back in session. Arizona is recognized. Thank you, mister chairman. Thank you for witnesses for being here today. Recent Bank Failures including those that Silicon Valley bank it Signature Bank our textbook examples of executive incompetence, financial mismanagement and incidentally the brokenness in washington. Both the fed and the fdic need to make meaningful cultural and operational changes to respond to problems faster is and restore confidence in the system. Original cosponsor the bipartisan bill the financial regulators transparency act. Alongside senators warren and tillis and other members of this committee. This bill will ensure we can hold regulators accountable to the cultural and operational changes they pledged to make. Well discuss this more in thursdays hearing. Today is about financial mismanagement Bank Executives which isthere the lions share of the blame should rest. Thank you for being here. Page six of your testimony states that on the advice of Goldman Sachs, who decided to tell you or if the portfolio first. Did Silicon Valley bank retain Goldman Sachs as a Financial Adviser or fiduciary . Goldman sachs was the Investment Bank, it was running the transaction forest. They were our advisers. There is a news article today in the Financial Times. Were Goldman Sachs informed svb in writing, quote, we would not act as their adviser on the sale. As we be should not rely on any advice from the bank in this regard. Instead, hire a thirdparty Financial Adviser. And quote. Is that an accurate letter that he received from Goldman Sachs . Senator, i dont remember reading that document. Mister chair, i will submit this for the record. This is an article in the Financial Times today. Goldman sachs provided this information to svb in writing. The way you phrase your testimony implies that Goldman Sachs advise you to sell the portfolio like a Financial Adviser would. We see here there was a letter where they were not retained as a Financial Adviser or fiduciary. If the were, you would have a contract. It seems like they were acting in a principal capacity. Perhaps is a better for the assets. Did svb have a Financial Adviser advising on this transaction in march of 2023. Senator, the sole Investment Bank that we were working with at that time was Goldman Sachs. Either Goldman Sachs did write a letter saying that they would not be your adviser on the sale or they did. What did Goldman Sachs advise you in this contract that were not sure exists and that Goldman Sachs says does not exist . Senator, the only thing i can do is give my memory of what happened again. I dont have access to the bank documents. My memory is very clear. It was we were looking to do things. One is worries equity and the other thing is to sell all portions of our effects portfolio. Goldman sachs was the Investment Bank we worked with on both. As we were having the discussion with our board of directors, specifically the special committee of the board there was really the ones working with the Management Team on this. The direct feedback that we received from Goldman Sachs is that to show the purpose for the fundraiser. The capital raise. Otherwise, our capital ratios and liquidity were strong. We would need to sell the securities first to show the loss. And then to bring the capital on board later that day or the next few days. With Goldman Sachs, your advice on that sale. On the sale of the securities . That you just describing,. Yes Goldman Sachs was the Investment Bank that we worked with on that. Mister chair, it might be useful to try to get a hold of this letter because Goldman Sachs says that they informed svb in writing. They would not be the adviser on the sale. Your testimony falls Interest Rate environment for your failure. I find it fascinating that other institutions all of which were dealing with the same Interest Rate increases seems to have hedged better than svb. Why do you think other banks survived in the same environment where your bank failed. Senator, as i try to describe it in my written testimony. I think the losses across the Banking Sector urges the securities but also this is not as well discussed. The Loan Portfolio. When banks have loans that are longer duration. Those underutilized losses existed. Her to highlight the fact that our Loan Portfolio is short duration. And was very low rates. 90 of it. When you look at the entire balance sheet. You look at duration and Interest Rate risk. Have to look at all the assets in the balance sheet. Our loans would reap race every day. Our rates would increase. We benefited from that as rates went up. The discussion around the Security Portfolio is because it was really offsetting. Variable Interest Rates we had in our Loan Portfolio. Senator brett. Thank you so much. Thank you for being here today and appearing before this committee. Its unfortunate that the policies of this administration have shifted what was a thriving economy just a few years ago tuned berreman of Economic Uncertainty and unprecedented inflation. Today, individuals, faces and lenders are all facing the challenges of the current high Interest Rates. We are seeing that in our daily lives across the board. Despite this, banks and my state of alabama have remained resilient and i am so proud to be able to say that. The same time that cannot be said of the banks that are represented sitting before us. Mr. Becker, im concerned with the lack of responsibility that you have chosen to take for the role that you play leading up to the failure of the bank that you lead for the last 12 years. While your written testimony points to a number of issues that he believe are responsible. I think the answer to the question of what happened to your bank lies in the first sentence of the Federal Reserves hundred and 18page report. It states Silicon Valley bank failed because of a textbook case of mismanagement by the bank. Mr. Becker, i believe that Good Management starts from the top given that you spoke in and spent the last 30 years really immersed in the Banking Industry and in this profession, you are actually ceo of this bank that were to the country 16 largest bank. I think we can all agree that you are an expert in this field. Given your level of expertise in the Banking Industry, coupled with your longstanding familiarity with svb and the individual client based interest controls. And the investments. Its hard to understand a scenario where you were unable to predict or see or at least proactively consider what the impact of the changing economic environment would have on your client base and investment portfolio. Let me ask you this. At one point did you begin to see red flags with return with regards to the long term stability of your bank . Senator, two questions. Capital liquidity as i think about it. Capital was very strong. All the way up until you can look at march 10th. That was validated by the regulators and several points. Liquidity is the other question. When you look at 22. Our clients were impacted by the economy and rising rates. When did you see a red flag . We saw that in the First Quarter of 22. It wouldve been when we started to see a slowdown and because of the increase in Interest Rates with our client base. So tell me what did you do wrong and reflection looking back over the last five years and particularly the last three. What could you have done differently to prevent this from happening . Senator, ive thought about your question especially over the last eight weeks pretty much every day. Its amazing, hindsight we can look at the fastest rate rise thats what im asking you to do. In hindsight, what could you have done differently . We can have the best quarterback in the entire country won a super bowl. He goes back and he dissects film to see when he shouldve stayed in the pocket longer when he shouldve moved here. Everyone does this. Especially the teams that lost. You lost and you lost big. When you dissect that, what could you have done it differently . Senator, i think about the when we were making the decisions. The investments and when our team made those decisions. I do believe that we made the best when we have a minute 19 seconds left. Lets go to it. There is nothing you think you couldnt differently . Senator, if the u. S. For now. Is there anything you couldnt differently . If the team wouldve known as could be the fastest Interest Rate in history, i believe they would consider different positions. You still take no responsibility for any of this . Senator, i was the ceo of Silicon Valley bank. I take responsibility for what ultimately happened. If you take responsibility that it will you give that 1. 5 Million Dollar bonus back . Senator, as i previously said, i will cooperate with the process. Will you do it . You dont have to. Will you do it. Lets say they say no you dont have to give it back. Will you give the back . Because you said you care about your 8000 employees and their families. You say you care about everything you put everyone through. There are ceos and banks all across this country that are having to pay up for your mistake. He said he went to hawaii. Did you have a chance to walk on the beach set on the beach and when you did did you think about what youve done to these people. If so, will you give back the 1. 5 million from your fy 2022 performance . Senator, as i previously said. I committed to cooperate with the process, with the regulators. Other agencies in order to be looking that specific question. I hope even if for whatever reason they say dont have to, i hope that you dig deep and you decide that needs to be somewhere in your pocket. Thank you. Thanks, senator. Brad senator cory test waiting a long time from nevadas next. Thank you, mister chair. Let me continue the line of questioning from senator brit and some of hurt us when we just ask you this. This is from the may 11th 2023 g. A. O. Report. Preliminary review Agency Action related to march 2023 Bank Failures. Lets start with svb. There is the statement and hear that they say that svb had exposure to Interest Rate risks for the investment in a longer term securities to generate yield against deposits. According to the Federal Reserve bank in San Francisco staff and examination documents. The bank did not effectively manage the Interest Rate risk of the securities. Or develop appropriate Risk Management tools for the risk. Federal reserve and former staff noted that the svb bank failed due to ineffective management of its deposits and assets. Mr. Becker, do you agree with that statement . Senator, i think its important as a mission earlier yes or no . Senator, i believe that our team, our team our Treasury Team made the best decisions they could with the information they had at the time. Do you agree with that statement, yes or no . Senator, i go back and just reiterate that the decisions were when were made by our team of people and i believe they made the best decisions they could. So you disagree with that statement . I believe we were responsive to the regulators feedback. I believe our team made the best decision they could. Let me ask you this, mr. Shea. Signature bank had exposure to the pauses from the Digital Assets and mystery. This is according to the g8 report. Obviously officials examination documents. And governance interest Management Practices prevented the bank from adequately managing its Liquidity Risk. Fdic officials noted that poor governance and unsatisfactory Risk Management practices where the root cause of Signature Bank failure. Do you agree with that statement . I cant speak for the regulators. I can only speak for myself as terms of what i think the root cause was. I think the root cause of signature Bank Signature bank. The run on Signature Bank was due to a panic that can i ask, do you disagree with the statement it was poor governance and satisfactory Risk Management practices by eu and others of the bank. Is that correct . I cant speak for the regulators. Im not asking to speak for the regulators. Im asking you to speak for you. Do you think that the management of you and your staff contributed to the failure of the bank . I think the root cause was the panic that took place in a few hours. You disagree . You think it was the banks of . The run on the bank . You think it was the run on the bank that caused the failures. Is that what youre telling me . The run of the. Bank mr. How, do you disagree with the statement here that a lot of the banks failure had to do with the poor governance and unsatisfactory Risk Management practices . I dont believe there was mismanagement of the bank. I do feel that it was unprecedented event that had happened after the seizure of Silicon Valley bank. And the midday on friday march 10th and led to and unprecedented level of withdrawals by depositors that day. All three of you, as you said there today. Do you believe your Bank Failures were caused by the runs on your banks. Is that correct, mr. Becker . Yes, the unprecedented is that correct, mr. Shea . Yes or no. I believe it was caused by the run. Mr. , how do you agree, you think bank failure was caused by the run on your bank . Thats correct. What do you think are the appropriate penalties that should be assessed against executives and Board Members whose Bank Actually failed . Not due to a run on the bank . Mr. Becker . Senator, i believe that answer the question is to be made by this committee and the regulators. If its due to poor management, do you think theres any penalty that should be assessed by the board of directors . Senator, i believe that decision rests with this committee. Mr. Shea, if its due to poor management by its executives, do you think penalties should be assessed . That decision should be assessed by congress and policy makers. Mr. How . Legislation is being discussed now and i have no position on it. Every bank with more than five billion in uninsured deposits will have to bear the cost of the preventable failures of your banks. What do you say to those banks that must pay that special assessment to cover your banks failure, mr. Decker . Senator, i think one of the reasons that were here to testify today is to provide as much information as possible to this committee. And to the regulators. To understand what happened. So that it can be what do you tell those banks that are out there that are having to pay the additional costs. Special assessment to cover your banks failure. Any statement or words to them . Senator, as i mentioned in my both written testimony and oral testimony. I am sorry for the impact that svb has had on clients and including Small Business. Including small banks. Mr. Shea . I dont have a response. I dont know. Mr. Howell . I have no position on. That let me ask you a final question, mr. Becker. If you believe that the run on the failure of your bank was due to a run by individual investors. What was the cause of that run . There were several things that are what i try to describe. It was a series of unprecedented events. It wasnt give me one. What was the cause of the investors to run on take the deposits. Out one of the factors was the language between svb and Silver Gate Bank. That was i believe was not correct. Linking us together. That was the cause of the investors to run your bank . What are the others . I believe it was the underrealized losses that our portfolio. And the belief that we wouldve had the securities. How did they find out about that . Its disclose publicly. By you . Yes. Thank you. Senator loomis of wyoming is walker nuys. Thank, you mister chairman. Thank, you gentlemen for being here. I would call when Signature Bank failed that there was a lot of blame placed on Digital Assets. I want to explore that a little bit. Mr. Shea, you put a lot of emphasis in your testimony your customers in the Digital Asset industry. You mentioned in your testimony assets ten times. Implying that Digital Assets was the driver of Signature Bank to collapse i. Want to explore that a little bit. Did Signature Bank hold Digital Assets . I Signature Bank to not hold any Digital Assets but i want to clarify did shoe trade Digital Assets . No. The point here is you had depositors that were in the digital acid industry, correct . The deposits were in u. S. Dollars. They were in cash. Like any other depositor, correct . All the deposits were in u. S. Dollars. According to the new york defense, deposits from Digital Asset business is in cash, not crypto. Made up about 18 of total deposits prior to your banks collapse. Also according to new york defense outflows on march 10th were relatively proportional. Meaning depositors who had nothing to do with Digital Assets were responsible for the significant majority of withdrawals during the run. Do you agree with that statement . I did not point earlier in the first part of your question to Digital Assets being a particular cause or not. You use the term of ten times during your testimony. And then later in the previous questions from senator cortez masto. Youve placed blame everywhere but accepted absolutely none yourselves. From the fdic, the root cause. This is a quote. The root cause of the Signature Banks failure was poor management. Signature sport of directors and management pursued rapidly unrestrained Growth Without developing and maintaining adequate Risk Management practices and controls. You had regulators. Telling eu that there were inadequate Risk Management controls in your bank. You allowed them to go unaddressed for a very long time. Why is that . The board was making sure that these were addressed. That the board, the bank was actively trying to make progress in the controls. Whatever the controls . It was doing such things as freezing Insurance Brokerage deals. Such as seeking to have repo remains with primary dealers. Such as product of versify its the posit bay. Such as limiting largest deposits. Such as holding high quality shorter term securities. Holding assets that were strong assets. That were strong assets. Continuing to increase doing liquidity stress testing. On a very frequent basis and improving those liquidity stress test models to the best of my knowledge. As was being shown to the regulators. The bank was, for my perspective as chairman of the board, taking f two roles to ameliorate and to address those risks in an active bases. On march 12th, there were requests for withdrawals of about eight billion. There were only about four billion in assets in the bank. Correct . Im not familiar with what those numbers were on friday. There were requests for 18 million in deposit withdrawals. All in the space of a few hours. The cash available to fulfill those withdrawals was inadequate. That morning, my recollection was that the Bank Available in available liquidity from the federal home bank and Federal Reserve plus the cash. I believe that number that he mentioned. I notice that you described in your testimony that mr. How will you described it as profoundly disappointing. Mr. Shea, said it was a devastating day for you. Im sure it was. It also was for your employees and your depositors. I am a proponent of state chartered banks. I am a proponent of digital acid industries. It looks like theres been a lot of deflection of blame. On to those particular depositors that deal in Digital Assets. And on to regulators. You havent accepted any blame yourself. And so i find that this concerning and disappointing. I know youre profoundly disappointed. I can assure you that your depositors are as well. Mister chairman, i yield back. Senator warnock of georgia is recognized. Thank you, mister chairman. Weve seen this movie before. And we have a sense of how bad it can get. Back during the 2000 make races, we all remember that many of the bankers who got us into that mess kept their cushy salaries while families across the country lost their jobs. Lost her homes. Lost everything. I continue to serve my church and work with communities where the poorer and the marginalized. Middle class people are held to higher standards. The missing copayment and their slammed with overdraft fees. Something ive addressed time and time again on this committee. They have threats of having their car repossessed. Their lives turned upside down. Missing one payment. Hardworking families seems to me shouldnt have to bail out the bankers or any executive of any company who made a risky and unnecessary bets that failed. Mr. Becker, what was your or compensation over the last year . Senator, as of proxy for 2022, my compensation was listed there was nine point 9 million. So close to 10 million. Somewhere in that ballpark. If i could clarify one point, senator. 70 of that is tied to long term compensation. Just to clarify that, would be paid out over 3 to 4 years. Not in the corner. Still a lot of money. Yes or no because we have limited time. Do you believe that poorer management of decisionmaking were principal factors in your banks failure. Senator, when i tried to articulate. Yes or no. Do you believe that for management and decisionmaking or principal factors in your banks failures. Yes or no. Senator, i believe is a series of unprecedented events that all came together and the fastest bankrate in history. Did you make any decisions . Senator, they sent a previous question that was asked about looking in hindsight. I truly do believe that with the information we had at the time, we made our decisions. We made the best decisions that we could. Yes or no. Did you consider the consequences of your decisions on a wider Financial System. The number of uninsured deposits you had of your bank. The issues have already been raised here. Did you consider the consequences of our decisions. These ordinary folks im talking about back in georgia who would lose their homes. Lose everything or much smaller lapses. Were just trying to put it together. They dont have the high class problem of 10 million over a few years. Did you consider that when you are making your decisions . Senator, the uninsured depository as you mentioned. That is been consistent at svb for as long as i have been involved in the organization. Do you think its fair for Small Businesses and families to face additional burdens as a result of your failures . Senator, as i mentioned, im sorry for any impact thats happening with clients or employees, shareholders, to include Small Business. I understand that the board sets your pay. You still hold responsibility here. Ive heard your answer to my colleagues this morning. We comply with regulations and legal enforcement. It forced to return compensation. I guess i want to ask a slightly different question. In the wake of your failure, do you think its right for you to keep that money . Senator, thats majority my compensation was in stock. I held five times that level. That was required by the board of directors because i still believe in the institution. On march 10th, that went to zero. The cause i plan to keep it until after i retired. Because thats how much i believed in the institution. You think you should keep the money . The company station . Is that the answer . Senator, the point of making is that i have been impacted by the stock and march 10th, when the stock went to zero. I guess my point here is that it seems to me that as we think about this and we look at weve got to do going forward, we got concerns of ordinary people. People who are trying to make it. Like most americans. From paycheck to paycheck. Those are the folks im thinking about. All be considering as we think about what we do moving forward. Thank you so much. Senator fetterman is recognized from pennsylvania. Thank you, mister chairman. I am also and the last one speaking tonight . The last one. I am the last guy. There is not much left on the bones after over two hours of going back and forth. Ive heard some of my colleagues actually heard that they want to go to hawaii after there was a crash of your bank. I couldnt believe it. I couldnt believe it. I went up on the internet and its like it did happen. It did happen. Thats unfortunate. The Second Biggest Bank in u. S. History collapsed. And chose to go to hawaii on that. Ive never been to hawaii. Neither has my family. I guess i havent and crashed a bank. Given this isnt the last person, i dont have much love to ask. But i will. Let me ask you this one particular question. To everyone here on that. It is its in an insight joke, no matter how incompetent or how greedy the, government will always fill you out when your bank rashes. Everyone has to do that. Everyone has to realize that a matter how bad i behave, no matter how bag my raised is. My bonuses and everything. We will come in and bail it because we cant crash the economy. The way they argued it was gonna crash. Do you believe that its a running joke among in the circles of banking that no matter how bad we behave, we are going to be saved . Take it, anyone. I dont believe thats the case. Really . Every bank we could bail him out. This one crash, will bail them out. So far, everythings been true. Doesnt it feel that and now, if a bank really believe that they wouldnt be bailed out, now after bailing him out, these couple of they are going to. You do believe that that is not outrageous that no matter how deplorable your performances, you are made whole . What do you believe . What if we didnt come out on bail out your bank, what wouldve happened . Senator, i would answer the question two ways. One is i think people mostly talk about what you just said, its talking about shareholders. Our shareholders lost their value. For a client perspective, i believe it was important and advocated for our clients to be protected. I believe the implications wouldve been significant. I think the Ripple Effect that couldve happened in the Banking Industry would been greater than was already there are. I think Small Businesses wouldve been significantly impacted. And so i believe that that was appropriate. Obviously, i was not part of the process and that decision. Is it staggering, is it a staggering responsibility that the head of a bank could literally crash our economy . Its astonishing. Thats like if you have they also realize that now, they have guaranteed way to be saved isnt it appropriate that there is kind of control should be more stricter . To prevent this kind of thing from going . Or should we just go on and start bailing and sailing whoever regardless of power their conduct is . Give you an example. Republicans want to give a work requirement for snap. For a hungry family has to have this kind of penalties or some kinds of requirements. Shouldnt you have a working requirement after we were in preoccupied when snap requirements for work for hungry people. But not about protecting the taxpayers that wont bail them out or whatever it does about a bank that crashes. Sure . Thank, you senator fetterman. Didnt see an eagerness in the panel to answer questions. Ill close the hearing, mr. Becker. Youve claimed pretty much everyone else for svbs failure. As weve heard that from people on both sides of the aisle. The fed, the employees, the board, social media. Hard to believe a 30 year Bank Executives since ceo for 12 years should have needed a roadmap from the regulators to find the obvious problems that needed to be fixed and werent. Both banging sadly suffered from an unwillingness to fix known problems. The hearings certainly prove that. I think we already thought that. I think these feelings will be a warning to regular executives think what the long term and to address problems whether or not the regulators have identified them multiple times. Thank you for the witnesses for your testimony for senators who wish to submit questions for the hearing. Those questions were due one week from today. Tuesday may 22nd. Witnesses please submit your responses to questions for the record. 45 days from the day you receive them. Thank you again for your testimony today. Hearing is adjourned. Today the pensacola lowered austin, secretary of state Anthony Blinken Gina Raimondo testifybout assimilations in asheville security. Live coverage begins at 2 pm on cspan three. You can also watch in our free mobile video app cspan now or online at cspan dot org. App. Washington journal continues. Host we are joined by niall were joined this morning by nile ho