FDIC Is Probing Management’s Conduct in SVB, Signature Bank Failures

FDIC Is Probing Management’s Conduct in SVB, Signature Bank Failures
© Bloomberg. Silicon Valley Bank headquarters in Santa Clara, California. Photographer: Philip Pacheco/Bloomberg

(Bloomberg) — A top US banking regulator has launched investigations into managers’ conduct in the Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) failures.

“It is worth noting that these two institutions were allowed to fail,” Martin Gruenberg, chairman of the Federal Deposit Insurance Corp., said in prepared remarks for a Senate Banking Committee hearing on Tuesday. “Shareholders lost their investment. Unsecured creditors took losses. The boards and the most senior executives were removed.”

Both Gruenberg and Michael Barr, the Federal Reserve’s vice chairman for supervision, came out swinging hard against bank managers before the hearing.

Barr, who’s leading a Fed review of what led to Silicon Valley Bank’s collapse, called the lender’s collapse a “textbook case of mismanagement.” He pointed a concentrated business model catering to tech and venture-capital firms, a failure to manage the risks of its liabilities, and its significant asset and deposit growth.

“The bank invested the proceeds of these deposits in longer-term securities, to boost yield and increase its profits,” he said in his prepared remarks. “However, the bank did not effectively manage the interest rate risk of those securities or develop effective interest rate risk measurement tools, models, and metrics.”

Barr said SVB waited too long to tackle its issues, and when it did, “ironically, the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank’s failure.”

The FDIC stepped in and took control of the two lenders earlier this month as depositors yanked money from the two lenders.

Gruenberg said the FDIC can probe and hold accountable the directors, officers, professional service providers and “other institution-affiliated parties” for losses tied to the banks, as well as any misconduct in the management of the banks.

“The FDIC has already commenced these investigations,” he said.


(Adds Barr comments and details starting in third paragraph.)

Source: Bloomberg