Failed bank CEOs face another round of bashing in Congress

 

House failed CEO hearing
Michael Roffler, former chief executive officer of First Republic Bank, testified before the House Financial Services Committee Wednesday. Republicans and Democrats alike excoriated the failed bank CEOs for their mismanagement that led to their banks' failures.
Bloomberg News

WASHINGTON — Former Silicon Valley Bank CEO Greg Becker continued to take heat from both sides of the aisle in his second — and last —  day of congressional testimony. 

Becker was joined by Signature Bank founder Scott Shay and former First Republic CEO Michael Roffler at the hearing, which was hosted by two subcommittees of the House Financial Services Committee. Shay appeared alongside Becker on Tuesday before the Senate Banking Committee, while this was Roffler's first time speaking publicly after First Republic's failure. 

Roffler blamed the collapse of First Republic on a lack of confidence sparked by the failure of Silicon Valley Bank and Signature Bank. 

"While First Republic understood and disclosed the earnings risks we were facing in 2023, we could not have anticipated that Silicon Valley Bank and Signature Bank would fail, or that the failure of those banks would trigger substantial deposit outflows at our bank," he said. "Instead of dealing with temporary decreased earnings due to interest rate pressures, First Republic was contaminated overnight by the contagion that spread from the unprecedented failures of two regional banks." 

Most lawmakers laid most of the blame for the regional banking turmoil on Silicon Valley Bank. But while Becker fielded bipartisan attacks on his compensation, particularly his bonuses, in Tuesday's Senate hearing, Republican lawmakers appeared more interested in questioning the former CEO about Silicon Valley Bank's interactions with the Federal Reserve, particularly the San Francisco Fed. 

"We are not here to defend management at any of the banks that failed or to put anyone on trial for prosecution," said Rep. Andy Barr, R-Ky., the chairman of the financial services subcommittee. "In looking at the recent bank failures and the continued turbulence in our banking system, it is important to acknowledge that the bank failures did not occur in a macroeconomic vacuum." 

Becker, in particular, took the brunt of lawmaker anger. His bank was the first to fail, and the high share of uninsured deposits and lack of hedging against interest rate risk took heavy criticism from lawmakers.

"Such poor mismanagement, so reckless," said Rep. Ann Wagner, R-Mo. "I'm just disgusted." 

The ire came from both sides of the aisle. 

"I think you're going to go down in history as absolutely being the most irresponsible leader of a bank in the history of this country," said Rep. David Scott, D-Ga., to Becker. 

Roffler said that the federal government should consider changes to the deposit insurance system. He, along with Shay, spoke about the days following the failure of Silicon Valley Bank, where they tried to calm panicked investors who they said wanted to pull their money and put it in "too big to fail" banks. 

The Federal Deposit Insurance Corp., has released a report suggesting that Congress look at expanding deposit insurance in some instances, but the measure would require both sides of Congress to come together on the issue — a far-fetched wish in the midst of a deeply entrenched partisan divide. 

Roffler said that changes to the deposit insurance system could help "calm the waters." 

"At the end of the day, when the panic sets in, it's really hard to regain confidence," Roffler said.

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