Silicon Valley Bank former CEO Greg Becker blamed the bank’s failure on an unprecedented bank run following rumors about the bank and the Federal Reserve’s interest rate hikes.
In a May 16 testimony before the US Senate Banking Committee, the former bank executive claimed that social media fueled the bank run — adding that no financial institution could survive a similar situation.
Ex-SVB CEO blames Fed Reserves interest hikes
Becker pointed fingers at last year’s Federal Reserve’s interest rate hike. He described the interest hike as “the steepest rate increase over a 12-month period in almost 40 years.”
The bank chief added that the financial regulator’s “messaging” of “transitory” inflation lured the bank into investing its securities portfolios in the “low-yield environment created by the Federal Reserve.”
While admitting the high rate affected the value of some of SVB’s securities portfolio, he claimed that the bank still had government-backed securities and could have borrowed against them.
“The increase in interest rates resulted in a decline in the fair value of SVB’s securities portfolio—which was disclosed in our securities filings—those government-backed securities remained safe, and we expected that SVB could borrow against them.”
Rumors, misconceptions fuelled bank run
However, he noted that the rumors and misconceptions surfacing online that compared SVB to Silvergate Bank — including a Financial Times article — triggered the bank’s collapse.
“SVB had been compared to Silvergate in a Financial Times article published on February 21, which provided negative commentary regarding Silvergate and SVB’s securities portfolios. Silvergate’s failure and the link to SVB caused rumors and misconceptions to spread quickly online, leading to the start of what would become an unprecedented bank run.”
According to his testimony, the bank customers withdrew $42 billion in deposits within 10 hours on March 9, and another $100 billion in deposits were requested to be withdrawn on March 10. Becker said this accounts for about 80% of the bank’s deposits.
“I do not believe that any bank could survive a bank run of that velocity and magnitude, which was ‘far beyond historical precedents.”
Meanwhile, Becker’s claims contradict those of the authorities. According to the regulators, SVB failed because of its mismanagement by the leadership team, the failure of Feds supervisors to address issues on time, and regulatory changes from the past administration.