Silicon Valley Bank chief urged Congress to weaken risk regulations | banking

This story was first published in the lever

Eight years before the second-largest bank failure in American history this week, the bank’s president personally urged Congress to ease its financial institution’s audit, citing the “low-risk profile of our operations and business model,” according to federal records reviewed by federal officials the lever.

Three years later — after the bank had spent more than half a million dollars on federal lobbying — lawmakers complied.

On Friday, California regulators shut down Silicon Valley Bank (SVB), a leading lender to venture capital firms and tech startups, and the Federal Deposit Insurance Corporation took over after a bank run by its customers. The bank reportedly had no chief risk officer in the months leading up to the collapse, while more than 90% of its deposits were not insured.

In 2015, SVB President Greg Becker appeared before a Senate panel to urge lawmakers to exempt more banks — including his own — from new regulations enacted in the wake of the 2008 financial crisis. Despite warnings from some senators, Becker’s lobbying was ultimately successful.

Citing “SVB’s deep understanding of the markets it serves, our strong risk management practices,” Becker argued that his bank would soon reach $50 billion in assets, which the law said would trigger “improved regulatory standards,” including stricter regulations and stress tests and capital requirements for its and other similarly sized banks.

In his testimony, Becker insisted that $250 billion was a more reasonable threshold.

“Without such changes, the SVB will likely need to reallocate significant resources from providing finance to job-creating companies in the innovation economy to complying with improved regulatory standards and other requirements,” said Becker, who reportedly sold 3,000 shares of his own stock within two weeks. Had sold $6 million ahead of the bank’s collapse. “Given the low-risk profile of our operations and business model, such an outcome would limit our ability to provide credit to our customers without meaningful corresponding risk mitigation.”

Two months later, the SVB added former Obama Treasury Department official Mary Miller to its board, noting that she had previously helped oversee “financial regulatory reforms.”

Around that time, federal disclosure documents show the bank was using the legislature for “financial regulatory reform” and the Systemic Risk Designation Improvement Act of 2015 — a bill that was the precursor to legislation that was eventually signed into law by President Donald Trump and the regulatory threshold for increased stress testing to $250 billion.

Trump signed the law into law despite a report by Democrats on the Congressional Joint Economic Affairs Committee that warned that SVB and other banks of their size would “be subject to almost no stricter regulation” under the new law.

The bill was supported in the Senate by 50 Republicans and 17 Democrats, including Virginia Democratic Senator Mark Warner, for whom Becker held a fundraiser at his home in Menlo Park, Calif., in 2016, according to an invitation from the Sunlight Foundation and OpenSecrets . The Bank’s Political Action Committee also donated a total of $10,000 to Warner’s campaigns in the 2016 and 2018 election cycles.

When the Federal Reserve proposed regulations to implement the Deregulation Act in 2019, financial regulators warned that their regulations for Category IV institutions — as SVB was later classified because of their size and other risk factors — were far too weak.

“The proposal to significantly weaken enhanced prudential standards for Category IV entities could be disastrous,” wrote Better Markets, a nonprofit that advocates for tighter financial regulations, in a comment on the Federal Reserve’s proposal. “Furthermore, these are not small or insignificant companies. Keep in mind that the smallest of this class of banks is more than twice the size of the $50 billion banks that automatically required increased prudential regulation under the Dodd-Frank Act as originally enacted.”

The final rule guaranteed that Category IV institutions “are not required to conduct and publicly report the results of an internal stress test” and “reduces the required minimum frequency of liquidity stress testing and the granularity of certain liquidity risk management requirements”. to Federal Reserve officials at the time.

In 2021, SVB surpassed $100 billion in assets under management, triggering an additional review as a Category IV bank, but remained exempt from the more frequent and detailed analysis regulators conduct to determine whether banks with assets of over USD 250 billion have sufficient capital to withstand a crisis.

A press release from the Federal Deposit Insurance Corporation on Friday noted that SVB had $209 billion in assets under management as of December 2022 — falling below the $250 billion threshold the bank had been campaigning for .

SVB is the largest bank to fail since Washington Mutual failed during the 2008 financial crisis and the second largest bank failure in US history.

Prior to Becker’s push in 2015, the SVB had been urging Fed officials to limit regulatory scrutiny of midsize banks, arguing that “we are very concerned that the regulatory requirements for covered entities will eventually trickle down to smaller financial institutions.”

In 2019, Becker was elected to the Board of Directors of the Federal Reserve Bank of San Francisco. Becker left the board on Friday.

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