US Senator Elizabeth Warren has criticized SVB and Signature executives for maintaining compensation. The top management of the banks made $60 million by ignoring the risks. Warren wants to restore stricter regulations for smaller banks.
US Senator Elizabeth Warren wants to recover bonuses paid to bank executives whose mismanagement of risk allegedly caused the recent banking crisis.
Warren asked the bank executives if they would return the $60 million they earned after implementing weaker controls. She said it was wrong for others to pay for risky activities that executives used to enrich themselves.
Warren: Executives Ignored Risks to Win $60 Million
Silicon Valley Bank executive Gregory W. Becker reportedly made $40 million after Congress allowed the bank to take on more risk.
In addition, the bank ignored 17 warnings from the Federal Reserve (Fed) addressing liquidity risk management, weak governance and capital planning while Becker allegedly enriched himself. Becker confirmed that he has earned $40 million since 2019.
Warren also asked former Signature Bank president Scott Shay, a cryptocurrency friend, if he would return the $20 million he earned while ignoring liquidity problems that resulted in a $2.5 billion bailout of the Federal Corporation of Deposit Insurance (FDIC). Shay said he did not plan to return the funds.
Senator Lummis also accused Shay of shifting blame onto regulators and digital asset depositors for the bank’s liquidity crisis in March. Depositors withdrew money from Silicon Valley Bank and Signature Bank after cryptocurrency flagship Silvergate Bank closed its doors. Both banks sold securities at significant losses to create liquidity for withdrawals. Later, the FDIC stepped in to insure the deposits.
The crashes shook confidence in the US banking system and sent jitters through crypto platforms. Circle’s USDC stablecoin lost its peg after it disclosed frozen deposits at SVB. Investment platforms MaiCapital and Digital Asset Capital Management were forced to bring in offshore banking partners.
Politicians Launch Projects to Enforce Strict Rules
Several politicians, including Warren, attribute the failures to relaxed capital and liquidity requirements for smaller banks. In 2019, 50 Republican and 17 Democratic senators voted to repeal certain aspects of the Dodd-Frank Act, allowing smaller banks to take on more risk.
According to Warren, Becker aggressively lobbied Congress to repeal elements of the Dodd-Frank Act and allow Silicon Valley Bank to take on more risk. Consequently, Massachusetts Senator and US Representative Katie Porter introduced a new bill to restore stricter regulations.
The new Safe and Viable Banking Act would force banks with $50 billion or more in assets to come under the supervision of the Federal Reserve and comply with Dodd-Frank stress tests. Warren confirmed that she and three other lawmakers have also introduced a bill to limit “crazy paychecks.”
US Representative Andy Barr argues that low long-term interest rates and excessive government spending fueled the inflation that led to the collapse. Barr told Fox Business on March 14 the following:
“The underlying causes [were] basic fiscal and monetary policy errors and a failure, not because of a lack of regulation, but because of inadequate banking supervision. Regulators need to do some soul-searching about the extracurricular political errands they find themselves in rather than basic supervision of banks.”
Warren’s bill will likely face opposition from House Republicans and intentional prolongation of the bill’s debate by Senate Republicans.
By Audy Castaneda