Financial regulators closed the bank, popular among tech firms and startups, after a run on deposits last week, followed by another regional bank, New York-based Signature Bank, on Sunday.
The twin failures have sent shock waves through investment markets and Congress as the banking sector grapples with its first major panic since the 2008 financial crisis. After the Great Recession, lawmakers tightened rules on asset-to-equity ratios and imposed strict limits on the rates financial institutions could make with depositors’ dollars.
But in 2018, the Republican-controlled Congress, the heads of financial institutions and Federal Reserve Chairman Jerome H. Powell’s chorus eased many of the laws he supported.
Powell said the Fed will conduct its own investigation into the SVB failure. Sen. Elizabeth Warren (D-Mass.) said Tuesday that Powell should recuse himself from the investigation, citing the Fed chairman’s support for a 2018 deregulation rollback.
“The actions of Fed Chairman Powell directly contributed to the failure of these banks,” Warren said in a statement on Tuesday.
SVB Executive Director Greg Becker was among those urging lawmakers to roll back Wall Street regulations. In late February, when his bank’s stock price began to fall, a trust he controlled sold $3.6 million in SVB shares, according to SEC filings.
A Justice Department spokesman declined to comment. A spokeswoman for the SEC raised questions Sunday about a statement from Chairman Gary Gensler, who said his agency is focused on “detecting and prosecuting any violations that threaten investors, capital formation or the markets more broadly.”
The people describing the nascent investigations did not specify what types of evidence they are looking for. But after the collapse of a major firm, it’s common for investigators to look for signs that company officials misled investors or that executives acted on their own to avoid financial losses.
The Wall Street Journal first reported the investigation on Tuesday.
An SVB investor filed a civil lawsuit against the bank’s parent company on Monday, alleging it violated shareholder rights by failing to disclose its exposure to Federal Reserve interest rate hikes that have overexposed the technology sector. The complaint, which seeks class action status, names Becker and SVB Chief Financial Officer Daniel Beck as defendants.
On Sunday, the Biden administration said the Federal Deposit Insurance Corporation would freeze all deposits, regardless of size, held by SVB and Signature Bank, which have invested heavily in cryptocurrencies and digital assets.
The announcement calmed investors as shares in regional banks regained some of the value they lost a day earlier, ahead of a broader market rally on Tuesday. The KBW Nasdaq regional banking index rose 2.1 percent on Tuesday, but it was down more than 5 percent for the week.
First Republic Bank of San Francisco, which says it has no direct ties to the failed banks, rose about 27 percent on Tuesday after gaining 54 percent on Monday. Utah-based Zions Bancorp rose a more modest 4.5 percent on Tuesday, while Dallas-based Comerica rose 4 percent.
Tuesday’s bounce eased fears that Monday’s market turmoil could turn into something akin to the 2007-2008 financial crisis, when several “fail-safe” financial institutions saw their losses spread from one to another. an opaque, interconnected series of investments.
This time, SVB’s problems appear to be as unique as the bank itself timely purchase of the simplest and safest asset, US Treasury bonds.
The Fed’s interest rate tightening has created a liquidity crunch among tech companies and start-up firms, leading them Withdrawal on deposits made with SVB. But the bank has been hoarding most of its cash in Treasury bonds, which have fallen in value due to high yields. the notes have entered the market.
As the rate of deposit withdrawal increased, SVB could not keep up with the demand, which led to its collapse.
The company’s new CEO, Timothy J. Mayopoulos on Tuesday asked customers to continue doing business with the bank as it uses emergency funds provided by federal officials to bail out depositors.
“The first thing you can do to support the future of this institution is to help us rebuild our deposit base by leaving deposits with Silicon Valley Bridge Bank and returning the remaining deposits over the last few days,” Mayopoulos said. After being taken over by the federal government in 2008, the mortgage lender known as Fannie Mae joined the executive team of the Federal National Mortgage Association.
Julian Mark, Tony Romm, Jeff Stein, and David J. Lynch contributed to this report.
