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“A million dollars a second”: this is how the head of Silicon Valley Bank lived the flight of deposits

“To begin with, I want to make it clear that I never imagined myself or SVB in this situation.” The appearance of the former CEO of Silicon Valley Bank, Gregory Becker, scheduled for this Tuesday in the banking committee of the United States Senate has something of an act of contrition, but above all it seems a lament and a manifestation of impotence. Becker points to the rise in interest rates as the root of the bank’s problems, the closure of Silvergate Bank as the trigger and the flight of deposits as the cause of the fall. An unprecedented leak: “A million dollars a second,” according to Becker.

The Federal Reserve singled out Silicon Valley Bank (SVB) as “a textbook case of mismanagement.” However, the central bank also admitted its own supervisory errors and the extraordinary and unforeseeable nature of the flight of deposits that brought down the entity.

In the text of Becker’s initial intervention sent in advance to the Senate, the former executive notes: “I was an employee of SVB for almost 30 years and CEO of SVB for the last 12 years, until I was intervened by the FDIC [la Corporación federal de Seguro de Depósitos]. I believed in SVB and its mission, and I cared deeply for our more than 8,000 employees and their families. He was committed to serving our clients and helping them succeed, whether they were big-name tech companies or small business founders with innovative ideas in cities across the country. I am heartbroken for our employees and customers, who have faced uncertainty and hardship throughout these events.”

After that, however, the Federal Reserve approved the most aggressive interest rate hikes since the 1980s, realizing that it had been wrong in its diagnosis. SVB suffered latent losses on its fixed-income portfolio, like many other financial firms, as rising rates detracted from bonds issued earlier at lower rates.

After pointing to the Federal Reserve, he also points to another player in the financial tragedy: Goldman Sachs. “On the advice of Goldman Sachs, we decided to sell our available-for-sale portfolio in order to realize those losses and explain to the market why we were raising capital, given that SVB’s financials were otherwise healthy. SVB had sufficient liquidity and was adequately capitalized on March 8 [el día en que puso en marcha esa operación por consejo de Goldman Sachs]as their Federal Reserve supervisory teams had previously recognized,” Becker says.

But everything that could go wrong did go wrong. That same day, March 8, Silvergate Bank announced its intention to voluntarily dissolve and liquidate, and that almost 100% cryptocurrency-focused bank suffered a deposit run. Although SVB only had around 3% of its deposits coming from cryptocurrency clients, it had been compared to Silvergate in an article by the Financial Times published on February 21, Becker explains.

“Silvergate’s failure and the link to SVB caused rumors and misconceptions to spread rapidly across the internet, leading to the start of what would become an unprecedented run on deposits. The next day, the bank run gained momentum. At the end of the day, on March 9, $42 billion in deposits were withdrawn from SVB in 10 hours, or approximately $1 million every second,” says the former head of the entity.

To put the unprecedented speed of this bank run into context, Becker explains, the previous largest deposit run in US history, that of Washington Mutual in 2008, was $19 billion in deposits in 16 days. “I don’t think any bank could survive a bank run of that speed and magnitude, which went ‘way beyond historical precedent,’” says Becker, paraphrasing the Federal Reserve.

Becker was fired on March 12. The report of the one who takes that appointment, published by the central bank at the end of April, will also be presented this Tuesday in Congress by the Vice President of Supervision of the Federal Reserve, Michael Barr.

Barr will insist before the congressmen on the need to improve and strengthen the supervision of banks. And he will make his own act of contrition: “Recent events show that we as regulators need to do better. We have to guarantee strong supervision and regulation so that the financial system is safer and fairer, in support of an economy that meets the needs of households and companies, ”he will say according to the intervention advanced by the Federal Reserve.

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