President Joe Biden asked Congress on Friday to pass legislation giving financial regulators broad new powers to claw back ill-gotten gains from the executives of failed banks and impose fines for failures.
The proposal, a response to the federal rescue last week of depositors at Silicon Valley Bank and Signature Bank of New York on Sunday, also seeks to bar executives at failed banks from taking other jobs in the financial industry.
The measures contained in Biden’s plan are meant to build on existing regulatory powers held by the Federal Deposit Insurance Corp. Administration officials were still weighing Friday whether to ask Congress for further changes to financial regulation in the days to come.
“I’m firmly committed to accountability for those responsible for this mess. No one is above the law — and strengthening accountability is an important deterrent to prevent mismanagement in the future,” Biden said in a statement Friday. “Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing.”
Currently the FDIC can take back the compensation of executives only at the largest banks in the nation, and other penalties on executives require “recklessness” or acting with “willful or continuing disregard” for their bank’s health. Biden wants Congress to allow the regulator to impose penalties for “negligent” executives — a lower legal threshold.
The White House also highlighted reports that Silicon Valley Bank CEO Gregory Becker sold $3 million worth of shares in the bank in the days before its collapse, saying Biden wants the FDIC to have the authority to go after that compensation.
The March 10 shuttering of Silicon Valley Bank and of New York’s Signature Bank two days later has revived bad memories of the 2008 financial crisis that plunged the United States into a recession.
On Sunday, the federal government, determined to restore public confidence in the banking system, moved to protect all the banks’ deposits, even those that exceeded the FDIC’s $250,000 limit per individual account.
The Federal Reserve said cash-short banks have borrowed about $300 billion in emergency funding from the central bank in the past week. Nearly half the money — $143 billion — went to holding companies for Silicon Valley Bank and Signature Bank of New York.
An additional $148 billion in lending was provided through a long-standing program called the “discount window,” and amounted to a record level for that program.
As Biden moves to strengthen federal authority on failed banks and their executives, Silicon Valley Bank’s former parent company filed for bankruptcy.
SVB Financial Group listed assets and liabilities of as much as $10 billion each in a Chapter 11 petition filed in New York. Broker-dealer SVB Securities and venture capital arm SVB Capital aren’t included in the filing, according to a statement.
Because Silicon Valley Bank was a California-chartered commercial bank and part of the Federal Reserve system, it is not eligible for bankruptcy and instead landed in FDIC receivership.
Its former parent, however, is eligible to file to protect its remaining assets and work on repaying creditors, including bondholders.
After the receivership, SVB Financial is no longer affiliated with Silicon Valley Bank or its private banking and wealth management business, SVB Private, the company said.
SVB Financial “believes” it has about $2.2 billion of liquidity and counts its equity in SVB Capital and SVB Securities among its assets, according to the statement. It owes bondholders about $3.3 billion.
Centerview Partners is helping SVB Financial evaluate strategic alternatives for SVB Capital and SVB Securities. The process has garnered significant interest, and any sale will require bankruptcy court approval, according to the statement.
Santa Clara, Calif.-based Silicon Valley Bank reported about $209 billion in total assets at the end of 2022, the FDIC said. It’s also the second-largest bank to fall under the agency’s receivership, behind only Washington Mutual Inc., which imploded in 2008.
Concern in tech circles swelled last week after Peter Thiel’s Founders Fund and other high-profile venture capital firms advised their portfolio companies to pull money from Silicon Valley Bank. That advice came a day after parent SVB Financial announced it will try to raise more than $2 billion after a significant loss on its portfolio.
Silicon Valley Bank was founded in 1983 over a poker game between Bill Biggerstaff and Robert Medearis, according to a statement from the bank’s 20th anniversary. The firm specialized in providing financial services to tech startups.
SVB Financial held about $2.3 billion of cash, $500 million of investment securities and $475 million of other assets as of Dec. 31, according to regulatory filings.
America’s smallest lenders are seeing an increase in deposits after the bank failures dented confidence in the stability of the overall sector.
Jill Castilla, president of Citizens Bank of Edmond in Oklahoma, said her firm saw about a 2% bump in consumer deposits and business loans in the past three days. The 120-year-old lender has about $320 million in deposits and more than 85% of that is insured.
“We are very disciplined in our lending and currently have zero nonperforming loans,” she said.
Leaders at community lenders said in interviews they’re not tightening their lending standards — which suggests that, for now, it’s business as usual for local lending. Economists are closely monitoring small and medium-sized financial institutions for potential domino effects on confidence, borrowing and the broader economy.
The roughly 4,750 community banks in the U.S. make up about 60% of all small-business loans and hold nearly $5 trillion in deposits. A deposit flight and tighter loan controls would cut off a vital funding source for small businesses, which employ about half of Americans, and choke off investment.
The largest lenders — which hold the majority of U.S. customer deposits — also saw a boost to cash inflows this week, including JPMorgan Chase and Bank of America.
Information for this article was contributed by Zeke Miller and Christopher Rugaber of The Associated Press; Amelia Pollard, Akayla Gardner, Steven Church and Katia Dmitrieva of Bloomberg News (WPNS); and Jim Tankersley and Emily Flitter of The New York Times.