The heads of Silicon Valley Bank and First Republic Bank tried to influence the US government to take a softer regulatory approach to the financial sector in the months before last week’s crisis in the financial sector, as lawmakers questioned whether the new regulatory easing was creating bank failures. more likely.
On January 23, First Republic CEO Mike Roffler sent a letter to the Federal Reserve and the Federal Deposit Insurance Company opposing a proposal to require smaller lenders to follow the same rules as systemically important banks, reports said. Information. (U.S. regulators have yet to implement the proposal.)
In the letter, Roffler wrote “these requirements should only apply to large and interconnected financial institutions whose failure could pose a systemic risk to US financial stability”
First Republic Bank “does not present similar, if any, financial stability risks,” Roffler wrote.
Roffler’s view in January was proven wrong after the collapse of Silicon Valley Bank. Shares in First Republic Bank crashed on Friday, the first day of trading after the Federal Reserve stepped in to protect Silicon Valley Bank depositors in full. Then, on Wednesday, both S&P Global Ratings and Fitch Ratings cut First Republic Bank to junk status, citing risks of deposit outflows and loss of liquidity.
On Thursday, eleven major banks, including JPMorgan, Citigroup, and Bank of America, agreed to deposit $30 billion into First Republic Bank. The banks pledged to keep the money there for at least 120 days, Bloomberg reports, either saving First Republic Bank or giving it time to pursue other options.
First Republic Bank said the $30 billion cash infusion “reflects the ongoing quality of our business, and a vote of confidence in First Republic and the entire US banking system” in a statement.
Shares in First Republic Bank fell 17% in after-market trading on Friday. The bank’s stock is now down about 64% for the week.
First Republic Bank did not immediately respond to a request for comment.
Silicon Valley Bank
Greg Becker, the former CEO of the now-collapsed Silicon Valley Bank, also participated in efforts to lobby the government in writing financial industry regulations.
Becker is part of the leadership of two lobbying organizations representing the technology sector, is the chairman of TechNet until January 2023, and is also on the executive board of the Silicon Valley Leadership Group, CNBC reported.
TechNet is a national network of leading technology CEOs, while the Silicon Valley Leadership Group focuses on policy in Silicon Valley.
According to CNBC, TechNet focused on a specific section of the Dodd-Frank Act that requires financial institutions to make transaction data and other financial information available to consumers. The Consumer Financial Protection Bureau is still in the process of writing the regulations.
Neither TechNet nor the Silicon Valley Leadership Group immediately responded fortunerequest for comment.
A Technet spokesperson told CNBC that the group’s lobbying on Dodd-Frank is a “consumer data privacy issue related to the announcement of the CFPB’s proposed rulemaking on data privacy, one of the industry’s top policy issues,” while the spokesperson from the Silicon Valley Leadership Group confirmed to CNBC that SVB executives are part of the 2017 delegation to advocate for a reduction in corporate tax rates.
Becker has long called for less oversight of smaller banks like Silicon Valley Bank. In 2015, Becker asked the US to raise the threshold for considering banks to be systemically important and thus subject to stricter capital requirements. The threshold is too “tight on our ability to provide credit to our clients,” Congress said in 2015.
The US raised the threshold in 2018, from $50 billion to $250 billion. Silicon Valley Bank grew to have $209 billion in assets by the end of 2022, according to the FDIC.
Last Friday, the FDIC took over Silicon Valley Bank after the bank run, spurred by the company’s recognition that it needs to raise capital, both by selling bonds at a loss and planning to sell shares. On Sunday, the US government announced that it has seized Signature Bank of New York, and will fully protect its depositors and SVB.
Some US lawmakers have blamed banking leaders for undermining financial regulations and causing the current crisis. The opinion piece is for New York Times, Sen. Elizabeth Warren (D-Mass.) argued that banking executives “spend millions to try to defeat it, and, when they lose, spend millions more to destroy it.”
“If Congress and the Federal Reserve do not withdraw stricter oversight, SVB and Signature will be subject to stronger liquidity and capital requirements to withstand financial shocks,” Warren wrote.