Top Democrats in Congress have called for a federal investigation into the role Goldman Sachs played in the collapse of Silicon Valley Bank, and urged the regulator to examine whether the profits of the investment bank which handled trade of $21bn for SVB should be repossessed.
“Since Goldman Sachs is ready to profit from the failure of SVB, we strongly encourage you to analyze whether Goldman Sachs is operating with ‘arms’ in its role as adviser to SVB,” the lawmakers wrote in a letter on Friday addressed to the US attorney general. Merrick Garland, Chairman of the Securities and Exchange Commission Gary Gensler and Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation.
The letter was led by Adam Schiff, a Democratic congressman from California, and signed by 19 other Democrats representing districts in the state where SVB is headquartered. California Democrats played a key role in last weekend’s crunch talks that led to a package of emergency measures intended to guarantee all SVB deposits and maintain confidence in the banking system.
SVB had turned to Goldman in late February to help it shore up its finances as the bank was about to be downgraded by credit rating agency Moody’s. Goldman drew up plans to raise new cash for the bank, and also agreed to buy part of SVB’s portfolio of Treasuries and other government-backed debt.
SVB said it has sold a portfolio of $21.45bn worth of securities to Goldman “at negotiated prices”, without elaborating, in a disclosure with the SEC. The sale resulted in a $1.8bn loss for SVB.
The two transactions will be handled by separate sections of the bank. It is standard industry practice to wall off different teams.
Goldman and SVB canceled capital increases as the company’s share price fell and news reports about the bank rose. Customers tried to withdraw $42bn in one day, and before the shares could open for trading last Friday, US regulators took over the bank.
The DoJ has launched an investigation into SVB’s collapse, as has the SEC.
The MP wrote in the letter: “We support your efforts to start an investigation and hope that, unlike in 2008, we hold the bank executives accountable by ensuring that they are held accountable – the burden of their actions does not fall on the shoulders of consumers or taxpayers. “
Goldman and the DoJ did not immediately respond to requests for comment. An SEC spokesman said chairman Gensler would respond directly to members of Congress rather than through the media. The FDIC declined to comment.
FDIC has monitored the auction of commercial bank companies and there signaled they are willing to entertain the prospect of backstopping losses in SVB to help seal the deal.
The intervention from Schiff and others came amid a wider scramble on Capitol Hill by lawmakers to respond to SVB’s collapse. Progressive Democrats have seen the bank failure as an opportunity to push for stronger bank regulation, while Republicans have rejected calls for more regulation and accused regulators of failing to do their jobs properly.
Schiff is one of the lawmakers who has introduced legislation to compensate executives at failed banks, including bonuses and gains from stock sales. The White House issued a statement Friday supporting efforts to strengthen penalties for failed bank executives.