SVB, First Republic CEOs lobbied rules pre-bank crisis
The heads of both Silicon Valley Bank and First Republic Bank tried to influence the U.S. government to take a softer regulatory approach to the financial sector in the months prior to last week’s crisis in the financial sector, as lawmakers ask whether recent regulatory easing made bank failures more likely.
On Jan. 23, First Republic CEO Mike Roffler sent a letter to both the Federal Reserve and the Federal Deposit Insurance Company against a proposal to require smaller lenders to follow similar rules as systemically important banks, reports The Information. (U.S. regulators have yet to implement the proposal.)
In his letter, Roffler wrote “such requirements should only be applied to large, interconnected financial institutions whose failure could pose systemic risk to the financial stability of the U.S.”
First Republic Bank did “not pose the same, if any, financial stability risk,” Roffler wrote.
Roffler’s view in January proved incorrect after the collapse of Silicon Valley Bank. Shares in First Republic Bank crashed on Monday, the first day of trading after the Federal Reserve stepped in to protect Silicon Valley Bank’s depositors in full. Then, on Wednesday, both S&P Global Ratings and Fitch Ratings cut First Republic Bank to junk status, citing the risk of deposit outflows and a loss of liquidity.
On Thursday, eleven large 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, reports Bloomberg, 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 is a vote of confidence for First Republic and the entire U.S. banking system” in a statement.
Shares in First Republic Bank fell 17% in after-market trading on Thursday. The bank’s shares are now down around 64% for the week.
First Republic Bank did not immediately respond to a request for comment.
Silicon Valley Bank
Greg Becker, former CEO of the now-collapsed Silicon Valley Bank, was also involved in efforts to lobby the government on the writing of financial industry regulations.
Becker was part of the leadership of two lobbying organizations representing the tech sector, serving as the chairman of TechNet until January 2023, and also sat on the executive board of the Silicon Valley Leadership Group, reports CNBC.
TechNet is a national network of major tech CEOs, while the Silicon Valley Leadership Group focuses on policy in Silicon Valley.
According to CNBC, TechNet focused its attention on a particular section of the Dodd-Frank Act that would require financial institutions to make transaction data and other financial information to consumers. The Consumer Financial Protection Bureau is still in the process of writing those regulations.
Neither TechNet nor the Silicon Valley Leadership Group immediately responded to Fortune’s requests for comment.
A Technet spokesperson told CNBC that the group’s lobbying on Dodd-Frank was “a consumer data privacy issue related to the announced notice of proposed rulemaking at the CFPB on data privacy, one of the industry’s top policy issues,” while a spokesperson from the Silicon Valley Leadership Group confirmed to CNBC that SVB executives were part of a 2017 delegation to advocate for cutting the corporate tax rate.
Becker had long called for less oversight of relatively smaller banks like Silicon Valley Bank. In 2015, Becker called on the U.S. to lift its threshold for considering a bank to be systemically important and thus subject to stricter capital requirements. Too-low thresholds “stifle our ability to provide credit to our clients,” he told Congress in 2015.
The U.S. lifted the threshold in 2018, from $50 billion to $250 billion. Silicon Valley Bank grew to have $209 billion in assets at the end of 2022, according to the FDIC.
Last Friday, the FDIC took over Silicon Valley Bank following a bank run, spurred by the company’s admission that it needed to raise capital, both by selling bonds at a loss and planning a share sale. On Sunday, the U.S. government announced it had taken over Signature Bank of New York, and would protect both its and SVB’s depositors in full.
Some U.S. lawmakers are already blaming banking leaders for weakening financial regulations and thus spurring the current crisis. In a Monday opinion piece for the New York Times, Senator Elizabeth Warren (D-Mass.) argued that banking executives “spent millions trying to defeat it, and, when they lost, spent millions more trying to weaken it.”
“Had Congress and the Federal Reserve not rolled back the stricter oversight, SVB and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks,” Warren wrote.