Top Democrat accuses US regulators of allowing SVB to ‘grow too big, too fast’

A top Democrat has accused US regulators of allowing Silicon Valley Bank and Signature Bank to “grow too big, too fast”, drawing parallels between the lenders’ collapse and the 2008 financial crisis in a congressional hearing on Tuesday.

Sherrod Brown, the Democrat who chairs the powerful Senate banking committee, said: “We’re left with many questions — and a lot of justified anger — towards bank executives and boards, venture capitalists, federal and state bank regulators, and policymakers.”

The senator added: “The officials sitting before us today know that their predecessors rolled back protections — like capital and liquidity standards, stress tests, brokered deposit limits and even basic supervision. They greenlighted these banks to grow too big, too fast.”

The opening remarks kicked off hours of questioning from the Senate Banking Committee directed at senior officials from the US Treasury, Federal Reserve and Federal Deposit Insurance Corporation.

Michael Barr, the Fed’s top official on banking supervision, appeared alongside Martin Gruenberg, chair of the FDIC, and Nellie Liang, under-secretary for domestic finance at the Treasury.

The House financial services committee will hold a second hearing on Wednesday with the same panellists.

The grilling comes as the collapse of SVB and Signature Bank has sparked a flurry of debate on Capitol Hill over whether new laws are needed to shore up the banking system or punish the executives of the failed lenders. This week’s hearings are likely to be the first in a series of similar events relating to the banks’ collapse.

Last week, Brown and Tim Scott, the Senate banking committee’s top Republican, sent letters to Gregory Becker, the former chief executive of SVB, and Joseph DePaolo, the former chief executive of Signature Bank, calling on them to testify.

Republicans are expected to have tough questions for Fed and Treasury officials during Tuesday’s hearing. A spokesperson for Scott said he would use his time to “focus on the Federal Reserve’s failure to take appropriate supervisory actions to mitigate and prevent the collapse of SVB” and “urge greater transparency surrounding the FDIC’s auction process”.

The FDIC announced on Monday that First Citizens Bank would take on all of SVB’s deposits and loans. Last week, a similar takeover was announced for Signature Bank, whose operations were sold to Flagstar, which is owned by New York Community Bank.

In his opening remarks, Barr blamed the collapse of SVB on a “textbook case of mismanagement”. He criticised the bank’s “concentrated business model” and proposed a possible tightening of banking rules to avoid similar bank failures in future.