Senators hammered former executives of recently collapsed Silicon Valley Bank and Signature Bank on Tuesday over their paychecks, sales of stock and bonus payouts as the financial institutions struggled to stay afloat.
The 2.5 hour hearing by the Senate Banking Committee was meant to hold leadership accountable for the mismanagement that led to the banks' failures and the regional banking crisis, but much of the focus centered around CEO compensation.
High payouts, posited lawmakers on both sides of the aisle, made execs greedy. Executives prioritized profit margins and share prices over the fundamental health of their banks, leading to a meltdown in the sector that rippled through the economy.
What's happening: Securities and Exchange Commission filings show that SVB's former chief executive Greg Becker sold more than $2 million in SVB stock in late February and $1.1 million in stock in January, ahead of the bank's failure.
At the time of its collapse, SVB had 31 unresolved supervisory warnings. Still, Becker received a $1.5 million bonus as part of his 2022 compensation package that was worth $10 million in total.
Joseph DePaolo, the former CEO of Signature Bank, received about $8.6 million.
"You were paying out bonuses until literally hours before regulators seized your assets," Sen. Sherrod Brown, chairman of the Senate Banking Committee, told Becker at Tuesday's hearing.
"Workers face consequences, executives ride off into the sunset. Only in corporate boardrooms can you run your business into the ground, take the whole economy along with you and come out ahead. We can't let that happen again," Brown said.
Becker said his cash and stock bonuses were "predetermined" and that he wasn't aware of when they would be paid out.
Regulators have identified major weaknesses in SVB's incentive program, Sen. Bob Menendez said, which, he claimed, encouraged "excessive risk-taking to maximize short-term financial metrics."
"In other words, the incentive structure you and your colleagues put in place rewarded breakneck growth and profitability, while kneecapping efforts to manage growing risks to the firm... Clearly, the compensation structure at your institution was not in line with the long-term interests of your shareholders and deposit holders," Menendez said.
Republicans also homed in on executive pay. Throughout the hearing, they criticized the banks for incentivizing taking risk while failing to hedge against the excess of securities that they held. Around the time of SVB's failure, more than 85% of the bank's capital was invested in securities with maturity of greater than 5 years.
"If you'd bought those hedges [against Treasuries purchased by the bank], that would have cut into your profits, wouldn't it? If you'd made less money, that would have affected your bonus, wouldn't it?" added Sen. John Kennedy.
Sen. Tim Scott added that the banks' management teams appeared more "focused on chasing profitability than stability." That, he remarked, "sounds like greed."
What's next: Both the Federal Deposit Insurance Corporation and Federal Reserve have the authority to claw some of that pay back and further penalize bank executives. Brown said he is working on a bill to make it easier for them to do so.
Sen. Elizabeth Warren said she was working with Brown on the regulation.
"Right now, the law says that people like Mr. Becker and Mr. [Scott] Shay [the former chairman of Signature Bank] can come to Washington, they can lobby for weaker bank regulations, they can load up their banks with risk, they can pay themselves tens of millions of dollars," she said.
"And when the banks blow up, Mr. Becker and Mr. Shay get to keep all the money. And that is just plain wrong."
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