`[Joint House and Senate Hearing, 118 Congress]
[From the U.S. Government Publishing Office]





                        CONTINUED OVERSIGHT OVER
                         REGIONAL BANK FAILURES

=======================================================================

                             JOINT HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND MONETARY POLICY

                                AND THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________


                              MAY 17, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-23




                 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]



                               ______
                                 

                 U.S. GOVERNMENT PUBLISHING OFFICE

52-935 PDF                WASHINGTON : 2024











                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
    Chairman                         JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director







       Subcommittee on Financial Institutions and Monetary Policy

                     ANDY BARR, Kentucky, Chairman

BILL POSEY, Florida                  BILL FOSTER, Illinois, Ranking 
BLAINE LUETKEMEYER, Missouri             Member
ROGER WILLIAMS, Texas                NYDIA M. VELAZQUEZ, New York
BARRY LOUDERMILK, Georgia, Vice      BRAD SHERMAN, California
    Chairman                         GREGORY W. MEEKS, New York
JOHN ROSE, Tennessee,                DAVID SCOTT, Georgia
WILLIAM TIMMONS, South Carolina      AL GREEN, Texas
RALPH NORMAN, South Carolina         JOYCE BEATTY, Ohio
SCOTT FITZGERALD, Wisconsin          JUAN VARGAS, California
YOUNG KIM, California                SEAN CASTEN, Illinois
BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee





              Subcommittee on Oversight and Investigations

                   BILL HUIZENGA, Michigan, Chairman

PETE SESSIONS, Texas                 AL GREEN, Texas, Ranking Member
ANN WAGNER, Missouri                 STEVEN HORSFORD, Nevada
ALEXANDER X. MOONEY, West Virginia   RASHIDA TLAIB, Michigan
JOHN ROSE, Tennessee, Vice Chairman  SYLVIA GARCIA, Texas
DAN MEUSER, Pennsylvania             NIKEMA WILLIAMS, Georgia
ANDY OGLES, Tennessee







                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 17, 2023.................................................     1
Appendix:
    May 17, 2023.................................................    87

                               WITNESSES
                        Wednesday, May 17, 2023

Becker, Gregory W., former CEO, Silicon Valley Bank..............     6
Harris, Hon. Adrienne A., Superintendent, New York State 
  Department of Financial Services (DFS).........................    55
Hewlett, Hon. Clothilde V., Commissioner, California Department 
  of Financial Protection and Innovation (DFPI)..................    00
Roffler, Michael J., former CEO and President, First Republic 
  Bank...........................................................     9
Shay, Scott A., Co-Founder and former Chairman of the Board, 
  Signature Bank.................................................     8

                                APPENDIX

Prepared statements:
    Becker, Gregory W............................................    88
    Harris, Hon. Adrienne A......................................   101
    Hewlett, Hon. Clothilde V....................................   116
    Roffler, Michael J...........................................   192
    Shay, Scott A................................................   195

              Additional Material Submitted for the Record

Lynch, Hon. Stephen F.:
    New York Times, ``Federal Reserve Signals a Shift Away from 
      Pandemic Support,'' by Jeanna Smialer, Updated November 3, 
      2021.......................................................   199
Tlaib, Hon. Rashida:
    Chart, ``Timeline of Silicon Valley Bank Failure''...........   202
Harris, Hon. Adrienne A.:
    Written responses to questions for the record from 
      Representative Casten......................................   203
    Written responses to questions for the record from 
      Representative Huizenga....................................   205
    Written responses to questions for the record from 
      Representative Mooney......................................   208
Hewlett, Hon. Clothilde V. :
    Written responses to questions for the record from 
      Representative Huizenga....................................   216
    Written responses to questions for the record from 
      Representative Mooney......................................   217
Shay, Scott A.:
    Written responses to questions for the record from 
      Representative Huizenga....................................   221
    Written responses to questions for the record from 
      Representative Mooney......................................   222







 
                        CONTINUED OVERSIGHT OVER
                         REGIONAL BANK FAILURES

                              ----------                              


                        Wednesday, May 17, 2023

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Monetary Policy,
                             joint with the
                          Subcommittee on Oversight
                                and Investigations,
                            Committee on Financial Services
                                                   Washington, D.C.
    The subcommittees met, pursuant to notice, at 10:01 a.m., 
in room 2128, Rayburn House Office Building, Hon. Andy Barr 
[chairman of the Subcommittee on Financial Institutions and 
Monetary Policy] presiding.
    Members present from the Subcommittee on Financial 
Institutions and Monetary Policy: Representatives Barr, Posey, 
Luetkemeyer, Williams of Texas, Loudermilk, Rose, Timmons, 
Norman, Fitzgerald, Kim, Donalds, De La Cruz, Ogles; Foster, 
Velazquez, Sherman, Meeks, Scott, Green, Beatty, Vargas, 
Casten, and Pressley.
    Members present from the Subcommittee on Oversight and 
Investigations: Huizenga, Sessions, Wagner, Mooney, Rose, 
Meuser, Ogles; Green, Horsford, Tlaib, Garcia, and Williams of 
Georgia
    Ex officio present: Representatives McHenry and Waters.
    Also present: Representatives Lynch and Himes.
    Chairman Barr. The subcommittees will come to order.
    This joint subcommittee hearing is entitled, ``Continued 
Oversight Over Regional Bank Failures.''
    Without objection, the Chair is authorized to declare a 
recess of the subcommittees at any time.
    With that, I now recognize myself for 4 minutes for an 
opening statement.
    Today's hearing will help the Financial Services Committee 
learn more about recent bank failures, including management 
missteps, supervisory failures, and rapid-fire bank runs in the 
age of social media. I thank our witnesses for testifying 
today.
    The recent banking crisis was fueled by failed bank 
management, lack of hedges against interest rate risks, failed 
monetary policy, failed supervision, and overspending by the 
Biden Administration and Democrats that led to historic 
inflation, prompting increased monetary policy action. Today, 
we will hear about what went wrong from the bank management 
themselves and State regulators. This is important as the 
committee is still waiting to get information from Federal 
regulators about what happened.
    Information has been provided to the Government 
Accountability Office (GAO) but has not found its way from 
Federal regulators and Treasury to this committee. Instead, the 
Federal Reserve, the FDIC, and State regulators all decided to 
do their own self-assessments of the recent bank and 
supervisory failures and hastily put out public-facing 
narratives before independent assessments could be made.
    Today's hearing will help fill in some of the gaps that 
remain, given the lack of transparency and accountability from 
Federal regulators. To improve matters, I put forward five 
bills to increase transparency and accountability of Federal 
regulators and their actions, especially when emergency 
measures are employed.
    We are not here to defend the management at any of the 
banks that failed, or to put anyone on trial. In looking at the 
recent bank failures and the continued turbulence in our 
banking system, it is important to acknowledge that the bank 
failures did not occur in a macroeconomic vacuum. We have seen 
runaway inflation that was fueled by the reckless, nearly $2-
trillion American Rescue Plan in March of 2021, when personal 
saving economy-wide was already at an astounding $5.7 trillion.
    Inflation continues to hammer American families and the 
Federal Reserve was late to respond. Because the Federal 
Reserve failed to tighten monetary policy in a timely manner, 
interest rates were boosted at the fastest pace in modern 
history. That rapid monetary policy shock injected increased 
interest rate risks into the economy in general and banks' 
balance sheets in particular.
    Federal regulators and supervisors were again late in 
responding. They were late to even recognize that rapidly-
growing interest rate risks called for increased supervisory 
vigilance and prompt corrective attention to banks that faced 
the largest risks. Reading the hasty review of the regulators, 
banks that failed had mismanaged risks, were inattentive to 
risk management gaps that supervisors and examiners had 
identified, and sometimes were not adequately responsive or 
timely in making necessary remediations.
    According to their narratives, regulators faced staffing 
issues and maybe could have been more forceful in working to 
get timelier remediations. Yet, some possibly important issues 
were brushed aside by the regulators' reviews. Prior to the 
bank failures, there were years of working from home and 
virtually rather than in-person bank examinations because of 
COVID restrictions.
    That fact, however, received only a few sentences in the 
Fed's report on Silicon Valley Bank (SVB), identifying only 
the, ``COVID-19 examination pause.'' A search of the FDIC 
review of Signature Bank for the word, ``COVID,'' provides only 
one instance. It seems that that factor, and many others, were 
glossed over, and the regulators' reviews deserve more 
scrutiny.
    Hastily-produced reviews by regulators coordinated for 
public release at around the same date calls into question the 
extent to which narrative setting, rather than establishment of 
actual facts, was the motive for the reviews and public 
reports. Those reviews were led by individuals for the FDIC and 
the Fed and not for the full Boards, so they provide only one 
limited side of the story. I welcome the views and information 
that we will hear today, especially considering the lack of 
transparency and accountability from our Federal regulators.
    I now recognize the ranking member of the Subcommittee on 
Financial Institutions and Monetary Policy, the gentleman from 
Illinois, Mr. Foster, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman, and thank you to our 
witnesses for appearing here.
    My career in Congress and on this committee began in March 
of 2008, which was an interesting time to be a new member of 
the Financial Services Committee. We spent my first 3 years on 
this committee: first, dealing with the emergency response to 
the financial crisis; second, identifying the parts which were 
broken and the parts which weren't, and deciding what had to be 
repaired; and third, with the regulatory response, the Dodd-
Frank Act that basically, until a couple of months ago, had a 
pretty good record of preventing large-scale bank failures and 
financial crises.
    The financial crisis that we are dealing with here is 
orders of magnitude smaller than what we dealt with in 2008, 
and we should keep that clearly in mind. But when a machine 
breaks, we have to identify whether it broke due to a design 
flaw or a manufacturing flaw, did all the parts work as 
designed, or was it simply subject to unanticipated conditions 
that are outside its design specifications and warranty? So, a 
lot of what this hearing today is about, is we have in front of 
us some of the key components in trying to keep a bank from 
failing, and we want to understand a little bit more about the 
details of what happened there.
    And we also have to look at the changes that have been made 
externally to the banking system, having to do with the 
presence of the internet and communication. And if people are 
terrified now about the speed at which banking runs can happen, 
imagine what will happen in a few years when everyone is using 
their ChatGPT money manager, which will be programmed to pull 
your money out the moment a banking run is detected in our 
system and how much capital and liquidity do you have to hold 
against that sort of environment.
    So the environment is changing, but our first step here is 
we have to understand whether everyone played their roles as 
appropriate to the rules that were in place a few months ago 
and in the previous couple of years. So, I look forward to this 
hearing. Thank you. I yield back.
    Chairman Barr. The gentleman yields back. I now recognize 
the Chair of the Oversight and Investigations Subcommittee, Mr. 
Huizenga from Michigan, for 4 minutes.
    Chairman Huizenga. Thank you, Chairman Barr, and I am glad 
that we were able to proceed with this joint subcommittee 
hearing. I think this is important work that we do as we, on 
these various subcommittees, dig into the details and find out 
what is, I think, some of the most challenging issues that we 
have experienced economically here in the last couple of years. 
And I do want to say thank you to the witnesses for being here 
because this hearing is vital as this committee continues its 
investigation into the recent failures of both Silicon Valley 
Bank and First Republic Bank.
    And in testimony today we are going to hear, I imagine, 
some try to pin these bank failures solely on bank 
mismanagement, some will try to pin it solely on failed 
supervision, and some on unprecedented runs on deposits fueled 
by social media. I think the reality, and everybody up here 
realizes it, is that it is a combination of all three of those 
things, coupled with high interest rates, years of easy money, 
as the chairman was highlighting, and stimulus-fueled consumer 
spending. This Administration and the Fed overheated our 
economy, and then we were late to pump the brakes, or to borrow 
that punch bowl analogy from Alan Greenspan, ``no one had the 
courage to take the punch bowl away from the party.''
    I am sure some of my colleagues are ready to let you off 
the hook and maybe try to change the narrative. It should not 
be understated that the management of each of your banks is 
questionable at best. You are inept at managing both short- and 
long-term risks. You courted deposits from risky businesses, 
took untenable financial risks, and ultimately failed to 
respond to rising interest rates.
    And Mr. Becker, your relationship with the San Francisco 
Fed should be scrutinized. At the time of its failure, SVB had 
31 open supervisory failures or warnings from regulators, and 
yet nothing was done. It has not gone unnoticed that your 
position on the Fed's Board of Directors potentially created a 
relationship that impeded supervisors' judgment and created 
some of that leniency. And for their part, the Federal Reserve 
missed or ignored all of the signs, and when they did react, it 
was too late.
    Yesterday, in testimony before our committee, the Vice 
Chairman of Supervision at the Federal Reserve, Mr. Barr--the 
other Mr. Barr--admitted what we have all known for months: The 
failure of your banks was a result of failed supervision under 
his watch. He finally admitted that he had the responsibility 
for that. However, Federal regulators will attempt to use these 
bank failures to exercise more and more authority while outside 
the bounds that Congress established for them, and the notion 
that these failures were a result of regulatory changes is 
unfounded.
    As we heard from the GAO, reports about the Fed started in 
1991. Nevertheless, regulators will try to shift the blame, but 
the facts are clear. And in testimony before our Oversight and 
Investigations Subcommittee last week, the GAO flagged those 
concerns in supervision and enforcement practices, going back 
to 1991. The report concludes that all three Federal financial 
regulators have, ``wide discretion in choosing from among 
enforcement actions of varying severity.''
    Lastly, an independent assessment of these events is not 
only appropriate, but it is desperately needed. This committee 
is committed to providing the American taxpayer with an 
unfiltered review of the events that preceded these bank 
collapses and ultimately, they bear the cost of your failures. 
I look forward to hearing from each of you as we continue to 
seek these answers, and, Mr. Chairman, I yield back the balance 
of my time.
    Chairman Barr. The gentleman yields back. I now recognize 
the ranking member of the Oversight and Investigations 
Subcommittee, the gentleman from Texas, Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, holding 
this oversight hearing today with the former chief executives 
of Silicon Valley Bank and Signature Bank will allow important 
questions to be asked and answers to be received from those who 
nurtured the root cause of their banks' collapses. At 
yesterday's hearing, regulators acknowledged their 
shortcomings. Today's preeminent question is, will today's 
bankers acknowledge their faults? Will they take responsibility 
for the more than 70 percent uninsured deposits that alarmed 
depositors? Will they acknowledge that both Silicon Valley Bank 
and Signature Bank experienced outsized growth between 2018 and 
2022, and that Signature Bank grew from approximately $47 
billion in total assets in 2018, to $110 billion in 2022, and 
that Silicon Valley Bank increased from $56 billion to $209 
billion over that same period of time?
    Will they admit that this outsized growth in assets was 
fueled by more than 70-percent uninsured deposits at both 
banks, far higher than the median of 32 percent for comparable 
banks? Will they confess that the executives at both banks knew 
or should have known that their risk management practices had 
to be strengthened appropriately as they grew in size 
exponentially? Will they concede that it was irresponsible for 
Silicon Valley Bank to operate without a chief risk officer 
from April until December 2022?
    Will they agree that those who nurtured the root cause of a 
bank's collapse should return any bonuses received as the 
collapse came to fruition? Will they allow and avow that upon 
Silicon Valley Bank having received 13 of the most-serious 
supervisory warnings the Fed can issue, the bank's officers 
should have taken corrective action? And will they come clean 
about Signature Bank's failure to take corrective action after 
having received nine Matters Requiring Board Attention notices 
from the Federal Deposit Insurance Corporation, including three 
specifically related to liquidity or risk management?
    Mr. Chairman, the time for atonement and recompense is at 
hand. Today provides us the opportunity to hear from those who 
have a hands-on experience with the failure of these banks. 
These persons were capable, competent, and qualified. They all 
have degrees indicating such, and they have experience noting 
such, so they should have taken corrective action. They will be 
given the opportunity to answer these questions that I have 
called to the attention of not only this committee, but also of 
this country. The people of America need to know what happened 
at these banks. This is a time for us to find out. I yield back 
the balance of my time.
    Chairman Barr. The gentleman yields back. I now recognize 
the Chair of the full Financial Services Committee, the 
gentleman from North Carolina, Mr. McHenry, for 2 minutes.
    Chairman McHenry. I want to thank Chairman Barr and 
Chairman Huizenga and the ranking members as well.
    At today's hearing, we will hear three different stories 
from three different banks. Your business models were not the 
same. Your depositors were not the same. The degree of 
mismanagement was not the same in the midst of this crisis. The 
truth is, each of you bears responsibility as the captain of 
your respective ships, and we have heard that from you. There 
was a storm brewing and you failed to batten down the hatches, 
and while inflation raged, the Fed and the Biden Administration 
told us it was transitory, and nothing to worry about.
    We will get into the management question shortly, but one 
of the mistakes is that these three bankers actually believed 
the bureaucrats. We all knew inflation was not transitory, and 
after being late to respond, the Fed was forced to raise rates 
at the fastest pace in modern history. And again, you failed to 
appropriately prepare for this inflationary and high-interest-
rate environment.
    Silicon Valley Bank was the projectile that set this 
volatility into motion. The Biden Administration used another 
word to describe SVB, ``idiosyncratic.'' Well, clearly, as 
there are 3 of you here today, 3 of the 30 largest banks in 
America today, the problem goes much deeper. The subsequent 
failures of Signature and First Republic, coupled with 
volatility in regional bank stocks, sent shockwaves through our 
financial system. The fear of contagion has rocked an already-
shaky economy, so we will hear from each of you today, and 
then, the New York and California bank regulators as well.
    I think it is important to take a step back and really 
examine the undercurrents that caused this crisis, the economic 
mismanagement by the Biden Administration that created the 
perfect storm in which each of you failed to captain your ship. 
I yield back.
    Chairman Barr. The gentleman yields back.
    We now welcome the testimony of our first panel of 
witnesses: Mr. Greg Becker, the former CEO of Silicon Valley 
Bank; Mr. Scott Shay, the co-founder and former chairman of 
Signature Bank; and Mr. Michael Roffler, the former CEO and 
president of First Republic Bank.
    We thank each of you for taking the time to be here. You 
will each be recognized for 5 minutes to give an oral 
presentation of your testimony. And without objection, each of 
your written statements will be made a part of the record.
    Mr. Becker, you are now recognized for 5 minutes.

STATEMENT OF GREGORY W. BECKER, FORMER CHIEF EXECUTIVE OFFICER, 
                      SILICON VALLEY BANK

    Mr. Becker. Chairs Barr and Huizenga, Ranking Members 
Foster and Green, and members of the subcommittees, thank you 
for the opportunity to appear before you today. My name is Greg 
Becker. I was the CEO of Silicon Valley Bank (SVB). I am here 
today to answer your questions about what happened at SVB, to 
the best of my memory.
    At the outset, I want to be clear that I never envisioned 
myself or SVB being in this situation. I was an employee of SVB 
for nearly 30 years and CEO for the last 12 years until it was 
taken over by the FDIC. I believed in the bank and its mission 
and cared deeply about our more than 8,000 employees and their 
families. I was committed to our clients in helping them 
succeed, whether they were well-known tech companies or small 
business founders in towns across the country.
    SVB was designed to meet the needs of the technology and 
life science industries where startups at later-stage companies 
could keep their deposits, borrow to expand their businesses, 
and create jobs. We knew our clients personally, understood 
their needs and goals, and partnered with them as they grew. We 
took risk management seriously and worked closely with and were 
responsive to the various regulators who oversaw SVB. Over 
time, we built and expanded a team of subject matter experts, 
focused on analyzing risk and protecting the bank, and 
continually sought to add operational expertise and experience 
to enhance our risk management as the bank and its clients 
evolved.
    Much has been said about the takeover of SVB by the FDIC 
and why that happened. Ultimately, I believe that SVB's failure 
was brought about by a series of unprecedented events. Between 
2015 and 2019, SVB grew from about $45 billion in assets to $71 
billion in assets at an annual rate of about 10 percent. This 
changed in 2020 due to the COVID-19 pandemic and the government 
stimulus measures. With near-zero interest rates and the 
largest government-sponsored economic stimulus in history, more 
than $5 trillion flooded into commercial banks in the United 
States.
    By the end of 2020, SVB had grown 63 percent over the prior 
year, and in 2021, SVB's assets grew another 83 percent to $212 
billion. To support this growth, SVB raised more than $8 
billion of new capital in 2021. Importantly, throughout 2020 
until late 2021, the messaging from the Federal Reserve was 
that interest rates would remain low and that the inflation 
that was starting to bubble up would only be transitory.
    During this time, SVB invested in low-risk, highly-rated 
government-backed securities. These securities were safe 
assets, and they were backed by the U.S. Government and could 
easily be used as collateral for borrowing for liquidity, if we 
needed it. These fixed-income securities complemented our 
short-duration loan portfolio, approximately 90 percent of 
which had variable interest rates. In fact, other U.S. banks 
collectively invested nearly $2.3 trillion of their securities 
portfolios in this low-yield environment created by the Federal 
Reserve.
    To account for changing market conditions, namely higher 
interest rates anticipated over a longer period of time, on 
March 8th, we sold SVB's available-for-sale securities 
portfolio in a planned capital raise. Unexpectedly, on the same 
day, Silvergate Bank announced its intent to voluntarily wind 
down and liquidate, and depositors triggered a run on that 
bank. Despite stark differences in our business models, news 
reports and investors wrongly lumped SVB and Silvergate 
together.
    Rumors and misconceptions quickly spread online, 
culminating on March 9th with the first-ever social media-
driven bank run, leading to $42 billion in deposits being 
withdrawn from SVB in 10 hours or roughly $1 million every 
second. Over 2 days, approximately 80 percent of total deposits 
were requested to be removed from SVB. To put the unprecedented 
velocity of this bank run in context, the previous largest bank 
run in U.S. history was $19 billion over 16 days.
    In the face of these unprecedented events, the leadership 
team and I made the best decisions we could with the facts and 
forecasts available to us at the time, and in the best 
interests of SVB, its employees, and its clients. I worked at a 
place I truly loved, alongside our dedicated employees to 
support our clients who are innovating in astonishing ways. I 
believe that SVB had a positive impact on roughly 100,000 
clients.
    [The prepared statement of Mr. Becker can be found on page 
88 of the appendix.]
    Chairman Barr. The gentleman's time has expired. Mr. Shay, 
you are now recognized for 5 minutes.

 STATEMENT OF SCOTT A. SHAY, CO-FOUNDER AND FORMER CHAIRMAN OF 
                   THE BOARD, SIGNATURE BANK

    Mr. Shay. Chairman Barr, Chairman Huizenga, Ranking Member 
Foster, Ranking Member Green, and members of the subcommittees, 
thank you for the opportunity to be here today to discuss 
Signature Bank in my role as chairman of the board.
    In 2000, I co-founded Signature Bank. At the time, the 
banking industry was experiencing many mergers, and many big 
banks were not serving the needs of middle-market customers. I 
felt that a mid-sized bank would provide an important 
commercial service to businesses that preferred a smaller, more 
personal experience. Signature Bank followed a single-point-of-
contact approach in which the bank's client teams personally 
served the needs of small and medium-sized businesses.
    Our bank had a diverse group of clients, including 
industrial companies, commercial real estate firms, healthcare 
providers, professional service firms, nonprofits, and many 
others. We placed a priority on providing financing to 
affordable housing providers in low- and moderate-income areas, 
and did so for many years. Through the hard work and dedication 
of our employees, we went from a small bank with $40 million of 
start-up funds, to a successful middle-market bank with more 
than $100 billion in deposits. We were a solid and thriving 
bank that played an enormous and important role in our clients' 
businesses, and I was very proud of our success.
    In 2018, we began accepting deposits from businesses in the 
digital assets sector. I supported this effort because I 
believe that digital asset payment systems can make financial 
transactions faster, easier, and cheaper, with funds moving 
from place to place in minutes rather than hours or days, and 
in a much lower cost than traditional payment systems. I was 
not alone in my enthusiasm for digital assets. Over the years, 
many other banks, many financial institutions, and others have 
entered the market for digital assets. And both State and 
Federal Governments have expressed support as well.
    As with other parts of Signature Bank's business, digital 
deposits grew over time. Nonetheless, because this was a 
relatively new sector, Signature Bank carefully monitored the 
business in an effort to ensure that clients met our internal 
standards, including for compliance with anti-money laundering 
(AML) laws. We also limited the kinds of businesses that we 
would do. Signature Bank's digital assets business was focused 
on accepting U.S. dollar deposits from businesses in this 
sector. Additionally, I publicly supported increased government 
regulation of the digital assets sector in order to ensure that 
businesses operating within the sector had regulatory 
oversight.
    In the latter part of 2022, the digital assets sector 
experienced increased volatility, and regulators expressed 
concern. Signature Bank took these developments seriously, and 
in just a few months, significantly reduced its digital asset 
deposits. Unfortunately, a series of truly extraordinary, 
unprecedented events unfolded quickly. On March 7th, the bank 
with strong ties to the digital assets sector announced it was 
going out of business, and 3 days later, on March 2nd, the 
second bank was closed by the regulators, and then within just 
a few hours, our depositors withdrew $16 billion from the bank.
    Nonetheless, I was confident that Signature Bank could 
withstand the economic earthquake which occurred that day. The 
bank was well-capitalized. The bank was solvent. Indeed, it was 
always solvent, with assets well in excess of liabilities even 
at the very end, and the bank had a well-defined and solid plan 
to continue in operation and withstand additional withdrawals. 
Although I believe that the bank was in a strong position to 
weather the storm, regulators evidently saw things differently. 
On Sunday, March 12th, regulators seized Signature Bank.
    Although I disagree with this decision, I recognize the 
important role the bank regulators play in our financial 
system. My first priority in helping to build Signature Bank 
was providing excellent service to our customers. I was 
therefore pleased that the government guaranteed the full 
amount of customers' deposits. Helping build a bank for 22 
years which played an important role in the middle-market 
sector of our economy was the pinnacle of my professional life. 
For that reason, March 12, 2023, was a devastating day for me.
    [The prepared statement of Mr. Shay can be found on page 
195 of the appendix.]
    Chairman Barr. The gentleman yields back. Mr. Roffler, you 
are now recognized for 5 minutes.

  STATEMENT OF MICHAEL J. ROFFLER, FORMER CEO AND PRESIDENT, 
                      FIRST REPUBLIC BANK

    Mr. Roffler. Thank you. Chairman McHenry, Ranking Member 
Waters, Chairman Barr, Chairman Huizenga, Ranking Member 
Foster, Ranking Member Green, and members of the subcommittees. 
Good morning, and thank you for allowing me to speak with you 
today. Since 2009, I have had the privilege of serving First 
Republic Bank and its employees, clients, and communities. I 
look forward to sharing with you a little about First Republic, 
our reputation for risk management and integrity, as well as 
our understanding of the unprecedented banking crisis that 
affected us beginning on March 10th.
    I would like to start by thanking my incredible colleagues, 
who have worked tirelessly since March 10th, continuing to 
serve our clients and delivering outstanding service in the 
face of unprecedented challenges.
    For the past 37 years, First Republic has built a 
reputation for its commitment to extraordinary client service, 
careful risk management, robust internal controls, and 
transparency with our regulators and the public. First 
Republic's financial position strategy was regularly reviewed 
by our regulators, the California Department of Financial 
Protection and Innovation (DFPI) and the FDIC. First Republic's 
management and board of directors took regulatory feedback 
extremely seriously and addressed any matters in a timely 
matter. Neither regulator expressed concern regarding First 
Republic's strategy, liquidity, or management performance, in 
fact, just the opposite.
    Up until the cataclysmic events of March 10th and the 
following days, which were triggered by the collapses of 
Silicon Valley Bank and Signature Bank, First Republic was in a 
strong financial position with strong investment grade ratings 
aligned with the nation's largest banks. In fact, thanks to our 
employees' extraordinary efforts, First Republic had its most 
profitable year ever in 2022.
    Starting in the fall of 2022, First Republic believed that 
the Federal Reserve's campaign to fight inflation by repeatedly 
and significantly raising interest rates would make 2023 a more 
challenging year from an earnings perspective. First Republic 
was transparent about the challenges posed by this higher-
interest-rate environment. No one at First Republic could have 
predicted the collapse of Silicon Valley and Signature Banks, 
the speed at which it happened, or the impact it had on the 
banking industry. Instead of dealing with temporary decreased 
earnings due to interest rate pressures, First Republic was 
contaminated overnight by the contagion that spread from the 
unprecedented failures of those banks.
    Before March 10th, First Republic was conducting business 
as usual. Indeed, during the day on March 9th, as uncertainty 
surrounding Silicon Valley grew, we experienced a significant 
inflow of deposits at First Republic from clients who had 
withdrawn their money from Silicon Valley. Everything changed 
overnight. On the morning of March 10th, when Silicon Valley 
collapsed, a run on First Republic began. In response to an 
industry-wide panic about the soundness of regional banks, 
which was exacerbated by both traditional media and social 
media, over the course of the ensuing weeks, over $100 billion 
in deposits were withdrawn from the bank.
    Despite Herculean efforts by my incredible colleagues at 
First Republic to continue providing exceptional client 
service, management's tireless efforts to save the bank, and 
the support of 11 of the nation's largest banks, investor and 
depositor confidence never recovered. Throughout this period, I 
encouraged colleagues to be there for and to serve the needs of 
our clients, but clients continued to withdraw their funds. And 
to protect our clients and depositors, the FDIC reached a 
purchase and assumption agreement with JPMorgan Chase to assume 
all of the deposits and substantially all of the assets of 
First Republic. We continued to work hard every day to ensure 
our clients received the service they deserved.
    I look forward to working with the committee to restore 
confidence in the banking industry, and I would be pleased to 
answer your questions.
    [The prepared statement of Mr. Roffler can be found on page 
192 of the appendix.]
    Chairman Barr. I thank the witnesses for their testimony. 
We will now turn to Member questions, and I will recognize 
myself for 5 minutes.
    Let me start by following up on a line of questioning that 
I asked Fed Vice Chairman Barr yesterday. I asked Mr. Barr if 
the delay in monetary policy normalization, in light of 
persistent and high inflation, if gradually tightening monetary 
policy versus precipitously raising rates would have made it 
easier for the Fed to supervise and banks to manage interest 
rate risks. He declined to acknowledge that monetary policy 
failures by the Fed were the underlying cause of the current 
instability in the system.
    While I do agree that it is the responsibility of bank 
management to manage interest rate risks, I believe we should 
also acknowledge that the Fed's unprecedented and protracted 
easy money policies, quantitative easing, and keeping interest 
rates too low, for too long, necessitated a historically rapid 
and precipitous increase in interest rates, 500 basis points in 
just 13 months, leading to a blunt and difficult interest rate 
environment for institutions to adjust to.
    Mr. Becker, did bank supervisors at the Federal Reserve of 
San Francisco show any extra attention to interest rate risk 
issues, and if they did, when did they begin to show that 
attention?
    Mr. Becker. Chairman Barr, to my memory, the rapid rise in 
interest rates going back to 2021, I don't remember that topic 
coming up, to the best of my recollection.
    Chairman Barr. So you are telling me that as the San 
Francisco Fed had 20 bank examiners in your bank every day, not 
once in the last year do you remember any of those bank 
examiners discussing interest rate sensitivity with you?
    Mr. Becker. With me, again, my memory is no. It could have 
happened with our Treasury Team or CFO, but I don't remember 
having a direct conversation about that.
    Chairman Barr. Mr. Becker, Silicon Valley Bank did not have 
a chief risk officer in the 8 months leading up to its failure. 
Clearly, there were major interest rate risks that obviously 
were not being discussed by the bank regulators with you, but 
it is safe to say that a chief risk officer would have been a 
useful addition to the management team. What were your 
conversations with the Fed on this issue, and did they voice 
any concerns with the vacancy or request that you take action 
to fill the position? And if so, how did you respond?
    Mr. Becker. As I outlined in my written testimony, towards 
the end of 2021 and the beginning of 2022, our board of 
directors and the regulators of the Federal Reserve were giving 
us comments about the need to enhance our chief risk officer 
position, especially as we started to approach $250 billion of 
assets. We took that feedback very strongly and we decided to 
make a change. So we did two things knowing that it takes, 
quite honestly, a while to find the best candidate for a role. 
In my assessment, it takes 6 to 9 months to find an executive 
of the caliber that you would want.
    We did two things to make sure we didn't have gaps during 
that period of time, both of which were noticed, and before we 
made the change, communicated to the Federal Reserve. First, we 
created an Office of the Chief Risk Officer. It was a 
leadership team with a risk team, along with new hires with 
large financial institution (LFI) experience. Those individuals 
reported to me and they also reported to the Chair of our Risk 
Committee.
    The second thing we did was we kept our existing chief risk 
officer on board as a consultant from April until October 1st. 
Our new chief risk officer was hired in October, and she 
started in December.
    Chairman Barr. Did the Fed express any concern that despite 
staffing at the office, there was not a position filled?
    Mr. Becker. They did not.
    Chairman Barr. Okay. Mr. Roffler, it is our understanding 
that prior to entering receivership, you had viewed all options 
on the table, including the sale of your bank. Can you describe 
the difficulties you faced in finding a potential acquirer?
    Mr. Roffler. Thank you, Mr. Chairman. Yes. Following the 
events of March 10th and shortly thereafter, we worked with our 
legal counsel and our independent advisors to look at all 
options on the table, including potential merger, and potential 
sales of assets.
    Chairman Barr. Did the FDIC begin to gather and distribute 
data about your bank to potential acquirers prior to the week 
of April 24th?
    Mr. Roffler. Not to my knowledge.
    Chairman Barr. Mr. Becker, FDIC Vice Chairman Travis Hill 
recently stated that the FDIC could have moved more quickly in 
finding a buyer for Silicon Valley Bank if they had shown some 
more urgency in setting up data rooms. Can you explain your 
perspective on how this process worked and whether the FDIC 
could have done better?
    Mr. Becker. Again, this happened very fast. And on March 
9th, which is really the first day that the bank run started, 
the FDIC got involved, and they took over on the 10th. We 
immediately worked with them and worked as fast as we could to 
build a data room with the list of information they were 
looking for.
    Chairman Barr. My time has expired. Obviously, it was not 
fast enough. I now recognize the ranking member of the 
Subcommittee on Financial Institutions and Monetary Policy, Mr. 
Foster, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman. Mr. Becker, I accept 
what you said, that you never envisaged the situation that 
Silicon Valley Bank had come into, but my focus here is what 
rules could have been in place that would have changed your 
behavior. I imagine you spent a lot of the last few weeks 
thinking about what you should have done if you had perfect 
knowledge ahead of time. And high on my list are simply hedging 
your interest rate risk instead of apparently removing some 
interest rate hedges, and also raising capital last summer when 
it was still good. Are there other major things that you wish 
you had the foresight to have done?
    Mr. Becker. Congressman, maybe just to comment on your one 
point about raising capital, our capital ratios even up until 
March 10th were actually----
    Mr. Foster. I understand. But one of the rules changes we 
can contemplate is to make you immediately recognize some 
fraction of your mark-to-market losses on securities, right? 
So, one of my follow-on questions here, which you can try 
answering now, is let's say that you immediately had to 
recognize 100 percent of your actual mark-to-market losses. 
Would that have affected your behavior materially?
    Mr. Becker. Congressman, the mark-to-market is in two 
categories. One is you are available-for-sale-portfolio and 
then you are held-to-maturity----
    Mr. Foster. Right. Just say all of it, just to take an 
extreme case, all of it?
    Mr. Becker. Yes. If everything, both available-for-sale and 
held-to-maturity, was mark-to-market, yes, we would have had to 
raise more capital.
    Mr. Foster. And then, what happened early last summer, 
probably when interest rates started going up, and that would 
have----
    Mr. Becker. Yes. When the mark-to-market occurred, correct.
    Mr. Foster. Yes, and in all probability, you would be 
solvent today if that had been the rule. I am not saying that 
should be the rule, but there is a knob that we can adjust, 
which is what fraction of the mark-to-market losses should be 
immediately reflected.
    Mr. Becker. Congressman, as I mentioned in my testimony, I 
believe those were unprecedented events. At the end, it was 
fueled by the fastest bank run in history, and I don't believe, 
in my opinion, even with additional capital, if that were to 
occur, I don't think we could or possibly any bank could have 
lived with that amount of deposit outflow in that short period 
of time.
    Mr. Foster. There are many, many issues there. Now, there 
were also governance issues, so if some fraction of the 
regulatory findings would automatically have been made public, 
particularly the governance ones--one of the things that makes 
this hard for us in Congress to deal with is that a lot of 
regulatory actions have to take place in secret. But if there 
was some fraction of things, for example, governance that would 
automatically become public, would that have sort of lit a fire 
under you to maybe act more quickly on the risk, gaps, and so 
on?
    Mr. Becker. Congressman, the first discussion that I recall 
having with the regulators on questions of governance was in 
January of 2022, and as soon as those conversations were had, 
we immediately reacted to that feedback. We didn't wait until 
the May 22nd letter. We immediately reacted to it and put 
together a whole series of programs and processes to make the 
improvements that were requested. So, I don't believe that even 
if----
    Mr. Foster. You don't believe the threat of making them 
public would have accelerated that at all? Okay. So, if during 
the period of your rapid growth, you had been forced to issue a 
contingent convertible (CoCo) as Asian banks and European banks 
are forced to, this would have forced the conversation with the 
bond market as to the risk position of your bank. And that also 
would have provided a capital buffer that you would have access 
to when you got in serious trouble. Would this have materially 
changed your behavior or the result?
    It is a complicated question, so if you want to answer that 
in writing for the record, I would appreciate it, because that 
is one of the things that I think both Chairman McHenry and I 
think may be part of the solution here to make a more stable 
banking system. And I would be interested in your thoughtful 
opinion on that.
    Mr. Becker. Yes. As mentioned in my written testimony, I 
don't have access to my information from the bank, so I would 
do my best with the information that I have to be able to 
answer your question----
    Mr. Foster. Fair enough. This will not be an exact 
calculation of what would have happened, but I would be 
interested in your opinion.
    Mr. Foster. Mr. Shay, it seems like the most significant 
factor in Signature Bank was not so much a concentration in 
crypto assets or deposits, but a lack of pledgeable assets 
immediately available for liquidity support. Are there changes 
in procedures or rules to make that more agile, for which you 
would advocate?
    Mr. Shay. I don't know the answer to that question. I do 
know that when we opened at the beginning of March 10th, we had 
$29 billion of pledgeable assets that were at the Federal Home 
Bank and the Federal Reserve. And in terms of the ease of 
moving those assets, that was something that could be looked at 
in terms of making that----
    Chairman Barr. Okay. We are going to have to move on. The 
gentleman's time has expired. I now recognize the Chair of the 
Subcommittee on Oversight and Investigations, Mr. Huizenga, for 
5 minutes.
    Chairman Huizenga. Thank you, Chairman Barr. I appreciate 
the witnesses being here, and your candor. I am going to ask 
you what I think are kind of two of the most important 
questions, frankly, and go down the line asking you this. The 
first is whether you take responsibility for the failure of 
your bank. Mr. Becker?
    Mr. Becker. Congressman, as CEO, I think you have to take 
responsibility for the ultimate outcome of your institution.
    Chairman Huizenga. Okay. I appreciate that. Mr. Shay?
    Mr. Shay. As the chairman of the board, I think I did a 
responsible role throughout to fulfill my duties.
    Mr. Roffler. Mr. Chairman, just----
    Chairman Huizenga. Just a second. Do you accept the 
responsibility for the failure or do you believe it was----
    Mr. Shay. I am very sorry. I am sorry that the bank was 
seized by the regulators. I thought we had a responsible----
    Chairman Huizenga. I bet your depositors are, too.
    Mr. Shay. ----the next morning.
    Chairman Huizenga. Okay. I will take that as a, no. Mr. 
Roffler?
    Mr. Roffler. Mr. Chairman, this was an event that is 
unforeseeable when it happens, and the contagion spread very 
quickly and panic is very hard to control. What I feel 
responsible for is for our colleagues each and every day and 
our clients each and every day to make sure they are taken care 
of and supported during this time.
    Chairman Huizenga. That also sounds like a, no. So 
congratulations, Mr. Becker, you are the only one to man up and 
actually take responsibility for that, so I will start with 
you. And since I can't get the other two to actually admit to 
their own failings, I would like to hear from you. What would 
you have done differently in hindsight?
    Mr. Becker. Congressman, that is a question to the point 
made earlier by Congressman Foster. I have thought about that a 
lot over the last several months. And when you look back with 
hindsight at what could have been done differently, I think it 
is very challenging because when you go back and make 
decisions, you have to go back and look at the facts that you 
had. And what I tried to describe in my written testimony is 
that the facts that we had, that I had when I made my 
decisions, and I believe my team had when they made their 
decisions, and I truly do believe they made the best decisions 
as did I with the information that we have.
    Chairman Huizenga. We are going to explore that a little 
more because yesterday, you testified that SVB's capital and 
liquidity were validated by regulators in 2022. Your written 
statement points to an August 2022 letter sent by the 
regulators that conveyed the second-highest possible CAMELS 
ratings of a 2, meaning satisfactory on liquidity, capital, and 
market risks. Despite a downgrade of the liquidity rating in 
August when you received the supervisory letter, were these 
ratings cause for alarm, or did they seem to confirm that you 
were on track?
    And then, I also want to address something that you had 
said to Chairman Barr. You said that the Fed did not talk to 
you about the interest rate risk. They had 31 Matters Requiring 
Attention, but none of them were about interest rate risk? Talk 
to me about that.
    Mr. Becker. Yes, Congressman, again, I am going based on 
the best of my recollection.
    Chairman Huizenga. Yes. I understand.
    Mr. Becker. I don't recall a direct conversation about 
that. I know that and I believe towards the end of 2022, there 
was a matter requiring attention on interest rate risk that was 
issued. I was not in that meeting----
    Chairman Huizenga. In late 2022?
    Mr. Becker. I believe that was in late 2022.
    Chairman Huizenga. Okay. So until that time, just as you 
had confirmed, I am confirming what you were saying to Chairman 
Barr, this was not an issue for the regulators?
    Mr. Becker. Congressman, again, to the best of my 
recollection, I don't recall.
    Chairman Huizenga. Yes. I understand. Well, you had a 
Memorandum of Understanding (MOU) to target Matters Requiring 
Immediate Attention. What were the major issues of that MOU, to 
your knowledge, your recollection?
    Mr. Becker. Yes. Congressman, if I could clarify one point?
    Chairman Huizenga. Yes.
    Mr. Becker. The Memorandum of Understanding was never 
issued. It was verbalized to us, and it was verbalized to us in 
early 2022.
    Chairman Huizenga. It doesn't really sound like a 
memorandum. It sounds like a conversation of understanding. 
Okay. So, did regulators follow up with you on the status of 
this MOU conversation or ask for your timeline or give you a 
timeline?
    Mr. Becker. As I mentioned earlier, we were incredibly 
responsive to the feedback that we received at----
    Chairman Huizenga. Quickly, we only have 30 seconds. You 
testified yesterday that you offered several times to the FDIC 
to, ``engage potential acquirers,'' and run through a list of 
the names whom you believe would be the most likely acquirers. 
And every single banker I have ever talked to, big, small, or 
medium, has always had some conversations with the competitors 
who might become allies. You stated that you offered your 
assistance, but the FDIC never consulted you in this. Can you 
confirm that, and why do you think they didn't? And did they 
give you any indication why they had no interest in your 
opinion on this?
    Mr. Becker. Congressman, I can confirm that they did not 
engage me in reviewing the list or talking about any potential 
acquirers.
    Chairman Huizenga. That's sad. I yield back.
    Chairman Barr. The gentleman's time has expired. I now 
recognize the ranking member of the Oversight and 
Investigations Subcommittee, Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. Chief Executive Officer 
Becker of Silicon Valley Bank, were you a board member of the 
Federal Reserve Bank of San Francisco?
    Mr. Becker. I was.
    Mr. Green. Were you well educated in banking?
    Mr. Becker. I have been in banking my entire career.
    Mr. Green. Yes. The Republicans, my colleagues, whom I love 
dearly, seem to believe that failure to sufficiently punish you 
is a cause of the bank's failure. They have been alluding to 
this for days now, perhaps even weeks or more. Are you 
contending that because the regulators didn't punish you 
properly, your bank failed? That would be a yes or no, sir.
    Mr. Becker. Congressman, we were very----
    Mr. Green. Sir, that would be a yes or no. Are you 
contending that the failure of regulators to punish you 
properly is the cause of the failure of your bank?
    Mr. Becker. Congressman, we were----
    Mr. Green. That would be a yes or no, sir. Would you 
contend that the failure, sir, of regulators to punish you was 
a cause of your bank's failure?
    Mr. Becker. Congressman, we were responsive to the 
regulators----
    Mr. Green. The question is not whether you were responsive, 
sir. Please. Are you blaming the regulators for not punishing 
you? So if they had punished you, is what you are saying now, 
you would have done better? Is that what we are to understand? 
A man who sat on the Federal Reserve Board, highly-educated, is 
that what we have to understand?
    Mr. Becker. Congressman, as I articulated in my written 
testimony, there was a series of unprecedented events that all 
came together.
    Mr. Green. But that is not the question. You see, you are 
issuing the answer and the question, I might add. The question 
is about you, your experience, and whether you are now going to 
blame a lack of punishment. You don't want to defer with them. 
They coddle you. I understand it, but this is a time for truth. 
You ought to speak the truth, sir. Do you know that the failure 
of regulators to punish you is not the reason your bank failed?
    Mr. Becker. Congressman, I believe the regulators, as did 
the SVB Management Team, did the best they could with the 
information they had.
    Mr. Green. Thank you. That is sufficient. I appreciate you 
are saying that because for too long now, my colleagues have 
contended that it is the regulators who are at fault here. The 
regulators are not at fault. They have some things that they 
could have done, perhaps, and should have done. But at the end 
of the day, according to the Government Accountability Office 
and according to the regulators who were here yesterday, the 
bank's failure lies with the banks, at the end of the day.
    Now, let me ask you another question. And this will apply 
to all three of you. Just raise your hand, because I can't ask 
you individually. I don't have enough time. Did any of you 
confer with the President about risk management and banking? If 
so, raise your hand. Any of you? President Biden. There is a 
reason for the question.
    [No response.]
    Mr. Green. Let the record reflect that no one has raised a 
hand.
    The contention from my colleagues is that this is all 
President Biden's fault. Because of President Biden, you 
somehow made mistakes in your risk management practices. You 
didn't talk to President Biden. You don't base your decisions 
on news reports about interest rates that you can't validate, 
or at least have your risk management people give you some 
confirmation of. Do any of you think President Biden caused you 
to make the decisions you made? If so, raise your hand.
    [No response.]
    Mr. Green. Let the record reflect that none of the 
witnesses has raised a hand.
    Finally this: Do you think that the bonuses received, Mr. 
Becker, chief executive officer, should be returned? The 
bonuses received at or near the time of the collapse of the 
bank should be returned?
    Mr. Becker. Congressman, I----
    Mr. Green. That would be yes or no.
    Mr. Becker. ----expect to cooperate with the----
    Mr. Green. The Chair is ready to sound the hammer.
    Mr. Becker. ----process that is going to be given.
    Mr. Green. Yes, but do you think they should be returned?
    Mr. Becker. Congressman, I will cooperate with the process 
that I know will be----
    Mr. Green. We are going to have some claw-back legislation 
for you to cooperate with. I yield back.
    Chairman Barr. The gentleman's time has expired. The 
gentleman from Florida, Mr. Posey, is now recognized for 5 
minutes.
    Mr. Posey. Thank you very much, Chairman Barr. We heard an 
exchange a while ago from a Member on the other side who said 
when he got here in 2008--he was reminiscing about some of the 
circumstances, and they weren't very pretty. But one thing that 
was resolved by the party in charge at that time to make sure 
that we never had another bank failure or an economic crisis, 
was they established the Consumer Financial Protection Bureau 
(CFPB). And among its charges was to make sure we never had any 
more bank failures, and I am just wondering, did you have any 
contact with the CFPB, Mr. Becker?
    Mr. Becker. The CFPB was one of our regulators, but given 
that we were predominantly a commercial bank, the interaction 
with the CFPB wasn't as significant as the other regulators.
    Mr. Posey. It was less significant than with the other 
regulators. Did I hear that correctly?
    Mr. Becker. Than the Federal Reserve and the State and the 
FDIC.
    Mr. Posey. Okay. Mr. Shay, same question.
    Mr. Shay. In my role as chairman, I don't recall ever 
meeting anyone from the CFPB.
    Mr. Posey. Okay. Mr. Roffler, same question.
    Mr. Roffler. I don't believe I met with anyone from the 
CFPB, but they did periodic exams and visits to First Republic.
    Mr. Posey. Okay. Mr. Roffler, do you think the CFPB could 
have been more helpful in helping you avoid what happened?
    Mr. Roffler. I think that we ensured that we had a very 
professional and open relationship with the CFPB, along with 
our other regulators we interacted with, and we shared with 
them what the bank was up to and what the strategy was and what 
our results were. And they did thorough examinations, and we 
responded to any feedback.
    Mr. Posey. Okay. Mr. Becker, did you sell, convert, or 
otherwise affect any of your stock in the 12 months preceding?
    Mr. Becker. I didn't sell any stock in 2022. And in 2023, 
after our earnings release, after it was reviewed by our Legal 
Team and myself that I didn't have inside information, we put a 
Rule 10b5-1 plan in place in January, and that was sold with 
expiring stock options from 2016.
    Mr. Posey. What was the approximate value at the time?
    Mr. Becker. The gross amount was $3.6 million.
    Mr. Posey. Okay. Mr. Shay, same question.
    Mr. Shay. I sold no shares in 2022, with the exception of 
reversing 3 shares that were accidentally bought in my account, 
which were then sold back. And indeed, I purchased shares 
throughout that period.
    Mr. Posey. In 2023?
    Mr. Shay. I purchased shares on March 10, 2023.
    Mr. Posey. Okay. Mr. Roffler?
    Mr. Roffler. I transacted twice, once in 2022 and once in 
early 2023. Both of those transactions were made with the 
approval of our policy and procedure and our general counsel. 
And they were also made following disclosure of financial 
information to the market: number one, through our investor 
day; and number two, through our earnings release. And the last 
thing I would say is that it represented a portion of my 
shares, and I retained the vast majority of them.
    Mr. Posey. Yes. What were the dates and amounts of those 
transactions?
    Mr. Roffler. One of the dates was about November 15th or 
16th, and it was just over a million dollars, and the other 
date was around January 19 or 20th, roughly the same amount.
    Mr. Posey. Okay. I see my time is about to expire, Mr. 
Chairman, so I yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from California, Mr. Sherman, is now recognized.
    Mr. Sherman. Thank you. One thing I have commented on is 
the idea that the Federal Reserve Regional Boards are not 
selected through democracy and the voters of this country, but 
governmental power is given to those who are elected by banks, 
and they elected Greg Becker. I am not so sure it is a good 
system. We ought to have all governmental power in this country 
in the hands of the Executive, Judicial, or Legislative 
Branches of government. One bank/one vote is not democracy. 
After hearing the near-tearful presentations by the CEOs of 
their dedication to their customers and employees, I guess they 
want us to say, thank you for your service. I can't say that.
    My Republican colleagues are in this desperate effort to 
defend corporate malfeasance with their old strategy of blame 
Biden. In fact, what they have suggested is that we shouldn't 
have fought inflation, and Americans should be paying higher 
prices. We should have managed all monetary policy so that the 
three worst-run banks in America would survive. Talk about the 
tail wagging the dog. This was not a 100-year flood.
    We saw 16-percent interest rates under the Reagan 
Administration--I didn't say the Harding Administration, the 
Reagan Administration. This was a modest rainstorm, and 3 of 
you went down, but 99.5 percent of the banks survived this 
modest storm. The reason your banks went down is because of 
recklessness and greed. The bigger the risk, the bigger the 
bonus, and I will illustrate that in a bit.
    We shouldn't be blaming the depositors. The depositors 
didn't take their money out of profitable banks. They didn't 
take their money out of solvent banks. This is not just a 
liquidity problem. The strongest bankers in this country looked 
at Silicon Valley Bank and determined that it was worth 
negative $20 billion. If anyone has their money in a bank where 
the net worth is negative $20 billion, it is time to get your 
money out of that bank.
    So, Silicon Valley Bank virtually doubled the duration and, 
therefore, increased the yield of the securities that it held. 
That is bigger risk, higher profits, and more money in Mr. 
Becker's bonus for the 2022 fiscal year. Then, Silicon Valley 
Bank, at the end of 2021, had 56 percent of its available-for-
sale portfolio hedged through credit default swaps. In other 
words, they had insurance on this 56 percent. They saved money, 
cut the insurance down to insuring only 2 percent of the 
portfolio, with lower costs, higher profits, and bigger 
bonuses. So, it is not surprising that these are the banks that 
went down.
    Mr. Becker, you have said you take responsibility for the 
collapse of your bank. Are you willing to return the bonus that 
you got the day before the bank failed and that you then took 
on your Hawaiian vacation?
    Mr. Becker. Congressman, as I said earlier, I plan to 
cooperate with the process----
    Mr. Sherman. Will you do it voluntarily or only if the 
government forces you to?
    Mr. Becker. Congressman, I will cooperate with the process.
    Mr. Sherman. Cooperate. That means only if the government 
forces you to. Will you voluntarily return that portion of the 
bonus directly attributable to the bank's higher income for 
2022 because you went to longer-term, higher-yield securities, 
and there was only a forced----
    Mr. Becker. Congressman, I will cooperate----
    Mr. Sherman. And will you return that portion of the bonus 
attributable to the money you saved by throwing away your flood 
insurance as it began to rain, or cashing it in and not having 
hedges and credit default swaps on your portfolio? Will you 
return that part of the bonus? Not voluntarily.
    Mr. Becker. I will cooperate with the process.
    Mr. Sherman. Mr. Becker, you testified before Congress in 
2015 that having tough regulation would divert significant 
resources of the bank to complying with enhanced prudential 
standards and other requirements, so we have less regulation of 
your bank. How would that work out for you?
    Chairman Barr. The witness can submit his answer in 
writing. The gentleman's time has expired.
    The gentleman from Missouri, Mr. Luetkemeyer, who is also 
the Chair of our National Security Subcommittee, is now 
recognized.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. And welcome to 
the guests this morning. Gentlemen, as tragic as the situation 
is, I think it is also a learning moment for all of us, an 
instructive moment, I think, for us in Congress and for the 
regulators and for bankers around the country, quite frankly, 
the standpoint that I think we are in a new world now with 
regard to social media and the actions that can be taken, the 
actions that can have adverse effect on our financial system, 
our culture, and our economy, and I am very concerned about it.
    Each of you in your testimony mentioned that: Mr. Becker, 
$42 billion went out of your bank in 10 hours; Mr. Shay, $16 
billion went out in just a few hours; and, Mr. Roffler, I 
missed the number on yours, but again, you had the same 
situation where social media excited people to the point where 
they ran out and changed their banking situation, and as a 
result, a lot of the uninsured deposits in the bank ran out. I 
would like for you to give me your analysis on this. Was the 
FDIC tracking this with you as this was happening, so that they 
were aware of this, or were you notifying them at all as this 
money was running out the door? Mr. Becker?
    Mr. Becker. Congressman, we notified the regulators that we 
were doing the capital raise, so they were aware of that. And 
when the bank runs started on March 9th, I was not directly 
involved, so I can't say the exact discussions that were 
happening. But to my memory, to my knowledge, our Risk Team and 
our Regulatory Affairs Team were engaged in conversations with 
the regulators.
    Mr. Luetkemeyer. Mr. Shay?
    Mr. Shay. As chairman, I don't know the conversations that 
were taking place between Treasury----
    Mr. Luetkemeyer. Was there a contact, I guess is the 
question?
    Mr. Shay. Excuse me?
    Mr. Luetkemeyer. Was there a contact between your bank and 
the regulators with regards to the amount of money that was 
flowing out?
    Mr. Shay. I would defer to management. I don't know the----
    Mr. Luetkemeyer. Okay. Mr. Roffler?
    Mr. Roffler. Thank you, Congressman, for the question. As I 
mentioned in my testimony, we always had an open working 
relationship with the regulators, including as the contagion 
spread. On March 10th, we had multiple meetings from the 
morning all the way through the evening that day, reviewing our 
funding and our liquidity and what was happening at the bank.
    Mr. Luetkemeyer. All of you having gone through this, what 
do you think is a realistic situation that we need to be 
considering here? I sit on the China Select Committee, and this 
scares the dickens out of me, quite frankly, because I am sure 
the Chinese are watching us play funny business with our own 
banks and our own economy. Do you think having gone through 
this, this is a very real concern, or am I overreacting to 
this? The short selling is going on right now, not to the 
extent it was, but can social media have the kind of effect on 
us that could actually directly impact or could crash our 
system? What do you think, Mr. Becker?
    Mr. Becker. I think we are evidence of that, and I think it 
is something that needs to be looked into to determine how best 
to protect against it.
    Mr. Luetkemeyer. Mr. Shay?
    Mr. Shay. Thinking back to that Friday, those few hours, 
and I remember talking to depositors who were so panicked--I 
started my career, I was on Wall Street during 1987, and the 
panic that was flooding through social media, people were 
saying they didn't want to hear about solvency, that the bank 
was solvent. They didn't want to hear about $29 billion of 
liquidity. They didn't want to hear about rating agencies or 
ratings. They didn't want to hear about anything. They just 
wanted to hear if they had to get their money to a too-big-to-
fail bank, and they needed to do it immediately.
    Mr. Luetkemeyer. Mr. Roffler?
    Mr. Roffler. Yes, Mr. Congressman, it is very challenging, 
and the panic was very real. And as I spoke with clients, too, 
at the end of every conversation, if they decided they wanted 
to do something different, we facilitated that and helped them, 
but it definitely was started with a contagion that spread to 
us.
    Mr. Luetkemeyer. Listen, this really concerns me, because I 
think back in 2020,when we had a run on toilet paper of all 
things, and I think people will prioritize their money over 
toilet paper, so we already have three examples here. And I 
think the regulators took some actions to minimize this 
contagion effect across the system. Whether it was enough or 
not in time, I am not sure, but I think it is something we need 
to certainly look at and study.
    Vice Chairman Barr was here yesterday, and he made the 
comment that the core responsibility of examiners is to look at 
interest rate risk and liquidity risk. Mr. Becker, were the 
examiners looking at interest rate risk and liquidity risk at 
your bank?
    Mr. Becker. Congressman, liquidity risk, I know for a 
certainty that was discussed, and, again, as I mentioned 
earlier to answer your question, I don't have direct experience 
in hearing about interest rate risk, but I am confident it 
happened.
    Mr. Luetkemeyer. Okay. Thank you.
    Chairman Barr. The gentleman's time has expired. The 
gentleman from Georgia, Mr. Scott, is recognized.
    Mr. Scott. Mr. Becker, what percentage of your deposits at 
Silicon Valley Bank exceeded the FDIC insurance cap just before 
the bank collapsed on March 10th of this year?
    Mr. Becker. Congressman, as I mentioned in my testimony, I 
have been at SVB for 30 years, and to my recollection, we have 
always had a high level of uninsured deposits. It was not that 
different at the end versus what it was----
    Mr. Scott. Mr. Becker, I am sure that the whole nation, the 
whole world knows you had a high percentage. But in fact, 
according to the S&P Global Market Intelligence data from 
December 2022, we now know that Silicon Valley Bank ranked 
first among banks with more than $50 billion in assets, with 95 
percent of its total deposits being uninsured. That is the 
truth. And for you not to know that, for you not to answer 
that, is absolutely unbelievable. While the average for U.S. 
banks was 30 percent, you had 95 percent, almost all of your 
accounts uninsured according to the S&P's Global Market 
Intelligence, not only exceeding the FDIC's insurance cap, but 
doing so with this 95 percent and high concentrations in the 
technology sector, making your bank highly susceptible to 
panic.
    I think you are going to go down in history as absolutely 
being the most irresponsible leader of a bank in the history of 
this country, to have 95 percent, almost all of your accounts 
uninsured. So not only were you exceeding the FDIC's insurance 
cap, but with this technology sector, making your bank highly 
susceptible to panic. So, let me ask you this, Mr. Becker, at 
any point leading up to March 10th, were you made aware of 
regulators' concerns regarding your bank's overreliance on 95 
percent of your bank account being uninsured deposits?
    Mr. Becker. Congressman, to my earlier point, given we are 
a commercial bank, we have always had a high level of uninsured 
deposits, and to my memory----
    Mr. Scott. You keep saying, ``a high level,'' all of them. 
I can't even imagine you are thinking that, and you are 
thinking the American people are not highly disappointed in 
your total disregard of their money in your hands, and you are 
not having it insured--less than 5 percent insured. Now, let me 
ask you this, who made the decision to maintain this reliance 
on uninsured deposits, given the warnings by our Federal 
regulators? Who made this decision, Mr. Becker, this foolish, 
irresponsible, and deceitful decision? Who made it?
    Mr. Becker. Congressman, as I said, that has been our 
business model for----
    Mr. Scott. Who made the decision, my friend?
    Mr. Becker. And that information----
    Mr. Scott. Was it you?
    Chairman Barr. The gentleman's time has expired. He can 
submit an answer in writing for the record.
    The gentlewoman from Missouri, Mrs. Wagner, who is also the 
Chair of our Subcommittee on Capital Markets, is now 
recognized.
    Mrs. Wagner. Thank you, Mr. Chairman. I want to thank our 
witnesses for appearing before the committee today. The 
reckless actions by you and your management put the paychecks 
of millions of Americans and thousands of businesses, some of 
which were in my district, Missouri's 2nd Congressional 
District, at great risk. The week SVB's failed, I had 
businesses that provide good jobs in my district left wondering 
if they would be able to even make payroll the following week.
    Yesterday, we discussed the supervisory failures, abject 
failures of the prudential regulators. It is now abundantly 
clear that they should have taken stronger enforcement actions 
after many, many citations, Matters Requiring Attention (MRAs), 
and Matters Requiring Immediate Attention (MRIAs), to prevent 
these collapses from happening. Today I want to hear from you 
all as to why your banks were insufficient in addressing a 
rising interest rate environment that started over 12 months 
ago.
    Mr. Becker, as interest rates increased at the most rapid 
pace in modern history because monetary policy had to battle 
runaway inflation, did supervisors at the Fed show extra 
attention to interest rate risk issues, and if they did, when 
did they begin to show that attention?
    Mr. Becker. Congresswoman, as I mentioned earlier, when I 
look at the supervisory findings, we had one MRA regarding 
interest rate risk, and it was mainly related to modeling. 
Again, to my memory, I don't recall that coming up as a major 
topic, what was the discussion that had been had the main one 
was around liquidity. And we, to my knowledge, addressed all or 
the majority of those findings during 2022.
    Mrs. Wagner. Mr. Becker, by March 8, 2023, when SVB 
announced that it was selling the available-for-sale portion of 
its securities portfolio, the Fed had already implemented 9 
interest rate hikes. Why didn't SVB attempt to sell the 
securities sooner?
    Mr. Becker. Congresswoman, the decisions around when to 
sell the securities and what to do is monitored and managed by 
our Asset Liability Committee and our Treasury Team and 
overseen by our Finance Committee of the Board. The first time 
that I recall coming up about the possibility of selling our 
available-for-sale portfolio was in the fall or towards the end 
of 2022. And it was decided that, at that point, it didn't make 
the most sense.
    There was a belief that the rapid rise in interest rates 
could create and likely would create a recessionary 
environment, and rates would actually start to go the other 
way. In the beginning of 2022 or 2023, we realized that was 
unlikely to happen, and we decided to then sell the portfolio.
    Mrs. Wagner. Mr. Becker, the Fed report notes that prior to 
2022, Silicon Valley Bank had interest rate risk hedges on some 
or all of its longer-dated maturities. The Fed report further 
notes that over the course of 2022, the bank pursued a strategy 
of dropping those hedges. Can you explain why you made the 
decision to drop these hedges?
    Mr. Becker. Congresswoman, two points, and I will then get 
to the answer to your question. The hedges that were in place, 
again set up by our Asset Liability Committee and our Treasury 
Team, were only on a portion of our available-for-sale 
portfolio, which was a much, much smaller portion of the 
securities portfolio. I don't recall the specific percentage, 
but it was actually a small percentage of the overall 
portfolio. As far as the decision to sell the hedges, that 
decision was made by our Treasury Team and our Asset Liability 
Committee.
    Mrs. Wagner. Would it have been more beneficial to your 
balance sheet to have kept those hedges as long as additional 
interest rate hikes were on the horizon, if the Fed was clearly 
going to keep raising interest rates?
    Mr. Becker. Congresswoman, I don't know the exact rationale 
behind it. I don't have that information.
    Mrs. Wagner. Such poor mismanagement, so reckless, so many 
paychecks, 2 million that were on the line, many of which were 
in my own district. I am just disgusted. Following up to Mr. 
Huizenga, and I would like you to answer this in writing, we 
were talking about your engagement with the FDIC on potential 
acquirers. You said that they did not engage you. I want to 
know if you were surprised that the FDIC did not take you up on 
that offer and if you knew how many acquirers, but you can send 
that to me in writing. Thank you. I yield back.
    Chairman Barr. The gentlelady yields back. The gentleman 
from Massachusetts, Mr. Lynch is now recognized.
    Mr. Lynch. Thank you, Mr. Chairman. I want to follow up on 
the gentlelady's line of questioning. Mr. Chairman, I would 
like unanimous consent to enter into the record an article from 
The New York Times dated December 15, 2021.
    Chairman Barr. Without objection, it is so ordered.
    Mr. Lynch. This article basically says that the Fed had 
made clear--this was in December of 2021, Mr. Becker--that a 
fresh set of economic projections released on Wednesday showed 
that Fed officials expected to raise interest rates, which were 
then set near zero, 3 times in the following year. Again, this 
was in December of 2021. The Fed went ahead and raised rates 7 
times in the following year, but said they were going to raise 
them 3 times. And you were still loaded up with long-term, low-
interest securities that were uninsured. So basically, you 
failed to anticipate the impact that a rising rate environment 
would have on those deposits, correct?
    Mr. Becker. Congressman, as I mentioned in my written 
testimony, and I think this is very important, our balance 
sheet is constructed, our asset side, with securities, and also 
loans----
    Mr. Lynch. Yes, I get that.
    Mr. Becker. Those loans are variable rate, meaning, as 
rates rise, we make more money, so my view is you have to look 
at the entire balance sheet.
    Mr. Lynch. Well, 97 percent of your deposits were 
uninsured--97 percent. Those are the first deposits to run. 
These are the canyons of bank deposits. They run the fastest 
and they run first, and you failed to appreciate what would 
happen when rates went up. The Fed made public their intent in 
December 2021 that they were going to raise rates. And this was 
a period where you didn't have a chief risk officer, correct?
    Mr. Becker. No, it is not.
    Mr. Lynch. It is not. So, what did your risk officer advise 
you at that point?
    Mr. Becker. Congressman, I don't recall specifically what 
the discussion was around that. I know that, again, my memory, 
is that----
    Mr. Lynch. Look, it shouldn't take a risk officer to figure 
this out. You had $91 billion of assets that were locked into 
long-term, low-interest securities--$91 billion. And as rates 
went up in 2022, the value of those assets plummeted, went from 
$91 billion to $21 billion, and everybody headed for the door. 
How could you not anticipate that? How could you not understand 
the impact of a rising rate environment on your deposit base? I 
don't get this, and I find it hard to believe that no one at 
the bank anticipated this. What is your response?
    Mr. Becker. Congressman, what is the specific question?
    Mr. Lynch. The question is, what was your alternative 
reality if you are not facing the facts? And if you are not 
acknowledging what is going on in front of you, what was the 
alternative scenario, the alternative reality that led you to 
keep these? This $91 billion in assets were held-to-maturity, 
so that really frightened people when you had to start selling 
those at a considerable loss and actually realizing the losses 
of this strategy. And I am just asking for an explanation of 
why you did what you did in this phase of what was going on?
    Mr. Becker. Congressman, it is a complicated answer. In the 
sense of looking at the balance sheet, you have to understand 
the assets. And again, our loans were variable rates, and they 
benefited from higher rates, so that is part of the equation. 
The other part----
    Mr. Lynch. Here is what gets me. Earlier in your testimony, 
you were blaming the Fed for not telling you what to do, not 
raising the interest rate issue with you. A high school student 
in economics or finance would have been able to figure out the 
danger that you were in. Mr. Chairman, I yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from Texas, Mr. Williams, is now recognized.
    Mr. Williams of Texas. Thank you, Mr. Chairman, and in full 
disclosure, I am a car dealer from Texas. And, Mr. Shay, in the 
recent New York State Department of Financial Services internal 
review regarding the supervision of Signature Bank, it showed 
that your bank did not develop a control framework in line with 
this growth and did not have a liquidity management plan that 
matched this risk profile. In the past, and leading up to 
Signature Bank's collapse, regulators had identified weaknesses 
in the bank's liquidity risk management, yet Signature's 
management failed to act on or remedy these warnings. You are 
in the position you are in right now because you failed to 
adequately manage your liquidity risk and positions.
    So my question is, when were you made aware of these 
liquidity risks and why were they ignored, and did you express 
any disagreement with the Federal regulators' findings when 
they were laid out to you?
    Mr. Shay. Yes, as chairman of the board, I was aware of 
these, and the bank was taking substantial steps to address 
them, including improving stress test modeling, improving other 
modeling, diversifying further deposit portfolio mix, limiting 
the amount of deposits, seeking additional resources of 
liquidity in terms, including issuing brokered CDs, which the 
bank had not previously done that were insured, entering into 
repurchase agreements or arranging to get into repurchase 
agreements, negotiating repurchase agreements with primary 
dealers, curtailing lending to lower the amount of need for 
deposits, and maintaining a high-quality lending portfolio as 
well as a shorter-term securities portfolio consisting of 
readily-marketable government agency and other securities.
    Mr. Williams of Texas. Okay. In 2022, we saw the Federal 
Open Market Committee (FOMC) raise interest rates at a speed 
that we had not experienced since the 1980s--and I remember the 
1980s--and a belated attempt to address the runaway inflation 
sparked by the partisan American Rescue Plan, which injected 
$1.9 trillion into the economy. This rise in rates caused the 
assets that the Silicon Valley Bank had invested in to decline 
in value. We know this, and when withdrawals at SVB began to 
rise at a rapid rate, these assets were sold at a loss.
    So, Mr. Becker, when the bank invested $80 billion in long-
term, mortgage-backed securities, was there a plan in place to 
adapt to rising interest rates and a decrease in value of these 
bonds? And Mrs. Wagner touched a little bit on that.
    Mr. Becker. Congressman, a couple of points. The first is 
that investments that were made in 2021 were invested in 
government securities, and those are very pledgeable. If you 
need liquidity, you can borrow against them. And by the end of 
2022, we had $69 billion of availability for liquidity at the 
end of the year.
    The second point is that those securities actually pay 
down, so roughly $12 billion per year of those securities would 
amortize down, and that was from the held-to-maturity 
portfolio. We also had availability with our available-for-
sale-portfolio and then our cash. So when we looked at it, we 
believed we had adequate liquidity to support several different 
scenarios.
    Mr. Williams of Texas. Okay. And, Mr. Becker, finally, the 
bank did not have a chief risk officer--I think you have talked 
about that--for 8 months between April 2022 and January 2023. 
This seems as if your team did not care about risk. And even 
though there were several warning signs that had been brought 
to light, you and your team did not think to address the risk 
and put someone in place to manage and mitigate those risks. 
You did, however, bring on a chief risk officer in January but 
that proved to be too little, too late.
    So, Mr. Becker quickly, during the time that Silicon Valley 
Bank did not have a chief risk officer who was overseeing the 
risk management framework, what efforts did you make to find 
and hire a qualified candidate?
    Mr. Becker. Congressman, I respectfully disagree with the 
characterization that we didn't take risk management seriously.
    Mr. Williams of Texas. You didn't have anybody in charge, 
but that is fine.
    Mr. Becker. We had a team of people, of senior executives 
in risk leadership positions. We created the Office of the 
Chief Risk Officer (CRO), that reported to me and reported to 
the Chair of our Risk Committee. And we were actively engaged 
in risk management broadly across the organization and being 
responsive to the regulatory feedback.
    Mr. Williams of Texas. It is kind of like, if in my car 
business selling cars, we don't have a sales manager. I yield 
back.
    Chairman Barr. The gentleman yields back. The gentlewoman 
from Ohio, Mrs. Beatty, is now recognized for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman. And thank you, 
ranking member. I am not sure where to start, so let me start 
with making this statement. I want to take a moment, Mr. 
Chairman, to acknowledge the hardworking Americans who were 
harmed by this glaring mismanagement at your banks. Public 
pension funds nationwide lost millions of dollars that were 
invested in Silicon Valley Bank and Signature Bank. In my 
hometown, my 3rd Congressional District, the home of the Ohio 
State Teachers Retirement System, took the biggest hit, with 
over $27 million invested in your bank. Meanwhile, with the 
reports that have come to light since the collapses in March, 
we know that executives at your bank earned millions of dollars 
in bonuses, stock sales, and increased executive compensation, 
while you ran the banks into the ground.
    And I don't need to go through it. We have heard it on both 
sides of the aisle, from failing to address Supervisory 
Recommendations, to taking on significant interest rate and 
liquidity risks, and inadequately matching the bank. Meanwhile, 
teachers, like my sisters, firefighters, and other public 
servants lost millions that were invested through your public 
pension funds.
    Let me do two things quickly. Mr. Scott ran out of time, so 
any one of you can answer his questions. Who made the decision 
to continue with these uninsured deposits? We will just go down 
the line. Just give me an answer. Who made the decisions? Mr. 
Becker?
    Mr. Becker. The decision around our uninsured deposits 
relates to our strategy, which has been our strategy----
    Mrs. Beatty. So, who implemented the strategy? Who did it? 
Who made the final decision?
    Mr. Becker. The strategy direction of SVB----
    Mrs. Beatty. Is your signature on it? Do you take 
responsibility for it?
    Mr. Becker. The board and myself.
    Mrs. Beatty. Okay. Thank you again, and thank you for 
earlier acknowledging and taking responsibility. Mr. Shay, your 
answer?
    Mr. Shay. Yes, the strategy of the Signature Bank was to 
serve mid-sized bank----
    Mrs. Beatty. Okay. But do you take responsibility for that 
strategy? ``Strategy,'' is the word. Who implemented it? Who 
was ultimately responsible? Is that you?
    Mr. Shay. That was the founding principle of Signature 
Bank.
    Mrs. Beatty. Mr. Roffler, same question.
    Mr. Roffler. The board of directors and executive 
management implemented a successful business strategy that 
lasted for 37 years.
    Mrs. Beatty. Okay. Because the clock is running, let me go 
into the next question, please. I have heard you have been 
there for 30 years, 12 years as the CEO, which is a lot of 
time, and a founder since 2000, co-founder of Signature Bank, 
CEO from 2009 to present. How much money did you make? What was 
your salary for 2022 and 2023 and bonuses? Salary and how much 
in bonuses, dollars and cents?
    Mr. Becker. For 2022?
    Mrs. Beatty. Yes.
    Mr. Becker. My salary was just over $1 million, and my 
incentive compensation was $1.5 million.
    Mrs. Beatty. Okay. Next?
    Mr. Shay. My last salary was $900,000, and a $1.7 million 
bonus.
    Mr. Roffler. My last salary was $990,000, and my bonus was 
$1.5 million.
    Mrs. Beatty. Okay. Let me start with you, Mr. Becker. You 
know what, ``MRA,'' stands for in, ``MRIA,'' right?
    Mr. Becker. I do.
    Mrs. Beatty. Everybody understands what that is, right? So, 
Mr. Becker, in the recent report on the failure of Silicon 
Valley Bank, the Federal Reserve stated that it issued multiple 
supervisory issues on MRAs and on MRIAs, 31 supervisory issues 
pertaining to capital planning and positions, liquidity and 
risk management, governance and control, all of these 
strategies you all talked about, including the Bank Secrecy Act 
(BSA) and Anti-Money Laundering (AML). And 12 of the 31 open 
issues on the MRIA, and for those watching who don't know, when 
you put the, ``I,'' in it, it means, ``immediate.'' That means 
it needed immediate attention. Can you explain to me, after 3 
years, why we still ended up with the collapse? You had not 
answered those 31, only 12.
    Mr. Becker. Congresswoman, as I said earlier, we were 
extremely responsive to the regulatory feedback, and all the 
matters you are describing----
    Mrs. Beatty. Do you know what those 12 were, because my 
time is running out. Do you know what they were?
    Mr. Becker. I can't speak to every single one, but I know 
that----
    Mrs. Beatty. I'm sorry. My time has expired.
    Chairman Barr. The gentlelady's time has expired. The 
gentleman from Georgia, Mr. Loudermilk, who is also the Vice 
Chair of the Financial Institutions Subcommittee, is now 
recognized.
    Mr. Loudermilk. Thank you, Mr. Chairman, and I appreciate 
you all being here today. This is a very important issue, as 
you are all aware.
    Mr. Becker, Chairman Andy Barr asked you about the 
departure of the chief risk officer (CRO) for Silicon Valley 
Bank. And in yesterday's hearing before the Senate Banking 
Committee, you said that this was spurred, at least in part, by 
recommendations from regulators who were concerned about her 
experience. Can you tell us a little bit more about the 
specific concerns that Fed regulators had about your CRO's 
experience?
    Mr. Becker. Yes, Congressman. As I described yesterday, the 
feedback was observations from the board of directors, from the 
regulators, from myself, and from an internal audit. And as we 
started to approach the $250-billion level, looking at 
individuals, especially in the risk area who had that 
experience of even larger institutions, was the feedback that 
we were getting. And that is what we acted on.
    Mr. Loudermilk. According to her public LinkedIn profile, 
she had over a decade of experience in enterprise risk 
management prior to her 6 years of SVB. In her 6 years of 
employment with you, what role did she play in developing the 
bond portfolio that contributed to SVB's collapse?
    Mr. Becker. Our chief risk officer would have sat on our 
Asset Liability Committee, and she would have been a voting 
member on that committee. Given that I wasn't on that committee 
and wasn't part of it, I don't know the discussions that she 
would have had in overseeing the overall portfolio and the 
strategy around it.
    Mr. Loudermilk. And I understand it takes time to find good 
executives, but why did you decide to dismiss her without 
having a successor already in place?
    Mr. Becker. As I mentioned earlier, based on the feedback, 
we thought it was best, and we consulted with the regulators, 
and clearly the board was driving this as the chief risk 
officer reports into the Risk Committee. And it was decided 
that having our chief risk officer on board as a consultant who 
is available made the most sense as we built out our Office of 
the Chief Risk Officer and had those senior leaders in risk 
management reporting to me and reporting to the Chair of our 
Risk Committee.
    Mr. Loudermilk. So, you felt that was better than just 
keeping her in an interim position?
    Mr. Becker. We did.
    Mr. Loudermilk. It has been reported that SVB's Risk 
Committee met 18 times in 2022, more than double the number of 
meetings in 2021. At any point during these meetings was the 
interest rate risk on SVB's balance sheet discussed?
    Mr. Becker. Congressman, the 18 meetings were on a variety 
of different topics. It was around governance and controls and 
looking at the metrics around what is called a risk appetite 
statement, which is, what level of risk are you willing to 
accept as an institution. So, the liquidity risk would have 
been the main area where that would have been stressed and that 
was definitely discussed.
    Mr. Loudermilk. Do you remember when the first time was 
that the interest rate risk was brought up?
    Mr. Becker. Again, my recollection was that liquidity risk 
was one of the metrics that was reviewed, so that would have 
been discussed across many of the Risk Committees going back 
for a long period of time.
    Mr. Loudermilk. Would you say that was one of the 
compelling reasons why you had double the number of meetings in 
2022 than you had in 2021?
    Mr. Becker. I wouldn't say that was the main reason or 
really the compelling reason. It was really overall enhancing 
our risk management across the entire platform, including 
governance. And we had changed the Risk Committee structure 
about a year earlier, so I was making sure that we had the 
right risk governance across the entire platform.
    Mr. Loudermilk. Also, I want to clear up some confusion 
regarding the Office of the Chief Risk Officer and the Risk 
Committee. Were these two entities the same, and if not, were 
they substantially similar in composition and function?
    Mr. Becker. The Office of the Chief Risk Officer was 
actually management level, so it did not include any board 
members. The Risk Committee was a board-level committee.
    Mr. Loudermilk. Okay. I see I am quickly running out of 
time and won't have time for additional questions, so I will 
submit those for the record.
    And, Mr. Chairman, I yield back.
    Chairman Barr. Thank you. The gentleman yields back. The 
gentleman from California, Mr. Vargas, is now recognized.
    Mr. Vargas. Thank you very much, Mr. Chairman. I want to 
thank you again and the ranking member for putting this 
together. I appreciate it. I actually don't like being in the 
position that we are in today: failure. I am a religious 
liberal. I believe in God's mercy and redemption. And when 
someone is poor and does something wrong, I believe in 
redemption for them, and when someone is rich and fails, I 
believe in redemption for them, so I am not going to stand here 
and beat you up. I am not going to do that. I am obviously 
disappointed, as I think as all of us are, and I hope that you 
will cooperate with the government so we can fix some of the 
problems.
    And one of the problems that I see is that it seems like 
all of your banks were reactive and not proactive in this 
situation. I think you are calling it unprecedented 
circumstances and events, and I agree with that. When you move 
so much money, a run on the bank that is so quick and 
digitalized, it is unforeseeable--not unforeseeable, but again, 
it is unprecedented.
    What can we do? To begin, I know those on the other side of 
the aisle usually think of deregulating in a situation like 
this. Probably most of us on this side of the aisle, certainly 
me, think about regulations, not deregulation, what can we do 
in this situation, the situations you find yourselves in for 
banks not to have this problem. I see that this could affect 
virtually any bank, except for the really big ones. Any time 
that social media or short sellers decide to manipulate the 
stock, they can do that quite quickly through social media, and 
all of a sudden, money can be moved.
    What can we do? What can the government do to prevent this 
so people don't lose their money? Who would like to take that? 
Mr. Roffler, why don't you take a shot at it first?
    Mr. Roffler. Sure. Congressman, it is a very good question. 
And obviously, reflecting on the last 60 days, one that I have 
thought about frequently. And sitting here today, it is very 
hard for me to give any good advice for that because as we 
learned through March 9th, we were in a strong position. Yes, 
2023 was going to be a bit more challenging than 2022 from an 
earnings standpoint, but when contagion hit after the failures 
of the two other banks, panic set in. And I think my 
recommendation to others would be----
    Mr. Vargas. But is there any trigger? For example, yes, 
that panic hits at Wall Street, too, so we have put in 
triggers. We have put in things that slow the system down. Is 
there anything we could do for that to slow the system down, 
because I think that the banking system is sound. It is 
resilient, it is sound, but there is always the opportunity for 
panic. And there is always the opportunity to make money in a 
panic. Not everyone lost money in this deal. Short sellers made 
money. I think we need to investigate them to find out what 
happened. Is there something that we can do, some triggers, 
something that the government can put in place so we don't have 
these runs on the bank?
    Mr. Roffler. I would share that on March 12th, I think they 
adopted one of the lending programs which banks could utilize, 
and I think banks did utilize that successfully, so I think 
that was a good step. But at the end of the day, when the panic 
sets in, it is really hard to regain confidence. And absent 
some evaluation of the insurance on deposits, which I think the 
FDIC is requesting comments or offering a proposal on, I think 
that is one thing that would be worth looking at because that 
can at least calm the waters.
    Mr. Vargas. Mr. Shay, same question. Thank you, sir.
    Mr. Shay. I can't give you a solution, but I can tell you 
that I believe it is a problem that needs to be fixed, and I 
certainly saw it and felt it that Friday afternoon. It was 
literally nothing. The customers didn't want to hear anything 
that I spoke to. They just wanted to get to, I remember, I need 
to get my money to JPMorgan Chase because the government won't 
let them go. I need to get my money to Citibank because the 
government saved them once, so they will save them again. It 
was panicked calls. I need to get my money to a too-big-to-fail 
bank because they might let you go. I am not a bank analyst. I 
don't know banking. I am just running a plumbing supply area. I 
am running a school bus, operating business. I am running a 
healthcare provider service----
    Mr. Vargas. Okay. My time----
    Mr. Shay. Most of them have deposits well in excess of the 
insured, and they didn't want to miss payroll, and so that was 
really very----
    Mr. Vargas. My time is up, but I appreciate your answers. 
But I do think we need to take a look at that, because I do 
think when the panic sets in, there is no way to stop it unless 
it is insured. Thank you, Mr. Chairman.
    Chairman Barr. The gentleman yields back. The gentleman 
from Tennessee, Mr. Rose, is now recognized.
    Mr. Rose. Thank you to our chairmen and ranking members, 
and thank you to our witnesses for being here. I know it is not 
an easy environment, so I appreciate you being here to share 
your insights with us.
    I want to back up, and if all three of you will hang with 
me for a second, go back 3 years or so and think about where 
you were and what decisions you were making in your banks. And 
then, let's imagine that you could have seen forward, that your 
crystal balls were working particularly well.
    I will start with you, Mr. Becker. If you had known that in 
2022, inflation would reach a 40-year high, would you have 
managed the bank differently going into that period?
    Mr. Becker. Congressman, I think about your question a lot 
in hindsight, and I think that is very hard because I go back 
and think about the decisions that were made. We didn't have 
access to that information. We only had the information that 
was available to us at the time.
    Mr. Rose. But let's imagine if you had known that and you 
could have anticipated the attendant reactions to that. My 
guess is you would have made different choices. Is that true?
    Mr. Becker. I think if we knew and our team that was making 
investment decisions would have known that there was going to 
be the fastest rate rise in 40 years, yes.
    Mr. Rose. And you have anticipated my next question. If you 
could have foreseen the fastest rate rise in history, you 
definitely would have managed your balance sheet differently?
    Mr. Becker. I think it is likely we would have managed our 
balance sheet differently.
    Mr. Rose. And, Mr. Shay, same two questions. If you could 
have foreseen the inflation rate and then the attendant rise in 
interest rates, you would have made different decisions, right?
    Mr. Shay. I can't say what we would have done 
hypothetically, but what I can say is that the plan that 
Signature Bank presented to open on Monday, March 12th, assumed 
that we were selling the entire available-for-sale-portfolio, 
taking any losses that were there, and still were well-
capitalized after that and met all regulatory definitions. So, 
the Signature Bank portfolio of available-for-sale was of a 
controlled interest rate risk and it was an issue but not the 
one that would have caused the bank to even be not well-
capitalized under regulatory standards.
    Mr. Rose. Mr. Roffler?
    Mr. Roffler. Thank you for your question, Congressman. I 
have thought about it a lot, and the reality is for the last 3 
years, and, frankly, the 37 years of our bank's history, our 
goal each and every day when we woke up was to serve clients, 
and that is what we did. We help people buy homes, we help 
nonprofits, we help small businesses, and we will continue to 
do that. And I think the events that unfolded on March 10th 
were entirely unforeseeable. When contagion and panic spread, 
it is very hard to control, so I think that our business 
model--we were profitable, we were strong, we were well-
capitalized, and everything changed on the morning of March 
10th.
    Mr. Rose. If the Fed had opened the discount window, 
allowing you to borrow against your bond portfolio at par 
before this all happened, and I will direct this to you, Mr. 
Becker, would that have changed things? Do you think you would 
be sitting in a different place if that facility had existed 
in, say, February and after?
    Mr. Becker. Congressman, I actually don't know the answer 
to that question. I think it would have been hard because of 
the fact that on Thursday, there was $42 billion, and on 
Friday, there was $100 billion requested to be exited from SVB. 
I don't know if that would have helped or not, or would have 
helped. I don't know if it would have protected against the 
bank run.
    Mr. Rose. And I am wondering, Mr. Becker, your bank had an 
extremely concentrated level of risk or deposits in certain 
areas. What caused you and your management to believe that 
those deposits would be sticky if the waters got choppy?
    Mr. Becker. Yes. As previously mentioned, that has been our 
model since I can recall, working with technology and 
innovation companies. And our goal at the end of the day was to 
serve them in a way where that loyalty would be created by 
being in the best place for them to operate, which I believe is 
exactly what we delivered on, and that is what we believe had 
to happen. That is what history had taught us, and so we 
believe that to be the case.
    Mr. Rose. And in my remaining few seconds, I am wondering 
if your bank ever turned down deposits, as you grew at an 
extremely fast pace? Was there ever a time when you said, we 
better not take any more deposits from this customer? Please, 
if you will answer that in writing for the record.
    My time has expired. I yield back.
    Chairman Barr. You can give a really quick answer.
    Mr. Becker. Yes. The majority of the cash that came in that 
I talked about with the growth came from existing clients, and 
so coming from existing clients, we felt that the right thing 
to do was to take those deposits.
    Chairman Barr. You can answer the rest in writing for the 
record. Thank you.
    The gentleman from Illinois, Mr. Casten, is now recognized.
    Mr. Casten. Thank you, Mr. Chairman, and thank you all for 
what I know is a long, difficult day here.
    Mr. Becker, lots of my colleagues have talked about the 
fact that your chief risk officer was terminated in April 2022. 
I think your written testimony mentioned that that was under 
some constructive pressure from regulators. You didn't disclose 
that you were operating without a risk officer until your proxy 
statement at the beginning of 2023. Were regulators aware of 
that decision to delay the announcement to your shareholders 
that you were operating without a chief risk officer?
    Mr. Becker. Congressman, the decisions around disclosures--
we have a process that we would go through. The Legal Team 
would drive that.
    Mr. Casten. I am just asking--we have an oversight response 
with regulators. Were regulators aware of that decision to go 
11 months without notification to your shareholders?
    Mr. Becker. I know the regulators were aware of the 
decisions around the chief risk officer. I don't know if they 
were aware of any disclosures.
    Mr. Casten. Okay. But presumably, it was your opinion that 
that was not a materially significant fact to disclose for 11 
months?
    Mr. Becker. Congressman, the decision around disclosures is 
made by, it is a process----
    Mr. Casten. Okay. But you are the CEO. During that 8- to 9-
month period, you doubled your number of risk meetings. Did 
regulators participate in those Risk Committee meetings?
    Mr. Becker. Congressman----
    Mr. Casten. Yes or no?
    Mr. Becker. ----in the risk meetings that I was in, I don't 
recall them participating.
    Mr. Casten. Did you participate in all of those meetings?
    Mr. Becker. I did.
    Mr. Casten. Okay. You mentioned in your opening remarks 
that March 8th, which was the day that shall live in infamy, 
you announced the sale of equity to Goldman. You mentioned the 
Signature Bank collapse. That was also the day that you 
announced the booked, I think, $1.8 billion loss on the sale of 
bonds also to Goldman. When did you initiate the process of 
selling equity and debt to Goldman that commenced on March 8th?
    Mr. Becker. To clarify, Congressman, the sale of the 
securities was to Goldman. The issuing of new shares and 
securities to raise equity was not to Goldman. They were our 
investment----
    Mr. Casten. But when did you initiate the process with 
Goldman on both the equity and the debt transactions that 
culminated on March 8th?
    Mr. Becker. We started those discussions on the last day or 
two of February.
    Mr. Casten. Okay. And you had mentioned concerns about 
liquidity risk and interest rate risk. Was that in response to 
those concerns? And when were those concerns raised that would 
have caused you to initiate the process to raise equity and 
sell debt?
    Mr. Becker. Again, my recollection is that towards the end 
of February, our CFO and I were having a conversation about, if 
you look at the last roughly 2 weeks to 3 weeks, the 10-year 
Treasury had jumped significantly----
    Mr. Casten. I am not looking for the why, I am just trying 
to understand the calendar of who knew what, when, because on 
March 8th--you are saying you started the process at the end of 
February. When were there concerns raised that you needed to 
start this process? Was that the day before? Was it in January?
    Mr. Becker. Congressman, there were concerns raised that 
forced us to do that.
    Mr. Casten. Okay.
    Mr. Becker. We decided to do it and we talked about it at 
the end of February, and we engaged our board, we engaged our 
regulators, and we talked to them about the process.
    Mr. Casten. Okay. And I am sorry to cut you off, but I want 
to get to something else. You sold $3.6 million of stock 
personally on February 27th, which would have been right about 
that time. I understand that process was initiated on January 
26th. Given all that was going on, did your Risk Committee sign 
off on that sale?
    Mr. Becker. And this has been the process for as long as I 
have been at the bank, that when you want to sell stock, you 
put together a 10b5-1 plan.
    Mr. Casten. I am just----
    Mr. Becker. It is reviewed by our Legal Team.
    Mr. Casten. Okay. But given the timing, you understand my 
question. Did the Risk Committee sign off or was this just that 
they were notified?
    Mr. Becker. I don't think the Risk Committee would have 
been notified. It was the Legal Team that would have concurred 
with my belief they would have material information.
    Mr. Casten. Okay. You have mentioned several times that you 
don't recall any discussion around interest rate risk prior to 
2023. Do you recall concerns that you are over-insured against 
interest rate volatility?
    Mr. Becker. Can you clarify the question, Congressman?
    Mr. Casten. You have said you don't recall concerns that 
you had an exposure to interest rate risk, and yet you sold 
down 97 percent of your interest rate hedges on your available-
for-sale portfolio during 2022. So, was there a concern raised 
that you were over-insured against that risk, because there was 
a decision made to essentially take on long-term risk in 
exchange for short-term transferred equity.
    Mr. Becker. As previously mentioned, as far as the 
decisions around the hedges, two points, one is, it was against 
the available-for-sale portfolio, which is the smallest----
    Mr. Casten. Yes, but it was 97 percent. You started with 
$15.3 billion insured, and you ended 2022 with $563 million 
insured.
    Chairman Barr. The witness can answer the rest of the 
questions in writing for the record.
    And we will take a brief 5-minute recess to allow our 
witnesses to take a quick break. I would ask that they return 
promptly, and we will return just a little after the top of the 
hour.
    The committee stands in recess.
    [recess]
    Chairman Barr. The committee will come to order. Thank you 
for everyone's indulgence on the break.
    The Chair now recognizes Mr. Meuser for 5 minutes.
    Mr. Meuser. Thank you, Mr. Chairman. I would like to start 
with a question for each of you. Mr. Becker, how many Matters 
Requiring Attention (MRAs) did your bank receive?
    Mr. Becker. We had 31 at the end.
    Mr. Meuser. Thank you. Mr. Shay, how many did you receive?
    Mr. Shay. I don't recall.
    Mr. Meuser. Was it more than zero?
    Mr. Shay. I don't recall.
    Mr. Meuser. You don't recall?
    Mr. Shay. It was more than zero, but I don't recall.
    Mr. Meuser. Mr. Roffler, how many?
    Mr. Roffler. We had zero.
    Mr. Meuser. Zero. How is it zero if you eventually 
collapsed?
    Mr. Roffler. As I mentioned earlier, I think as part of my 
testimony, the bank maintained very strong communicative 
relationships with our regulators. We addressed feedback as it 
was received. They provided Supervisory Recommendations, and we 
addressed them. If you think back to March 9th, it was a very 
strong day for the bank, and the bank was in a strong financial 
position. And we were actually benefiting from some of the 
uncertainty relative to other banks, and on March 10th, 
everything changed.
    Mr. Meuser. Fine, but why you? Why were you perceived as 
next?
    Mr. Roffler. It is a very good question, and this one I am 
not sure I can answer. I think on March 9th, late in the day, 
similar to what we were discussing earlier, there were some 
social media posts linking First Republican and Silicon Valley 
Banks. I am not sure if it was geographic-based, or if it was a 
small client overlap base.
    Mr. Meuser. Thank you. Mr. Becker, when your bank was 
reviewed by the Fed in 2021 and 2022, they alerted your bank 
that the risk management programs were not effective and that 
the liquidity risk management practices were below supervisory 
expectations. What was your reaction to these communications 
from the regulator?
    Mr. Becker. Congressman, maybe two points around that. One 
is, we certainly take all the regulatory feedback into 
consideration and respond as quickly as we can. The second 
clarifying point is really how we were rated. The LFI rating 
for liquidity was the second-highest rating that could have 
been given. Under the CAMELS rating, we were the second-highest 
rating under liquidity as well.
    Mr. Meuser. Did your Senior Leadership Team give you a 
rating that high? They actually see a hurricane. Nobody 
perceived any sort of hurricane winds coming in and, hey, we 
need a bigger boat. We might be running into trouble. No one 
felt that you had any concerns in your investment portfolio or 
your type of deposits. You needed a regulator to tell you that?
    Mr. Becker. Congressman, we looked at several things. One 
is our capital----
    Mr. Meuser. Regulators missed it, and your management team 
missed it?
    Mr. Becker. Congressman, the capital ratios that we had 
were exceptionally strong. And our liquidity at the end of the 
year, we had $69 billion worth of borrowing access plus cash.
    Mr. Meuser. I know some of the numbers but----
    Mr. Becker. We certainly believe we had----
    Mr. Meuser. But you didn't have any conversations with the 
regulators during this time--Hey, guys, we have 57 percent 
Treasuries, Jerome Powell is saying interest rates are going 
up, we are losing billions of dollars, most of our deposits are 
beyond the FDIC insurance. Didn't those conversations take 
place?
    Mr. Becker. Congressman, we were talking about risk 
management on a regular basis. And we looked at our risk 
appetite statement in the metrics, and if there were any 
concerns, we addressed them as quickly as we could.
    Mr. Meuser. Okay. In November 2022, interest rate risk 
simulations were not reliable. You received that notification 
from the Fed. No alarms went off?
    Mr. Becker. Can you repeat that question?
    Mr. Meuser. In November of 2022, the Fed issued you a 
supervisory statement, ``Interest rate risk simulations are not 
reliable.'' Your bank, no?
    Mr. Becker. The answer to the question----
    Mr. Meuser. You reviewed it in November of 2022.
    Mr. Becker. Yes.
    Mr. Meuser. And you received the high-risk rating, yet 
nothing was really done. That was in November of 2022.
    Mr. Becker. The response that we provided to interest rate 
risk management and liquidity risk management was throughout 
2022 and in 2023. And we were working on managing the higher 
interest rates, making sure we had enough liquidity to support 
our clients, and making sure that we were taking care of 
interest rate risk----
    Mr. Meuser. I don't know in what business world that sounds 
reasonable, but it doesn't to me.
    Mr. Shay, I am going to move on. Signature Bank's collapse, 
according to the FDIC, was due to poor management and that you 
did not heed FDIC examiners' concerns and were not responsive 
to addressing FDIC Supervisory Recommendations. What do you say 
to that?
    Mr. Shay. As chairman of the board, I believe that 
Signature Bank was actively addressing regulatory----
    Mr. Meuser. I yield back, Mr. Chairman.
    Chairman Barr. The gentleman yields back. The gentlewoman 
from Massachusetts, Ms. Pressley, is now recognized for 5 
minutes.
    Ms. Pressley. Thank you. Some of my colleagues have 
characterized your time spent here today as possibly being 
uncomfortable. I am really okay with that. Personally, I am 
good with you being uncomfortable because my constituents in 
the Massachusetts 7th District were very uncomfortable when SVB 
collapsed. They were afraid in the face of uncertainty about 
the status of their mortgages. Tech companies couldn't make 
payroll. Small businesses were unable to receive payments, so 
they were very uncomfortable. So, I am quite fine with you are 
being uncomfortable today. True enough, the FDIC acted quickly 
to make depositors whole. Today's hearing was still necessary 
because this tragic, avoidable sequence of events demands 
accountability.
    Mr. Becker, your opening statement today and your responses 
to questions mirror your testimony before the Senate yesterday. 
Lots of finger pointing, blaming, passing the buck, blaming 
social media, contagions, a 2018 Republican bill, which you 
lobbied to help pass, and even your own employees. Now, this 
question might feel a bit like Groundhog's Day, but here it is, 
and I want a yes-or-no answer because I don't have the patience 
for filibustering, and the American people deserve more than 
the niceties of a committee hearing.
    So yes or no, do you accept responsibility for the harm and 
damage caused by your actions across the financial system and 
to my constituents in the Massachusetts 7th? Mr. Becker, yes or 
no?
    Mr. Becker. Congresswoman, I accept responsibility for the 
decisions that were made----
    Ms. Pressley. Yes or no?
    Mr. Becker. ----at the time.
    Ms. Pressley. Yes or no? Do you accept responsibility?
    Mr. Becker. I accept responsibility for the decisions that 
were made. With the information that we had at the time, we 
made those decisions.
    Ms. Pressley. Okay. The bank failed on your watch. Between 
2018 and 2023, the Federal Reserve issued 68 Matters Requiring 
Attention (MRAs) and Matters Requiring Immediate Attention 
(MRIAs), which highlighted the liquidity and risk management 
deficiencies of SVB. Building upon the questions of my 
colleague across the aisle, were you aware of these supervisory 
notices? Yes or no?
    Mr. Becker. Congresswoman, I disagree----
    Ms. Pressley. Yes or no?
    Mr. Becker. ----with the numbers that you were using----
    Ms. Pressley. Yes or no? You are a very smart man. Yes or 
no?
    Mr. Becker. I was aware of the 31 regulatory findings.
    Ms. Pressley. Okay. So, SVB was definitely aware of these 
notices, yet you and your executives repeatedly ignored them. 
You failed to address the obvious risks that were repeatedly 
pointed out to you year after year after year. You blame social 
media, you say similar banks experienced the same thing, so it 
is not your fault for what happened, ultimately.
    Failure to address risks after 68 supervisory notices is 
absolutely unacceptable. Yet throughout the last 5 years, your 
pay skyrocketed, and you continued to reap the benefits of 
mismanaging your risk. Maybe that is why you are not as 
uncomfortable as I think you should be today, because you are 
sitting on a $1.5 million bonus. You received over $9.9 million 
last year in compensation, as well as a $1.5 million bonus, 
despite your tremendous failure to manage obvious risks. Do you 
think that you truly earned your salary and your bonus? Yes or 
no?
    Mr. Becker. Congresswoman, to clarify the numbers that you 
are talking about, the incentives that were set up by the 
board----
    Ms. Pressley. Please don't tell me that you trust the 
board. That is a cop-out. Yes or no? Again, way to fail up. 
That is just consistent for so many reasons, but the answer is, 
no, you have not truly earned your salary or your bonus, and 
that is why we need accountability. The American people deserve 
accountability. That includes clawing back bonuses, and 
investigating you for gross negligence, malpractice, and greed. 
Congress must reverse the dangerous deregulation that you 
lobbied for and send a strong message to bank CEOs that risky 
behavior that jeopardizes our financial system will have severe 
consequences. I yield back.
    Chairman Barr. The gentlelady yields back. The gentleman 
from South Carolina, Mr. Timmons, is recognized.
    Mr. Timmons. Thank you, Mr. Chairman. We currently have $32 
trillion in debt. Our debt-to-GDP ratio is 120 percent, the 
highest it has ever been, and, yes, we have a debt ceiling 
fight running right up to the deadline. But Congress spent $7 
trillion, of which $5 trillion was done mostly on party-line 
votes. The Democrat Majority has not only spent money we don't 
have, but their fiscal policy has caused out-of-control 
inflation, from which we can draw a direct line to the failure 
of your banks, give or take some gross mismanagement on your 
part.
    The Democrats' $7 trillion in unnecessary spending over the 
last 4 years has caused inflation. My colleagues across the 
aisle disagree with that causal relationship, but I think they 
are the only ones still trying to defend their opportunistic 
government handouts. I think your failed banks are the first 
casualties of the Democrats' spending spree, and I think your 
banks are just the beginning. I think all of your employees who 
no longer have jobs will soon be joined by more hardworking 
Americans, but I guess let's turn back to the gross 
mismanagement issue.
    Mr. Becker, do you feel that recent reports written by the 
Federal Reserve and the California Department of Financial 
Protection and Innovation are fair assessments of what happened 
before and up to when your bank was placed in receivership?
    Mr. Becker. Congressman, the feedback that I think was in 
the GAO report was accurate in the sense that we were 
responsive to the regulatory feedback and we are actively 
remediating any concerns that were brought up. So, I believe we 
were very, very attentive to the feedback we were receiving.
    Mr. Timmons. The Fed's report on your bank's failure lays 
blame with you and your Senior Management Team. Can you please 
describe the organizational structure of your risk management 
team, starting with you, then the CRO, and on down from May 
2022 to January 2023?
    Mr. Becker. Yes, and I will start Congressman, at the 
highest level. We have the board of directors, which is 
responsible for the overall governance of the institution. We 
have a Risk Committee that is responsible for the oversight of 
the risk of the institution. That Risk Committee has oversight, 
again, over the risk of all of SVB. You had oversight. We had 
several management risk committees, one of which reported 
directly up to the Risk Committee. We had what would be called 
three lines of defense. We had internal audit, which reported 
to our Audit Committee. We had a risk structure that reported 
to the Risk Committee.
    Mr. Timmons. But as you previously testified, you didn't 
have a chief risk officer during that time. Is that correct?
    Mr. Becker. We had an Office of the Chief Risk Officer for 
the majority of 2022.
    Mr. Timmons. But not in the last 8 months prior to the 
bank's failure?
    Mr. Becker. We had an Office of the Chief Risk Officer that 
was overseeing risk management for the institution.
    Mr. Timmons. Okay. Can you also just explain to me the 
concept of, ``safe space catch ups?'' What was that in SVB, 
``safe space catch ups?'' It has been widely reported that your 
bank spent enormous amounts of time with your executives 
promoting, ``safe space catch ups,'' basically, a diversity, 
equity, and inclusion endeavor to make people feel welcome in 
the bank.
    Mr. Becker. Congressman, that does not ring a bell with me. 
I don't know what that would relate to.
    Mr. Timmons. Can you estimate how many of your senior risk 
officers were also leaders in your company-wide diversity, 
equity, and inclusion program?
    Mr. Becker. Congressman, I don't know the answer to that 
question.
    Mr. Timmons. Your website, prior to it being shut down, had 
enormous amounts of emphasis on that. And it seems that there 
was a lot of time spent on things that do not cause banks to 
succeed and things that make people feel good, and I think that 
was part of the problem.
    Moving on, some are proposing increased capital 
requirements going forward, and I am going to ask each of you 
this question. Would increased capital requirements have 
avoided your bank from failing? Mr. Becker?
    Mr. Becker. I can't comment on that because I don't know 
what the requirements would be in this structure.
    Mr. Timmons. If they were 50 percent higher, if they were 
100 percent higher than the previous capital requirements. They 
are proposing 10 percent, but----
    Mr. Becker. I don't know the answer to that question, 
Congressman.
    Mr. Timmons. Mr. Shay, would increased capital requirements 
have caused your bank to not fail?
    Mr. Shay. I don't think so. There is one depositor I spoke 
to on Friday afternoon who said, unless you have a dollar of 
cash in your vault for every dollar, I have to move to a too-
big-to-fail bank.
    Mr. Timmons. And Mr. Roffler?
    Mr. Roffler. I would say that the capital requirements we 
have now are very strong, and I think any change that might be 
considered should consider the impact on regional banks and 
community banks and be careful to not have a one-size-fits-all 
approach. Because I grew up in a small town in Wisconsin, I 
know the importance of community banks, and you want to make 
sure they can continue to provide the service and support the 
communities because they are so integral.
    Mr. Timmons. I think we agree on that. Thank you. Mr. 
Chairman, I yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from Nevada, Mr. Horsford, is now recognized.
    Mr. Horsford. I thank the chairmen and the ranking members 
for the hearing. I have some very specific questions, so, 
again, if you could respond with brevity. Mr. Becker, do you 
take any accountability for Silicon Valley Bank's failure? Yes 
or no?
    Mr. Becker. Congressman, I was the CEO of the institution, 
so I am responsible for Silicon Valley Bank.
    Mr. Horsford. Mr. Roffler, do you take any responsibility 
for First Republic Bank's failure?
    Mr. Roffler. As I said earlier, regardless of what caused 
this, I take responsibility for our clients and for our 
employees every day, and making sure they are taken care of and 
supported.
    Mr. Horsford. Mr. Shay, do you take any responsibility for 
Signature Bank's failure?
    Mr. Shay. Mr. Chairman, I believe that I fulfilled my 
responsibilities responsibly.
    Mr. Horsford. What is very troubling about each of your 
responses is the idea that your lack of governance and 
oversight and mismanagement has disrupted the entire regional 
bank echo system in our country. And as a result, our committee 
and other committees of jurisdiction are now having to step in 
to figure out what we can do to help protect small businesses 
and other depositors to make sure that their lives are not 
further impacted. So, it is mind-boggling to me that you can't 
take full responsibility for your actions. Do you agree with 
GAO's statement that your banks' failures had to do with poor 
governance and unsatisfactory risk management practices? Yes or 
no, Mr. Becker?
    Mr. Becker. Congressman----
    Mr. Horsford. Yes or no?
    Mr. Becker. I take ownership for the decisions that were 
made.
    Mr. Horsford. Yes or no, do you agree with GAO's statement 
that it was poor governance and unsatisfactory risk management 
practices?
    Mr. Becker. Congressman, I take responsibility for the 
decisions that I made.
    Mr. Horsford. That is a non-answer. Mr. Shay, do you 
disagree with GAO's statement that your bank's failure had to 
do with the poor governance and unsatisfactory risk management 
practices?
    Mr. Becker. I can't speak for the regulators. I believe the 
reason for Signature's closure was due to the extraordinary 
events that happened on that day.
    Mr. Horsford. Mr. Roffler, same question.
    Mr. Roffler. Congressman, I don't believe the GAO report 
spoke to First Republic.
    Mr. Horsford. To be clear, GAO's assessment clearly 
indicated that it was due to mismanagement of the two banks in 
particular. And I believe that if a bank fails due to 
misconduct and mismanagement, then executives should be held 
financially accountable. That is what the average person, the 
average worker, the average consumer has to deal with when they 
make decisions. Out of curiosity, Mr. Becker, did you receive a 
compensation package after your departure from Silicon Valley 
Bank upon its failure, and if so, do you mind disclosing how 
much?
    Mr. Becker. After I was terminated in March, I did not 
receive a compensation package.
    Mr. Horsford. Mr. Roffler, did you receive a compensation 
package after your departure from First Republic Bank upon its 
failure, and if so, do you mind disclosing how much?
    Mr. Roffler. I have not received a compensation package 
following the closure of First Republic.
    Mr. Horsford. Mr. Shay, same question.
    Mr. Shay. No.
    Mr. Horsford. So, let me ask a different question. Should 
bad behavior or poor judgment or terrible management be 
financially rewarded? I think, absolutely not. And while we 
continue to hear very concerning reports that executives are 
taking huge payouts as banks fail, I am left to wonder, as many 
of my constituents are, if your compensation packages 
incentivized this crisis in the first place? And what is so 
frustrating to me and a lot of my colleagues about all of this 
is that somehow you feel as if you shouldn't be held 
accountable.
    Meanwhile, hardworking Nevadans and Americans across the 
country are held to higher standards of accountability in the 
work that they do each and every day. If an ordinary American 
took more money out of their account than what was actually 
available, they would be charged an overdraft fee. If an 
ordinary American was one day late paying a credit card bill, 
they would be charged a late fee. Yet when a bank executive 
poorly manages their bank, which eventually fails, they are 
paid multi-millions. This is what is wrong. This is what is 
broken and it must be fixed.
    Chairman Barr. The gentleman's time has expired. The 
gentleman from South Carolina, Mr. Norman, is recognized.
    Mr. Norman. Mr. Becker, I think earlier you mentioned you 
had been in banking for 30 years, 12 of those as CEO?
    Mr. Becker. Yes.
    Mr. Norman. Mr. Shay, how long have you been in banking? 
How long have you been in the banking arena? I know you were a 
director, but how long have you been in the banking sector? How 
many years?
    Mr. Shay. About 30 years.
    Mr. Norman. Thirty years.
    Mr. Shay. Thirty or more years.
    Mr. Norman. Mr. Roffler, how long have you been involved in 
the banking arena? How long have you been employed as a banker?
    Mr. Roffler. I have been a First Republic employee for 13 
years, and before that, I was with KPMG.
    Mr. Norman. For how long?
    Mr. Roffler. Sixteen years.
    Mr. Norman. Okay. All of you have seen ups and downs in the 
market. I am in the real estate world in a development role. It 
has ups and downs. Mr. Becker, I find it hard to believe that 
your company grew from, I think $40 billion, up to $210 
billion. I find it hard to believe that, particularly with the 
CAMEL ratings that you all had received and warnings, whether 
it is an MOU in writing, or as you described it, in words--it 
really was an MOU, is more of a conversation----that to not 
hedge your bets on the deposits, 94 percent on insured. How did 
you come to that conclusion? I know you paid higher returns, 
but was that with 94 percent of your deposits being above the 
$250,000? How did you rationalize that?
    Mr. Becker. Congressman, that was our business model that, 
again, in my entire history, we had commercial clients and 
technology and life science clients, and they tend to have 
higher levels of deposits. That was our strategy.
    Mr. Norman. Well, you took their money and you put it in an 
asset with $21 billion in securities, that you sold at an $1.8-
billion loss. Is that correct?
    Mr. Becker. On March 8th, we contemplated raising 
additional capital and selling our available-for-sale 
securities portfolio, as I articulated in my written testimony.
    Mr. Norman. Okay. And you mentioned that you all were 
without a risk officer for 8 months. You have roughly a little 
over 2,000 employees. Did you happen to have a credit analyst 
or a financial analyst or fund manager in that 2,000-employee 
number?
    Mr. Becker. Congressman, to clarify, we had over 8,000 
employees, and we had roughly 1,000 employees who had the 
majority or all of their responsibilities in risk management.
    Mr. Norman. Nobody questioned what you were doing with the 
funds?
    Mr. Becker. Congressman, the investments that were made in 
2021 by our Treasury Team and overseen by our Asset Liability 
Committee were invested in government securities.
    Mr. Norman. Okay. It wasn't a good decision, was it?
    Mr. Becker. Congressman, the decision that was made, I 
believe was in the best interest with the facts that they had 
at that time.
    Mr. Norman. Okay. Let me ask the question a little bit 
differently. I know my friend on the other side mentioned 
compensation. Were bonuses paid out in the last month, or close 
to the time that the Fed took over?
    Mr. Becker. The 2022 incentive compensation payments as 
determined----
    Mr. Norman. Were bonuses paid out?
    Mr. Becker. Bonuses, incentive compensation payments, were 
determined at the beginning of the year and paid out, I 
believe, on March 9th. That date was determined by our HR 
Department and our Finance Team earlier in the year. That date 
was not changed.
    Mr. Norman. But were the bonuses paid out after you had 
gotten notice of the problems that you had at Silicon?
    Mr. Becker. Congressman, the findings that we had, the 
regulatory findings we were responsive to, and----
    Mr. Norman. Were the bonuses paid out after you gotten 
notice the bank had some serious problems?
    Mr. Becker. Congressman, the feedback is----
    Mr. Norman. Yes or no? You know the dates. It is yes or no. 
We all are aware that you are in serious trouble, and were the 
bonuses paid out, and what amounts were paid out?
    Mr. Becker. Congressman, I respectfully disagree with the 
comment that--at that point, the feedback was that we were in 
healthy shape. It was the social media-led run.
    Mr. Norman. I'm sorry, but okay. Date-wise, and I have 10 
seconds, were the bonuses paid after you you were put on notice 
that you had a problem with the bank? Yes or no?
    Mr. Becker. Congressman, I don't know the definition of----
    Mr. Norman. I yield back.
    Chairman Barr. The witness can answer in writing for the 
record.
    The gentlewoman from Michigan, Ms. Tlaib, is now 
recognized.
    Ms. Tlaib. Thank you so much, and I really appreciate my 
colleague from North Carolina, because I think this is going to 
help answer the question that you refused to answer, Mr. 
Becker. If you look at the screen, if you look at the slide 
there, it is pretty clear.
    [Chart]
    Ms. Tlaib. Just so we are clear, because I know you are 
blaming social media, you are a bank. You are not looking at 
me, Mr. Becker. I am right here. You are blaming social media 
for your mismanagement and so forth, which, to me, clearly 
looks like greed because you are not stupid. You are just being 
greedy because you wanted to get a payout.
    Just so we are clear for the record, were you aware of any 
material or non-public information, such as the potential 
capital raise, before the January 6th trading plan change that 
allowed you to sell over $3 million in Silicon Valley Bank 
stock?
    Mr. Becker. When the plan was set up, I wasn't aware.
    Ms. Tlaib. But on January 26th, you changed a corporate 
trading plan, allowing the future sale of your shares in the 
company, correct?
    Mr. Becker. On that date.
    Ms. Tlaib. January 26th.
    Mr. Becker. I filed a Rule 10b5-1 plan that was signed off 
on by our Legal Team.
    Ms. Tlaib. Okay. So, it is yes, and yes. Getting to the 
question, were you aware of any material non-public 
information, such as the potential capital raise, before the 
January 6th trading plan change that allowed you to sell over 
$3 million of your Silicon Valley Bank stock?
    Mr. Becker. When that plan was set up, I was not aware of 
the plan to raise capital.
    Ms. Tlaib. So, Mr. Becker, given that the Federal Funds 
Rate increased by more than 3 percentage points during 2022, 
why did your company unwind these swaps, exposing your firm to 
further rate increases, because everybody wants to know the 
answer to that?
    Mr. Becker. Congresswoman, as mentioned earlier, the 
decision around our interest rate hedges was overseen by our 
Asset Liability Committee and executed by the Treasury Team.
    Ms. Tlaib. Okay. So, not your fault? Given that interest 
rates continued to rise under your leadership until the 
collapse, did you feel that terminating these swaps was a safe 
and sound practice?
    Mr. Becker. Congresswoman, as mentioned, I was not involved 
in those disciplines.
    Ms. Tlaib. You didn't, and you still got paid? They paid 
you to not know any of this? What did you do? As the lead 
person, you are just saying, I didn't know. I don't know. You 
got millions of dollars to not know anything about your own 
bank. The Financial Times reported that the interest rate swap 
sales resulted in a gain of $500 million for Silicon Valley 
Bank in the first 2 quarters of 2022 alone. Given your 
incentive compensation plan and other forms of pay, did you 
benefit from terminating its hedges against interest rates?
    Mr. Becker. Congresswoman, could I clarify two points?
    Ms. Tlaib. Did you get money for it? Did you benefit from 
that decision?
    Mr. Becker. Congresswoman, can I clarify the point that you 
are making?
    Ms. Tlaib. Sure.
    Mr. Becker. First, when hedges are changed, sold, the 
benefit, if there is a benefit, is actually amortized over 
several years. That was not taken into income in that period of 
time. And second, our Compensation Committee would actually 
review anything that they believed was an anomaly outside of 
our standard practices and back that out, typically from 
incentive compensation.
    Ms. Tlaib. But, Mr. Becker, do you think selling the hedges 
to interest rate risk is ultimately good for your depositors, 
shareholders, and our own financial system in the country as a 
whole? Was it just good for you or was it good for the 
executives at Silicon Valley who benefit from the sales through 
your incentive-based compensation, because according to this 
timeline, it looked like you set it up so you could all benefit 
and walk away, while every other bank in our financial system 
was literally in jeopardy.
    Mr. Becker. Congresswoman, our compensation was set up for 
long-term incentives.
    Ms. Tlaib. You knew. You knew for a couple of years. Even 
if we increase regulation, they sent you notices. They met with 
you. What do you want them to do, come and arrest you? And you 
can respond to the fact that they saw that you all were making 
really, really terrible decisions. I love that GAO calls it 
poor governance and mismanagement. You were awful at your job 
obviously, right? But at the end, you benefited, while the 
small business community and the country was hurt. You know 
what that looks like when I go back to my community, and they 
are, like, wondering why we can't claw back, the fact that you 
benefited, while everybody else suffered. Did you even care 
that you would collapse the financial system in our country 
with your greed?
    Chairman Barr. The gentlewoman's time has expired. Next, we 
will go to the gentleman from Tennessee, Mr. Ogles. He is 
recognized for 5 minutes.
    Mr. Ogles. Thank you, Mr. Chairman. Thank you all for being 
here. I am sure you are aware, or if you are not, we had the 
FDIC and the Federal Reserve, amongst others, in here 
yesterday. And although they acknowledged that they probably 
could or should have done more, they point the finger at you, 
and your failings, and your management.
    So, Mr. Becker, how forceful was the Fed in emphasizing the 
heightened interest rate risk that resulted from the shift from 
the COVID-era's quantitative easing to an environment with 
rapidly-increasing interest rates?
    Mr. Becker. Congressman, we covered a lot of different 
areas. We were responsive to the feedback that we received, 
including areas around liquidity, governance, controls, and the 
MRIAs or MRAs that we received with interest rate risk 
modeling.
    Mr. Ogles. The reason why I bring that up is because from 
the start of the pandemic when SVB collapsed, the Fed didn't 
mention interest rate risks in any of its reports to Congress. 
Were you aware that the Federal Reserve had to suspend its 
remittances to the Treasury last October because it took 
similar losses to you or to your bank?
    Mr. Becker. I was not aware of that, Congressman.
    Mr. Ogles. I find it curious that the Federal Reserve, 
having experienced its own losses, did not recognize or realize 
the five-alarm fire it had created.
    Mr. Shay, Mr. Roffler, how forceful was the FDIC in 
emphasizing interest rate risks as the priority in the 
supervision of your banks? Mr. Shay?
    Mr. Shay. I met with the regulators as chairman of the 
board, so I can't speak for all of their communications with 
the bank.
    Mr. Ogles. Mr. Roffler?
    Mr. Roffler. Maybe just a couple of points. First of all, I 
think, in Chairman Gruenberg's written testimony yesterday, he 
commented that the failure of First Republic was largely 
contagion effect-driven, and he did not speak to management. I 
would add that I know that several comments have been made 
about CAMELS ratings and things of that nature. That is kind of 
confidential supervisory information that has not been made 
public. I do think that the committee might be interested in 
that information, and could make that request, I believe, of 
the FDIC in the State of California, which would shine out a 
different picture as it pertains to First Republic.
    And lastly, I would say that, as I mentioned earlier, we 
had constant examinations. The FDIC in the State of California 
were on-premise regulators for 6 or 7 years. They looked at a 
variety of topics: credit risk, interest rate risk, liquidity 
risk. And when they provided Supervisory Recommendations to the 
extent they did, management worked to address them in an 
extremely timely manner.
    Mr. Ogles. Yes, sir. And, Mr. Becker, in your comments 
earlier, you talked about your business model, which was, I 
guess, compared to maybe community banks had a riskier 
portfolio, if you will. But understanding that there was a 
shifting interest rate environment, why wasn't there more 
priority put on hedging against interest rates in the event, 
however unlikely, that it might occur? Again, if you have a 
401(k), you are going to decide how much exposure you are going 
to want to market volatility versus against your fiduciary 
responsibility. And of course, part of this is perspective, but 
when I look at some of the, ``wokeism,'' that had kind of swept 
into SVB, it seems like--and, again, this is perception; I am 
not saying it is fact--there was more focus on being, ``woke,'' 
than there was on your fiduciary responsibility.
    And when I look at your exposure, when I look at the fact 
that, and you know Econ 101, when the government puts more 
money into the economy, there is going to be inflation risk on 
the backside; you don't have to be an economist to understand 
that. Anyone who is experienced in the markets is going to know 
there is going to be an upside risk there of inflation, and yet 
your bank and, again, the Fed and the Federal Reserve are 
pointing the finger at you. They are saying that you should 
have done more. Why wasn't it a main focus and priority as you 
moved forward?
    Mr. Becker. Congressman, two points. One is, I think it is 
important to note that the structure of our balance sheet, 
especially on the asset side, the loan portfolio was 90 percent 
variable rate, meaning as rates went up, we would have 
benefited from higher rates.
    Mr. Ogles. I am out of time. I want to thank you all for 
being here, and if you wouldn't mind submitting your answers in 
writing, I would appreciate it.
    Mr. Chairman, I am out of time, so I yield back. Thank you. 
And thank you, gentlemen.
    Ms. Waters. Mr. Chairman, I have a parliamentary inquiry.
    Mr. Fitzgerald. [presiding]. The ranking member is 
recognized for your inquiry.
    Ms. Waters. Thank you very much. My understanding is that 
joint subcommittee hearings are not contemplated anywhere in 
the House or Committee rules, and, therefore, can only happen 
with unanimous consent. Can you confirm that this is your 
understanding?
    Mr. Fitzgerald. It is.
    Ms. Waters. Thank you. I wish to share with you that I have 
made clear my concerns about this hearing happening at the 
subcommittee level to Chair McHenry, because it is very 
important for all of the members of this committee to have the 
opportunity to participate in a hearing like this. And I want 
to be clear that although I have withheld my objections at this 
time, going forward, we will not hesitate to object if this 
kind of coordination does not occur in advance. Thank you. With 
that, I yield back.
    Mr. Fitzgerald. Responding to the ranking member, I would 
say that the chairman and the ranking member both called for 
this hearing on March 29th, the first time the Federal Reserve 
and the FDIC testified before the committee. In your opening 
remarks, the ranking member stated we also need answers from 
the CEOs, who not only ran these banks into the ground, but 
enriched themselves.
    Ms. Waters. Mr. Chairman? That is not correct.
    Mr. Fitzgerald. Can I just----
    Ms. Waters. I asked for a hearing of the Full Committee.
    Mr. Fitzgerald. Okay.
    Ms. Waters. Not at the subcommittee level. I want to make 
that clear.
    Mr. Fitzgerald. Very good. I would just remind the ranking 
member that on May 3rd, you wrote to the chairman asking him to 
immediately schedule and invite the CEOs of Silicon Valley, 
Signature, and First Republic Banks to testify. This hearing is 
in response to those requests, which was noticed last week 
pursuant to committee rules.
    Ms. Waters. At the Full Committee level, Mr. Chairman.
    Mr. Fitzgerald. And I would also just add that if there is 
concern that the Full Committee is not holding this hearing, 
there shouldn't be, because the Chair of the Full Committee 
empowered the two subcommittees with the most experience in 
banking issues and conducting oversight, such that the 
Financial Institutions and Monetary Policy Subcommittee and the 
Oversight and Investigations Subcommittee were allowed to hold 
this hearing.
    In fact, the Chair told the Subcommittee Chair at the 
beginning of this Congress that he wanted the bulk of this 
committee's work to be done at the subcommittee level. To that 
point, since March 10th, both Mr. Huizenga and I, the chairman, 
have sent eight letters to State and Federal regulators as well 
as the Inspector General.
    Ms. Waters. Mr. Chairman, in a continuation of my 
parliamentary inquiry, you must admit, and I think the Chair 
will admit that my request for holding this hearing was at the 
Full Committee level. And, of course, you are not implying that 
the expertise does not exist at the Full Committee level, when 
you identify that it has been held at the subcommittee level 
because of the expertise. Mr. Chairman, I am finished with it, 
and I said to you that despite the fact that I did not object 
at this time, I will not allow it to happen again without 
objection. I yield back.
    Mr. Fitzgerald. Thanks for yielding back. I think a 
conversation with Chairman McHenry would be valuable. And now, 
we are going to recognize the gentlelady from Texas, Ms. 
Garcia. Am I correct?
    Ms. Garcia. Okay.
    Mr. Fitzgerald. Okay. You are yielding?
    Ms. Waters. No, she does not have to yield. As a matter of 
fact, it is my time, I am next to be recognized, and the 
inquiry was just a preliminary to my time in order to raise the 
question.
    Mr. Fitzgerald. Okay. The ranking member of the Full 
Committee is recognized for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. I am 
interested in learning about all the factors, including bank 
mismanagement, lobbying, efforts to deregulate, and other 
decisions these executives made. They put their customers and 
our nation's banking system in harm's way. The leadership of 
these banks must be held accountable for running their banks 
into the ground.
    Mr. Becker, it is a fact that your bank experienced rapid 
growth, doubling in size from 2018 to 2020, and doubling in 
size again, in 2021 alone. Earlier today in questioning, you 
suggested that the regulators never discussed the issue of 
interest rates with you. However, you later acknowledged that 
the bank was subject to investigations regarding its handling 
of interest rate risk, and it was cited by the regulators as a 
problem. In fact, as early as 2018, the Fed had begun citing 
your bank for poor risk management, including interest rate 
risk. Four months before your bank bailed in November 2022, the 
Fed further issued an MRA on interest rate risk. This MRA would 
have been issued to the bank's board. Is that correct? It would 
have been issued to the bank's board.
    Mr. Becker. Congresswoman, the regulatory findings are 
typically issued to management.
    Ms. Waters. Thank you very much. Can you confirm you were 
on the bank's board in November 2022?
    Mr. Becker. Yes, I was.
    Ms. Waters. Okay. Then you did have access to all of that 
information. Thank you. So, you would have personally received 
this MRA and all other MRAs, and would have had an 
understanding of interest rate risk, and to say otherwise seems 
highly misleading. To me, it looks like you did know what was 
wrong. I am also concerned that after the earnings call with 
investors on January 19th of this year, you amended a 10b5-1 
plan to sell approximately 12,451 shares of SVB. These shares 
were sold 2 weeks before you drove the bank into the ground and 
you received $3.6 million, while other shareholders in SVB 
received nothing when the bank failed.
    Mr. Becker, how is this not a golden parachute you secured 
for yourself as the bank was failing?
    Mr. Becker. Congresswoman, that sale was part of a 10b5-1 
plan that was issued right after earnings release, and reviewed 
by our Legal Team. It was my concurrence that I didn't have 
material non-public information. When SVB was taken over by the 
FDIC on March 10th, I lost 5 times the minimum shares that I 
was required to hold.
    Ms. Waters. Thank you very much. We have a different 
opinion about that.
    I am going to go to Mr. Shay. You ran one of the well-known 
crypto banks after Silicon Valley Bank suddenly failed. The 
market viewed your bank as the weakest link, and depositors 
quickly began to pull out their money. Two days later, your 
bank closed. Now, according to the bank failure reports we have 
received, it seems like your bank didn't even know what 
collateral it had available that would be eligible to pledge to 
the Fed in order to obtain emergency loans. Was this the case? 
Why didn't you know what collateral you had?
    Mr. Shay. In my role as chairman, I thought we had 
collateral available. I thought we had collateral available 
that was pledged after----
    Ms. Waters. Thank you.
    Mr. Shay. ----bank and Federal----
    Ms. Waters. Why did you not understand what assets your 
bank had to pledge, is the question, and you did.
    Mr. Roffler, JPMorgan Chase and 10 other big banks 
deposited $30 billion in your bank after SVB and Signature Bank 
failed to rescue your bank. However, in a matter of weeks, your 
bank failed. What amount would have been sufficient to save the 
bank? That was $30 billion that 11 banks came together and gave 
you. What did you need further after that?
    Mr. Roffler. We were appreciative of those 11 banks, who 
were helping to reinforce confidence in the regional banking 
system, which is such an important part of the economy. 
Unfortunately, First Republic was hit by the contagion of two 
failures that were occurring, and when the contagion spread to 
us, it is hard to recover confidence. And by the end of April, 
investor and depositor confidence had not returned, not for 
management's efforts and not for everything we did. And again, 
we had very open and very direct----
    Ms. Waters. Thank you. My time is over, but no amount of 
money would have saved your bank. It was mismanagement that 
caused it to fail. I yield back the balance of my time.
    Mr. Fitzgerald. Thank you. The ranking member yields back. 
I will now recognize myself for 5 minutes.
    Vice Chair Barr expressed a desire to assess how the 
Federal Reserve performs analysis on bank mergers. This follows 
President Biden's call for DOJ and the agencies responsible for 
banking update guidelines on banking mergers to provide more-
robust scrutiny of the mergers. We strongly believe antitrust 
analysis should be governed by the rule of law, not by the 
individual views of those whom, at any particular point in 
time, head the relevant agencies. So I am concerned any change 
to that analysis that would depart from long-existing and 
widely-accepted standards may not reflect actual changes in the 
competitive environment. A functioning bank system must allow 
stronger regional banks to be able to acquire those in a weaker 
position.
    Mr. Becker, do you believe the current hostile environment 
towards mergers played a role in your bank's failure?
    Mr. Becker. Congressman, that is not an area of expertise 
that I have, so I don't know the answer to that question.
    Mr. Fitzgerald. Mr. Shay, would you like to respond to 
that?
    Mr. Shay. I don't think the regulatory merger policy had 
anything to do with what happened to Signature Bank. I thought 
we were in a position to continue after March 12th/March 13th. 
I thought we had a plan in place, a well-reasoned, solid plan 
in place that would have brought Signature Bank to exist today 
and continue to serve its customers without any merger from 
anyone.
    Mr. Fitzgerald. Very good. A November 11, 2022, Wall Street 
Journal article explained at length interest rate risks 
presented to the banking system by the Fed's inflation-
fighting, rapid increase in interest rates, the kind of an 
article that has been referred to hundreds of times now in this 
committee. Silicon Valley Bank was mentioned as a particular 
case with, as of September 30, 2022, a market value with held-
to-maturity bonds just slightly above the value of its total 
equity. So clearly, regulators should have been becoming aware 
of the risks surrounding Silicon Valley Bank.
    Back to Mr. Becker. If the uninsured depositors had not 
forced the bank to close with this mini-rush, how much longer 
do you believe the regulators would have allowed Silicon Valley 
to continue before intervening at all?
    Mr. Becker. Congressman, I don't know what the regulators 
would have done. I can't speak for them.
    Mr. Fitzgerald. Let me ask it in a little different way: 
Were you working in concert with the regulators, and was there 
back and forth with the regulators that would have maybe laid 
out the case that there are some serious issues emerging 
related to Silicon Valley Bank?
    Mr. Becker. Congressman, as stated in my written testimony, 
we were very responsive to the regulatory feedback from 
regulators at the FDIC, the Fed, and the State.
    Mr. Fitzgerald. Okay. The issues with SVB were pretty well-
known in the days leading up to the failure, right? However, 
Signature's failure came as a surprise announcement.
    Mr. Shay, at what point was it clear to you that Signature 
Bank could not last without some type of intervention?
    Mr. Shay. I believed that Signature Bank on Friday was 
sufficiently capitalized. It was well-solvent, and well-
diversified. It had a strong securities portfolio and had $29 
billion pledged at the Federal Home Loan Bank and the Federal 
Reserve. I fully expected Signature Bank to continue on, and I 
fully thought that the plan that was presented for financing 
against good collateral at Signature Bank would have allowed it 
to continue to open successfully on Monday and still be serving 
its customers, its middle-market customers, its customers 
today.
    Mr. Fitzgerald. I will yield back my time, and at this 
time, I recognize the gentlewoman from Texas, Ms. Garcia, for 5 
minutes.
    Ms. Garcia. Thank you, Mr. Chairman, and thank you to the 
witnesses today. We have been talking about trying to have this 
hearing--Democrats have constantly been asking Republicans to 
bring you down here, and I am glad you are here. And I am glad 
you cooperated and are here with us today because it is time 
for accountability. Republicans have been pointing fingers at 
regulators, but we finally have a chance now to visit with you 
about your internal workings and your leadership at these 
failed banks.
    First up, I want to get into some lobbying questions here. 
Mr. Becker, in 2015, you had lobbied Congress to raise the 
asset threshold for banks that were considered systemically 
important. Years later, in 2018, the former, twice-impeached 
President had signed S. 2155, the Economic Growth, Regulatory 
Relief, and Consumer Protection Act, into law, which raised the 
threshold to $250 billion, an increase from the previous $50 
billion. By this time, Silicon Valley Bank had just reached $50 
billion in assets and quickly grew so that by 2022, as has been 
stated earlier, the bank held more than $200 billion in assets. 
The passage of this law, and the way Mr. Trump's regulators 
implemented the law, reduced stress testing liquidity and other 
requirements for banks, like Silicon Valley Bank.
    Mr. Becker, was that your intended goal when you urged 
Congress to roll back the Dodd-Frank Act's enhanced prudential 
standards for regional banks or is it just a coincidence that 
it was regional banks like yours that failed in rapid 
succession earlier this year?
    Mr. Becker. Congresswoman, the written testimony that I 
provided in 2015 was focused on tailored regulation. And what 
we wanted to do is empower the regulators to make the decisions 
about risk and be able to then tailor those regulations based 
on their assessment of the risk profile.
    Ms. Garcia. So, you don't think that it was just a 
coincidence that this happened to help your bank, and that your 
bank grew as a result of the change in regulations?
    Mr. Becker. Congresswoman, Silicon Valley Bank in 2015, was 
one of many banks and other institutions or organizations that 
were talking about tailored regulations.
    Ms. Garcia. Okay. Mr. Roffler, let us talk about First 
Republic Bank. Reportedly, you spent significant sums lobbying 
Congress under your leadership. In 2018, First Republic spent 
$370,000 on lobbying. This was reportedly some of the highest 
lobbying spending in the bank's history. Do you recall what 
congressional business or legislation might have been of 
interest to First Republic in 2018?
    Mr. Roffler. Thank you, Congresswoman. I was not the CEO at 
the time. I was at the bank, and there are two topics that come 
to mind. One is what you referenced before, S. 2155, and the 
other was around tax deductibility around student lending and 
its contributions to student loan forgiveness or student loan 
repayment plans.
    Ms. Garcia. Were your paid lobbyists urging Congress to 
roll back the Dodd-Frank Act, and enhance prudential standards 
for regional banks?
    Mr. Roffler. I believe they were speaking with Congress 
about the tailoring rules, as one of the panelists mentioned. 
And at that time, as I mentioned, I was not the CEO, so I am 
not entirely familiar with all of the communications.
    Ms. Garcia. Were you at the bank at all?
    Mr. Roffler. Excuse me?
    Ms. Garcia. Were you at the bank at all?
    Mr. Roffler. I was, yes.
    Ms. Garcia. So, you were not privy to any of the 
discussions about your lobbying efforts?
    Mr. Roffler. Not always, no.
    Ms. Garcia. No, not always, but it seems to me that you all 
were lobbying for the changes that may have resulted in some of 
the failures. But thank you for that response.
    And now, Mr. Becker, the Federal Reserve stated that it 
issued multiple supervisory issues to Silicon Valley Bank, 
including Matters Requiring Attention (MRAs). And we have 
talked about those MRAs, and Matters Requiring Immediate 
Attention (MRIAs), which are typically considered to be more 
urgent issues. Mr. Becker, why didn't the bank take these 
warnings by the Federal Reserve seriously?
    Mr. Becker. Congresswoman, I can assure you that we took 
all regulatory findings seriously, regardless of whether they 
were MRAs or MRIAs.
    Ms. Garcia. You might be interested in knowing that when we 
had the GAO Director here, he actually said that many, many 
times you all, ``responded by saying that it would take a while 
to fix a problem.'' What is your response to that, that their 
analysis was you all took your time about fixing anything?
    Mr. Becker. Congresswoman, it depends upon what regulatory 
finding it would be. Some of the matters around the liquidity 
were handled very quickly. Other systems changes took longer.
    Chairman Barr. The gentlelady's time has expired.
    Ms. Garcia. Thank you, Mr. Chairman.
    Chairman Barr. The gentlewoman from Texas, Ms. De La Cruz, 
is now recognized.
    Ms. De La Cruz. Thank you, Chairman Barr, for holding this 
joint hearing today. It is important for all of us to talk 
about what happened, what kind of oversight needs to be done 
moving forward, and what led up to these banks failing and how 
the regulators responded. With that said, I would like to thank 
the witnesses for coming today. I am towards the end, so I want 
to tell you a little bit about my district.
    I am from South Texas. It is largely a Hispanic district, 
in fact, one of the most-Hispanic districts in the entire 
nation. That being said, we have a large rural community that 
really depends on regional and small banks. And as I recall, 
the banks in my area, when this was happening, were worried 
about bearing the consequences of your bank failures and what 
that may mean for them in the future. And with that being said, 
our friends on the other side of the aisle have called for 
higher capital requirements and increased regulations due to 
your banks' failures. What I would like to know from each of 
you is, do you think that increased regulation and/or increased 
capital would have prevented this crisis? And I will start with 
you, Mr. Becker.
    Mr. Becker. Congresswoman, as I laid out in my written 
testimony, we are here today, from my standpoint, because of a 
series of unprecedented events. As far as what are the rules 
and regulations that could have prevented it, I don't have the 
answer to that, but I am hoping my testimony and the other 
testimony will help us get there.
    Mr. Shay. Signature Bank was well-capitalized, solvent, and 
well-diversified at the very end, and had a plan to go forward 
that I sincerely wish had happened because I believe we would 
have not been here today. But in response to your question, on 
that afternoon, in those few hours in the late afternoon on 
Friday, depositors I spoke to simply wanted to get their money 
into a too-big-to-fail bank. They said, they didn't care if 
there was a one-in-a-million chance. They didn't care if there 
was a one-in-10-million chance. This was their family money, 
their family business, their way to make payroll. They couldn't 
take a chance of not being in a too-big-to-fail bank, and they 
said, it is because the government won't let JPMorgan fail. 
They know the government will save Citibank.
    Ms. De La Cruz. Thank you. I reclaim my time. Yes, sir?
    Mr. Roffler. Thank you for the question. Congresswoman, I 
want to be very clear that I can't speak to what has happened 
at the other banks here with us today. But what I can say is 
that what happened at First Republic was not mismanagement; it 
was an element of contagion. And if you think towards the 
regulatory side of that, when contagion hits, it is very hard 
to regulate and call for greater capital, greater liquidity.
    As I said earlier, we had very strong relationships with 
our regulators. We shared everything. We met all the time, and 
we had zero Matters Requiring Board Attention (MRBAs) on March 
9th, when the contagion moved towards First Republic. And I 
think your question is very important for the communities that 
are served to have appropriate regulation to keep them safe and 
sound, but allow them to serve their clients each and every 
day.
    Ms. De La Cruz. That being said, given your expertise in 
banking, how do you think smaller financial institutions, 
community banks would be able to cope with increased regulatory 
burdens?
    Mr. Roffler. I think it is a great question, and probably 
not one to which I have a great answer, but I think if 
policymakers and regulators invite comment and engagement, I 
think that is probably the best way to try to do that, and 
hopefully, those banks will engage in that discussion.
    Ms. De La Cruz. Thank you. Mr. Shay?
    Mr. Shay. I would defer to banks who are of that asset 
size.
    Ms. De La Cruz. Okay. Mr. Becker?
    Mr. Becker. Yes, I would agree that is something to which 
this committee should pay attention.
    Ms. De La Cruz. Thank you. I want to ask quickly, because 
of what we saw happen, do you all have any suggestions for 
Congress on how to address the technology of this that we have 
talked about for so many hours now? Could we do something 
different on the social media side or address something 
different? Anybody who would like to take it?
    [No response.]
    Ms. De La Cruz. Okay. I yield back.
    Chairman Barr. The gentlelady's time has expired, and the 
gentlelady from California, Mrs. Kim, is now recognized.
    Mrs. Kim. Thank you, Mr. Chairman. I want to thank the 
chairmen and ranking members of this committee for having a 
joint subcommittee hearing. Since SVB's failure, our committee 
has been laser-focused on getting complete information and 
helping to prevent similar bank failures from occurring in the 
future. There are two main points that stand out from the post-
mortem reports: bank mismanagement, and supervisory failures.
    Mr. Becker, while I agree with you that the Fed and the 
Treasury Department missed the mark by describing inflation as 
a transitory risk, I am surprised that you decided to drop most 
of the interest rate hedges by mid-2022, and this was after the 
Fed started to increase rates in March 2022. And SVB by then, 
we already know, had 31 open supervisory findings and did not 
have a chief risk officer for most of 2022.
    Mr. Becker, yesterday, you also mentioned that the specific 
decisions about hedges were executed by the Treasury Team, but 
as CEO, didn't you have the final say on the decision that was 
executed by SVB's Treasury Team?
    Mr. Becker. Congresswoman, I was not privy to the decision 
on the hedges. They wouldn't have come to me for approval.
    Mrs. Kim. The Wall Street Journal reported you reduced 
hedges to $563 million, which is down from $15.3 billion just a 
year earlier.
    Mr. Becker. Congresswoman, as I mentioned, I wasn't part of 
the Asset Liability Committee, and I have every reason to 
believe they made the best decisions they could with the 
information they had at that time.
    Mrs. Kim. Do you believe that not having a CRO played a 
role in the decision to drop the hedges?
    Mr. Becker. To the best of my knowledge, I don't believe 
so.
    Mrs. Kim. Mr. Becker, in early 2023, March of 2023, you 
sold your available-for-sale securities at an $1.8-billion 
loss. You didn't have an immediate need for liquidity, and this 
sale had a negative impact on your regulatory capital. So, why 
did you make that decision?
    Mr. Becker. Congresswoman, that decision was made in 
consultation with our board of directors and outside advisors, 
and we believed that was the best decision for our clients and 
for our shareholders.
    Mrs. Kim. Those securities were sold to Goldman Sachs, the 
same investment banking firm that was advising and underwriting 
your capital raise, so didn't it seem like a conflict of 
interest? And how did you ensure that you received the best 
possible price for those securities?
    Mr. Becker. Congresswoman, Goldman Sachs was our advisor on 
our capital arrays, and the decision to ultimately sell the AFS 
portfolio to Goldman Sachs was a decision that was reviewed 
with the board of directors and the special committee of the 
board. To my memory, they put in place a structure that would 
be a benefit such that it was to get the best price we could 
and then validate that in the market.
    Mrs. Kim. We are going to move on.
    Mr. Roffler, let me ask you a question. The unprecedented 
speed of withdrawals in the digital era is pushing our 
committee to rethink the rules, regulations, and the role of 
the Fed as the lender of last resort. And it has been reported 
that your firm was one of the banks that used both the 13(3) 
facility and the discount window. Did these lenders of last 
resort meet your liquidity needs in March, and, in your view, 
what could have been improved?
    Mr. Roffler. Thank you for the question, Congresswoman. 
Yes, on March 10th, we began to engage with the Federal Reserve 
Bank of San Francisco and also the Federal Home Loan Bank. We 
had previously pledged collateral with both of those 
institutions from which we could borrow. And during the 
weekend, when the contagion spread to us on that Friday, we 
continued to prepare, and actually, the Federal Reserve Bank 
worked with us to ensure our collateral was pledged and we 
could appropriately access it, and that Monday, we accessed it 
with no problem.
    Mrs. Kim. Thank you. I am going to come back to you, Mr. 
Becker. How many years did you serve on the board of directors 
at the San Francisco Fed?
    Mr. Becker. I believe it was a little more than 4 years.
    Mrs. Kim. And as a member of the board of directors, did 
you at any point have any input on the supervisory activities 
of the San Francisco Fed over any financial institutions, 
including SVB?
    Mr. Becker. I did not.
    Mrs. Kim. Could you walk us through the role that you have 
as a member of the board of directors at the San Francisco Fed?
    Chairman Barr. The gentlelady's time has expired, and the 
witness can submit an answer in writing to that question.
    Mrs. Kim. Thank you.
    Chairman Barr. I would like to thank our first panel of 
witnesses for their testimony today.
    The committee will take a brief recess to let the first 
panel go, and to seat the second panel. These witnesses are now 
dismissed. The committee will stand in recess.
    [recess]
    Chairman Huizenga. [presiding]. I now call up our second 
panel of witnesses. Today, we welcome the Honorable Adrienne 
Harris, Superintendent of the New York Department of Financial 
Services, and Clothilde Hewlett, Commissioner of the California 
Department of Financial Protection and Innovation.
    We thank each of you for taking the time to be here. We are 
going to be moving right into your testimony. There won't be 
any opening statements, and you will each be recognized for 5 
minutes. And without objection, each of your written statements 
will be made a part of the record.
    Ms. Harris, you are now recognized for 5 minutes.

STATEMENT OF THE HONORABLE ADRIENNE A. HARRIS, SUPERINTENDENT, 
     NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES (DFS)

    Ms. Harris. Thank you. Good afternoon, and thank you to 
Chairman McHenry, Ranking Member Waters, Chairmen Huizenga and 
Barr, Ranking Members Foster and Green, and members of the 
subcommittees. I am Adrienne Harris, the Superintendent of the 
New York State Department of Financial Services, and I thank 
you for inviting me to this hearing today.
    On Sunday, March 12, 2023, Signature Bank failed after 
experiencing a propulsive run on deposits on Friday, March 
10th. The run was instigated by the self-liquidation of 
Silvergate Bank on March 8th, and then the failure of Silicon 
Valley Bank on March 10th, following an unprecedented run on 
its own deposits. In order to avoid a disorderly mid-day Monday 
shutdown and further contagion across the banking system, on 
the evening of Sunday, March 12th, DFS took possession of 
Signature and appointed the FDIC as receiver.
    Before its failure on March 12th, regulators had documented 
liquidity-related regulatory concerns to the bank, beginning 
with the 2018 report of examination. Despite orders from 
regulators, the bank was slow to remediate Supervisory 
Recommendations, and many issues identified by the regulators 
remained unresolved when the bank failed. Signature's inability 
to remediate the outstanding liquidity management issues 
undoubtedly contributed to its collapse. However, the immediate 
cause of the bank's failure was an unprecedented run on 
deposits instigated by the self-liquidation of Silvergate and 
the subsequent failure of SVB.
    On Friday, March 10th, Signature experienced a runoff of 
$18.6 billion in deposits in a matter of hours, reducing the 
bank's deposit base by 20 percent. Throughout the day on 
Friday, and into the night, the regulators worked closely with 
each other and with Signature to find sufficient liquidity to 
satisfy the significant volume of customer withdrawal requests. 
After avoiding a default on Friday, regulators had time over 
the weekend to assess Signature's condition and come to a 
considered view as to whether the bank could open safely on 
Monday.
    DFS had one objective that weekend: to preserve the safety 
and soundness of the banking system. Three paths were 
identified for the bank, in order of preference. The first was 
to find a way for Signature to open in a safe and sound manner 
on Monday and continue as a stable institution. The second was 
to find a purchaser for the bank on an open-bank basis. And the 
third was that DFS and the FDIC would work in parallel to 
prepare for the last-resort scenario of taking possession of 
the bank and appointing the FDIC as receiver.
    The regulator spent the weekend collecting and evaluating 
information from Signature in order to make a data-driven 
decision about the bank's viability. Signature's inability to 
provide reliable data and a credible liquidity strategy to 
operate in a safe and sound manner on Monday led DFS to take 
possession of the bank and immediately appoint the FDIC as 
receiver.
    At the time DFS took possession, the bank had $4.27 billion 
of certain liquidity available for Monday morning to cover 
known withdrawals ranging from $7.4 billion to $7.9 billion. 
These withdrawal estimates do not include additional unknown 
withdrawals that could reasonably be anticipated on Monday in 
light of market conditions.
    Taking possession of the bank was the option of last resort 
to avoid a disorderly midday Monday shutdown and stop any 
further panic and contagion across the broader banking system. 
DFS-regulated financial institutions are safe and sound today, 
but the Department has instituted heightened monitoring of 
banks with higher-risk profiles and is implementing 
recommendations to modernize supervision of the global 
financial system. Thank you, and I look forward to your 
questions.
    [The prepared statement of Superintendent Harris can be 
found on page 101 of the appendix.]
    Chairman Huizenga. Thank you, Superintendent Harris.
    Commissioner Hewlett, you are now recognized for 5 minutes.

STATEMENT OF THE HONORABLE CLOTHILDE V. HEWLETT, COMMISSIONER, 
 CALIFORNIA DEPARTMENT OF FINANCIAL PROTECTION AND INNOVATION 
                             (DFPI)

    Ms. Hewlett. Chairmen, Ranking Members, and members of the 
subcommittees, I appreciate the opportunity to testify on 
behalf of the California Department of Financial Protection and 
Innovation (DFPI). My name is Clothilde Hewlett. I have served 
as Commissioner since December of 2021, building on over 100 
years of State regulation. The current Department was 
restructured in 2020 to strengthen California's financial 
oversight. DFPI has broad authority touching every aspect of 
the financial sector in California, including banks and credit 
unions. Through regulation, supervision, and enforcement, DFPI 
promotes safety and soundness in consumer protection.
    State-chartered banks, like Silicon Valley Bank, are 
regulated by both State and Federal regulators. State 
regulators play a vital role in maintaining the strength of the 
dual banking system, particularly for local banks that serve 
diverse communities throughout the country. State regulators 
supervise almost 80 percent of all the banks in the U.S., which 
equates to more than 3,800 banks and $8.5 trillion in assets. 
This includes overseeing two-thirds of agricultural lending and 
half of small business lending.
    The localized supervision equips State regulators to better 
understand the unique demands faced by banks in local 
communities. In California, DFPI supervises 99 State-chartered 
banks, with an average asset size of approximately $4 billion, 
nearly half with $1 billion in assets, and 9 of our banks are 
over $10 billion. The Department also supervises 113 credit 
unions, with an average asset size of $1.4 billion.
    For nearly 40 years, Silicon Valley Bank was an important 
service provider for California's economy, the life sciences 
and healthcare sector, nonprofits, and small businesses. On 
March 8th, the bank announced a loss of $1.8 billion and a 
capital raise. Depositors reacted by initiating withdrawals of 
$42 billion, or approximately 25 percent of total deposits over 
a 24-hour period, causing an unprecedented run on the bank. At 
the end of the day on March 9th, the bank had a negative cash 
balance of approximately $958 million, and we determined that 
the bank was insolvent.
    On March 10th, the DFPI took possession of the bank and 
appointed the FDIC as receiver. The DFPI examined the bank in 
coordination with the primary Federal regulator, the San 
Francisco Federal Reserve Bank. Federal examiners led the 
examination of Silicon Valley's compliance with Federal 
regulations related to enhanced prudential standards and the 
review of SVB's liquidity and interest rate risk. The 
Department and the San Francisco Fed flagged concerns about the 
bank's liquidity management beginning in 2021, and interest 
rate risk beginning in 2022. Although it is typical to provide 
time to remediate, the timelines were not acceptable.
    The Department has conducted and published an internal 
review of the supervision and closure of Silicon Valley Bank. 
That review, and the recent failure of First Republic Bank, 
highlight the need to make changes to promote the safety and 
soundness of State-chartered banks. The DFPI is committed to 
working with Federal regulators to develop stronger and more-
effective systems to promptly remediate deficiencies and better 
allocate staff according to risk. The DFPI will increase its 
focus on a bank's level of uninsured deposits and require banks 
to evaluate and account for emerging risks posed by technology-
enabled activities, such as social media and real-time 
withdrawals.
    I look forward to working with Congress, our Federal 
regulatory partners, and our California State Legislature to 
implement changes that strengthen our financial system. Thank 
you very much.
    [The prepared statement of Commissioner Hewlett can be 
found on page 116 of the appendix.]
    Chairman Huizenga. Thank you, Commissioner Hewlett. I 
appreciate that. We will now turn to Member questions, and I 
will recognize myself for 5 minutes. And I do want to thank you 
both for being here.
    Commissioner Hewlett, your report states that the Federal 
Reserve was the leading regulator on interest rate risk due to 
its expertise. Your November 2022 supervisory letter concluded 
that SVB's interest rate risk simulations are not reliable. Did 
you or the Fed identify concerns with interest rate risk prior 
to November of 2022, or was that the first time that it was 
officially raised?
    Ms. Hewlett. Liquidity risks were identified in 2021, in 
the November supervisory letter, and on May 31, 2022. Corporate 
governance deficiencies were identified as well, as you have 
noted, in November. But on August 17, 2022, there were numerous 
MRAs and MRIAs noted, and, in addition, Silicon Valley Bank 
board management was notified that a MOU would be initiated.
    Chairman Huizenga. Just to be clear, you are saying that in 
November of 2021, there was an official notification from the 
Federal Reserve about their concerns with interest rate risk 
mitigation?
    Ms. Hewlett. It was more of liquidity risk management we 
found to be----
    Chairman Huizenga. So, not necessarily tied to the interest 
rate risk?
    Ms. Hewlett. Yes. The interest rates were not identified 
until the the Large Foreign Bank Organization (LFBO) Team began 
their review, and that was noted in the November 15, 2022, 
letter.
    Chairman Huizenga. Okay. I will note that. In testimony 
earlier today, the former head of SVB said that there had not 
been any interest rate risk brought up either officially or 
informally by the Fed until November of 2022. During the 2021 
and 2022 examination cycles, DFPI collaborated with the Federal 
Reserve Bank of San Francisco on 10 out of the 16 targeted 
exams. Aside from the horizontal reviews, DFPI did not 
participate in the liquidity review, a capital review, and a 
model risk management review. As a former State legislator 
myself, I don't understand why the State regulator wouldn't 
want to participate in a liquidity review on one of its largest 
State-chartered banks?
    Ms. Hewlett. We had two examiners who were assigned full 
time. There was a decision made based upon the fact that the 
Federal regulators had 20 highly-trained examiners at that 
time, and were in the best position to conduct the review, but 
we worked in consensus, in collaboration, and read the results.
    Chairman Huizenga. But was that your decision or did the 
Fed say, hey, we have the expertise, let us handle this?
    Ms. Hewlett. That was the decision that was made by DFPI.
    Chairman Huizenga. Okay. And then, you had the supervisory 
letter in August of 2022. The letter explained regulators' 
plans to initiate an informal enforcement action in the form of 
a Memorandum of Understanding (MOU) with the bank. However, as 
of March of 2023, the failure of SVB, the MOU was still in the 
drafting process. What was DFPI's role in drafting the MOU, and 
was it primarily the Fed or was it you driving that MOU that 
had been in draft form for 6 months?
    Ms. Hewlett. We worked in collaboration with our Federal 
partners in the drafting of the MOU. However, there was a 
consensus decision that was made by DFPI, working with our 
Federal partners, to wait for the MOU until after the liquidity 
risk and horizontal review was completed. We could have and 
should have, looking back in hindsight, issued an MOU in August 
of 2022 when we had noted numerous deficiencies and had 
indicated that there were numerous MRAs and MRIAs open.
    Chairman Huizenga. Okay. My time has expired. And we will 
be following up in writing because I would like to unpack more 
of that particular issue as to why that was not done.
    With that, the ranking member of the Oversight and 
Investigations Subcommittee, the gentleman from Texas, Mr. 
Green, is recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, I would 
like to make an observation. Obviously it is a part of my time, 
but as you know, I have been very critical of our not having 
gender balance on our panels. Usually, we have White men, and I 
want to compliment you today that we have two women on a panel. 
I think that if I am going to be critical when appropriate, I 
should also be complimentary.
    Chairman Huizenga. If the gentleman doesn't mind me making 
an observation, I will suspend the clock. In our last few O&I 
hearings, we did have an African-American woman, and three 
Hispanics, and one of the Democrat witnesses was actually a 
White female professor. So, we have been trying very hard to 
make sure that we give everybody a voice at that table. I yield 
back.
    Mr. Green. Thank you. Thank you very much, and it means 
something to me, given my history and the history of my 
ancestors to see this occur. So much to be said, but let's get 
back to the business at hand.
    Superintendent Harris, you indicate on page 5 of your 
written statement, and you said as much verbally as well, that 
the management of Signature Bank, while acknowledging 
regulatory findings, did not heed the regulators' orders. The 
bank was slow to remediate Supervisory Recommendations, and 
many issues identified by the regulators remained unresolved 
when the bank failed.
    You go on to indicate, however, that the immediate cause of 
the bank's failure was an unprecedented run on deposits 
instigated by the self-liquidation of Silvergate Bank and the 
subsequent failure of SVB. This indicates that the supervisory 
remediations identified remained unresolved when the bank 
failed. While I do think that this is very important, there is 
a belief by some that the supervisors, the regulators were not 
severe enough with their punishment, and that this lack of 
severity is the reason that the banks failed to do what they 
should have done. Would you comment on this, please? And I 
don't want to pull you into the real tug of war that is going 
on here, but I will ask you, if you could, to comment on that.
    Ms. Harris. Sure. Thank you so much, Congressman. First, I 
will say that although the immediate cause of the failure was 
the propulsive run and the self-liquidation of Silvergate, and 
then the failure of SVB, of course, that is no excuse for the 
bank not remediating the Matters Requiring Board Attention 
(MRBAs), and the Supervisory Recommendations (SRs) in a timely 
fashion. What I will say is that in addition to bank management 
being more responsive and more accountable, I think we also 
need regulators to act more quickly.
    Since I took my seat 19 months ago, we have worked to 
update our supervisory procedures and, of course, in light of 
these failures, to make sure the feedback loop is faster and 
tighter so that the examination process can take place more 
quickly. Feedback can be given to bank management. And we are 
reviewing our procedures at DFS to make sure recidivist bad 
activity is escalated more quickly so that we can take more 
prompt action.
    Mr. Green. We have had the Government Accountability Office 
as well as the prudential regulators indicate that at the end 
of the day, the failure of the banks lies with them, and that 
the regulators don't create the circumstances which cause 
failures. I see you are nodding, but is that a fair statement?
    Ms. Harris. I think that is a fair statement, but as 
flagged in all of the reports, I think there are improvements 
that regulators can make as well.
    Mr. Green. I agree that we can all make improvements, but 
as you know, it is the bank that has the liability.
    Ms. Harris. Yes.
    Mr. Green. The regulators don't have the liability. And the 
banks have the duty, the responsibility, and the obligation to 
have a good risk management team, and it's the banks, in the 
final analysis, that show us with any failures.
    But let's go on to the next brilliant panelist that we 
have. You will note that I said, ``next,'' noting that both of 
you are brilliant. Commissioner Hewlett, would you just tell me 
quickly, do you believe that the banks' failures were due to 
the regulators not being severe enough with their MRAs?
    Ms. Hewlett. I think that there were many factors, not just 
one that led to the banks' failures.
    Chairman Huizenga. Yes. Sorry. The time has expired, and we 
are going to have you respond in writing for the record. Thank 
you for that. I appreciate it.
    With that, the Chair of the Financial Institutions 
Subcommittee, the gentleman from Kentucky, Mr. Barr, is 
recognized for 5 minutes.
    Chairman Barr. Thank you, Mr. Chairman. Superintendent 
Harris, was Signature Bank well-capitalized at the time of its 
failure?
    Ms. Harris. They were well-capitalized, but they had 
inadequate liquidity risk management and other risk management 
practices.
    Chairman Barr. Did your agency issue an MRA or an MRIA, or, 
to your knowledge, did the FDIC issue an MRA or an MRIA related 
to Signature's capital adequacy?
    Ms. Harris. Yes, sir, and, of course, our MRIAs and our 
Supervisory Recommendations are done jointly, so DFS and the 
FDIC together.
    Chairman Barr. But were any of those MRAs related to 
capital?
    Ms. Harris. Yes.
    Chairman Barr. Explain that. If it was well-capitalized, 
why issue a Matter Requiring Attention?
    Ms. Harris. Because there is always room for improvement 
and better risk management practices that can be----
    Chairman Barr. Let me ask the question this way: Did the 
FDIC ever raise concerns about Signature's capital adequacy?
    Ms. Harris. Ever? Yes, I believe that we both did.
    Chairman Barr. What was inadequate about those capital 
levels? Did they not satisfy existing regulatory requirements?
    Ms. Harris. I think the concerns centered around the types 
of capital, and the ability of the bank to find appropriate 
liquidity to manage that risk, given the risk profile of the 
bank and the growth of the bank over a short period of time.
    Chairman Barr. Would increased capital have saved 
Signature?
    Ms. Harris. It is hard to speculate, Congressman. I think 
there was mismanagement on liquidity risk management, interest 
rate risk management, governance, and other factors.
    Chairman Barr. So, not as much of a capital adequacy issue 
as these other issues, liquidity and interest rate sensitivity?
    Ms. Harris. I think it is hard to disentangle them, but, 
yes, I think liquidity issues were----
    Chairman Barr. Let me ask you, Commissioner Hewlett, was 
SVB well-capitalized?
    Ms. Hewlett. At the time of its actual failure, it was 
insolvent. Prior to the actual failure----
    Chairman Barr. Before the run, was it well-capitalized?
    Ms. Hewlett. Before the run itself occurred, it was 
considered, in traditional terms, well-capitalized.
    Chairman Barr. Yes. In fact, reclaiming my time, in the 
prior 4 years, Silicon Valley Bank's Tier 1 common capital 
ratio was similar to or higher than the average of its peer 
banks, as well as above the applicable capital threshold set by 
regulators. Would increased capital requirements have saved 
Silicon Valley Bank, given a $42-billion run on deposits in 2 
hours?
    Ms. Hewlett. Once the run began, I don't think----
    Chairman Barr. No.
    Ms. Hewlett. ----anything could have addressed----
    Chairman Barr. Here is the point. These bank failures did 
not involve a capital adequacy issue. Is there any evidence 
that these banks failed due to inadequate levels of capital, 
and I think the answer to that is, no. Did the Fed or the FDIC 
raise concerns with you as you all did joint exams related to 
asset liability mismatches on the balance sheets of these 
banks.
    Ms. Harris. That was one of the areas flagged in several 
reports, but not to the extent of liquidity and other risk 
management issues.
    Chairman Barr. Commissioner Hewlett, the Fed's recent 
report on Silicon Valley Bank's failure lays blame on senior 
management at the bank. Indeed, the Fed states that Silicon 
Valley Bank had 31 unaddressed safety and soundness supervisory 
warnings. It is my understanding, however, that the Senior 
Management Team had acknowledged each outstanding warning and 
set forth plans for remedial action. Ms. Hewlett, how did your 
supervisors ever allow the bank to reach 31 unaddressed 
warnings to begin with? Why didn't you or the Fed ever stop and 
think, with all these warnings, there is clearly a larger issue 
here?
    Ms. Hewlett. We operated in consensus with our Federal 
partners, and it was unacceptable that we did not operate in a 
timely manner. However, most of our banks, smaller community 
banks, and our State bank regulators work with our smaller 
community banks to give them time to remediate their 
deficiencies.
    Chairman Barr. I think that may provide your agency with an 
excuse, but certainly not the San Francisco Fed.
    Ms. Harris, final question to you. Following the collapse 
of SVB, Signature had to tap the Federal Home Loan Bank of New 
York. You stated in your report that that is because they 
didn't have the collateral to pledge to the New York Fed. 
However, it has been reported that Signature had additional 
borrowing capacity with the New York Federal Home Loan Bank, 
but when the New York Federal Home Loan Bank attempted to 
transfer that collateral to the New York Fed, they refused to 
accept it. Could you please elaborate?
    Ms. Harris. We had some operational challenges that we can 
respond more to in writing. But in short, we had to have the 
Federal Home Loan Bank subordinate its interest in the 
collateral that had been pledged to the Fed in order to get 
sufficient liquidity for the bank on that Friday.
    Chairman Barr. I yield back.
    Chairman Huizenga. The gentleman's time has expired. With 
that, the gentleman from California, Mr. Sherman, is now 
recognized for 5 minutes.
    Mr. Sherman. I want to focus on this idea that these banks 
were well-capitalized. There are a lot of countries around the 
world that have what are termed, ``zombie banks,'' which are 
undercapitalized in terms of what their assets are really 
worth, but their bank regulators, for this or that political 
reason, says they are well-capitalized by allowing them to list 
those assets on their balance sheet as far more than they are 
worth. I fear that we do the same here in our country, although 
it is a little less obvious.
    You can say Silicon Valley Bank was well-capitalized, that 
is to say, its assets were worth a lot more than its 
liabilities. But the fact is, when it was taken over, the FDIC 
had to pay $20 billion to somebody to take it over. So in fact, 
the liabilities exceeded the assets by at least $20 billion, 
another $2.5 billion for Signature, and another $13 billion for 
First Republic, all of them underwater, with assets not worth 
anything. And the reason for that, in this case, was that when 
interest rates go up, the value of your loan or your bond goes 
down. That is interest rate risk, and we have a system of 
disguising that at the regulatory level, and at the bank, at 
the financial accounting level.
    So, Ms. Harris, if you have a bank that says it has $20 
billion in capital but if you actually look at the securities 
that they have bought and they have lost $19 billion, so that 
they are worth, in today's market, $19 billion less, is that a 
well-capitalized bank or is that a bank that's barely holding 
on--they had $20 billion in capital, but they lost $19 billion?
    Ms. Harris. Sir, I think revisiting the accounting rules 
and assumptions are well warranted in the case of what we have 
seen in recent months.
    Mr. Sherman. Now, I said this to Fed Vice Chair Barr when 
he was here, that folks have come up with advice for the bank, 
but the bank didn't take it. I used to be a business 
consultant, and I would give advice and they would take it, and 
they would pay me, and I was happy. When you saw these 
problems, you didn't require the banks to use credit default 
swaps to ensure their position or to sell their long-term 
securities and buy short-term securities. Why were they allowed 
to ignore your good advice?
    I will first ask Ms. Hewlett.
    Ms. Hewlett. First, a regulator's responsibility is to 
promote safety and soundness and to identify deficiencies to 
board management. It is board management's responsibility to 
operate that bank.
    Mr. Sherman. And when they don't take your advice, do you 
pull the plug, or just shrug your shoulders and walk away?
    Ms. Hewlett. When they don't take our advice, we should 
move aggressively and swiftly with increased measures, even if 
it means a cease and desist or consent decree.
    Mr. Sherman. Okay. I want to focus on one other thing, 
which is we are the only country in the world, I believe, with 
this kind of bizarre system of overlapping regulatory 
authorities. You can choose to go with the Fed, or you can go 
with the OCC. And let's say, Ms. Harris, your institution was 
really tough on banks. Couldn't they escape you by either 
chartering themselves in New Jersey or going with Fed 
regulation? And if several banks did that, you would lose 
revenue. You would have fewer people to audit. Your institution 
would decline. Is that what happens to a bank regulator who is 
tougher than the Fed regulators or the regulators in adjoining 
States?
    Ms. Harris. I will tell you, we don't take those sorts of 
things into account. We address risks of our institutions as we 
see fit, whether it is banks, insurance companies, or the 
virtual currency companies we regulate. The rules are the 
rules.
    Mr. Sherman. I would hope so, but in this case, the rule 
tended to be, we see the problem, but we don't force the 
solution.
    Ms. Hewlett, you described the folks you audit as being in 
that kind of $1- to $2-billion-range community banks, community 
credit unions. Does it make sense to have your agency do a $200 
billion organization like the Silicon Valley Bank?
    Chairman Huizenga. I'm sorry. The gentleman's time has 
expired.
    Mr. Sherman. Please respond for the record.
    Chairman Huizenga. The witness will respond for the record.
    With that, the gentleman from Missouri, Mr. Luetkemeyer, 
who is also the Chair of our Subcommittee on National Security, 
is now recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. And welcome to 
our guests today. Ms. Harris, Ms. Hewlett just made the comment 
that when banks are misbehaving, that in order to be able to 
make your point, sometimes you have to do things maybe a little 
more aggressively, take over and do stuff. Do you agree with 
that?
    Ms. Harris. Yes, I do.
    Mr. Luetkemeyer. So, that brings up a question. In the GAO 
report with regards to this that just came out last week, in 
fact, the FDIC, in regards to Signature Bank, made the 
statement that central banks management failed to take adequate 
steps to mitigate the bank's longstanding liquidity and 
management issues before the bank's failure. The other central 
bank management will report to the FDIC that it mitigated an 
issue, only for the FDIC staff to find the issue unresolved 
during transaction testing. Waivers caused the FDIC to issue 
repeated Supervisory Recommendations to Signature Bank. Were 
you aware of this?
    Ms. Harris. Absolutely. We regulated the bank jointly, and 
as you will note, DFS is a co-signatory on every Supervisory 
Recommendation in the order of examination.
    Mr. Luetkemeyer. What were you not doing then to force the 
action, if the FDIC was doing nothing? When you agree that 
something needs to be done, why were you not doing something to 
be more aggressive, as you agreed with the statement of Ms. 
Hewlett here, to get things done?
    Ms. Harris. Yes, sir. Since I have come into my position 
over the last 19 months, and we have worked to update our 
protocols----
    Mr. Luetkemeyer. That is not my question. My question is, 
why didn't you do something?
    Ms. Harris. Sir, when I came into my seat, we were in the 
middle of an exam report, but surely we would have taken 
swifter action had that exam been able to conclude.
    Mr. Luetkemeyer. In the middle of an exam report--that is 
not the answer to my question, either. I asked you why you 
didn't take action. You just agreed with that. When you have 
somebody who is not doing their job, you need to be more 
aggressive. Why are you not taking more aggressive action?
    Ms. Harris. And as I noted, we were in middle of----
    Mr. Luetkemeyer. Is it a failure of your examiners to do 
their job? That is my question.
    Ms. Harris. No, sir. We identified the issues. The bank 
management failed to----
    Mr. Luetkemeyer. Well, it is fine. You identified the 
issue, but then you have to do something about it.
    Ms. Harris. I agree, sir, and we are working to escalate 
issues and take swifter action.
    Mr. Luetkemeyer. Actually, you didn't do anything about it, 
so you all were incompetent at managing the banks; that is the 
problem. You all didn't do your job. I used to be a bank 
examiner in the State of Missouri. I knew what my job was, and 
you didn't do yours. That is the bottom line.
    Ms. Harris, interest rate risk is a real problem, and a lot 
of the banks are upside down right now and have some liquidity 
problems. Even the Fed itself is upside down. When Fed Chair 
Jerome Powell was here the other day, he admitted that his bank 
and his Federal Reserve is losing money because he is the guy 
himself, upside down in his rates. Did the Fed ever discuss 
with you the potential liquidity shortage due to rate hikes 
with the two banks that are in California?
    Ms. Harris. Discuss with me or discuss with my colleague 
from California? I'm sorry.
    Mr. Luetkemeyer. Ms. Hewlett, she is from California, 
right? Yes.
    Ms. Hewlett. Yes.
    Mr. Luetkemeyer. Okay. You oversee those two banks, right? 
So, did the FDIC or the Federal Reserve, either one discuss 
with you the interest rate problem that those two banks 
presented?
    Ms. Hewlett. The Federal Reserve did discuss that there 
were deficiencies in terms of the review of Silicon Valley 
Bank's risk due to the rising interest rates and that their 
simulations were unreliable, and they also discussed it with 
Silicon Valley Bank's management in November of 2022.
    Mr. Luetkemeyer. Did they offer to work with you and in 
conjunction to do something with this to force some action by 
the bank to take some action here?
    Ms. Hewlett. They were going to take some action along with 
us, and the Silicon Valley Bank management was informed as a 
result of their failure in this area and their lack of 
sensitivity to interest rate risk.
    Mr. Luetkemeyer. Okay.
    Ms. Hewlett. And an MOU was going to be issued, but the 
bank run occurred prior to----
    Mr. Luetkemeyer. Okay. Listen, I have less than a minute--I 
am sorry to interrupt, but I have less than a minute to go, and 
one more issue I want to talk to you about. I think this is a 
very teachable moment for all of us. Social media helped drive 
this situation. This morning, a gentleman indicated how long it 
took for them to lose all these dollars, these deposits out of 
their bank. Social media has really turned our banking world 
upside down with how quickly things can happen. I think that 
there is a national security risk here from the Chinese 
watching what is going on right now. We are self-imploding, and 
I am very concerned about it. Do you have the same concerns?
    Ms. Harris. Yes, sir.
    Mr. Luetkemeyer. Ms. Hewlett?
    Ms. Hewlett. Yes, definitely.
    Mr. Luetkemeyer. We want to continue to work with you. My 
time is up, but we want to work with you to be able to try and 
address this. To me, this is the newest challenge that this 
industry has with real-time payments around the corner. We have 
to figure out how to make sure that we can transfer money 
safely and not endanger the entitlements. Thank you very much. 
I yield back.
    Chairman Huizenga. The gentleman's time has expired. The 
gentlewoman from Ohio, Mrs. Beatty, is now recognized for 5 
minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and thank you, 
ranking members, and thank you to our witnesses here today.
    Superintendent Harris, earlier today on panel one, we had 
Mr. Shay here, the co-founder of Signature Bank, and he 
indicated that he didn't think it was necessary for the 
regulators to close Signature Bank. Can you address his claim 
and explain the decision to close the bank that weekend in 
March?
    Ms. Harris. Absolutely, ma'am. Under my authorities and 
banking laws, Section 606 of New York, I have the authority to 
take possession of a bank if it is operating in an unsafe and 
unsound manner or if it is operating in an unauthorized manner. 
In this case, we knew the bank had at least a $4-billion 
shortfall at the time we took it over. They had an inability to 
demonstrate a credible liquidity strategy.
    And I will give you one example, which is on Saturday 
afternoon, they said to us that they had $5.1 billion in 
pledgeable securities, and 35 minutes later, they revised that 
estimate down to just $900 million. The regulators' inability 
to get a clear and credible liquidity plan from the bank made 
it clear that they would not be able to open in a safe and 
sound manner on Monday.
    Mrs. Beatty. I will ask you the question we asked him: 
Whose fault is this, and maybe as a kind of follow-up to my 
colleague's question, Mr. Becker was the only one who said or 
halfway acknowledged and took responsibility as being the 
president. So, do you think it was Mr. Shay's fault? Do you 
think it was also your fault?
    Ms. Harris. I think that primarily, bank management failed 
to put the risk----
    Mrs. Beatty. And who is bank management?
    Ms. Harris. Mr. Shay and his colleagues who were running 
the bank, both at the executive level and on the board, and I 
think there are areas for regulators to improve as well.
    Mrs. Beatty. Okay. Let me go to my next question. I will 
ask both of you. I can start with you, Commissioner Hewlett. I 
am concerned that without deposit insurance reform, we may 
continue to see an outflow of bank deposits away from smaller 
banks and into the nation's largest banks, and community banks, 
as you probably will agree, are the backbone of our local 
communities. And we saw how they pulled through to support 
communities during the pandemic, for example, by ensuring that 
small businesses could get access to the Paycheck Protection 
Plan or PPP. We had some difficulties at first, as you will 
recall, and had to come back, and many of us, especially on 
this side of the aisle, had to make sure that we were dealing 
with small businesses.
    Here is where I am going. There are 193 community banks in 
Ohio--in my State and district--with a combined $134 billion in 
assets. Almost 80 percent of these banks have been in 
businesses for over 100 years. As a comparison, Silicon Valley 
Bank had over $212 billion in assets. Do you share my concerns 
on how are these community banks in your State going to do 
after the aftermath of this recent bank failure, and do you 
have any recommendations for us?
    Ms. Hewlett. Yes, first and foremost, regardless of what 
Federal legislation has been introduced in the past, I think 
there must be emphasis placed upon supporting our community 
banks. Our community banks are on the front lines providing 
lending to our small businesses, which are the engine of our 
country. Our community banks are the entities that are 
providing lending to our most-underserved people, whether in 
inner cities or rural America. So whatever solution we discuss 
or collaborate with together, our community banks should not 
bear the burden, and everything possible should be done to 
support them.
    Mrs. Beatty. Okay. And I am going to ask you the same 
question. When we talk about the bank presidents, whose fault 
was it that this happened?
    Ms. Hewlett. I don't think there was just one factor. I 
think there was a combination of factors. I think there were 
deficiencies in governance and management. There were 
deficiencies in the board management and taking into 
consideration all the different types of liquidity and capital 
risk.
    Mrs. Beatty. Do you think it was the regulators' fault as 
well?
    Ms. Hewlett. I believe that the regulators did not act in a 
timely fashion, and we take responsibility for that, combined 
with the impact of social media and how fast one can withdraw 
their money through digital platforms. I believe all of those 
facts----
    Mrs. Beatty. I'm sorry, my time is up, but thank you for 
your response.
    Chairman Huizenga. And the gentlelady's time has expired.
    With that, the gentleman from Texas, Mr. Williams, who is 
also the Chair of the House Small Business Committee, is now 
recognized for 5 minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman. And I thank 
the witnesses for being here today. In the California DFPI's 
internal review report on their supervision of Silicon Valley 
Bank, it states that there was a staffing shortage, with only 
two examiners supervising SVB. The report goes on to say that 
SVB had already failed by the time additional examiners were 
available. And the report also indicates that the agency failed 
to act when an examiner in charge elevated need for additional 
resources to review SVB's materials in 2021 and 2022.
    California DFPI's proposed budget for 2022 through 2023 was 
$157 million. I am from Texas. That is a lot of money in Texas, 
okay, and I assume that would be adequate to keep a full-time 
supervisory staff up and running. So, I am curious as to what 
the California DFPI prioritized allocating resources towards? 
Commissioner Hewlett, what was that money used for if not for 
an adequate number of supervisors?
    Ms. Hewlett. Going forward, we have taken our existing 
resources, and we have added more staff to our examination team 
as it relates to large banks. We have strengthened an early 
module system and mandated a large supervisory plan with 
emphasis on looking at uninsured depositors, particularly in a 
particular sector. And we have tightened our adherence to 
timelines to ensure that moving forward, our large banks 
remediate in a timely manner.
    Mr. Williams of Texas. Let me follow through. Did a similar 
staffing issue occur at any of the eight other banks that DFPI 
oversees or was it just this one?
    Ms. Hewlett. There were staffing issues, which we have now 
addressed and created an enhanced monitoring team, as well as a 
large supervisory plan for large banks.
    Mr. Williams of Texas. It sounds like there are a lot of 
people involved now. Since 2019, Signature Bank had retained a 
less-than-satisfactory rating in liquidity. And in the reports 
that were released, it was stated that Signature Bank was 
warned multiple times by regulators of their risks. And even 
though the bank was aware of these risks, they left many of 
these weaknesses unresolved. I think we have talked a little 
bit about that.
    Again, Superintendent Harris, in your testimony, you said 
that Signature's failure to remediate the outstanding liquidity 
management issues undoubtedly contributed to its collapse. So, 
why was there no action taken when you had already downgraded 
Signature's liquidity and management ratings, and how often do 
you downgrade to the lowest level, and how did that not signal 
a potential bank collapse?
    Ms. Harris. Sir, as we have noted, the regulators, 
including DFS, should have taken more swift and prompt action 
to force the bank to remediate those items that had been 
flagged year-after-year and that were left open.
    Mr. Williams of Texas. This has been an expensive learning 
experience, hasn't it, for everybody?
    Commissioner Hewlett, Silicon Valley Bank was without a 
chief risk officer for 8 months. We have talked about that. And 
in the DFPI report, it indicates that the circumstances of the 
role of the chief risk officer at SVB were unknown. He was 
there, but he didn't know what he was supposed to do. And I 
know that in that report, he says issues with risk management, 
the board's failure to hold the senior management accountable 
for risk management plans, were the basis for the MRAs and 
ratings downgrade.
    Lastly, Commissioner Hewlett, when the DFPI issued the 
MRAs, were you aware of the status of the chief risk officer, 
or did you expect Silicon Valley Bank to provide those updates 
for you?
    Ms. Hewlett. We should have moved in a much more aggressive 
and timely fashion to make Silicon Valley Bank address their 
deficiencies.
    Mr. Williams of Texas. Okay. And given the interest rate 
risk was a major factor in SVB's failure, should these have 
been elevated to a Matter Requiring Immediate Attention?
    Ms. Hewlett. In terms of the interest rate risk, they were 
elevated. An MOU was in the process of being initiated. 
However, before the MOU was initiated, the bank run had begun.
    Mr. Williams of Texas. Okay. Usually, you hear about having 
more people than you need with the government; now, we have too 
few. I yield back.
    Chairman Huizenga. The gentleman yields back. The gentleman 
from Illinois, Mr. Casten, is recognized for 5 minutes.
    Mr. Casten. Thank you, Mr. Chairman. Commissioner Hewlett, 
I would like to start with you. A couple of hours ago, Greg 
Becker told us that he was not aware of any discussion of 
interest rate risks at SVB prior to early 2023. I think you 
just mentioned in your conversation with Chairman Huizenga that 
in November 2022, you were raising concerns. And in an April 2, 
2023, Washington Post article, ``Silicon Valley Bank's risk 
model flashed red. So its executives changed it.'', it says 
that Silicon Valley Bank purposely changed their assumptions 
about interest rate risks which hide interest rate 
mismanagement, and maximize short-term profits, and says that, 
``Changing assumptions about interest rate risks were shared 
with Federal and State regulators in late 2021 or 2022.'' Can 
you either confirm or deny that you were aware of them changing 
their interest rate risk models, possibly in late 2021?
    Ms. Hewlett. The liquidity risk management project plan 
that Silicon Valley Bank----
    Mr. Casten. I am not trying to get in trouble, but I am 
asking specifically about interest rate risk, that they had 
changed their interest rate models. And I am just asking----
    Ms. Hewlett. Their interest----
    Mr. Casten. Can you confirm that the article is correct?
    Ms. Hewlett. On November 15, 2022, in a supervisory letter, 
which noted the MRA----
    Mr. Casten. And I am sorry. Just a yes or no is all I am 
looking for, whether you can confirm or not.
    Ms. Hewlett. They received a supervisory letter on November 
15, 2022, which very clearly indicates----
    Mr. Casten. Okay. So you are saying when the article says 
late 2021, that is incorrect?
    Ms. Hewlett. In November of 2021, they were notified 
through supervisory letters that their liquidity risks were 
miles----
    Mr. Casten. I am asking specifically about the interest 
rate models. This says that they changed their models and the 
regulators were aware that they had changed their interest rate 
models. I am not asking when you notified them. I am asking, 
when did you become aware, and is the article right, that it 
was earlier?
    We will follow up for the record because I want to use the 
rest of my time to talk about some of the New York issues. If I 
understand it correctly, the stablecoin rules in New York 
require that stablecoin issuers are backed by a reserve of 
assets that is fully redeemable. Is that correct?
    Ms. Harris. Correct.
    Mr. Casten. And am I also right that issuers are not 
allowed to lend against stablecoins?
    Ms. Harris. That is correct as well.
    Mr. Casten. Does New York regulate how much a stablecoin 
issuer can keep in uninsured customer deposits?
    Ms. Harris. We do not, although we monitor all of our 
stablecoin issuers and virtual currency companies to make sure 
they are holding both commercial accounts and reserve accounts 
in diversified, well-regulated, FDIC-insured banks.
    Mr. Casten. Okay. Now, I asked that because Circle had $3.3 
billion at SVB. They also had uninsured deposits at Signature 
Bank that they couldn't access. Coinbase disclosed having $240 
million in corporate cash at Signature. We know what happened 
to USDC and the collapse. Did New York regulations, either by 
statute or through the supervisory authority you have, prohibit 
Signature from loaning against the deposits that they had from 
Circle and Coinbase?
    Ms. Harris. No, but I think it is important to realize that 
Signature did not hold digital assets. They held the USD in the 
commercial account.
    Mr. Casten. Sure. But if it is a stablecoin, it is only as 
good as the reserves, so what I am asking is if the assertion 
in New York law is that those assets have to be fully backed, 
does an uninsured dollar deposit at a bank with all of this 
interest rate risk count under New York State law as fully 
backed?
    Ms. Harris. Yes. Our stablecoin issuers have to have one-
to-one on-chain to off-chain deposits. So if there is a 
stablecoin outstanding, our dollar denominates stablecoin 
outstanding, there has to be $1 on deposit with a depository--
--
    Mr. Casten. Which only matters if the dollar is actually 
accessible and someone can reach it because they can be----
    Ms. Harris. The required could be held in USD and cash and 
cash equivalents; they can't be held in illiquid assets.
    Mr. Casten. The reason I raised that is because the only 
reason why the peg has come back for the USDC is because the 
Fed stepped in and bailed out all the depositors, and I am very 
concerned about the exposure that happens if we regulate them. 
And you all have done a great job in New York, but if you have 
approved this and now the Fed has to bail it out, the only 
thing that a stablecoin does is destabilize our financial 
system.
    Ms. Harris. And to clarify, USDC is not approved by DFS. It 
is not available for New York. We regulate Circle, and Circle 
is licensed, but as you know, we have product approval and USDC 
is not approved for----
    Mr. Casten. Last quick question for you, in your written 
testimony, you said that Signature advised the regulators that 
its available liquidity on Monday would be bolstered by 
substantial deposit inflows from an unspecified DFS-regulated 
virtual currency company. To which crypto company were they 
referring?
    Ms. Harris. That is confidential supervisory information, 
so I would like to maybe be responsive to that in a private 
setup.
    Mr. Casten. But you know who that was?
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Casten. I will follow up on that. Thank you.
    Chairman Huizenga. And you can follow up in writing on 
that.
    With that, the gentleman from Tennessee, Mr. Rose, who is 
also the Vice Chair of our Oversight and Investigations 
Subcommittee, is now recognized for 5 minutes.
    Mr. Rose. Thank you, Chairman Huizenga, and thanks to our 
other chairman and ranking members for holding the hearing. And 
thanks to the witnesses for being here.
    Commissioner Hewlett, your report notes that beginning in 
March 2020, onsite examination functions were performed 
virtually due to the pandemic. Are the examination functions 
still performed virtually with staff working from home?
    Ms. Hewlett. During the period of COVID, the examinations 
were performed virtually and frequently, and as many of the 
examinations involved reviewing of documents, we were able to 
perform our examination review virtually.
    Mr. Rose. And is that still what you are doing today?
    Ms. Hewlett. We are more in a hybrid state today where some 
examinations are onsite and some are actually----
    Mr. Rose. Thank you. Do you think it is more effective for 
examiners to be onsite and in-person or working from home?
    Ms. Hewlett. It really depends upon the bank itself.
    Mr. Rose. Sure. I can answer this. As a former bank board 
member, I can tell you there is no substitute for in-person, 
on-site examinations. There is nothing that strikes fear in the 
hearts of bankers more than that on-site examination. And I 
would encourage you to move away from that as swiftly as 
possible because I do not think you can effectively supervise 
these banks without the specter of that onsite examination 
happening. So, thank you for that.
    Superintendent Harris, you serve on the Financial Stability 
Oversight Council (FSOC) as a non-voting member, correct?
    Ms. Harris. Yes.
    Mr. Rose. In 2021, FSOC identified three key priorities 
related to significant vulnerabilities in the financial 
system--non-bank financial intermediation, climate-related 
financial risk, and Treasury market resilience--and in 2022, 
FSOC identified a fourth key priority: risk related to digital 
assets. Superintendent Harris, which is more concrete and an 
imminent threat to the current financial system, climate-
related financial risk or interest rate risk?
    Ms. Harris. I think there are lots of important factors 
related to risk, but I also want to clarify that I joined FSOC 
at the beginning of this year, in January 2023.
    Mr. Rose. Okay. But again, which one do you think is more 
concrete, and maybe I will stress imminent, maybe to point you 
to the answer I am looking for in the current financial system.
    Ms. Harris. Certainly, the interest rate risk that we have 
been seeing materializes is----
    Mr. Rose. Sure. And I think therein lies part of the 
concern that I would have in the current scenarios that we have 
seen play out is that, I would tell you, I think you took your 
eyes off the ball, and that it is these longstanding 
fundamental issues that affect banks that were at play here. 
And unfortunately, my fear is that regulators were looking too 
far down the field, too far ahead, and thinking about things 
that maybe got their minds off of the real inherent risk to 
banking.
    Commissioner Hewlett, your report notes that DFPI will 
require banks to evaluate and account for emerging risks posed 
by technology-enabled activities such as social media and time 
withdrawals. Do you attribute the run on SVB more to the use of 
social media or to its emergency 8-K filing on March 8th?
    Ms. Hewlett. The run on the bank, I feel, is a combination 
of factors, which I have just indicated, that created the 
perfect storm. I cannot assess whether one impacted this run 
more than others. I think after more time and review, we will 
have a better picture. But to be able to say, was it the 
filing, or was it that people could withdraw their deposits on 
digital platforms in less than a second--I can't say whether 
one or the other was the main factor. I do know that all of 
them together resulted in the perfect storm.
    Mr. Rose. In the time remaining, do you think that 
institutional investors on Wall Street react more to social 
media or other forms of communication like Bloomberg terminal 
notifications, SEC filings, client notes, and email chains?
    Ms. Hewlett. I haven't done----
    Mr. Rose. I am out of time, so if you could please respond 
in writing for the record, I would appreciate it. Thank you, 
and I yield back.
    Chairman Huizenga. The gentleman's time has expired. And I 
think you are both going to be doing some writing of responses 
to these last questions at the tail end of the 5 minutes.
    With that, the gentleman from Massachusetts, Mr. Lynch, is 
now recognized for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman. And thanks to the 
ranking member. Ms. Harris, I was curious as to what happened 
to banks in New York when Circle broke the buck, when their 
stablecoin broke the buck?
    Ms. Harris. They depegged.
    Mr. Lynch. Yes, when it did peg--we have had situations 
like that occur with money market funds in the past, and I was 
just curious what the impact was locally.
    Ms. Harris. Sure. Again, I want to be clear that while 
Circle is licensed and regulated by DFS, USDC is not approved 
by DFS and, therefore, not available in New York, for New York 
consumers. The impact on banks from USDC depegging, I think is 
maybe less the issue than banks looking to derisk from banking 
cryptocurrency customers and their fiat deposits, not their 
digital asset deposits necessarily.
    Mr. Lynch. It has a run effect, in other words?
    Ms. Harris. No, sir. At least in the case of Signature, 
when we saw the deposits leaving on that Friday afternoon, the 
deposits that left that were digital asset customer deposits 
still in USD were roughly proportional to digital asset 
companies' deposits in the deposit base overall. So, what we 
saw was a run across the diverse customer base of Signature 
Bank.
    Mr. Lynch. Okay. What we saw elsewhere, I guess across the 
country, was people moving to bigger banks that they felt were 
safer. And that avoided the risk that banks that actually had 
crypto assets after Silvergate, SVB, Signature--after those 
problems, we saw a migration. I am worried about that trend 
because I don't think it is over yet. We see in small, local 
community banks that people are nervous about that. And there 
are billions and billions of dollars in deposits that are 
migrating from those small banks that take care of a lot of 
smaller businesses and individual depositors, and that is a 
huge shift. Do you think that is helpful for the entire banking 
ecosystem?
    Ms. Harris. No, absolutely not. I think the health and 
safety of our banking system depends on having this diversity 
in the size of institutions.
    Mr. Lynch. Yes. I am just wondering--and I did read the 
Fed's guidance. They came up with a rule that presumptively 
prohibits banks from taking crypto deposits or stablecoin 
deposits, in many cases. Do you worry that the volatility, 
because crypto products and stablecoins for that matter, 
stablecoins that are not stable, when you marry up the banking 
industry with the crypto industry, you invite in or import in 
all of that volatility, which is extremely harmful to the 
stability of that bank?
    Ms. Harris. I agree, sir. I want to distinguish between 
banks that hold digital assets themselves and banks that hold 
USD as part of deposits for virtual asset companies. They both 
obviously present risks and banks have to have appropriate risk 
management protocols in place. DFS has also issued guidance to 
our DFS- and State-regulated banks, making sure they understand 
that they have to get preapproval from us before being engaged 
in any type of virtual asset activity.
    Mr. Lynch. Yes, the thing I am worried about is the 
migratory effect. If a bank is considered to be a crypto bank, 
and FTX happens or something like that, you have an inducement 
for moving assets, and whether or not that is backed, we are 
continuing to see volatility.
    Ms. Harris. I think having the one-to-one backing as we do 
in New York also helps prevent depegging because consumers know 
the liquidity is there. It is one of the reasons we have been 
so eager to continue working with you and your colleagues to 
put a Federal framework in place that looks like what we do in 
New York.
    Mr. Lynch. Yes, in Massachusetts, it is odd because we have 
excess deposit insurance above the $250--actually, the limit is 
$10 million, and we still saw people moving their money to 
bigger banks, so it continues to be a problem.
    Anyway, thank you. Mr. Chairman, I yield back.
    Chairman Huizenga. The gentleman's time has expired. The 
gentleman from Tennessee, Mr. Ogles, is now recognized for 5 
minutes.
    Mr. Ogles. Thank you, Mr. Chairman. And thank you, ladies, 
for being here. Ms. Hewlett, you previously stated that a 
regulator's primary responsibility was to evaluate and 
highlight deficiencies, and, ultimately, it was up to the bank 
to remediate those deficiencies. My question would be, did you 
have the authority or did your peers have the authority to 
escalate and essentially force compliance?
    Ms. Hewlett. We had the authority to escalate and force 
compliance.
    Mr. Ogles. Yes, ma'am, and, Ms. Harris, same question for 
you, ma'am.
    Ms. Harris. Yes, we do.
    Mr. Ogles. Yes, ma'am. And Ms. Hewlett, is there anything 
in the regulations that would have prohibited you from 
escalating the matter at hand with the banks that you were 
overseeing?
    Ms. Hewlett. There is nothing in the regulations that would 
have prohibited us from escalating it.
    Mr. Ogles. Is there anything in the rules that would have 
prohibited escalation?
    Ms. Hewlett. No.
    Mr. Ogles. Ms. Harris, same question.
    Ms. Harris. No.
    Mr. Ogles. No, on both accounts? Yes, ma'am. Thank you.
    Ms. Harris, you have said in reference to climate change, 
that it is a very data-driven approach to risk mitigation, 
operational resiliency, and so forth. So I am curious, there 
was a 3\1/2\ degree change in climate temperatures. In exact 
numerical terms, can you quantify how that will affect interest 
rates?
    Ms. Harris. No, sir.
    Mr. Ogles. Yes, ma'am. If there is a 10-percent reduction 
in polar ice, can you tell me how that will numerically impact 
deposits versus say interest rate risk?
    Ms. Harris. No, sir.
    Mr. Ogles. Yes, ma'am. So, I am curious as to why any bank 
or any regulator would somehow assert climate change as part of 
the regulatory process when your role is fiduciary and not 
activism?
    Ms. Harris. Sir, I agree with you. But what I would say is 
where we have institutions with concentration, for instance, a 
set of mortgages in a flood zone, we want them to engage in 
fair lending processes but also have proper risk management in 
place, which doesn't mean not lending in those areas, but being 
cognizant of concentration risk that may be new in the face of 
climate change.
    So instead of thinking of it as activism, we, at least at 
DFS, approach it as something that should be part of an 
existing risk management framework, the same way banks should 
approach any other risks. And one of the examples I use for 
operational resiliency, for example, is put the generator on 
the roof, not in the basement.
    Mr. Ogles. Yes, ma'am. But still, that has nothing to do 
with interest rates or deposits or deposit structure, or, quite 
frankly, bank governance. So again, to my colleague's point, I 
think there were some priorities given by some of the banks, 
not all, to climate change, and literally, in the minutes of 
their meetings, they are spending virtually no time on interest 
rate risk. And this is problematic from a bank management 
perspective.
    But also, as you both have stated, you had a 
responsibility. You had the authority to escalate, but that did 
not occur, and obviously, there is plenty of blame to go 
around, but I think what we have to do in this process is learn 
from the situation. And I think and I would caution that we 
have had some of the agencies come before this body and ask for 
more authority, but I think we understand clearly that the 
regulations at hand give you the authority to act. There was 
nothing that prohibited your ability to act. And I have not 
heard you ladies ask for more authority, so I want to be clear 
on that fact. But I would caution, don't come before the 
committee and ask for more authority when the authority that 
was given wasn't used appropriately.
    I want to go to capital requirements, and I think it has 
been stated that Fed Chair Powell and Vice Chair Barr had said 
at the time, that the banks that failed were well-capitalized. 
But I think it is important to understand that deposit 
structure and interest rate risk was the key factor here and 
more money--I don't think there was enough money that we could 
have poured into the system to save a couple of these banks, 
right? And in fact, what I would argue is that the capital 
requirements, especially for your smaller community banks, are 
too high.
    If you have a well-managed bank with lower liquidity risk 
or exposure risk, that should be taken into account. And 
instead of being at 9 percent, let's not ratchet that up, 
because what we risk here is forcing smaller and mid-sized 
banks out of the marketplace. I come from a working-class 
family. I started my first business when I was very young, and 
it was the local banker who gave me my first loan, not because 
I had a great business plan, but because he knew my family. And 
I just think as you move forward, we must take that into 
account. Ladies, again, thank you for being here. Mr. Chairman, 
I yield back.
    Chairman Huizenga. The gentleman yields back. The Chair now 
recognizes the ranking member of the Full Committee, Ms. Waters 
of California, for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. I would like 
to direct my questions to Commissioner Hewlett from California. 
In your report regarding the failure of Silicon Valley Bank, 
you indicated that your agency is working to better coordinate 
with Federal regulators to develop stronger and more-effective 
systems to promptly remediate deficiencies. And if you could 
share with us some of the things that you envision could be 
done, working with the Fed, that would help deal with a crisis 
such as we have just had before us. What are you thinking about 
in ways to work with the Fed to help deal with these 
deficiencies that led up to the failure?
    Ms. Hewlett. First and foremost, we have added, through our 
existing resources, more people to our examination team, to 
mandate adherence to timelines. We recognize how important our 
community banks are to our community and working with our 
Federal partners. We are from the very beginning going to scope 
out our plan, define our roles as equal partners in recognition 
of that importance, and work more closely with our Federal 
partners to ensure that those timelines are adhered to. And we 
believe that we are both going to have to work much more 
aggressively, effectively, and efficiently, in ensuring that 
the banks for which we provide oversight remediate their 
deficiencies in a timely manner.
    Ms. Waters. That is very good. Are there steps that the 
Federal regulators can take to better coordinate with State 
regulators like you? I think that it is important that the 
Federal and State regulators know and understand what each are 
doing and how to work together. Do you think there is anything 
in particular that you would like to suggest that could help 
strengthen that relationship?
    Ms. Hewlett. As I indicated, it is really important at the 
very beginning of the exam to get the roles straight and also 
clearly define where we might have to act independently, if 
necessary. I also think that after Silicon Valley Bank's run, 
we all have to consider in evaluating the risk, the impact of 
social media, the impact of how fast one can withdraw deposits 
through our digital technology, and we all have to move faster. 
We cannot get held up in the bureaucracy anymore in this new 
age.
    Ms. Waters. Thank you very much. As I have listened to the 
witnesses, there have been a number of deficiencies that have 
been articulated here during these hearings. And I just wonder, 
when we talk about if the bank hadn't grown so fast that, that 
was a problem, and that, with that growth and the uninsured, 
and I don't think the bank provided private insurance.
    What do you do when you see that a bank is just growing 
fast because, of course, we all support our businesses? We want 
them to be successful, et cetera. But when you are going fast, 
does it mean that you have to take a look at the underwriting? 
What can you do when you see that?
    Ms. Hewlett. It is the responsibility of bank management to 
operate their bank. We won't tell the bank how to invest, but 
we should act swiftly in identifying the deficiencies, 
particularly in liquidity and risk management, and hold the 
bank's feet to the fire to make sure that they are taking that 
risk seriously.
    Ms. Waters. Thank you so very much for your presence here 
today. I appreciate the information that you have shared with 
us, and I yield back the balance of my time.
    Chairman Huizenga. The ranking member yields back. With 
that, the gentleman from South Carolina, Mr. Timmons, is 
recognized for 5 minutes.
    Mr. Timmons. Thank you, Mr. Chairman. Commissioner Hewlett, 
your report is notably silent on any examination activity prior 
to 2020. Yet, GAO's report makes clear that, in fact, there 
were concerns related to SVB's management practices that were 
outstanding going back to 2018. Why did you not include those 
in your report?
    Ms. Hewlett. Prior to that day, the management practices 
were primarily concerned with IT audits, but it wasn't until 
2022, that we got into the areas of real liquidity risk, and at 
that point in time, we felt that was the most important. We 
didn't know that there were management deficiencies prior to 
that time, again, in terms of our review of their IT practices 
and some of the data privacy, but where we found the most 
significant deficiencies is when they were evaluated for 
management, governance, liquidity, and capital risk.
    Mr. Timmons. Thank you for that. Can you explain how 
supervision by DFPI was conducted jointly with the Federal 
Reserve when a bank was in the Fed's regional banking 
organizations portfolio?
    Ms. Hewlett. We will assign dedicated examiners. In this 
case, there were two dedicated examiners. We meet with our 
regional Federal partners, and we will become involved in the 
scoping and the planning of the exam, segmenting the different 
areas. And in this particular matter, we took the areas of 
governance and management from enterprise perspective, asset 
review, and IT review, whereas more enhanced reviews as they 
related to capital and liquidity risks were taken primarily by 
our Federal partners who did the review.
    But we are in collaboration with our regional Federal 
partners when it relates to larger banks, and when we say 
larger banks, we mean banks that are over $10 billion in 
assets. And when the bank reaches a point where it is over $100 
billion in assets, it even goes to another level of review 
under the Large Foreign Bank Organization program.
    Mr. Timmons. Thank you. Your report states that from late 
2021 throughout 2022, a dedicated examiner in charge 
highlighted the need for additional resources to review SVB 
materials. Even the DFPI financial institution managers 
elevated the need to divert resources to SVB, yet the 
discussions did not result in assigning additional staff to the 
exam team.
    In August of 2022, the examiner again reported the need for 
additional resources. According to your report, no additional 
resources were scheduled to be added until after the bank 
failed. How many times, typically, is a resource request raised 
with respect to an examination team before it is addressed?
    Ms. Hewlett. That is one of the reasons why we have added, 
from our existing staff, a more enhanced team. We have also 
added another level of supervisory review, so that when you see 
areas that will put a bank at a high risk, particularly, a 
large bank with this level of assets, that it is addressed 
immediately.
    Mr. Timmons. And that was done after SVB failed?
    Ms. Hewlett. That is correct.
    Mr. Timmons. Okay. And prior to the bank failure, did a 
similar staffing issue occur at any of the other eight large 
banks that DFPI oversees or was it only SVB that had the 
resource request issue?
    Ms. Hewlett. SVB was an outlier. It grew at a very, very 
fast pace. It had assets over $200 billion, and as I previously 
indicated, the average size of our community banks is $4 
billion, and about half of ours are $1 billion in assets.
    Mr. Timmons. Thank you. Mr. Chairman, I yield back.
    Chairman Huizenga. The gentleman yields back. The gentleman 
from Illinois, Mr. Foster, is recognized for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman. Superintendent Harris, 
in the Signature Bank failure, it seems like one of the most 
significant factors in this demise was not so much the 
concentration of crypto client deposits, but a lack of 
pledgeable assets that were immediately available for liquidity 
support. And as the speed of runs increases with technology, it 
is going to be necessary to have even better real-time 
liquidity information available to regulators. I was also 
surprised to see in your testimony that in the days immediately 
before the failure of Signature, there was a lot of real-time 
uncertainty about the net and pending deposits and withdrawals. 
So, why isn't that real-time information? What are the limiting 
factors that cause you not to have real time?
    Ms. Harris. I think the limiting factor in this case was 
the inability of management to produce the data that is very 
basic, and that any set of bank managers, board members should 
be able to produce at a moment's notice. As we have noted in 
our report and in my testimony, the numbers that all regulators 
were getting with the bank were inconsistent and unreliable, 
and it is just unacceptable.
    Mr. Foster. But did the bank management have some sort of 
real-time dashboard where they can just sit there and look and 
see how deposits are flowing in and out?
    Ms. Harris. I would say they should or, at the very least, 
have the ability to assess the value of collateral, that they 
have the value of the securities they have----
    Mr. Foster. Yes. Separate them. It seems like deposits 
might be a simpler case. What are the things that limit having 
real-time deposit and withdrawal information?
    Ms. Harris. I think mostly settlement times and the variety 
of payment systems that a bank might use, but I think certainly 
in the case of Signature, they were too slow and unrealistic 
about their deposit and withdrawal inflows and outflows, 
respectively.
    Mr. Foster. Okay. And then when they get in trouble, do you 
get access to whatever dashboards they have?
    Ms. Harris. We requested data from them many, many times 
throughout that weekend, and often, we were faced with hours-
long delays, and then, swiftly-changing estimates within 
minutes.
    Mr. Foster. It seems like they should have just given you 
the password to an account where you could see whatever 
dashboard they were looking at. And now, to the issue of 
collateral. Are there mechanisms? For example, what is your 
view of the Home Loan Bank System and how rapidly it was able 
to respond? Are there deficiencies there? Are there other ways 
that we could speed up a qualifying collateral or was that just 
mechanism that existed and weren't used ahead of time?
    Ms. Harris. I think the mechanisms for evaluating pledging 
collateral probably bear some modernization. It is one of the 
reasons why in our report, we suggested operational stress 
testing, as we have termed it, almost tabletop exercises that 
institutions can engage in with their regulators, to be able to 
run these drills in real time so that in the event of a real-
life crisis, they are better equipped to provide data pledge 
collateral and take the steps that they need to, to get 
liquidity.
    Mr. Foster. And are there any significant third parties who 
could step in, that have the same level of technological 
connection, for example, the Federal Reserve was, I guess, the 
main backstop when this sort of thing happened?
    Ms. Harris. Yes, I think the Federal Reserve and the other 
regulators--DFS, FDIC--worked very quickly and very well to 
help overcome some of those operational challenges. For 
instance, working with the Federal Home Loan Bank and the New 
York Fed to make sure that the Federal Home Loan Bank could 
subordinate its interest in collateral to the Fed in order to 
get faster liquidity for the bank when it couldn't get that 
liquidity as fast as we would have liked from the discount 
window.
    Mr. Foster. What sort of risk were they taking on, when 
they subordinated the interest? I am a physicist, not a banker. 
I'm sorry.
    Ms. Harris. I think it's the same amount of risk whenever 
you subordinate your interest in some sort of debt. When you 
lower yourself in the priority stack, you enhance the risk 
because you are a lower-priority debtor, but I think that is 
the case with any type of debt.
    Mr. Foster. So this would be the Home Loan Bank going belly 
up that would cause them trouble, which presumably shouldn't 
happen?
    Ms. Harris. Presumably.
    Mr. Foster. Or we would be forced to do something about it 
if it did? So there wasn't a major risk there?
    Ms. Harris. No, I think----
    Mr. Foster. During the crisis 12 years ago, you had 
instances where Warren Buffett stepped in and said, I am going 
to help out. Is there a merit to having a group of accredited 
people with the right technology who can step in and provide 
liquidity support in emergency situations? Is there a need for 
something like that to have something besides the Federal 
Reserve, the liquidity provider of last support?
    Ms. Harris. I think in the phase of what we are learning 
about the speed of runs, the impact of social media, digital 
banking, we should be considering all kinds of alternatives to 
make sure our banking system is safe and sound.
    Mr. Foster. And it has to respond on the same timescale as 
the Internet.
    Ms. Harris. Yes. And we want to make sure that it is 
subject to the same safeguards as well.
    Mr. Foster. Great. Thanks so much. I yield back.
    Chairman Huizenga. The gentleman's time has expired. The 
gentleman from Wisconsin, Mr. Fitzgerald, is recognized for 5 
minutes.
    Mr. Fitzgerald. Thank you, Mr. Chairman. On November 11, 
2022, a Wall Street Journal article explained at length 
interest rate risks presented to the banking system by the 
Fed's inflation-fighting rapid increases in interest rates. 
Silicon Valley Bank was mentioned as a particular case, as of 
September 30, 2022, a market value of its held-to-maturity 
bonds just slightly above the value of its total equity. So 
clearly, the regulators should have been becoming aware of 
risks, if they weren't already, surrounding Silicon Valley 
Bank.
    Commissioner Hewlett, if the uninsured depositors had not 
forced the bank to close, how much longer do you think the 
regulators would have allowed Silicon Valley to remain open 
without intervening?
    Ms. Hewlett. The MOU was in the process of being initiated. 
However, the bank run occurred before the MOU was initiated, so 
I believe it would have depended upon how the bank responded to 
the MOU. If they did not respond to the MOU or any subsequent 
orders, we would have had to take it to another level in the 
form of a consent decree in a cease and desist. It is hard for 
me to say, sitting here today, how long, because it would have 
depended upon their response.
    Mr. Fitzgerald. And as you are well aware, there are State-
chartered banks and there are Federally-chartered banks. And I 
am just curious, because something that has not come up much is 
the involvement of the State of California and your office. And 
Governor Gavin Newsom talked about his interactions with both 
the White House and with Treasury. Were you part of those 
conversations or how did those evolve as it was discovered that 
the bank could be in trouble?
    Ms. Hewlett. I was not involved in any systemic risk 
discussions nor did I discuss anything in regards to systemic 
risk with the Governor.
    Mr. Fitzgerald. Very good. And when the banks see rates 
move up such as they did, and the realized losses on the long-
dated securities were in place, did you anticipate you would 
have other regional banks in California that could actually see 
deposits are to be pulled?
    Ms. Hewlett. At the point that Silicon Valley Bank's run 
began, we really began enhanced monitoring of all of our 
community banks. We received hourly reports and we monitored 
the deposits towards the outflows on an hourly basis, because 
once that fear starts, it is easy for it to spread. Regardless 
of how well any bank management is running the bank, and 
regardless of how much capital, the fear spreads. So, we were 
monitoring very closely to try to contain it.
    Mr. Fitzgerald. In your role as Commissioner, what do you 
feel was your responsibility as this started to develop?
    Ms. Hewlett. We were focused as a result of the run on all 
of our other banks within California. And in that focus, we 
contacted each and every one of our banks that we thought might 
be at risk from the fear and the contagion to give them as much 
support as possible.
    Mr. Fitzgerald. Okay.
    Ms. Hewlett. Fortunately, we were able to resolve a number 
of the issues, and that fear and that contagion did not spread 
throughout our financial system.
    Mr. Fitzgerald. Were you in contact with the FDIC 
throughout this process as well?
    Ms. Hewlett. I was only in contact with the FDIC in terms 
of taking possession of the bank, liquidating it, and then 
turning it over to the FDIC and receivership. From that point 
on, I was not in contact with the FDIC as to what would be done 
in terms of the uninsured depositors or whatever negotiations 
may or may not have been taking place.
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Fitzgerald. Very good. Thank you. I yield back.
    Chairman Huizenga. The gentlewoman from Massachusetts, Ms. 
Pressley, is now recognized for 5 minutes.
    Ms. Pressley. Thank you. And thank you to our witnesses for 
joining us today. Obviously, the collapse of Silicon Valley 
Bank and Signature Bank have had significant implications for 
both our financial system and our regulatory framework. So, it 
is good to have State regulators before this committee to 
testify and discuss the reports regarding Signature Bank and 
Silicon Valley Bank. The report from California regulators on 
the failure of SVB identified several areas of concern about 
SVB's governance and risk management in May of last year, and 
the regulators eventually downgraded the management component 
of SVB's 2021 CAMELS rating and the governance and controls 
rating at the holding company.
    Commissioner Hewlett, the report notes that at the time 
that SVB's management rating was downgraded, the regulators did 
not perceive any imminent threats to the bank. Can you explain 
why this was the case?
    Ms. Hewlett. At the first downgrading of that bank, the 
deficiencies that were noted were primarily in IT. On the 
second downgrade of the bank, when they were doing the 
liquidity reviews and it had been downgraded further two or 
three less than satisfactory, the regulators felt they had more 
time. They did not anticipate the type of run that occurred in 
this bank, in which $42 billion went out in one day. In 
hindsight, regulators should have been much more aggressive and 
made the bank management adhere to the timelines.
    Ms. Pressley. Thank you. And to follow up, Commissioner, 
the report also mentioned that historically, bank examiners 
have not viewed a high ratio of uninsured deposits to total 
deposits as a significant risk factor, but you recognized that 
a high level of uninsured deposits at SVB contributed to the 
run on SVB. So, do you think regulators should commit to 
increasing their focus on banks with high ratios of uninsured 
deposits?
    Ms. Hewlett. I do, and that is exactly what we are doing 
right now. As a result of this, in hindsight, we have enhanced 
our team. And one of the areas that we are taking into 
consideration in our early warning modules is those banks that 
have a high percentage of uninsured depositors in one 
particular area. But I would say that this really was an 
outlier in Silicon Valley Bank--93 percent of uninsured 
depositors is highly unusual and is not what you see in your 
average community bank.
    Ms. Pressley. Very good. So, we agree regulators should 
take steps to mitigate risks that can arise from having such a 
large amount of uninsured deposits. And we really do want to 
learn the lessons from the turmoil of these last few months and 
reform these practices to ensure this does not happen again.
    I am of the opinion, as are many of my colleagues on this 
side, that reinstating the Dodd-Frank regulatory requirements 
on mid-sized banks, that were rolled back in 2018 by 
Republicans, is really critical. We can learn from this on the 
State level as well. So, I urge my colleagues to support these 
measures being reinstated. Again, thank you for coming before 
the committee, and I yield back.
    Chairman Huizenga. The gentlewoman yields back. The 
gentlewoman from California, Mrs. Kim, is now recognized for 5 
minutes.
    Mrs. Kim. Thank you, Mr. Chairman. High inflation over 4 
decades has led to real-life consequences in the form of failed 
banks, with over $400 billion, in essence, wiped out from two 
of the largest banks that are headquartered in California. And 
in total, we have seen three banks failing under the watch of 
the California State regulator.
    And more recently, First Republic is the second-largest 
bank in the United States, just behind Washington Mutual. So 
with that, Commissioner Hewlett, why do you think California 
financial institutions are bearing the brunt of the current 
distress in the banking industry?
    Ms. Hewlett. In terms of Silicon Valley Bank as I 
previously stated, I don't think there was just one factor. 
There were numerous factors that created the perfect storm. 
Once the run started as a result of deficiencies in governance, 
management deficiencies, and taking into consideration risk 
management in the areas of capital risk and liquidity risk, 
once you see the impact of social media and digital platforms, 
and how quickly one can withdraw their money from the bank, in 
addition to regulators not acting in a timely manner, all of 
that started the run on Silicon Valley Bank. And once that fear 
starts, it spreads.
    Mrs. Kim. So, it is fear-driven, social-media driven, 
Internet-driven?
    Ms. Hewlett. And then, it will spread.
    Mrs. Kim. Sure. Let me reclaim my time, so I can ask you 
other questions. Can you explain how supervision by DFPI was 
conducted jointly with the Federal Reserve when a bank was in 
the Fed's regional banking organizations portfolio?
    Ms. Hewlett. Generally, when we have banks that are over 
$10 billion, and particularly in this case where you have a 
very large bank that may be over $50 billion, $100 billion, or 
$200 billion, we will examine that bank in accordance with 
whomever is the primary regulator. The primary regulator in 
this case was the Federal Reserve Bank. We meet together at the 
regional level to determine the different portions of the exam 
and who is going to do which portions of the exam, and some 
portions of the exam we will do together. In this case, you 
have an added factor, because it had grown so rapidly that it 
fell under the category of a Large Foreign Bank Organization. 
So in addition to working with the regional regulators, it also 
went up to the examiners in D.C., who are highly trained in 
examining the banks.
    Mrs. Kim. Thank you, Commissioner Hewlett. I want to talk 
about the report, so let me stop you there and then talk about 
the report. In the beginning of that, you state that there was 
divided oversight over SVB such that the Federal Reserve Bank 
of San Francisco (FRBSF) assumed a lead role for supervisory 
activities of SVB. Yet later on in that report, it states that 
SVB was examined jointly by DFPI and FRBSF. The wording makes 
it appear as though the DFPI is only involved in a subset of 
oversight activities related to banks within its jurisdiction. 
So, is it true that DFPI relies on supervision by examiners 
from the Federal Reserve for certain oversight activities of 
State-chartered banks?
    Ms. Hewlett. First, we examined different sections 
separately. DFPI was very much taking the lead on the 
governance and management of that bank from an enterprise 
perspective. They took the lead on the IT examination of that 
bank. They took the lead on the asset examination of the bank. 
However, when it came to examination under a Large Foreign Bank 
Organization program in that case, that is when a more-
experienced team from the Federal Reserve----
    Mrs. Kim. How does DFPI conduct itself as a primary State 
regulator over the bank if it is only involved in a portion of 
the supervision?
    Ms. Hewlett. And this is one of the reasons why we added an 
enhanced team on----
    Chairman Huizenga. Sorry to interrupt, but the time has 
expired.
    Mrs. Kim. Thank you.
    Chairman Huizenga. And we can get you a written answer to 
that.
    With that, the gentlewoman from Michigan, Ms. Tlaib, is now 
recognized for 5 minutes.
    Ms. Tlaib. Thank you, Mr. Chairman. Superintendent Harris, 
do you think what happened with Silicon Valley Bank led to the 
other failures?
    Ms. Harris. Yes, I do.
    Ms. Tlaib. Why?
    Ms. Harris. I think social media, the speed of being able 
to withdraw, and the association, however valid, between some 
of the banks led to a contagion effect.
    Ms. Tlaib. Superintendent Harris, Mr. Becker was here 
earlier. Did you listen to his testimony?
    Ms. Harris. I did.
    Ms. Tlaib. You did?
    Ms. Harris. In part, yes.
    Ms. Tlaib. Yes. Superintendent Harris, one of the 
interesting things is, Mr. Becker kept talking about social 
media. I can understand the other two things, right? But he 
kept emphasizing that was a major factor in some of the 
mismanagement, and somehow it was because social media, and 
that is why they were in there. But how much of that really was 
weighed? I can ask the Commissioner, but Mr. Becker basically 
is leaning on this claim that social media was the reason. I 
hope you got all that.
    Ms. Harris. I think the failure of bank management to have 
adequate liquidity risk management is really at fault.
    Ms. Tlaib. Yes. Commissioner Hewlett, thank you so much for 
being here. I think Silicon Valley Bank exposed a lot of areas 
for us as Members of Congress to work on. I don't know if you 
listened to the testimony of Mr. Becker, the former CEO, 
earlier. Did you?
    Ms. Hewlett. I heard about some portions of it.
    Ms. Tlaib. Sure. How do you send the correspondence to 
Silicon Valley Bank, for example, Matters Requiring Attention. 
What was being sent to them? Email, of course----
    Ms. Hewlett. We received seven supervisory letters 
detailing their deficiencies. There were 31 MRAs and MRIAs, so 
they were on notice as to their deficiencies.
    Ms. Tlaib. I think, the committee should just send you the 
full transcript of his testimony, because I went through this 
timeline, as you can see. And I think in January, they started 
changing their trading plan--is that what they call it, a 
trading plan? Were you aware of that in January, that they 
started to implement what they call a trading plan change? Were 
you aware of that, Commissioner?
    Ms. Hewlett. We became aware from the State perspective 
afterwards and we highlighted the risk.
    Ms. Tlaib. So, on January 26th, they do that. They 
implement a change to the corporate trading plan. If you 
listened to his testimony, he says it is completely unrelated. 
It is like, oops, we failed, but this is after the bonuses, 
after compensation, which they claim was already set and 
scheduled beforehand. Do you believe that?
    Ms. Hewlett. The matter is under investigation right now, 
and I think it will come to light soon.
    Ms. Tlaib. Okay. Are you going to investigate the role of 
compensation incentives in your report, ma'am?
    Ms. Hewlett. We have other programs under DFPI, and I can't 
confirm or deny other investigations that are ongoing.
    Ms. Tlaib. Okay. Do you think that incentive compensation 
plans have contributed to the poor risk management and 
insufficient response to warnings demonstrated by senior 
employees at Silicon Valley Bank?
    Ms. Hewlett. I do think it did contribute. I think there 
was more of a focus on earnings and gain than there was on risk 
management.
    Ms. Tlaib. Yes. I really think there should be an 
investigation on whether or not Mr. Becker was fully truthful 
with us as Members of Congress in this committee. It was very 
telling, how little he claimed to know, and that others knew, 
and that this was just by coincidence. This timeline, if you 
look at it, any layperson could look at this and see this was 
set up in a way, again, for him to make millions and to walk 
away, while our financial system in this country is basically 
harmed, as we can see with the two other banks that failed.
    I really would love for you all to respond directly to some 
of the testimony of Mr. Becker. I think it is very telling how 
little he claims to know and I really don't believe he didn't 
know what was going on.
    Chairman Huizenga. The gentlelady's time has expired. The 
gentleman from Florida, Mr. Donalds, is now recognized for 5 
minutes.
    Mr. Donalds. Thank you, Mr. Chairman. Ms. Harris, Ms. 
Hewlett, thanks so much for being here.
    Ms. Hewlett, let me start with you. From what I have been 
able to surmise from today's hearing, there was a dual 
regulator for SVB: it was part of your Department; and part of 
the Federal Reserve Bank of San Francisco. At what point did 
you or the SF Fed realize you were having structural balance 
sheet liquidity issues with SVB?
    Ms. Hewlett. We recognized that on March 9th, when SVB had 
a negative cash balance of $958 million, they were insolvent 
and we had at best----
    Mr. Donalds. Ms. Hewlett, I want to go back, because I 
think everybody understands the insolvency aspects when it 
actually occurred. But at what point did the supervisors of the 
bank, the actual people on the ground that day, start to see 
that there were some potential issues with the structure of the 
balance sheet, when did that start occurring, because the bank 
had been cited at least 13 times before its failure. So, give 
me that process. When were they notified?
    Ms. Hewlett. They were notified numerous times.
    Mr. Donalds. And what was the response from them?
    Ms. Hewlett. But definitely, in 2022. However, I can't 
speculate as to what was in their mind.
    Mr. Donalds. No, no, no.
    Ms. Hewlett. But they were given numerous supervisory 
letters, and definitely when that run started to happen and 
depositors started to withdraw their money out of the banks----
    Mr. Donalds. Ms. Hewlett, once the run starts, the game is 
over.
    Ms. Hewlett. Right.
    Mr. Donalds. So the run, we understand that piece. What I 
am trying to ascertain is, they were cited numerous times. And 
by the way, I was in commercial banking. That is where I 
started my career. I have dealt with regulators. They were 
cited numerous times. What was the response from Silicon Valley 
Bank when they were being cited? And actually, what was the 
tone from your agency or from the SF Fed in response to Silicon 
Valley Bank's lack of curing the issues that were coming up in 
their audits and their reviews?
    Ms. Hewlett. Liquidity risks were noted in 2021.
    Mr. Donalds. I know, but----
    Ms. Hewlett. And remediation was not taken seriously by 
bank management.
    Mr. Donalds. Okay.
    Ms. Hewlett. Regulators did not move aggressively in time.
    Mr. Donalds. Why didn't the regulators move aggressively 
enough?
    Ms. Hewlett. I do believe that regulators at the time 
worked more in a culture, particularly on the safe banking 
side, to give a bank time to remediate the problems.
    Mr. Donalds. Ms. Hewlett, I have 2 minutes left. I 
understand what you are saying. From our perspective, we have 
various Members who want to talk about new regulations and 
different things like that, but what it appears to me is that 
SVB was too cozy with the regulators. There was a lot of 
fraternization going on, and nobody put the hammer down when 
they should have at the time when they noticed structural 
liquidity issues on the balance sheet.
    Ms. Harris, I know we have talked a lot about SVB in this 
hearing. In New York, with Signature Bank, were there any 
supervisory findings that were given to Signature Bank prior to 
their collapse?
    Ms. Harris. Yes, numerous findings.
    Mr. Donalds. And what was the response from Signature Bank?
    Ms. Harris. Inadequate remediation.
    Mr. Donalds. What was the response from the regulators?
    Ms. Harris. In some cases, downgrades. In some cases, 
additional Supervisory Recommendations, but nothing as strong 
as there should have been.
    Mr. Donalds. Nothing as strong. Okay. It seems we are in 
the same place here, and by the way, I am not a fan of Dodd-
Frank. I never have been. As somebody who worked in the 
industry and understood what happened during the financial 
collapse, Dodd-Frank is an albatross of a regulatory scheme 
that really didn't make a lot of sense. And under Dodd-Frank's 
framework, we still have these banking issues. It may not be 
the large, massive banks, but regional banks play a significant 
role in our financial system.
    I guess I would ask both of you, as representatives of your 
regulatory agencies, what is going to change in terms of 
holding bank management to sound banking principles, if they 
can just look at your letter and ignore you?
    Ms. Harris. Sir, I will take the first step. I think it is 
a good point. I have been working to escalate things quickly, 
in my 19 months at DFS, and to take swifter and more-severe 
action where necessary.
    Mr. Donalds. And final question, Ms. Harris, I am going to 
ask you. Do you think it is appropriate at this point for the 
Federal Reserve to actually be in charge of supervisory 
oversight of banks?
    Ms. Harris. Yes.
    Mr. Donalds. Do you think they are good at their job?
    Ms. Harris. I think all regulators are working on 
recommendations to improve oversight.
    Mr. Donalds. Okay. I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    I would like to thank Superintendent Harris and 
Commissioner Hewlett for your time today. This has been helpful 
and gives us an additional picture of what has been going on.
    The Chair notes that some Members may have additional 
questions for these panels, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I would ask each of you to respond as promptly as you are 
able to, and note that there were a number of instances where 
your answer was either truncated, or a question was asked that 
we were not able to get an answer to here today.
    Again, I appreciate this, as we look to make sure that we 
have safety and soundness of our financial institutions here in 
the United States and make sure that the regulators that are 
supposed to be holding them accountable are held accountable by 
us. And that is the goal of today's hearing.
    With that, the hearing is adjourned.
    [Whereupon, at 3:21 p.m., the hearing was adjourned.]


                            A P P E N D I X


                              May 17, 2023


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