Leaders of Silicon Valley Bank and First Republic Bank tried to influence the US government to adopt a softer regulatory approach to the financial sector in the months leading up to last week’s crisis in the financial sector, as lawmakers debate whether recent regulatory easing has caused bank failures. more likely.
On January 23, First Republic CEO Mike Roffler sent a letter to the Federal Reserve and the Federal Deposit Insurance Company against a proposal to force small lenders to follow rules similar to those of systemically important banks, reports information. (U.S. regulators have yet to implement the proposal.)
In his letter, Roffler wrote that “such requirements should only be applied to large, interconnected financial institutions whose failure could pose a systemic risk to the financial stability of the United States.”
First Republic Bank did ‘not pose the same risk, if any, to financial stability’, Roffler writing.
Roffler’s view in January proved incorrect after the collapse of Silicon Valley Bank. First Republic Bank shares plummeted Monday, the first day of trading after the Federal Reserve stepped in to fully protect depositors at Silicon Valley Bank. Then, on Wednesday, S&P Global Ratings and Fitch Ratings cut the Bank of the First Republic junk status, citing the risk of deposit outflows and loss of liquidity.
On Thursday, eleven major banks, including JPMorgan, Citigroup and Bank of America, agreed deposit $30 billion in the First Republic Bank. Banks have pledged to hold cash there for at least 120 days, reports Bloombergeither saving First Republic Bank or giving it time to pursue other options.
First Republic Bank said the $30 billion cash injection “reflects the continued quality of our business and is a vote of confidence for First Republic and the entire U.S. banking system” in a statement.
First Republic Bank shares fell 17% in aftermarket trading on Thursday. Shares of the bank are now down around 64% for the week.
First Republic Bank did not immediately respond to a request for comment.
Bank of Silicon Valley
Greg Becker, former CEO of the now-collapsed Silicon Valley Bank, has also been involved in efforts to lobby the government to draft financial sector regulations.
Becker was on the leadership of two lobbying organizations representing the tech industry, serving as president of TechNet until January 2023, and also served on the board of the Silicon Valley Leadership Group, reports CNBC.
TechNet is a national network of top technology CEOs, while the Silicon Valley Leadership Group focuses on politics in Silicon Valley.
According CNBC, TechNet focused its attention on a particular section of the Dodd-Frank Act that would require financial institutions to provide transaction data and other financial information to consumers. The Consumer Financial Protection Bureau is still drafting these regulations.
Neither TechNet nor the Silicon Valley Leadership Group immediately responded to Fortune‘s requests for comments.
A Technet spokesperson said CNBC that the group’s lobbying on Dodd-Frank was “a consumer data privacy issue related to the announced notice of proposed regulation to the CFPB on data privacy, one of the industry’s top policy issues”, while a spokesperson for the Silicon Valley Leadership Group confirmed to CNBC that SVB executives were part of a delegation in 2017 to advocate for a reduction in the corporate tax rate.
Becker had long called for less oversight of relatively smaller banks like Silicon Valley Bank. In 2015 Becker appeal to the United States to raise its threshold to consider that a bank is systemically important and therefore subject to stricter capital requirements. Thresholds that are too low “stifle our ability to provide credit to our customers”, he said. told Congress in 2015.
The United States raised the threshold in 2018 from $50 billion to $250 billion. Silicon Valley Bank grew to have $209 billion in assets end of 2022, according to the FDIC.
Last Friday, the FDIC took over Silicon Valley Bank following a bank run, spurred by the company’s admission that it needed to raise capital, both by selling bonds at a loss and by planning a sale of shares. On Sunday, the US government announced that it had taken over Signature Bank of New York and would fully protect its depositors and those of SVB.
Some US lawmakers are already accusing bank executives of weakening financial regulation and thus fueling the current crisis. In a Monday opinion piece for the New York Times, Sen. Elizabeth Warren (D-Mass.) argued that banking executives “spent millions trying to defeat it and, when they lost, spent millions more trying to weaken it.”
“Had Congress and the Federal Reserve not reversed the tighter oversight, SVB and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks,” Warren wrote.