Warren urges Fed to hold SVB executives accountable

It’s been two years since Silicon Valley Bank failed and at least one lawmaker is still waiting for answers — and legal action.

Sen. Elizabeth Warren, D-Mass., sent a letter to Federal Reserve Chair Jerome Powell on Monday afternoon chastising the Fed Board of Governors for not holding Silicon Valley Bank’s leaders individually accountable for its demise.  

“These executives drove the bank into the ground, requiring extraordinary government intervention and costly support to stave off another catastrophic banking crisis that would have harmed working families,” wrote Warren, the ranking member on the Senate Banking Committee. “But the Federal Reserve Board has not exercised its clear enforcement authorities against the individuals that egregiously violated banking laws and regulations.”

In her letter, Warren blamed the collapse of SVB on its executives, who saw the Santa Clara, California, bank triple in size in a matter of three years, largely on the back of uninsured deposits from venture capital firms and executives. She also criticized the bank’s decision to sell off hedges on its long-dated securities holdings just as the Fed was raising interest rates. 

She noted that the failure of the bank threatened the stability of the banking system and required “costly” emergency actions from federal regulators to stave off a broader crisis. She also expressed disappointment in how the Fed has followed up on the episode.

In particular, Warren slammed the Fed for not updating its policies around clawing back performance-based compensation from executives whose actions lead to bank failures. 

“The Federal Reserve Board has also failed to complete any meaningful rulemakings to prevent another similar blow-up,” she wrote. “This is an abdication of your responsibility to maintain the safety and soundness of the nation’s banking system and an invite for future mismanagement by the next generation of wealthy bank executives.”

All financial regulators were required to implement regulations on executive compensation by Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The directive remained dormant for more than a decade until the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the National Credit Union Administration and the Federal Housing Finance Agency proposed such reforms last year. The policies were never finalized.

The Fed, on the other hand, has taken no such steps. During congressional testimony, Powell has noted that the Fed issued guidance on the matter shortly after the Dodd-Frank Act and he does not want to move forward with further actions until he understands the issue that needs to be addressed. 

Warren and other lawmakers have criticized Powell repeatedly for not pursuing an executive compensation order. 

In her letter, Warren also referenced the FDIC’s lawsuit against 17 former executives and directors at Silicon Valley Bank. While that suit was important for recouping losses to the Federal Deposit Insurance Fund, she said, the Fed should pursue similar legal action, noting that, as SVB’s primary regulator, the central bank can impose civil money penalties and ban individuals from the banking industry.

“But the Federal Reserve has not yet exercised any of these authorities, despite the ample evidence uncovered by the Federal Reserve’s preliminary review and the FDIC’s lawsuit,” Warren wrote. “It is not too late for you to act to hold these irresponsible executives accountable, and I ask that you do so without delay.”