Michael S. Barr, Vice Chairman of the Federal Reserve Board for Oversight, testifies at a Senate Banking, Housing, and Urban Affairs Committee hearing on ‘recent bank failures and the regulatory response Federal” on Capitol Hill in Washington, March 28, 2023.
Evelyn Hockstein | Reuters
The run on Silicon Valley Bank’s deposits this month went far deeper than initially thought.
From the day regulators seized SVB it was public awareness that panicked customers withdrew $42 billion from the bank on March 9, fearing that uninsured deposits were at risk.
Follow CNBC’s live coverage of the SVB hearing
But that has nothing to do with what would have been released the next day, Michael Barr, vice chairman for oversight at the Federal Reserve, testified Tuesday before the Senate Banking Committee. Regulators farm SVB on March 10 in the biggest bank failure since the 2008 financial crisis.
“That morning the bank let us know that they expected outflows to be much larger based on customer demands,” Barr said. “A total of $100 billion was expected to come out that day.”
The combined withdrawal figure of $142 billion represents 81% of SVB’s $175 billion in deposits in the end from last year. The dizzying rate at which money has gone SVB shows how fast banks can rush when social media escalates panic and online banking enables fast transactions.
Lawmakers summoned top U.S. banking regulators to Washington to explain why Silicon Valley Bank and Signature Bank collapsed earlier this month. Barr and others pointed to mismanagement by bank executives and noted that banks with assets over $100 billion might need tougher rules. The former CEOs of the banks were not present.
In fact, Fed supervisors began warning SVB management of the risk that higher interest rates posed to the bank’s balance sheet in November 2021, Barr said. The bank “failed to respond” to Fed concerns in a timely manner, exposing the company to its filing run this month.
The last days of the SVB
SVB’s final days as an independent bank have been a roller coaster of emotions. After SVB management “scared off” investors and customers with its “belated” attempt to raise capital late Wednesday, March 8, things appeared to calm down early Thursday, Barr said.
“But later Thursday afternoon the deposit outflows started and Thursday evening we learned that over $42 billion, as you indicated, had rushed out of the bank,” he said. -he declares.
Fed staff worked around the clock on March 9 to rescue the bank, seeking enough collateral to borrow billions more from the Fed’s discount window to honor withdrawal requests, said Barr.
On the morning the SVB was seized, regulators thought they may have solved the bank’s shortfall, only to hit a $100 billion wall of withdrawals.
“They were unable to meet their obligations to pay their depositors during that day and they were closed,” Barr said.