The Justice Department and the Securities and Exchanges Commission are investigating the collapse of the Silicon Valley Bank.
While the inquiries may not lead to charges or allegations of misconduct, this is an action typical of prosecutors and regulators after financial institutions suffer large, unexpected losses. The agencies will investigate stock sales made by the company’s financial officers in the days leading up to the collapse. The Justice Department’s fraud prosecutors in Washington and San Francisco are involved in the investigation as well, per the Washington Post.
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The SEC is likely to examine whether Silicon Valley Bank accurately disclosed its financial risks and business uncertainties before the collapse occurred. Enforcers from the SEC typically look at regulated disclosures and statements made to investors or analysts, the outlet said.
Silicon Valley Bank, the 16th-largest bank in the United States, collapsed last week after a historic run on deposits, leading to clients withdrawing $42 billion in a single day. By the end of Thursday, the bank had a $958 million negative cash balance, and its stock price had fallen about 60%.
Regulators stepped in on Friday and shut the bank down, halting share trading and placing the company under the control of the Federal Deposit Insurance Corporation.
The bank’s collapse is already under review by the Federal Reserve, which is set to meet next week for a decision on interest rate hikes.
Lawmakers have turned to blaming either the administrations of President Joe Biden or former President Donald Trump for the bank’s collapse. During the Trump administration, the Senate passed a bill that rolled back several policies under the Great Recession-era Dodd-Frank Act.
The Dodd-Frank Act imposed regulations on financial institutions, and the subsequent rollback of the law raised the threshold for a bank’s label as “systemically important” from $50 billion to $250 billion, exempting Silicon Valley Bank, which amassed $209 billion in 2022, from regular risk management and stress testing.
“You lobbied for weaker rules, got what you wanted, and used this opportunity to greedily and incompetently abdicate your basic responsibilities to your clients and the public — facilitating a near-economic disaster,” Sen. Elizabeth Warren (D-MA) wrote in a letter to CEO Greg Becker.
On the other side of the aisle, Republicans are blaming “woke” investments and policies for the bank’s collapse, as well as blasting the Biden administration for “bailing out” the bank.
In the early stages following Silicon Valley Bank’s collapse, top financial officials weighed whether they could backstop bank depositors, hoping to prevent a contagion — a financial situation where turbulence from one institution ripples across the industry, causing runs on banks nationally.
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Republicans slammed Silicon Valley Bank for committing $5 billion in loans to support sustainability efforts by 2027, promising to become carbon-neutral by 2025, and promoting diversity, equity, and inclusion initiatives.
“This bank, they’re so concerned with DEI and politics and all kinds of stuff. I think that really diverted from them focusing on their core mission,” Gov. Ron DeSantis (R-FL) said over the weekend.
