Regulators investigate SVB’s collapse, Fed to consider tightening rules for midsized banks

The Justice Department and the Securities and Exchange Commission (SEC) are investigating Silicon Valley Bank’s collapse, sources familiar with the matter have stated.

The US regulators are looking into the Bank’s sudden demise last Friday after a historic run on deposits. The investigations are in early stages, according to the Wall Street Journal which first reported on the matter, and not all charges and allegations have been filed yet.

The probe also includes stock sales made by officers of SVB Financial Group days before its collapse.

The bank’s unexpected downfall was a result of a flood of withdrawals. Customers of the bank tried to withdraw $42 billion, which is a quarter of the bank’s total deposits, on Thursday alone.

In the most recent annual report to investors, SVB warned that its lending activities were highly concentrated in the technology, life science, and healthcare sectors, primarily targeting newer companies.

According to securities filings, Mr Becker, SVB’s Chief Executive, and Mr Beck, the Chief Financial Officer, sold shares the week before the bank’s collapse. Becker sold $2.3 million worth of shares and Beck sold more than $575,000 worth of shares, which amounts to one third of his holdings in the company.

SEC Chair Gary Gensler said last Sunday that his agency is focused on maintain the market stability and will be prosecuting any form of wrongdoing.

He said:

In times of increased volatility and uncertainty, we at the SEC are particularly focused on monitoring for market stability and identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly. Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws.

New requirements for midsized banks in review

In the aftermath of the collapse of SVB, a second lender, Signature Bank, also fell victim of the fast-moving crisis. Regulators had it down as well from fear that the mass withdrawals will leave it in a dangerous condition. Following the sudden bank crisis, the Fed is reconsidering its regulation and requirements for midsized banks.

Regulators are currently reviewing stricter capital and liquidity requirements to strengthen the annual “stress tests” that assess banks’ ability to withstand a hypothetical recession, according to a Wall Street Journal report. The new regulation could target companies with capital between $100 and $250 which currently escape some of the toughest regulations.

On Sunday, federal regulators tried to salvage the situation and protect deposits at the two collapsed banks by announcing an emergency lending program for banks in trouble, which was meant to calm customers about the safety of their deposits. The move couldn’t save the shares of regional banks which plummeted on Monday.

Following the last financial crisis in 2008, lawmakers put in places regulation to protect investors in such crisis situations. However, in 2018, President Donald J. Trump’s cabinet rolled back on some of the restrictions and lifted the threshold to $250 billion in assets.

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