Democratic lawmakers are calling for a federal investigation into Goldman Sachs’ involvement in the collapse of Silicon Valley Bank (SVB), urging regulators to examine whether the investment bank operated at “arm’s length” as an advisor. The lawmakers, led by Rep. Adam Schiff (D-CA), have written to U.S. Attorney General Merrick Garland, Securities and Exchange Commission (SEC) Chairman Gary Gensler, and Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg, expressing concern over Goldman Sachs’ role in advising SVB and acquiring its bond portfolio.
Silicon Valley Bank’s collapse was the largest since Washington Mutual failed during the 2008 financial crisis. In addition, the bank’s parent company, SVB Financial Group, has filed for Chapter 11 bankruptcy protection. Following the collapse of SVB and Signature Bank, financial stocks have lost billions of dollars in value. The Justice Department (DOJ) and the SEC have launched investigations into the SVB collapse, and U.S. prosecutors are also reportedly investigating the matter.
“As Goldman Sachs is poised to profit from SVB’s failure, we strongly urge you to analyze whether Goldman Sachs operated at ‘arm’s length’ in their role as adviser for SVB.” https://t.co/zOFFOn0eSh
— Gregory Korte (@gregorykorte) March 17, 2023
SVB had turned to Goldman Sachs in late February for assistance in bolstering its finances as it faced a potential downgrade from credit rating agency Moody’s. Goldman Sachs devised a plan to raise new cash for the bank and agreed to purchase part of SVB’s portfolio of Treasuries and other government-backed debt. The sale of $21.45 billion worth of securities to Goldman Sachs resulted in a $1.8 billion loss for SVB.
In their letter, the lawmakers supported the ongoing investigations and emphasized the importance of holding bank executives accountable. They argued that the burden of the executives’ actions should not fall on consumers or taxpayers.
The FDIC has been overseeing an auction of SVB’s commercial bank, indicating a willingness to backstop losses at SVB to help secure a deal. The intervention from Schiff and other lawmakers comes as Capitol Hill grapples with the fallout from the collapse of SVB. Progressive Democrats are pushing for stronger bank regulations. At the same time, Republicans reject further regulation and demand that federal regulators do their jobs properly under existing law.
Schiff is among the lawmakers introducing legislation to claw back compensation from executives at failed banks, including bonuses and gains from share sales. In addition, the White House has issued a statement supporting efforts to toughen penalties for executives of failed banks.
The rapid demise of SVB and Signature Bank has left regulators scrambling to contain risks to the rest of the sector. Moody’s has downgraded its outlook on the U.S. banking system to “negative” from “stable.” In addition, SVB Financial Group and two top executives have been sued by shareholders for allegedly concealing the impact of rising interest rates on Silicon Valley Bank’s susceptibility to a bank run.