Top Democrats in Congress have called for a federal investigation into the role Goldman Sachs played in the collapse of Silicon Valley Bank, and urged regulators to examine whether the investment bank’s profits handling a $21bn trade for SVB should be repossessed.
“As Goldman Sachs is poised to profit from SVB’s failure, we strongly urge you to analyse whether Goldman Sachs operated at ‘arm’s length’ in their role as adviser for SVB,” the lawmakers wrote in a letter on Friday addressed to US attorney-general Merrick Garland, Securities and Exchange Commission chair Gary Gensler and Martin Gruenberg, chair of the Federal Deposit Insurance Corporation.
The letter was spearheaded by Adam Schiff, the Democratic congressman from California, and cosigned by 19 other Democrats who represent districts in the state where SVB was headquartered. California Democrats played a key role in crunch talks last weekend that led to a package of emergency measures intended to guarantee all of SVB’s deposits and shore up confidence in the banking system.
SVB had turned to Goldman in late February to help it buttress its finances as the bank braced for a downgrade from credit rating agency Moody’s. Goldman drew up a plan to raise new cash for the bank, and also agreed to buy part of SVB’s portfolio of Treasuries and other government-backed debt.
SVB said it had sold the portfolio of $21.45bn worth of securities to Goldman “at negotiated prices”, without elaborating, in a disclosure with the SEC. The sale generated a $1.8bn loss for SVB.
The two transactions would have been handled by separate parts of the bank. It is standard industry practice to wall off the different teams.
Goldman and SVB aborted the capital raise as the company’s share price plummeted and news reports of a bank run intensified. Customers attempted to withdraw $42bn in a day, and before its stock could open for trading last Friday, US regulators took over the bank.
The DoJ has launched an investigation into SVB’s collapse, as has the SEC.
The lawmakers wrote in the letter: “We support your efforts to launch an investigation and hope that unlike 2008, we hold bank executives accountable by ensuring they are held responsible — the burden of their actions should not land on the shoulders of consumers or taxpayers.”
Goldman and the DoJ did not immediately respond to a request for comment. An SEC spokesperson said its chair Gensler will respond directly to members of Congress rather than through the media. The FDIC declined to comment.
The FDIC has been overseeing an auction of the company’s commercial bank and on Friday signalled they were willing to entertain the prospect of backstopping losses at SVB to help seal a deal.
The intervention from Schiff and others comes amid a wider scramble on Capitol Hill by lawmakers to respond to the collapse of SVB. Progressive Democrats have seen the bank’s failure as an opportunity to push for stronger bank regulations, while Republicans have rejected the calls for more regulation and accused regulators of failing to do their jobs properly.
Schiff is one of several lawmakers who has introduced legislation to claw back compensation from executives at failed banks, including bonuses and gains from share sales. The White House issued a statement on Friday backing efforts to toughen penalties for executives of failed banks.