The former CEO of First Republic plans to tell House lawmakers Wednesday that his bank was “corrupted” by the widespread panic following the March 10 collapse of Silicon Valley Bank, a development “we could not have anticipated.” “
“Everything changed overnight,” said Michael Roeffler in prepared testimony before the House Financial Services Committee.
The comments from First Republic’s ex-boss are his first since US regulators seized the San Francisco lender on May 1 and sold the bulk of its operations to JPMorgan Chase (JPM). It was the country’s second largest bank failure and the largest since the 2008 financial crisis.
Roffler will appear alongside Greg Baker, former CEO of Silicon Valley Bank, and Scott Shay, former chairman of Signature Bank, who testified before the Senate Banking Committee on Tuesday. Signature Bank was also seized by the regulators on March 12.
Baker told lawmakers on Tuesday that he had been fairly compensated and cited “unprecedented events” as the reason for the lenders’ failure to push back against claims that enriched themselves by ignoring the risks. Were staying His bank, he said, was caught by surprise when the Federal Reserve began raising interest rates as rumors and misconceptions about the Silicon Valley bank spread on social media.
Roffler also plans to cite developments beyond his control as contributors to the First Republic’s downfall.
He says in his prepared testimony that his organization was in a strong financial position before the chaos of March and that no regulators had raised concerns about its strategy, liquidity or management. His bank knew the Fed’s drive to tame inflation would make 2023 a challenging year, and it sent that message to investors.
A First Republic Bank branch was seized before the lender. (AP Photo/Jeff Chiu, File)
But there were other events that the First Republic could not have predicted, he said.
“We could not have anticipated that Silicon Valley Bank and Signature Bank would fail, or that the failure of those banks would trigger a substantial deposit outflow into our bank. Rather than deal with temporarily reduced earnings due to interest rate pressures , First Republic was contaminated overnight by contagion spreading from the unprecedented failures of two regional banks.
The race, he says, has been “increased by traditional media and social media as well as recent technological advances, which allow depositors to withdraw their money almost instantly.”
On March 9, First Republic experienced an influx of deposits from customers, Roeffler said. But then on March 10 “everything changed overnight” as the Silicon Valley bank was seized by regulators.
“The run on First Republic began” as “negative short sellers and social media attention continued,” he says.
Depositors withdrew $40 billion on March 13, and more than $100 billion in the “following weeks”.
11 of the country’s largest banks attempted to stabilize the situation by providing First Republic with $30 billion in uninsured deposits.
But “depositors’ confidence never came back,” Roeffler said.
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