Top Democrats in Congress have called for a federal investigation into Goldman Sachs’ role in the Silicon Valley Bank collapse and urged regulators to examine whether the profits of the investment bank handling a $21 billion deal dollars for SVB should be taken back.
“As Goldman Sachs stands poised to profit from SVB’s failure, we urge you to analyze whether Goldman Sachs acted remotely in its role as an adviser to SVB,” lawmakers wrote in a letter to the United States Attorney General. Merrick Garland, Chairman of the Securities and Exchange Commission Gary Gensler and Martin Gruenberg, Chairman of the Federal Deposit Insurance Corporation.
The letter was led by Adam Schiff, the Democratic congressman from California, and co-signed by 19 other Democrats who represent districts in the state where SVB was headquartered. California Democrats played a key role in talks last weekend that led to a package of emergency measures intended to guarantee all SVB deposits and bolster confidence in the banking system.
SVB had turned to Goldman in late February to help bolster its finances as the bank braced for a downgrade from ratings agency Moody’s. Goldman has drawn up a plan to raise new money for the bank and has also agreed to buy part of SVB’s portfolio of treasury bills and other government-guaranteed debt.
SVB said it sold the $21.45 billion portfolio of securities to Goldman “at negotiated prices,” without giving further details, in a statement with the SEC. The sale generated a loss of $1.8 billion for SVB.
The two transactions would have been handled by separate parts of the bank. It is common practice in the industry to silo different teams.
Goldman and SVB halted the capital raise as the company’s share price plummeted and reports of a bank run intensified. Clients tried to withdraw $42 billion in one day, and before its stock could open for trading last Friday, US regulators took over the bank.
The DoJ has launched an investigation into the SVB collapse, as has the SEC.
The lawmakers wrote in the letter: “We support your efforts to launch an investigation and hope that, unlike in 2008, we are holding bank executives accountable by ensuring they are held accountable – the burden of their actions should not not rest 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 chairman Gensler will respond directly to members of Congress rather than through the media. The FDIC declined to comment.
The FDIC oversaw a commercial bank auction of the company and signaled on Friday that it was willing to consider the prospect of backing SVB’s losses to help secure a settlement.
The intervention by Schiff and others comes amid a broader scramble on Capitol Hill by lawmakers to respond to SVB’s collapse. Progressive Democrats saw the bank’s failure as an opportunity to push for tougher banking regulation, while Republicans rejected calls for more regulation and accused regulators of not doing their job properly.
Schiff is one of several lawmakers to introduce legislation to claw back failed bank executives’ compensation, including bonuses and gains from stock sales. The White House released a statement Friday supporting efforts to toughen penalties for failed bank executives.
