The Grinch showed up this year at the nation’s deposit insurer suspending bonuses for senior officials at the FDIC. Bank Regulators have been behaving like frat boys for at least the last couple years according to an internal investigation performed by Cleary Gottlieb Steen & Hamilton and released to the Wall Street Journal.
Investigators spoke to more than 500 employees at the FDIC and found rampant “Sexual harassment, bullying and discrimination” that has “long pervaded the Federal Deposit Insurance Corp., with perpetrators often receiving reassignments and even promotions.”
The WSJ reported more than a year ago: “A male Federal Deposit Insurance Corp. supervisor in San Francisco invited employees to a strip club. A supervisor in Denver had sex with his employee, told other employees about it and pressed her to drink whiskey during work. Senior bank examiners texted female employees photos of their penises.
“All of the men remained employed at the agency.”
Of course nothing has been done until now with the possible bonus suspension. Gina Heeb and Rebecca Balhaus wrote, “The FDIC still lacks a policy on how to handle bonuses for its broader workforce, which would require union negotiations. Pay at the FDIC is unusually high for a government agency.” (emphasis added)
“‘Many of the employees we interviewed perceived that the FDIC would not effectively implement its Action Plan,’ the report said. One of the reasons it cited was that some of the executives leading the efforts had faced their own allegations of harassment or other misconduct,” the WSJ reported.
Meanwhile, the regulators from Animal House are about to Lawyer Up at ex-Silicon Valley Bank executives and board members. Bankingdive’s Caitlin Mullen wrote, “The Federal Deposit Insurance Corp. is considering taking legal action against six former officers and 11 former directors of Silicon Valley Bank, the agency said Tuesday.”
Silicon Valley Bank (SVB) held too many low-yielding U.S. government-backed debt securities when the Fed began ratcheting up interest rates. The value of the bank’s securities portfolio fell and when uninsured depositors pulled their deposits, SVB failed, costing the FDIC $23 billion. It turns out all deposits were covered, increasing the loss.
The hard partying regulators were not to blame. “The bank’s over-concentration of such assets ‘far exceeded’ those of its peer banks, and the flawed strategy exposed SVB to significant interest rate risk,” Mullen explains.
“SVB’s available-for-sale securities portfolio was also mismanaged, as the executives at issue removed interest rate hedges as rates increased. ‘If this portfolio had continued to have been hedged properly, the Bank would have been protected against losses from rising interest rates,’” Gruenberg is quoted as saying.
California law will prevail, given the former bank’s location. “California’s business judgment rule shields directors, but not officers, from liability for business decisions made in good faith without fraud, conflicts of interest or total abdication of responsibility – essentially a gross negligence standard,” Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia Business School and Columbia Law School, said in an email to Bankdive.com. “California law allows officers, including those at SVB, to be sued for simple negligence, a much lower standard.”
A lump of coal for some ex-bankers who will be punished for not being clairvoyant.
