First Republic CEO on bank’s collapse: ‘Everything changed overnight’

The former CEO of First Republic told House lawmakers Wednesday that his bank “was contaminated” by the widespread panic that followed the March 10 fall of Silicon Valley Bank, a development “no one” at his company could have anticipated. “Everything changed overnight,” said Michael Roffler, in testimony before the House Subcommittees on Financial Institutions and Monetary Policy and Oversight and Investigations. The comments from First Republic’s ex-boss were 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 nation’s second-largest bank failure and the biggest since the 2008 financial crisis. Roffler appeared alongside former Silicon Valley Bank CEO Greg Becker and former Signature Bank Chairman Scott Shay, both of whom also testified Tuesday before the Senate Banking Committee. Signature Bank was also seized by regulators on March 12.

The question of responsibility

Lawmakers grilled the executives about their culpability for the bank failures and the money made from any stock sales, along with what might prevent such collapses from happening again. All were asked whether they would take responsibility for the collapse of their institutions. Becker said “as CEO I think you have to take responsibility for the ultimate outcome of your institution,” while Shay said “I think I did a responsible role throughout to fulfill my duties.” Roffler, when asked the same question, said “what I feel responsible for is for our colleagues each and every day, and our clients each and every day, to make sure they’re taken care of and supported during this time.” Roffler said he sold roughly $1 million of First Republic stock in mid January and “just over” $1 million in the middle of November. Becker said he also sold some stock before Silicon Valley Bank’s seizure, and reiterated an assertion he made Tuesday that he was not in possession of any material, non-public information. Senator Elizabeth Warren has called for an insider-trading investigation. All three executives, including Roffler, made it clear that their banks went down due to developments beyond their control. Roffler, in fact, said that his institution was in a strong financial position before the chaos of March and no regulator had expressed concern about its strategy, liquidity or management. His bank also knew the Fed’s campaign to bring down inflation would make 2023 a challenging year and had communicated that message to investors.

‘Contaminated overnight’

What happened next, he said, was a series of events that “no one” at First Republic could have predicted. The failure of Silicon Valley Bank and Signature Bank triggered substantial outflows at a rapid speed. “Instead of dealing with temporary decreased earnings due to interest rate pressures, First Republic was contaminated overnight by the contagion that spread from the unprecedented failures of those banks.” As recently as March 9, First Republic experienced an inflow of deposits from clients, Roffler said. But then “everything changed overnight” on March 10 and a “run on First Republic began.” Depositors pulled $40 billion on March 13 and more than $100 billion in the ensuing weeks, according to his testimony. Eleven of the nation’s largest banks tried to stabilize the situation by providing First Republic with $30 billion in uninsured deposits. But “​​investor and depositor confidence never recovered,” Roffler said. Roffler suggested lawmakers look at deposit insurance reform to stave off such torrid bank runs that are fueled by social media. “I think that’s one thing that would be worth looking at because that can at least calm the waters,” he said. He cautioned lawmakers against raising capital requirements on banks in the wake of the high-profile failures, considering the impact of any change on regional and community lenders. The rules in place now, he said, “are very strong.”