Bank executives' testimonies showcased 'two fundamentally different views' on deposit runs: Reporter

Wall Street Journal Reporter Ben Eisen joins Yahoo Finance Live to discuss his takeaways from the bank executives' testimonies before Congress, the deposit runs behind the bank failures, and Sen. Elizabeth Warren's (D-Ma.) comments regarding compensation.

Video Transcript

TIM SCOTT: Your lack of judgment, Mr. Becker, shows that you should not have been running the bank.

- There are CEOs in banks all across this country that are having to pay up for your mistake.

JOHN KENNEDY: And the taxpayers of America had to pick up the tab for your stupidity, didn't they?

SHERROD BROWN: It sounds a lot like the dog ate my homework.

ELIZABETH WARREN: Your opinion on what is responsibly managed--

- And the answer is no.

ELIZABETH WARREN: --bank is now laughable.

JOHN KENNEDY: This was bone deep, down to the marrow stupid.

JULIE HYMAN: Oh, the public flogging. Harsh words from a number of senators grilling regional bank executives over their role in the demise of their institutions. Four banks have now failed this year. Executives from Silicon Valley Bank, Signature Bank, First Republic, they all sat for hearings in the Senate and House over the last couple of days.

Let's talk about it all with Wall Street Journal reporter Ben Eisen. Ben, we didn't even get into the video that you detailed they played that was an actual Signature Bank video where they joked about how hard it was to start a bank and that, you know, maybe it would go bust, and it did end up going bust. But joking aside, like, what is going to come of this besides that sort of public scolding, right, that these bank executives got?

BEN EISEN: Well, this has been-- you're right. There was one-- there was one somewhat comical interlude there with a video produced by Silvergate Bank-- or Signature Bank, that is, before their failure. But besides that, it was a pretty serious hearing, and there was a lot of public scolding, as you said. The senators and congresspeople who brought in these executives, they really wanted to kind of publicly shame them.

And this was really the first instance where these executives have appeared publicly, and they-- you know, they presented sort of their own version of what happened. And, you know, for what we've heard for the most part, so far, is that this was a case of bad management. And so now we're hearing from the managers, and they say, you know what? It wasn't a case of bad management. It was a case of a deposit run that proved kind of uncontrollable.

And it is definitely an alternate version of events. It wasn't one that kind of landed particularly well with Congress. So we'll see sort of what happens in terms of whether they'll face any more sort of public repercussions of all of this. But for now, we're just sort of trying to make sense of how their version of events fits with what everybody else is seeing.

BRAD SMITH: And Ben, the bank executives all had one thing in common in their testimony. They tended to blame the bank that failed before their institution did. Take a listen to this.

- Despite stark differences in our business models, news reports and investors wrongly lumped SVB and Silvergate together.

- The bank with strong ties to the digital asset sector announced it was going out of business, and a second bank was closed by the regulators. And then within just a few hours, our depositors withdrew $16 billion from the bank.

- No one at First Republic could have predicted the collapse of Silicon Valley and Signature.

BRAD SMITH: And so as my mother or family member would say when all my siblings were trying to play the blame game, somebody lying. Who, at the end of the day, is actually telling the most accurate depiction of what happened here, Ben?

BEN EISEN: It's an interesting question. And the first bank to fail, conveniently, their executive was not there. That was Silvergate Bank. So everyone could blame Silvergate Bank as the first one, and there was no one to speak on their behalf.

That said, this was sort of a version of events that it kind of raises an interesting question, right? These banks were-- these banks failed because there were deposit runs. You can't really deny that. There were deposit runs that made it kind of unsustainable for these banks to continue operating.

Now, what caused the deposit runs? That's the question that everyone's trying to get to the bottom of. And in these hearings, for the first time you saw these kind of two fundamentally different views of what happened. What caused the deposit runs? Well, congresspeople said this was bad management. The bank executives put the bank in a kind of place where they were susceptible to a deposit run.

Now, the executives say this was not something that they could have predicted. When something like this takes hold, it sort of just kind of contaminates, as the First Republic executive said. It just kind of spreads and kind of takes a life unto itself, and it was all sort of hyped up by social media and all of the sort of various things that made this go quicker than it had ever gone before.

So there is sort of an element of truth to that. Whether or not, you know, the bank was sort of already-- these banks were already in sort of these bad positions where they were susceptible to all of this, that is sort of the question that was a little bit kind of dodged by these executives.

JULIE HYMAN: Right. And when we talk about the issue of accountability, Ben, the former CEO of Silicon Valley Bank got a number of questions about his pay because the senators did not seem convinced that these guys were not necessarily culpable. Senator Elizabeth Warren in particular has introduced a bill that would give the FDIC authority to take back pay over these bank failures, and Warren had a particularly striking back and forth with Greg Becker about his $40 million pay. Let's listen to that.

ELIZABETH WARREN: How much of the $40 million are you planning to return? How many times are we going to do this dance?

GREG BECKER: Senator, I promise to cooperate with the regulators as they do a review.

ELIZABETH WARREN: Are you planning to return a single nickel to what you cost the fund?

GREG BECKER: Senator, I know there's going to be a process review of compensation.

ELIZABETH WARREN: I'll take that as a no.

JULIE HYMAN: So basically he's saying, I'll give it back if they're going to make me give it back. Are they going to make him give it back? What are the chances of that legislation getting through to do some of these clawbacks?

BEN EISEN: Yeah so Elizabeth Warren's line of questioning was sort of one that I would say, you know, pretty much every congressperson asked in some form or another over those two days, which was some version of did you deserve this compensation? Why did you get this compensation? What's going to happen with it? And Greg Becker pretty much answered the same way every time. If regulators make me give it back, I'll give it back.

And so, you know, it seems kind of on a bipartisan level everyone sort of-- everyone sort of agreed on the congressional side that he did not deserve the compensation in the year before his bank failed. Whether that leads to actual legislation, it's hard to say. But there was definitely-- the sort of scorn around compensation was definitely a constant thread throughout all of this.

BRAD SMITH: If they didn't already know, is there anything that the American public can take away from a hearing like this and identify a mismanaged bank even?

BEN EISEN: You know, it's hard to say. One of the representatives yesterday kind of spoke to these three executives and said these were the three worst managed banks in the country. So, you know, these three are certainly being called out in a way that suggests they were kind of worse than the rest of the banking industry.

You know, you still have-- you had these three banks fail. You had Signature before that-- or Silvergate before that. Excuse me. And you still have this kind of-- this sense of, you know, that this is unsettled, that the banking industry is unsettled at the moment. But we really haven't seen any banks kind of get to the precipice since these three banks.

So there is kind of an effort. Even during these hearings, you saw this kind of distinguishing going on between these three banks and the rest of the industry where perhaps there's a bit more strength.

JULIE HYMAN: Yeah, Ben Eisen, great to catch up with you. Interesting commentary on all of the goings on there. Appreciate your time this morning.