| | | | |  | | By Sam Sutton | | | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Republican Sen. J.D. Vance of Ohio and progressive watchdogs don’t agree on much. But both have big concerns with how Silicon Valley Bank may have used lucrative perks to convince venture capital firms and startup executives to plop billions of dollars in uninsured deposits onto its balance sheet. Vance, a former venture capitalist and a protégé of Peter Thiel, blasted the defunct bank’s leadership during Tuesday’s Senate Banking hearing for offering “private jet financing and other goodies — that are basically beneficial only to the very wealthy — in exchange for having all of [their] deposits.” By Vance’s telling, that’s one reason why SVB’s customer base became so heavily concentrated in bleeding edge tech and health care companies whose deposits exceeded the federal insurance limit of $250,000. As FDIC Chair Martin Gruenberg pointed out in his prepared testimony, SVB’s 10 largest deposit accounts had around $13.3 billion at the Northern California bank. SVB’s private bank, which was included in the FDIC’s recent sale to First Citizens Bank, offered flexible loans to founders whose wealth was often locked up in their companies’ privately held shares. Not every bank is willing to take on that type of risk. Most venture-backed businesses fail – sometimes even after funding rounds that pump their valuations, at least on paper, into the billions. If the value of those shares goes “poof” — which becomes more likely as interest rates rise and investor appetite for venture diminishes — those loans can turn into a problem. (A key caveat: First Citizens said in its investor presentation that SVB’s loan portfolio had a “low loss history” — though it also pointed out that the FDIC will also share in losses incurred from taking on the bank’s borrowers.) “It’s clear that Silicon Valley Bank was extraordinarily unique in its willingness to offer custom tailored solutions for entrepreneurs to essentially take advantage of their enormous private valuations without having to affirmatively cash out,” Tyler Gellasch, a former SEC official who now runs the investor advocacy group Healthy Markets Association, told MM. Aaron Klein, a senior fellow at the Brookings Institution, has raised similar red flags about how some of the bank’s other business lines – including a family of SVB-branded venture funds that counted more than 100 bank employees among its “key members,” according to a March 19 bankruptcy filing — may have been used to cultivate relationships with depositors. (Remember, Silicon Valley Bank counted roughly half of all venture-backed businesses as clients). “Did the investment arm of SVB drive companies to bank there? Did that play a role in who left and who didn’t?” Klein told MM in an interview on Tuesday evening. Learning more about how the interactions between the various businesses under SVB’s holding company is the “key to finding out the whole story.” Will lawmakers on House Financial Services try to peek under the hood? Tune in to today’s 10 a.m. hearing on the regional banking blowup to find out. But first: read more from Zach and Victoria about how Gruenberg, Fed Vice Chair for Supervision Michael Barr and Treasury Under Secretary for Domestic Finance Nellie Liang fared against Senate lawmakers. IT’S WEDNESDAY — Send tips, suggestions and gossip to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com.
| | A message from Intuit, serving more than 100 million customers worldwide with TurboTax, Credit Karma, QuickBooks, and Mailchimp: Many Americans don't know if they're getting everything they're owed during tax season. Due to the complicated and ever-changing tax code of the United States, Americans can often find themselves paying too much or too little throughout the year. Intuit TurboTax helps every taxpayer easily and accurately pay only what they owe—so they can put more dollars back in their pockets. We interviewed real customers to find out why they use TurboTax. Here's what they said. | | | | | | House Financial Services will hold its Silicon Valley Bank hearing at 10 a.m. … Congressional Budget Office Director Phillip Swagel will speak at before the National Association for Business Economics at noon … SEC Chair Gary Gensler will testify before the House Appropriations Committee at 2:30 p.m. MARTY ON THE HOT SEAT — More from Victoria: “Martin Gruenberg is finding himself in an uncomfortable place these days: the target of Republican wrath. The chairman of the Federal Deposit Insurance Corp. this month resolved the biggest bank failure since the financial crisis by bailing out thousands of uninsured depositors at Silicon Valley Bank — then took two weeks to sell the lender in a deal that is projected to cost his agency a record $20 billion … For many Republicans, the conflict goes far beyond how Gruenberg and his agency dealt with the California lender. It touches on the role of the federal government itself in steering the economy, with President Joe Biden’s regulators increasingly coming under fire for trying to usurp what GOP lawmakers view as the job of the private market.” First look — Americans for Prosperity Foundation, the advocacy group founded by the billionaire industrialists Charles G. Koch and the late David H. Koch, says it’s launching an investigation into the Biden administration’s response to the regional banking crisis. The group has filed Freedom of Information Act requests to banking regulators for records on the following: — Fed actions after uncovering problems at SVB. — The FDIC’s auction of SVB and claims that larger banks were blocked from bidding. — The determination that SVB could pose a system risk. — The consideration of potential harms to community banks. — White House communications pertaining to the bank’s collapse. — In a separate letter to House Financial Services Chair Patrick McHenry (R-N.C.) and Rep. Maxine Waters (D-Calif.), AFP’s Chief Government Affairs Officer Brent Gardner urging lawmakers to examine the regulatory response before adopting policies “that could burden rather than benefit America’s banks and customers.” Speaking of Republicans and the FDIC — Our Eleanor Mueller reports that senior House Republicans want to hold a hearing on a potential revamp of the deposit insurance system. "We need to look at what a modern deposit insurance system looks like that protects depositors, that creates stability in the system, that protects the diversity of our financial ecosystem," Rep. Andy Barr (R-Ky.) told Eleanor. Here’s something that could make SVB look like child’s play — Also from Eleanor: McHenry has “never been more pessimistic about where we stand with the debt ceiling.”
| | | | GO INSIDE THE 2023 MILKEN INSTITUTE GLOBAL CONFERENCE: POLITICO is proud to partner with the Milken Institute to produce a special edition "Global Insider" newsletter featuring exclusive coverage, insider nuggets and unparalleled insights from the 2023 Global Conference, which will convene leaders in health, finance, politics, philanthropy and entertainment from April 30-May 3. This year’s theme, Advancing a Thriving World, will challenge and inspire attendees to lean into building an optimistic coalition capable of tackling the issues and inequities we collectively face. Don’t miss a thing — subscribe today for a front row seat. | | | | | | | | PRE-SVB WARNING SIGNS — The MetLife and U.S. Chamber of Commerce’s Small Business Index — out this morning — found a steep drop-off in the percentage of small businesses that plan to increase investment over the next year. The survey of small business owners, which took place weeks before SVB’s collapse cooled credit markets, is “a reflection of small businesses starting to circle the wagons knowing there’s going to be a tighter credit environment,” Tom Sullivan, vice president of Small Business Policy at the chamber, said in an interview.
| | | |   | | | | | | THIS FEELS LIKE EONS AGO — From your host: “U.S. prosecutors slapped FTX founder Sam Bankman-Fried with a new criminal charge alleging he bribed Chinese authorities with tens of millions of dollars in cryptocurrency after they froze accounts controlled by his personal hedge fund.” MAYBE WE’LL GET CRYPTO BILLS AFTER ALL — Also from Eleanor: McHenry “wants to advance two crypto bills dealing with market structure and with stablecoins, respectively, before the summer.” BINANCE FALLOUT — The WSJ’s Vicky Ge Huang and Dave Michaels: “As of Monday evening, Binance had experienced net outflows of $2.1 billion on the Ethereum blockchain over seven days.” — Bloomberg’s Austin Weinstein: “Binance Crackdown Threatens US Trading Firms, Spooks Market"
| | | | JOIN POLITICO ON 4/5 FOR THE 2023 RECAST POWER LIST: America’s demographics and power dynamics are changing — and POLITICO is recasting how it covers the intersection of race, identity, politics and policy. Join us for a conversation on the themes of the 2023 Recast Power List that will examine America’s decision-making tables, who gets to sit at them, and the challenges that still need to be addressed. REGISTER HERE. | | | | | | | | ANTITRUST ENFORCERS EYEING PE DEALS — For years acquisitions private equity firms have largely flown under the radar at the Justice Department and Federal Trade Commission, which have historically focused on direct overlaps between merging companies. No more. The two agencies, along with their counterparts in state attorneys general offices around the country, are increasingly focused on acquisitions by the investment firms. “[P]utting these acquisitions onto our collective radar screen is what you're seeing in discussion here,” John Newman, a deputy director at the FTC’s Bureau of Competition said at an event earlier this week. “[It’s] not sort of any kind of witch hunt or anything like that, really just a recognition that in some cases, these companies, these firms can have a set of incentives that leads to anti-competitive strategies.” — Josh Sisco
| | | French financial prosecutors on Tuesday raided several of France’s biggest banks, including Société Générale and BNP Paribas, as part of a multicountry investigation into what authorities say is one of Europe’s biggest tax thefts. — NYT’s Liz Alderman As the war continues into its second year and Western sanctions bite harder, Russia’s government revenue is being squeezed and its economy has shifted to a lower-growth trajectory, likely for the long term. — The WSJ’s Georgi Kantchev and Evan Gershkovich
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