Federal banking regulators, in their second day of testimony on Capitol Hill on Wednesday, emphasized their plans to investigate what went wrong on the government side in the failure of Silicon Valley Bank earlier in March.
Members of the House Financial Services Services Committee met with key officials from the U.S. Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury Department and embarked on two broad lines of questioning, depending on their political party.
Republican members focused on whether existing regulatory rules were being properly followed by banking officials before talking about new rules.
Meanwhile, senior officials from the Biden administration spoke about the potential need for capital and liquidity oversight for banks of similar size as Silicon Valley Bank.
Politicians from both sides of the aisle pointed to bank mismanagement as the key cause of the bank’s failure and called on federal officials to provide more details about the final days of Silicon Valley Bank, including the weekend of March 11-12, when banking regulators stepped in to address potential systemic risk.
The testimony came the day after Michael Barr, Fed vice chair for supervision, flagged a need to strengthen capital and liquidity standards for banks with $100 billion or more in assets in an appearance before the Senate Banking Committee.
On Wednesday, Ann Wagner, a Republican representative from Missouri, said regulators were “asleep at the wheel” before the collapse of Silicon Valley Bank on March 9.
Patrick McHenry, Republican from North Carolina and the chair of the committee, said he’d like to know more about why bank regulators had flagged problems at Silicon Valley Bank but did not take more action to prevent a run on deposits.
As part of an attempt to gain “insight into those key days” in March when the bank became a systemic risk, McHenry also asked why the FDIC didn’t accept a buyout offer from another bank faster. “Why wasn’t a potential buyer accepted sooner?” McHenry said.
The FDIC announced late Sunday, more than two weeks after the bank failed, that First Citizens Bancshares Inc.
would buy Silicon Valley Bank.
Maxine Waters, Democrat from California, said the Biden administration carried out a “bold and swift response” to the problems at Silicon Valley Bank as well as at the failed Signature Bank of New York.
The failure of the banks amounts to a “wake-up call” regarding the Trump administration’s move to roll back some of the Dodd-Frank banking rules in 2018, Waters said.
French Hill, Republican of Arkansas, said it appears that federal examiners “had a lack of supervisory urgency” ahead of the collapse of Silicon Valley Bank.
The Fed’s Barr said repeatedly that regulators could have done more and that the Fed is working on an internal report on the situation that it will wrap up in May.
FDIC Chair Martin Gruenberg said the financial system “remains sound” after moves by the Fed but resolved to provide more insight in studies being completed in May.
“My own sense of the supervision of these banks is that both agencies, including the FDIC [and the Federal Reserve], were aware there were issues and were trying to to address them through the supervisory process,” Gruenberg said.
First Citizens Bancshares was chosen as the winner of the FDIC’s auction of the ex-Silicon Valley Bank because its bid “was the strongest we received” based in its offer to take on all the bank’s deposits and loans and the “operational certainty” that it offered, Gruenberg said
Silicon Valley Bank was a complex company, he said, and it took time for buyers to conduct their due diligence, but the FDIC received bids from 18 separate parties.
“If we could have sold it sooner, that would have been good,” he said.
Nellie Liang, undersecretary for domestic finance at the U.S. Treasury, said regulators determined that risk to banking system appeared to be “very high” when Silicon Valley Bank collapsed.
“We think the system has stabilized. We have information that deposits have stabilized,” she said.
Brad Sherman, Democrat from California, said Silicon Valley Bank could have saved itself in 2022 by selling its long-term bond holdings or hedging its balance sheet risks but that the bank decided against that because it would have cut profits and bonuses.
“They decided to take the risk, and here we are,” Sherman said. “It’s misregulation to let banks ignore advice. You’re not running a consulting operation. You’re running a regulatory operation that can force banks to take your advice.”
Also read: First Citizens grows bigger with Silicon Valley Bank deal, but not big enough to move to next regulatory level