House lawmakers lashed out at top US bank regulators on Wednesday, questioning their competence and saying examiners fell asleep at the wheel, in the second day of congressional hearings this week on how Silicon Valley and Signature Bank collapsed practically overnight on March 10-12. .
“We need competent financial supervisors, but Congress can’t legislate competency,” House Financial Services Chairman Patrick McHenry told senior officials at the Federal Reserve, Treasury and FDIC at the start of the session.
The ranking member of the committee, Rep. Maxine Waters, D-Calif., questioned whether the repeated warnings regulators had sent to the SVB about its balance sheet and long-term interest risks were enough.
“The Fed’s light touch of caution to the SVB administration is clearly not what Congress intended for bank supervision,” Waters said.
Rep. Juan Vargas D-Calif. Put it more bluntly. “It looks like [SVB] You guys blew up, and you didn’t do anything.
Fed Vice Chairman Michael Barr disagreed with that assessment. “I expect that we will find that we need to put more focus on supervisors who use the tools at their disposal faster, and put mitigation measures in place faster when they see problems in the banks they supervise,” he said.
McHenry criticized the committee for its lack of transparency over that fateful weekend when the three regulators hastily arranged stand-by financing to ensure that depositors at the two banks did not lose any money in their collapse.
McHenry said there were no publicly available notes from emergency meetings of regulators at the weekend that the banks collapsed. “This lack of transparency has a negative impact on the general view of the health of the financial landscape,” he added.
The issue of the records to be submitted to Congress came up repeatedly in the contentious hearing.
Rep. Brad Sherman, D-Calif., requested a broad survey of undercapitalized banks the same way the SVB had.
“Are any banks, and roughly how many, have less than 5% capital if you subtract their declared capital from their unprotected and unrealized losses on long-term debt?” Sherman asked the organizers.
“Let’s get back to you on that,” said Martin Gruenberg, FDIC Chairman. “We’ll get the numbers and share them with you very quickly.”
Rep. Bill Huizenga, Michigan, demanded raw and confidential supervisory information about banks, made available to regulators before the crashes.
Gruenberg did not explicitly agree to provide classified information, instead suggesting that the committee would need to issue a subpoena for this information. “I think you have the authority to enforce this information,” he said [FDIC] He will answer you.
Republican majority House members challenged several decisions made by regulators in the hours and days after the collapse of SVB and Signature Bank followed suit 48 hours later. Chief among these was what regulators did or didn’t do in the three days from the time they became aware of the looming SVB collapse, from Thursday to Sunday, when they determined that the failures of SVB and Signature Bank posed a systemic risk to the financial system.
“Although US regulators had clear knowledge of inadequate risk management, it appears your examiners and supervisors have been asleep at the wheel while indications that a Silicon Valley bank is heading for collapse have been staring them in the face for months,” Ann Wagner, Republic of Mauritius, she said to bar.
On Tuesday, bank stocks turned negative after a similar hearing before the Senate Banking Committee. Investors may have been spooked by the three top regulators saying they would prefer tougher rules for banks with more than $100 billion in assets.
Nellie Liang, Under Secretary for Domestic Finance at the Treasury Department, testifies alongside Gruenberg and Barr before the House Committee after appearing Tuesday before the Senate Banking Committee.
Sens. Elizabeth Warren, D-Massachusetts, and Kathryn Cortez Masto, D-Nevada, both of whom are banking senators, Introduced bipartisan legislation On Wednesday, that would require federal regulators to recover all or part of the compensation bank executives received in the five-year period leading up to the bank failure.
“Americans are sick and tired of fat bankers paying themselves big bucks while risking other people’s hard-earned money,” Warren said in a statement. “It is time for Congress to step up and strengthen the law so that bank managers bear the cost of failure, and not line their pockets and get away with nothing.”
Sens. Josh Hawley, R-Missouri, and Mike Brown, R-India, also sponsored the bill.
This is a developing news story, and it will be updated throughout the hearing.