Hearing pries details from regulators on SVB-Signature failures


Federal Reserve vice chair for supervision Michael Barr, left, and Martin Gruenberg, chairman of the Federal Deposit Insurance Corp., joined Nellie Liang, under secretary for domestic finance at the Treasury Department during a House Financial Services Committee hearing Wednesday.

Anna Rose Layden/Bloomberg

WASHINGTON — Federal regulators fielded intense questions from both sides of the aisle on the oversight of Silicon Valley Bank, and what regulators knew about the bank’s impending failure several weeks ago. 

In a hearing before the House Financial Services Committee, Federal Reserve Vice Chairman for Supervision Michael Barr said that he became aware of Silicon Valley Bank’s acute troubles on Thursday, the day before the bank failed. Federal Deposit Insurance Corp. Chairman Martin Gruenberg said he was also told that Thursday evening. 

Lawmakers continued pointing fingers at the bank’s management and at federal supervisors for the bank’s failures. The regulators said different parties share responsibility. 

“Anytime you have a failure like this, bank management really failed, supervisors failed, and our regulatory system failed,” Barr said. 

Gruenberg also said that regulators and the bank share the blame. 

“I think bank management had responsibility,” he said. “I think we as the regulators of the institution had responsibility.” 

The Fed was in discussions with Silicon Valley Bank that Thursday to move pledgeable collateral to the discount window, Barr said. The team tasked with supervising Silicon Valley Bank has 20 full-time equivalent staff at the San Francisco Fed, but he wasn’t aware how often those supervisors were physically at the bank. 

“Staff were working with Silicon Valley Bank basically all afternoon and evening and through the morning the next day to pledge as much collateral as humanly possible,” Barr said.

The failure of Silicon Valley Bank — and, just days later, New York-based Signature Bank — led to federal regulators’ decision to declare a systemic risk exception and backstop all uninsured deposits, kicking off panic in financial markets about other similarly situated regional banks. 

“Our entire economy has been hurt. It has been rattled by what happened this month,” said Brad Sherman, D-Calif. “Our bank regulatory system has some real flaws.” 

Regulators and lawmakers are grappling with what the appropriate policy response to the crisis should be. Democratic lawmakers are largely advocating for tougher rules around mid-sized banks, specifically those with assets in the $100 billion to $250 billion range. The Washington Post reported on Wednesday that the White House is getting ready to release plans for legislation that would reinstate rules that were watered down after the passage of a 2018 law that allowed regulators to loosen oversight of banks in that size range. 

Republicans pressed Barr on the Fed’s role in overseeing Silicon Valley Bank. Supervisors first raised questions about Silicon Valley Bank’s practices in 2021, and had warned the bank’s management in the fall of that year. 

“That doesn’t sound like a very urgent supervisory process,” Rep. French Hill, R-Ark., a leading Republican on the panel. 

Hill also suggested the Biden administration has been lax in prioritizing positions at the Fed that could have made it easier for the Fed to spot and act on Silicon Valley Bank’s failings. Barr’s post, the top regulatory spot at the Fed, was empty from January 2021 to July 2022, Hill said, the “precise time frame” when problems built up at Silicon Valley Bank. 

The Biden administration did nominate Sarah Bloom Raskin for that position in January 2021, but Bloom Raskin withdrew from consideration after facing political gridlock and fierce Republican opposition during her Senate Banking Committee confirmation process. 

Republicans also continued to balk at Democrats’ plan to bolster the supervision of mid-sized banks. 

“If you think you need more rules and you’re not even enforcing existing ones, why do you need new rules?” said Rep. Blaine Luetkemeyer, R-Mo. “I don’t think we need to look at more rules until we figure out which rules were not being enforced.” 

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