U.S. Senator Elizabeth Warren (D-MA) speaks with Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg prior to a Senate Banking, Housing and Urban Affairs Committee hearing on “Recent Bank Failures and the Federal Regulatory Response” on Capitol Hill in Washington, March 28, 2023.
The country’s leading bank regulators dealt with hard concerns from Congress for the very first time Tuesday about how Silicon Valley Bank and Signature Bank collapsed virtually over night previously this month.
The regulators safeguarded choices they made both prior to and after the collapse of SVB, especially their consentaneous vote to conjure up the systemic danger exception to the FDIC’s deposit limitation.
Bank stocks turned unfavorable following the hearing prior to the Senate Banking Committee, possibly startled by the 3 leading regulators each stating they preferred more rigid guidelines for banks with more than $100 billion in possessions. The SPDR S&P Regional Banking ETF fell 1% in afternoon trading.
At times, the hearing was controversial. Committee ChairSen Sherrod Brown, D-Ohio, implicated regulators of having “dropped the ball” due to the fact that they didn’t see the the ballooning danger that compromised SVB prior to its supreme collapse.
Michael Barr, vice chair for guidance at the Federal Reserve, pressed back on his contention.
“Fundamentally the bank failed because its management failed to appropriately address clear interest rate risks and clear liquidity risks,” he stated.
Sen Elizabeth Warren, D-Mass, pushed all 3 regulators about their views of more stringent banking guidelines for mid-sized banks. Barr, Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, and Nellie Liang, undersecretary for domestic financing at the Treasury Department, all stated they supported more banking guidelines.
“It may be tempting to look at all this and say, we don’t need new rules, that the real problem was these arrogant executives,” statedBrown “But there will always be arrogant executives. That’s exactly why we need strong rules.”
Regulators stated more guidelines are not all that is required to avoid the next SVB or Signature Bank.
“We must evolve our understanding of banking in light of changing technologies and emerging risks,” stated Barr.
“To that end, we are analyzing what recent events have taught us about banking, customer behavior, social media, concentrated and novel business models, rapid growth, deposit runs, interest rate risk, and other factors… And for how we think about financial stability,” he included.
The FDIC’s Gruenberg stated regulators require to reassess how they take a look at uninsured deposits when computing a bank’s danger profile.
“One clear takeaway from recent events is that heavy reliance on uninsured deposits creates liquidity risks that are extremely difficult to manage, particularly in today’s environment where money can flow out of institutions with incredible speed in response to news amplified through social media channels,” he stated.
Tuesday’s hearing was the very first of 2 congressional committees that will hear testament from Gruenberg, Liang and Barr today. The 2nd hearing will be Wednesday at 10 a.m. prior to the House Financial Services Committee.
— CNBC’s Jeff Cox added to this report.