House lawmakers showed that their teeth can just bite as tough as their Senate counterparts during the second day of congressional hearings about how Silicon Valley Bank (SVB) and Signature Bank collapsed practically overnight on March 10 and March 12.
Where questions remain for lawmakers, is if federal regulators have teeth themselves, why didn’t they think to use them during the lead-up to the bank failures?
“We know the bank was mismanaged — that much is clear. Now, we need insight into the decision making process of the financial regulators related to the second and third largest U.S. bank failures,” House Financial Services Committee Chairman Patrick McHenry (R-N.C.) said to begin the hours-long Wednesday (March 29) hearing which dwarfed the runtime of the Tuesday (March 28) Senate Banking session.
Read more: First SVB Hearing Targets Regulators
Rep. McHenry returned tens of thousands of dollars in political donations from SVB, Signature and its executives in advance of the hearing.
Top federal banking regulators, including U.S. Department of the Treasury Undersecretary for Domestic Finance Nellie Laing, Vice Chairman for Supervision of the Board of Governors of the Federal Reserve System Michael Barr, and Chairman of the Federal Deposit Insurance Corporation (FDIC) Martin Gruenberg, all spoke as witnesses for the second day in a row.
“Bank management really failed, supervisors failed, and our regulatory system failed,” Barr told lawmakers.
Turmoil Easing Across Post-SVB Banking, but Rising in Washington
The sudden collapse of SVB was the second-largest bank failure in U.S. history, and its ensuing fallout has left the Fed and other regulatory agencies reckoning with how their oversight went wrong.
The House hearing on Wednesday tore into the lack of regulatory actions by federal agencies preceding the crisis and represented an elevation in tone from the earlier Senate Banking Committee session, where regulators were comparatively more successful in shifting blame to mismanagement by SVB and Signature executives.
Rep. French Hill (R-Ark.) highlighted the Fed’s lack of supervisory urgency in engaging SVB after uncovering risks, noting that from January 2021 to July of 2022, “precisely the time frame” when SVB’s strategy went awry, there was no vice chairman of supervision in office at the Federal Reserve prior to Barr taking the position.
“Twelve months of discussions … that doesn’t sound like a very urgent supervisory process,” Congressman Hill said, going on to press Barr on why his agency failed to exercise its given legal authority to comply SVB to properly address the acknowledged and known risks when they were first raised.