During a Senate hearing on Tuesday intended to shed light on what transpired, the nation’s top financial regulator laid the blame for Silicon Valley Bank’s failure squarely on the shoulders of the bank’s managers.
Republicans and Democrats both claimed, however, that federal regulators were not doing their jobs.
Sen. John Tester of Montana claimed that although authorities were aware of the issue, “nobody dropped the hammer.”
“What were the managers considering?
” enquired Sen. Tim Scott of South Carolina, the panel’s top Republican. All things considered, our regulators seem to have been dozing off.
Vice Chair for Supervision Michael Barr of the Federal Reserve said an internal probe is looking into whether regulators acted properly. By May 1st, that review will be finished.
He added, “We’re going to be talking about that in our evaluation and we anticipate to be held accountable for it if the Federal Reserve supervisors didn’t take enough action.”
Nonetheless, Barr rejected Sen. John Kennedy’s assertion that the Fed was aware of the issue but “didn’t do anything about it”
He claimed that although regulators warned bank management they were at too great of a risk from rising interest rates, the executives took too long to take action.
Barr remarked, “This is a textbook example of bank mismanagement.”
What took place at SVB?
Customers who had deposits that above the $250,000 cap on the Federal Deposit Insurance Corp.’s coverage moved their money to larger banks with more stable assets as a result of worries about Silicon Valley Bank’s financial stability.
A similar crisis caused Signature Bank of New York to go under, put First Republic Bank in danger, and forced numerous depositors across the nation to reorganise their holdings. Federal regulators intervened with assistance to make sure that uninsured depositors can access their money in order to stop the crisis and stop further bank runs.
Barr claims that in November 2021, employees of the Federal Reserve Bank of San Francisco, which had direct oversight over Silicon Valley Bank, started to raise concerns. The bank’s management rating was downgraded to “fair” and its controls were deemed insufficient last summer.
SVB’s elevated risks were brought up at a Board of Governors meeting of the Federal Reserve in February during a discussion of the effects of rising interest rates.
“Staff relayed that they were actively engaged with SVB,” Barr stated in his prepared remarks. “But, as it turned out, the full degree of the bank’s vulnerability was not clear until the unanticipated bank run on March 9.”
Although the bank may have been told to “straighten up and fly right” by regulators, Tester claimed that they failed to “make it so stinking terrible that these guys would modify their business model to take care of the danger that was in their bank.”
According to Barr, the Federal Reserve is assessing whether regulators have the resources they require and whether more stringent regulations are necessary. Also, the Fed is attempting to tighten the criteria for how much cash a bank must have on hand.
Before requesting extra power from Congress, according to Scott, regulators need to do a better job of upholding the law as it is.
The committee’s Democratic chair, Ohio Sen. Sherrod Brown, claimed that many senators who are quick to criticise regulators for their errors will “give eager ears whenever bank CEOs queue up at their offices moaning about ‘out of control bank examiners’.”