WASHINGTON – A bipartisan group of lawmakers monitoring the recent upheaval in the financial sector said Wednesday the goal is to boost Americans’ confidence in the banking industry after Silicon Valley Bank and the bank collapsed in the past two weeks.
The two House and Senate committees that credit the bank announced had back-to-back hearings last week to examine regulatory lapses that found no signs the banks were troubled. Deposit Insurance Corp. Chairman Martin Gruenberg, Federal Reserve Vice Chairman for Supervision Michael Barr and Under Secretary of the Treasury Nellie Liang are scheduled to testify at both hearings.
High-profile hearings as lawmakers try to understand why the two agencies failed, and many Democrats are proposing legislation to strengthen safeguards to strengthen the financial system. Regulators and lawmakers are also trying to contain the damage to the economy and strengthen confidence in the banking system.
“I hope in this first hearing we can get a lot of information and make a decision.” [the facts]said Rep. Patrick McHenry, a North Carolina Republican and chairman of the House Financial Services Committee, at the head of the American Bankers Association. “I think this will bring a lot of certainty and confidence to the market.”
Last week, H appointed Barr to lead a review of the SVB failure. McHenry said he appreciated the investigation and “as well as the other opinions of the financial directors.”
He said congressional Republicans “play a major role” in reviewing how the banks failed. But he stopped asking for laws to prevent future collapse.
McHenry said he wanted to make sure that the push for legislation responded “to the situation.”
Sen. Tim Scott, a South Carolina Republican and ranking member of the Senate Banking Committee, said even new legislation should be drafted in a hearing to investigate what happened.
“Unfortunately, what often happens in Washington is the left-wing caucus will talk about Dodd-Frank and the reforms that took place in 2018,” he told the banking group. He was referring to congressional advocates for repealing certain provisions in the 2018 law that weakened regulatory powers under the terms of the 2010 Dodd-Frank law.
“Nothing is brighter than a red herring,” he added.
Former SVB CEO Greg Becker lobbied lawmakers for some exclusions from Dodd-Frank. But Scots said regulators already had the authority to protect the banking system and failed to do so.
He also said bank executives have a responsibility to adjust their policies as H has embarked on an aggressive cycle of raising interest rates to curb growth.
McHenry also asked about the value of adding new regulatory authority or laws to govern the financial sector.
“It’s important to note that we can’t control the competition,” McHenry said. “The management of institutions must be competent, the board of directors must be competent. We cannot decide neither in the economic environment nor among the management of financial institutions, nor among the directors.
Senator Sherrod Brown, an Ohio Democrat and chairman of the Senate Banking Committee, compared the SVB train disaster in East Palestine, Ohio, to an accident. He said the fallout was due to his state and bank failures, in part because companies were being pushed to less regulation and to put less work into their defenses.
“They have one thing in common: corporate lobbyists have pushed for weaker rules, less oversight,” the ABA said in opening statements. “They cut costs, didn’t invest in security, or maybe in the case of SVB, they were too incompetent to know they should be taking care of security.”
Brown, who said the congressional hearings could remain “largely” bipartisan, warned lobbyists against the bank crisis to use the opportunity to pressure Congress for weaker oversight. He said “we continue to pay the price” when lawmakers allow weaker conditions.
Rep. Maxine Waters, a member of the House Financial Services Committee, told the ABA that Congress would have a “deep-dive” about what happened at Silicon Valley Bank. The California Democrat, who has called for legislation to strengthen Congress’s authority over recoveries for bank executives, said he is closely monitoring the amount of uninsured depositors at SVB.
At the time of the failure, 94% of bank deposits were in excess of the FDIC’s $250,000 insurance limit.
“And of course I want to see if all the inspections of the institutions … really missed the opportunity to see what was going on, and to know what was going on with the balance and things could be corrected.” before they reached the point of collapse,” said Waters.
He added that the swift decision by financial regulators to come down on SVB and protect customer deposits demonstrated the competence of the Biden administration.
“The way the FDIC, the Treasury, the president handled it, should be a message to everyone who works for their government and they can solve problems, serious problems, if they work together,” he said.
