“I think that any time you have a bank failure like this, bank management clearly failed, supervisors failed and our regulatory system failed,” Fed Vice Chair for Supervision Michael Barr told Congress in the second day of hearings on SVB’s failure. “So we’re looking at all of that.”
The failures of SVB, and days later, Signature Bank, set off a broader loss of investor confidence in the banking sector that pummeled stocks and stoked fears of a full-blown financial crisis. Lawmakers pressed regulators on whether the Fed should have been more aggressive in its oversight in the second congressional hearing into the collapse of the two lenders.
“Our entire economy has been hurt. It has been rattled by what happened this month. Our bank regulatory system has some real flaws,” said Democrat Brad Sherman of California.
Barr told the House Financial Services Committee that he first became aware of stress at Silicon Valley Bank on the afternoon of March 9, but that the bank reported to supervisors that morning that deposits were stable. Martin Gruenberg, head of the Federal Deposit Insurance Corp., told lawmakers he also became aware of SVB’s stress that Thursday evening.
The Fed was in discussions with Silicon Valley Bank the day before its collapse to move pledgable collateral to the discount window, a key facility long associated with providing emergency loans to banks, Barr said on Wednesday.
“(Fed) 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 to the discount (window) on Friday,” Barr said.
A deal to rescue Swiss giant Credit Suisse last week and a sale of SVB’s assets to First Citizens Bancshares this week has helped restore some calm to markets, but investors remain wary of more troubles lurking in the financial system.
Barr on Tuesday criticized SVB for going months without a chief risk officer and how it modeled interest rate risk, which he said “was not at all aligned with reality.”
Barr told the Senate Banking Committee he first became aware of the interest rate risk issues at SVB in mid-February, while Fed supervisors had been raising issues with the bank directly in the months prior to that.
Some Democrats have also argued a 2018 bank deregulation law is to blame. That law, mostly backed by Republicans but also some moderate Democrats, relaxed the strictest oversight for firms holding between $100 billion and $250 billion in assets, which included SVB and Signature.
The White House is readying plans for legislation that would reinstate those regulations on midsize banks, the Washington Post reported on Wednesday, citing two sources familiar with the matter.
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