Federal regulators will return to Capitol Hill today to continue the discussion on the events that led up to the failure of multiple banks at a hearing of the House Financial Services Committee.
Yesterday, regulators testified in front of the Senate Banking Committee. While little new information was disclosed, it is clear to all that the bank crisis that led to the collapse of Silicon Valley Bank (SVB), Signature Bank, etc., was due to the one-two punch of failed executive management and bank regulars that did not act quickly enough to halt the ensuing bank runs.
The witnesses participating in the hearing include:
- Martin J. Gruenberg, Chairman, Board of Directors of the Federal Deposit Insurance Corporation (FDIC)
- Michael S. Barr, Vice Chair for Supervision, Board of Governors of the Federal Reserve
- Nellie Liang, Under Secretary for Domestic Finance, U.S. Department of Treasury
Yesterday, the Committee distributed a release stating Committee Republicans are conducting an extensive review of the bank failures. The missive outlined recent letters and inquiries made by the Committee to various public officials, including:
- Committee Chair Patrick McHenry and Ranking Member Maxine Waters sent a letter to the Government Accountability Office (GAO) calling on the agency to study and examine the recent collapse of SVB and Signature Bank.
- Chair McHenry and the Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, Tim Scott, formally demanded information from the Fed and the FDIC regarding their regulatory activities with respect to SVB and Signature Bank for the two years leading up to the collapse of the two banks.
- Chair McHenry and the Vice Chairman of the House Financial Services Committee, French Hill, sent letters to FDIC Chair Martin Gruenberg and Treasury Secretary Janet Yellen. The letters demanded detailed information regarding the Biden Administration’s response to recent bank failures, particularly regarding whether there was a viable private sector option for SVB and Signature Bank.
- Republicans on the House Financial Services Committee demanded the California and New York state-level regulators that supervised Silicon Valley Bank and Signature Bank, respectively, provide information regarding their supervisory efforts, coordination with federal regulators, and decision-making regarding the failed banks.
- Subcommittee Chairmen Andy Barr and Congressman Bill Huizenga sent letters to Financial Stability Oversight Council (FSOC) Chair Janet Yellen and Chair of the Council of Inspectors General on Financial Oversight Richard Delmar, demanding greater transparency regarding a March 12 meeting of FSOC that focused on the recent turbulence in the banking system.
- Subcommittee Chairmen Barr and Huizenga, along with Congresswoman Young Kim, sent a letter to Vice Chair for Supervision of the Board of Governors of the Federal Reserve System (FRB), Michael Barr and the President and CEO of the Federal Reserve Bank of San Francisco (FRBSF) Mary Daly expressing concern about supervisory activity conducted prior to the collapse of Silicon Valley Bank (SVB).
The hearing entitled “The Federal Regulators Response to Recent Bank Failures.” commences today (March 29, 2023) at 10 AM and will be live-streamed on the Committee’s website.
The hearing memo provides a timeline of the ensuing events prior to regulators taking over the banks:
- March 8, 2023: SVB announced that it had sold $21 billion of securities holdings to cover withdrawal requests at a $1.8 billion loss. In response, SVB Financial Group (SVB’s holding company) announced its intention to issue $2.25 billion in share offerings to raise capital.
- March 9, 2023: SVB experienced $42 billion in outflows.
- March 10, 2023: The California Department of Financial Protection and Innovation closed SVB and appointed the FDIC as receiver. March 11, 2023: • The FDIC reportedly conducted an auction for a purchase and assumption (P&A) of SVB.
- March 12, 2023:
- The FDIC announced that Signature Bank was closed by the New York Department of Financial Services and the FDIC was appointed receiver.
- The FDIC, in conjunction with the FRB and Treasury Secretary invoked the Systemic Risk Exception to the FDIC’s least cost resolution mandate to insure all deposits of SVB and Signature.
- The Federal Reserve, using Federal Reserve Act section 13(3) authority, established the Bank Term Funding Program, offering banks loans of up to one year on U.S. Government collateral at the par value of the securities.
- The Treasury Secretary, in her role as Chairperson of the Financial Stability Oversight Council (FSOC) convened an FSOC meeting to discuss developments associated with the failures of SVB and Signature Bank.
- March 13, 2023:
- The FDIC announced that it will restart the P&A auction for SVB and began an auction for Signature Bank.
- The Federal Reserve Board announced that Vice Chair for Supervision Michael Barr will lead a review of the supervision and regulation of SVB, in light of its failure.
- March 17, 2023: SVB Financial files for Chapter 11 bankruptcy.
- March 19, 2023: The FDIC announced that Flagstar Bank, N.A. a wholly owned subsidiary of New York Community Bancorp, will purchase the loan portfolio and substantially all deposits of Signature Bridge Bank, N.A.
- March 20, 2023: The FDIC announced an extension of SVB’s auction proceeding.