Rep. Patrick McHenry (R-NC) and Chairman of the House Financial Service Committee Maxine Waters (D-CA) listen as David Marcus, CEO of Facebook’s Calibra, testifies on “Examining Facebook’s Proposed Cryptocurrency and Its Impact on Consumers, Investors, and the American Financial System” on Capitol Hill in Washington, U.S., July 17, 2019.
Joshua Roberts | Reuters
WASHINGTON — A bipartisan group of lawmakers overseeing the recent turmoil in the banking sector said Wednesday that they aim to increase Americans’ confidence in the banking industry after Silicon Valley Bank and Signature Bank collapsed over the last two weeks.
The two House and Senate committees that oversee banking have announced back-to-back hearings next week to examine regulatory lapses that missed signs the banks were in trouble. Federal Deposit Insurance Corp. Chairman Martin Gruenberg, Federal Reserve Vice Chair for Supervision Michael Barr and Treasury Undersecretary for Domestic Finance Nellie Liang are scheduled to testify at both hearings.
The high-profile hearings come as lawmakers try to understand what caused the two institutions to fold, and as many Democrats float legislation to bolster safeguards for the financial system. Regulators and lawmakers are also trying to contain further damage to the economy and reinforce confidence in the banking system.
“My hope is that this first hearing, we can actually get a lot of the information out and establish [the facts],” Rep. Patrick McHenry, a North Carolina Republican and chairman of House Financial Services Committee, said during a summit of the American Bankers Association. “I think this will bring a great deal of certainty and confidence to the market.”
Last week, the Fed appointed Barr to lead a review of the SVB failure. McHenry said he welcomed the probe and “the other views of financial regulators, as well.”
The Republican said Congress has a “very important role to play” in reviewing how the banks failed. But he stopped short of calling for legislation to prevent future collapses.
McHenry said he wanted to ensure the push for legislation matches “the realities of the situation.”
Sen. Tim Scott, a South Carolina Republican and ranking member of the Senate Banking Committee, also said writing new laws should take a back seat at the hearings to investigating what happened.
“Unfortunately, in Washington, that’s often what occurs, that those on the committee on the left will talk about Dodd-Frank and the reforms that were done in 2018,” he told the bankers’ group. He was referring to calls in Congress to unwind some of the provisions in the 2018 law that weakened regulatory powers in the landmark 2010 Dodd-Frank law.
“Nothing could be a clearer red herring than that,” he added.
Former SVB CEO Greg Becker lobbied lawmakers for certain exclusions from Dodd-Frank. But Scott said regulators already had the authority they needed to safeguard the banking system and failed to do so.
He also said bank executives had a responsibility to adjust their strategies as the Fed embarked on an aggressive interest rate hiking cycle to stem inflation.
McHenry also questioned the value of adding new regulatory authority or laws to govern the financial sector.
“It’s important to note that we can’t regulate competence,” McHenry said. “Management of institutions need to be competent, boards of directors need to be competent. We can’t legislate that either in the financial sector or among financial institutions management, nor with the regulators.”
Sen. Sherrod Brown, an Ohio Democrat and chairman of Senate Banking Committee, compared the SVB collapse to the devastating train crash in East Palestine, Ohio. He said the disaster in his state and the bank failures stemmed in part from companies pushing for fewer regulations and putting less effort into their own safeguards.
“They have one thing in common: corporate lobbyists pushed for weaker rules, less oversight,” he told the ABA in opening remarks. “Companies cut costs, failed to invest in safety – or perhaps in the case of SVB, were too incompetent to realize they too should care about safety.”
Brown, who said the congressional hearings can remain “mostly” bipartisan, warned banking lobbyists against using the crisis as a chance to lobby Congress for weaker oversight. He said “we continue to pay the price” when policymakers allow weaker regulations.
Rep. Maxine Waters, ranking member of the House Financial Services Committee, told the ABA that Congress will have to “take a deep dive” into what took place at Silicon Valley Bank. The California Democrat, who has called for legislation to strengthen congressional authority over clawbacks for bank executives, said she is taking a close look at the high rate of uninsured deposits at SVB.
At the time of its failure, 94% of the bank’s deposits sat above the FDIC’s $250,000 insurance limit.
“And of course, I’m looking to see whether or not all of the oversight agencies … really did miss the opportunity to see what was happening and to know what was going on with the balance sheet and to be able to correct things before they got to the point of collapse,” Waters said.
She added that the financial regulators’ quick decision to close SVB and secure customers’ deposits demonstrated the Biden administration’s competence.
“The way that the FDIC, the Treasury, president, they way that they handled this should be a message to everybody that your government is at work and can solve problems — serious problems — if they are working together,” she said.