WASHINGTON — A bipartisan group of lawmakers overseeing the recent turmoil within the banking sector said Wednesday that they aim to extend Americans’ confidence within the banking industry after Silicon Valley Bank and Signature Bank collapsed over the past two weeks.
The 2 House and Senate committees that oversee banking have announced back-to-back hearings next week to look at 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 each hearings.
The high-profile hearings come as lawmakers try to grasp what caused the 2 institutions to fold, and as many Democrats float laws to bolster safeguards for the economic system. Regulators and lawmakers are also attempting to contain further damage to the economy and reinforce confidence within the banking system.
“My hope is that this primary hearing, we are able to actually get loads of the knowledge 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 believe this can bring a fantastic deal of certainty and confidence to the market.”
Last week, the Fed appointed Barr to steer a review of the SVB failure. McHenry said he welcomed the probe and “the opposite views of monetary regulators, as well.”
The Republican said Congress has a “very vital role to play” in reviewing how the banks failed. But he stopped wanting calling for laws to stop future collapses.
McHenry said he desired to make sure the push for laws matches “the realities of the situation.”
Sen. Tim Scott, a South Carolina Republican and rating member of the Senate Banking Committee, also said writing latest laws should take a back seat on the hearings to investigating what happened.
“Unfortunately, in Washington, that is often what occurs, that those on the committee on the left will discuss Dodd-Frank and the reforms that were done in 2018,” he told the bankers’ group. He was referring to calls in Congress to unwind among the provisions within the 2018 law that weakened regulatory powers within the landmark 2010 Dodd-Frank law.
“Nothing may very well 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 did not accomplish that.
He also said bank executives had a responsibility to regulate their strategies because the Fed launched into an aggressive rate of interest mountaineering cycle to stem inflation.
McHenry also questioned the worth of adding latest regulatory authority or laws to manipulate the financial sector.
“It is important to notice that we will not regulate competence,” McHenry said. “Management of institutions have to be competent, boards of directors have to be competent. We won’t legislate that either within the financial sector or amongst 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 partly from corporations pushing for fewer regulations and putting less effort into their very own safeguards.
“They’ve one thing in common: corporate lobbyists pushed for weaker rules, less oversight,” he told the ABA in opening remarks. “Corporations cut costs, failed to take a position in safety – or perhaps within the case of SVB, were too incompetent to appreciate 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 probability to lobby Congress for weaker oversight. He said “we proceed to pay the worth” when policymakers allow weaker regulations.
Rep. Maxine Waters, rating member of the House Financial Services Committee, told the ABA that Congress could have to “take a deep dive” into what took place at Silicon Valley Bank. The California Democrat, who has called for laws to strengthen congressional authority over clawbacks for bank executives, said she is taking a detailed have a look at the high rate of uninsured deposits at SVB.
On the time of its failure, 94% of the bank’s deposits sat above the FDIC’s $250,000 insurance limit.
“And in fact, I’m seeking to see whether or not all the oversight agencies … really did miss the chance to see what was happening and to know what was occurring with the balance sheet and to have the option to correct things before they got to the purpose of collapse,” Waters said.
She added that the financial regulators’ quick decision to shut SVB and secure customers’ deposits demonstrated the Biden administration’s competence.
“The best way that the FDIC, the Treasury, president, they way that they handled this ought to be a message to everybody that your government is at work and might solve problems — serious problems — in the event that they are working together,” she said.
