Banking Regulators to Face Congress Over SVB, Signature Bank Collapse

The House Financial Services Committee announced Friday that Congress will hold its first bipartisan hearing at the end of February with top federal regulators to investigate the failures of Signature Bank and Silicon Valley Bank (SVB).

Martin Gruenberg, chairman and vice-chair of supervision for the Federal Reserve, was summoned as witnesses. The first hearing was scheduled for March 29.

In a joint statement, the committee chairman Patrick McHenry (R.N.C.), and ranking member Maxine Waters(D.Calif.) stated that they are determined to hold the hearing. “without fear or favor” and to provide information to the American people on the bank collapse. This could potentially escalate into a much more serious banking crisis.

“The House Financial Services Committee is committed to getting to the bottom of the failures of Silicon Valley Bank and Signature Bank,” McHenry, Waters made the joint statement. “This hearing will allow us to begin to understand why and how these banks failed.”

Biden Urges Accountability

Meanwhile, banking executives who presided over failed banks would be banned from working in the sector again under a new proposal announced by the White House on Friday.

President Joe Biden has used the financial turmoil as an opportunity to call on Congress to expand the FDIC’s power to claw back compensation from executives at failed banks, including gains from stock sales.

According to the White House, the move aims to make senior management more accountable for the collapse of their institutions and allow regulators to punish bank executives who engage in mismanagement and excessive risk-taking more easily.

“Congress must take action to strengthen the ability of the federal government to hold senior management accountable when their banks fail and enter FDIC receivership,” In a statement, the White House stated this.

Currently, the FDIC only possesses clawback power under the Dodd-Frank Act over large banks.

Biden suggested that the law be strengthened to prohibit executives from taking part in illegal activities. “willful or continuing disregard for the safety and soundness” They can’t take jobs at another bank while they are with their bank.

Further, the president wants to expand the FDIC’s authority to impose fines against executives of failed banks if their actions contribute to the failure of their firms.

‘Our Banking System Remains Sound’: Yellen

Congress was able to get some answers on Thursday when Treasury Secretary Janet Yellen faced the Senate Finance Committee. She explained to members of Congress how their bank deposits, and savings, were being handled. “remain safe” Fears that the contagion responsible for Signature and SVB’s collapse might spread to other banks are among them

“I can assure the members of this committee that our banking system remains sound and that Americans can feel confident that their deposits will be there when they need them,” Yellen spoke in a prepared speech. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”

SVB was shut down by the federal government on March 9. Signature was also closed on March 12. This was due to large deposits being withdrawn by customers. It has been called a bank run.

The Federal Reserve, Treasury and FDIC announced on March 12 a rescue plan to ensure that customers of Signature (which are focused on cryptocurrency and technology respectively) had access their funds. This was even after the FDIC limit of $250,000.

A technical issue that affected Wells Fargo customers last Wednesday has also raised concerns about Americans’ savings and deposits.

Investors and financial experts are asking the federal government for SVB rescue to avoid a bigger turmoil similar to the 2008 financial crisis.

Yellon explained to lawmakers that while the rescue plan would help customers’ funds, shareholders and debtholders wouldn’t be protected from losses. She noted that banks have been able to borrow more quickly because of the Federal Reserve.

Federal officials stated that no taxpayer money is being used for bank bailouts. Instead, both insured and uninsured customer money are being paid into the FDIC by banks.

One bank, First Republic, is based in California. Stocks fell more than 50 percent during the week. The stock market plunged 27 percent just on March 16.

Analysts believe that banks’ failures can be attributed to the Federal Reserve’s interest rates hikes. These were intended to combat inflation. Higher rates may be able to curb inflation by slowing the economy but they can also increase the likelihood of future recessions and have a negative impact on stocks, bonds and other investments. SVB owned significant Treasury bonds as well as mortgage-backed securities. These securities lost value with each Fed Rate rise.

Yellen did not mention the financial situation of Credit Suisse, a Swiss-based bank giant. Credit Suisse’s stock dropped sharply earlier in the week. The bank announced this week that it would borrow $54 trillion to provide liquidity.

Andrew Moran, Jack Phillips, and Andrew Moran contributed.