U.S. lawmakers say bank failure hearings aim to bolster confidence in banks

After the collapses of Silicon Valley Bank and Signature Bank over the past two weeks, a bipartisan group of senators monitoring the recent upheaval in the banking industry stated on Wednesday that they hope to boost citizens' faith in the sector.

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Regulatory failings that missed warning signs that banks were in trouble will be the subject of back-to-back hearings next week, according to the two House and Senate committees that oversee banking. National Deposit Insurance Corp. Both sessions will feature testimony from Chairman Martin Gruenberg, Vice Chair for Supervision Michael Barr, and Undersecretary for Domestic Finance Nellie Liang of the Treasury.

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The high-profile hearings take place as lawmakers attempt to determine what led the two institutions to fail and as numerous Democrats introduce legislation to strengthen banking sector safeguards. Legislators and regulators are also working to prevent the economy from suffering more harm and to boost public confidence in the banking system.

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Rep. Patrick McHenry, a Republican from North Carolina and the head of the House Financial Services Committee said this at an American Bankers Association summit: "My hope is that after this initial hearing, we can actually get a lot of the information out and establish [the facts]. I believe this will significantly boost market confidence and certainty."

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The Fed appointed Barr to head a review of the SVB collapse last week. McHenry declared that he supported both the investigation and "the other perspectives of banking authorities, as well."

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The Republican claimed that in looking into how the banks failed, Congress has a "very essential role to play." But he refrained from recommending legislation to stop further failures.

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Assuring that the effort for legislation reflects "the realities of the situation," McHenry stated that he wanted to do.

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Sen. Tim Scott, a Republican from South Carolina and the leading member of the Senate Banking Committee added that at the hearings, examining what occurred should come before drafting new legislation.

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He told the bankers' organization, "Unfortunately, in Washington, that's frequently what happens, that individuals on the committee on the left will talk about Dodd-Frank and the reforms that were done in 2018."

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He was making reference to proposals in Congress to reverse some of the provisions in the 2018 bill that reduced the authority of the historic 2010 Dodd-Frank statute to regulate.

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"That is the clearest red herring there is," he continued.

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Greg Becker, the former CEO of SVB, urged Congress to exclude specific items from Dodd-Frank. Scott, however, claimed that although authorities already had the power necessary to protect the banking system, they chose not to use it.

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However, he stated that bank CEOs had a duty to modify their plans as the Fed started an aggressive cycle of interest rate hikes to combat inflation.

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McHenry also questioned the need for additional legislation or regulatory bodies to oversee the banking industry.

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It's crucial to keep in mind that competency cannot be regulated," according to McHenry. "Organizational management and boards of directors both require competence. We cannot legislate about that, not with the regulators nor with the financial industry or the management of financial institutions."

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Democratic senator from Ohio and head of the Senate Banking Committee, Sen. Sherrod Brown, compared the SVB collapse to the tragic East Palestine, Ohio, train tragedy. He claimed that businesses that pushed for fewer restrictions and put less effort into their own safeguards were partially to blame for the crisis in his state and the bank failures.

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In his opening remarks, he reminded the ABA that they all had one thing in common: corporate lobbyists had pushed for lax regulations and less monitoring. Businesses reduced expenses, neglected to invest in safety, or, in the case of SVB, perhaps were too ignorant to understand that they too should care about safety.

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Brown cautioned bank lobbyists against exploiting the crisis as an opportunity to urge Congress for laxer control. He said that the congressional hearings can continue to be "largely" bipartisan. He claimed that whenever legislators permit lax restrictions, "we continue to pay the price."

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Congress will have to "take a thorough dive" into what happened at Silicon Valley Bank, said Rep. Maxine Waters, ranking member of the House Financial Services Committee, in remarks to the American Bankers Association. The California Democrat said she is closely examining the high percentage of uninsured deposits at SVB and has called for legislation to increase congressional jurisdiction over clawbacks by bank executives.

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94% of the bank's deposits were above the $250,000 insurance cap at the time of its insolvency.

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"Of course, I'm checking to see if all the monitoring agencies... We missed the chance to observe what was occurring, understand what was happening with the balance sheet, and be able to make corrections before things reached the brink of collapse," according to Waters.

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She continued by saying that the swift action taken by the banking regulators to shut down SVB and protect clients' deposits proved the Biden administration's know-how.

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"Everyone should get the message that your government is operating and can solve problems — severe problems — if they work together," she said, referring to the manner in which the FDIC, the Treasury, the president, and other officials handled the situation.