The bank failures. Let me be very, very clear: Silicon Valley Bank collapse because of management failures and possible regulatory weaknesses, not because there was one black man on the board. We saw the same racist Playbook during the 2008 financial crisis when some Republicans blame the Community Reinvestment Act and Loans made to people of color. Rest assured Democrats will not stand for this blatant racism with that Mr Chair Are you about the balance of my time? Well now recognize the vice chair the full committee.

Mr Hill for one minute thank you Mr Chairman Today we're confronted with the results. After 10 years of two loose monetary policy and recent wildly excessive spending, Some Bank management teams have forgotten their Prudential obligations to their depositors and their shareholders and clearly many customers forgot their own prudence and their own financial responsibility. But as our committee comes together, the chair of the ranking member and members are concerned about the supervisory failures by The Regulators who are supposed to keep a watchful eye. Some lawmakers have been quick to use this crisis to put politics to push their preferred policy outcomes, but that's premature.

We need to First understand what happened when and why, both leading up to the bank failures as well as the decisions made by your agencies represented our panel today in response. Only then can we decide the proper path forward. That's why Republicans are conducting a comprehensive review. Starting with oversight letters to the Federal Reserve the San Francisco fed the FDIC the Fsoc, the California New York State Regulators We expect your full cooperation in this matter and make no mistake, today's hearing is just a first step in that process.

I Thank the chair for the hearing and I yield back. The chair now recognizes the ranked member of the Subcommittee on Financial Institutions and Monetary Policy Mr Foster for one minute Thank you Chairman Henry and my ranking member Waters for convening at this crucial time and thank to our esteemed Witnesses for being here today. I Remain proud of what we did almost 13 years ago with a dime-frank action. Although Covet presented a novel and considerable challenges to our banking system, the system held and these recent events represent the first real stress event since the 2008 crisis when the banks dealt with Run Redskins serious liquidity concern.

What we've learned is that we now have to reinforce our banking system against Bank runs that can occur at the speed of the internet. This will require stronger emergency liquidity provision to Bank Centers attack and it has to be available 24 hours a day, seven days a week. This will then require liquidity providers to have a clear and simple means of knowing that that they are loaning to an entity which will ultimately remain solvent. I Also believe that we have a lot to learn by the two side-by-side team leaders: Silicon Valley Bank with total assets less than one percent of GDP and Credit Suisse with total assets greater than 100 percent of Swiss GDP And the difference I believe is contingent Capital Had we followed Congress's direction to include contingent Capital into the stacks of of U.S large Banks we would have been able to resolve the Svb without hitting the deposit Insurance Fund and I'll be bringing that but my questions in yield.

Back today we'll hear from testimony from The Honorable Michael S Bar Vice chair or supervision of the Federal Reserve Board of Governors The Honorable Martin J Grunberg chairman of the Board of Directors of the Federal Deposit Insurance Corporation and The Honorable Nelly Lang of Under Secretary for Domestic Finance of the U.S Department of Treasury. Now we thank each of you for your time uh and we're going to be recognized for five minutes for our oral presentation of your written testimony. I will begin with you uh Mr Bart chairman, Henry ranking Manor Waters and other members of the committee Thank you for the opportunity to testify today on the Federal Reserve supervisory and Regulatory oversight of Silicon Valley Bank. Our banking system is sound and resilient with strong capital and liquidity.

The Federal Reserve working with the treasury Department and FDIC took decisive actions to protect the U.S economy and to strengthen public confidence in our banking system. These actions demonstrate that we are committed to ensuring that all deposits are safe, to closely monitor conditions in the banking system, and are prepared to use all of our tools for any size institution as necessary. If the journal dispense for a second, uh, Mr Foster you'll turn off your mic. Thank you I Will let you continue.

Thank you. Shall I proceed. Oh all right, go ahead if everybody will check your mics and make sure you're off. Did you did you just do that to? Mr Torres All right.

See, we can even have a sense of humor in the midst of serious stuff. Uh, we'll let you continue. Thank you Vice Chair Bar Thank you Mr Chair We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools for any size institution as needed to keep the system safe and sound at the same time. The events of the last few weeks raise questions about what more can be done and should be done so that isolated banking problems do not undermine confidence in healthy Banks and threaten the stability of the banking system as a whole.

At the Forefront of my mind is the importance of maintaining the strength and diversity of banks of all sizes that serve communities across the country. Svb failed because the bank's management did not effectively manage its interest rate and liquidity risk, and the bank then suffered a devastating and unexpected run by its uninsured depositors in a period of less than 24 hours immediately following Svb's failure. Chair Powell and I agree that I should oversee a review of the circumstances leading up to Svb's failure. In this review, we are looking at Svb's growth and management, our own supervisory engagement with the bank, and the regulatory requirements that apply to the bank.

The picture that has emerged thus far shows Svb had inadequate risk management and internal controls that struggled to keep Pace with the growth of the bank. Supervisors began delivering supervisory warnings near the end of 2021. a review will consider whether these supervisory warnings were sufficient and whether supervisors had sufficient tools to escalate them. We are also focusing on whether the Federal Reserve supervision was appropriate for the rapid growth and vulnerabilities of the bank.

While the Federal Reserve framework focuses on size thresholds, size is not always a good proxy for risk, particularly when a bank has a non-traditional business model. Turning to regulation, we are evaluating whether application of more stringent standards would have prompted the bank to better manage the risk that led to its failure. We are also assessing whether Svb would have had higher levels of capital and liquidity under higher standards, and whether such higher levels of capital and liquidity could have forestalled the bank's failure or provided further resilience to the bank. We need to move forward with our work to improve the resilience of the banking system, including the Basel III endgame reforms, a long-term debt requirement for large Banks, and enhancements to stress testing with multiple scenarios so that it captures a wider range of risk and uncovers channels for contagion like those we saw in the recent series of events.

We must also explore changes to our liquidity rules and other reforms to improve the resiliency of the financial system. In addition, recent events have shown that we must evolve our understanding of banking in light of changing Technologies and emerging risks. Part of the Federal Reserve's core mission is to promote the safety and soundness of the banks we supervise as well as the stability of the financial system to help ensure that the system supports a healthy economy for U.S Households, businesses, and communities deeply interrogating Svb's failure and proving its broader implications is critical to our responsibility for upholding that mission. Thank you and I look forward to your questions.

We'll now recognize Karen Grimberg. Thank you Mr Chairman Chairman McHenry Ranking member Waters and members of the committee thank you very much for the opportunity to appear before you today to address the Federal Regulator's response to the recent bank failures. on March 10th just over two weeks ago, Silicon Valley Bank or Svb as it's known with 209 billion dollars in assets at year end 2022 was closed by the California Department of Financial Protection and Innovation which then appointed the FDIC as a receiver. The failure of Svb following the March 8th Announcement by Silvergate Bank that it would voluntarily liquidate signal the possibility of a contagion effect on other Banks on Sunday March 12th, just two days after the failure of Svb, another institution Signature Bank of New York with 110 billion dollars in assets at year end 2022, was closed by the New York State Department of Financial Services which also appointed the Fdic's receiver.

With other institutions experiencing stress, serious concerns arose about a broader economic spillover from these failures. After careful analysis and deliberation, the boards of the FDIC and the Federal Reserve voted unanimously to recommend and the Treasury Secretary in consultation with the President, determined that the FDIC could use emergency systemic risk authorities under the Federal Deposit Insurance Act to fully protect all depositors and winding down Svb and Signature Bank. It's worth noting that these two instant institutions were allowed to fail. Shareholders lost their investment, unsecured creditors took losses, the boards and the most senior Executives were removed.

The FDIC has authority to investigate and hold accountable the directors and officers of the banks for the losses they caused to the banks and for any misconduct in the management of the banks and the FDIC has already commenced those investigations. Further, any losses to the Fdic's deposit Insurance Fund as a result of uninsured deposit insurance coverage will be repaid by a special assessment on banks as required by loan. The FDIC has now completed the sale of both Bridge Banks to acquiring institutions I. Written testimony today describes the events leading up to the failures of Svb and Signature Bank and the facts and circumstances that prompted the decision to utilize The Authority in the Federal Deposit Insurance act to protect all depositors In those Banks.

Following those failures, it further describes the management and disposition of the bridge institutions that were established. It also discusses the Fdic's assessment of the current state of the U.S financial system, which remains sound despite these events. And in addition, it shares some preliminary Lessons Learned as we look back on the immediate aftermath of this episode. In that regard, the FDIC will undertake a comprehensive review of the deposit Insurance system and will release a report by May 1.

that will include policy options for consideration related to deposit insurance coverage levels excess Deposit Insurance and the implications for risk-based pricing and Deposit Insurance Fund adequacy. In addition, the Fdic's Chief Chief risk Officer will undertake a review of the FDIC supervision or Signature Bank and we'll also release a report by May 1.. Further, the FDIC will issue in May a proposed rulemaking for the special assessment. For public comment, The bank failures demonstrate the implications that banks with assets over 100 billion dollars can have for financial stability.

The Prudential regulation of these institutions merits serious attention, particularly for Capital liquidity and interest rate risk and also the consideration of a long-term debt requirement to facilitate orderly resolution. Recent efforts to stabilize the banking system and stem potential contagion from these failures have ensured that depositors will continue to have access to their savings as small businesses and other employers can continue to make payrolls and then other Banks small, medium and large can continue to extend credit to part to borrowers and serve as a source of support. The FDIC continues to monitor developments and is prepared to use all of its authorities as needed. The FDIC is committed to working cooperatively with our counterparts at the other Federal Regulators as well as with policy makers in the Congress to better understand what brought these institutions to failure and what measures can be taken to prevent similar failures in the future.

Mr Chairman That concludes my statement: I'd Be glad to respond to questions. Thank you Under Secretary Lang Ranking Member: Waters Members of the committee thank you for inviting me to testify today and for the opportunity to speak several times in recent weeks to share updates from Treasury regarding current events. The American economy relies on a healthy if you pull your mic closer or directed towards you, thank you. The American economy relies on a healthy and diverse banking system one that includes large, small and mid-sized Banks and provides for the financial needs of families, businesses, and local communities.

Nearly three weeks ago, problems emerged at two banks with the potential for immediate and significant impacts on the broader banking system and the economy. The situation demanded a swift response. In the days that followed, the Federal Government took decisive actions to strengthen public confidence in the U.S banking system and to protect the American economy. On March 9th depositors of Silicon Valley Bank withdrew 42 billion dollars in deposits in a period of just a few hours.

After concluding that significant deposit withdrawals would continue the next day, the California State Regulator closed SBB and appointed the FDIC as receiver. Two days later, the New York Financial regulator closed Signature Bank which also had experienced a depositor run and appointed the FDIC as receiver. Treasury worked to assess the effects of these failures on the broader banking system Consulting regularly. with the Federal Reserve and FDIC on Sunday evening, recognizing the urgency of reducing uncertainty for Monday Morning Treasury, the Federal Reserve and the FDIC announced a number of actions to stem uninsured depositor runs and to prevent significant disruptions to households and businesses.

First, the boards of the FDIC and the Federal Reserve recommended unanimously and Secretary Yellin approved after Consulting with the President, two actions that would enable the FDIC to complete its resolution of the two banks in a manner that fully protects all of their depositors. These actions ensure that businesses could continue to make payroll and that families could access their funds. Depositors were protected by the deposit. Insurance Fund Equity Holders and bondholders of the banks were not covered.

Second, the Federal Reserve created the Bank term Funding Program, a new facility to provide term funding to all insured depository institutions eligible for primary credit at the discount window based on their Holdings of Treasury and agency debt. Securities. This program along with the existing pre-existing discount window has helped Banks to meet to positive demands and bolstered liquidity in the banking system. This two-pronged targeted approach was necessary to reassure depositors at all banks and to protect the U.S Banking system and economy.

These actions have helped to stabilize deposits throughout the country and provided depositors with confidence that their funds were safe. In addition to these actions, on March 16, 11, Banks deposited 30 billion dollars into First Republic Bank. The actions of these large and mid-sized Banks represent a vote of confidence in the banking system and demonstrate the importance of banks of all sizes working to keep our economy strong. Moreover, on March 20th, the deposits in certain assets of Signature Bridge Bank were acquired from the FDIC and on March 26th, the deposits in certain assets of Silicon Valley Bridge Bank were acquired from the FDIC.

We continue to closely monitor developments across the Banking and Financial system and coordinate with federal and state regulators. As Secretary Yellin has said, we have used important tools to act quickly to prevent contagion and they are tools we would use again to ensure that American deposits are safe. Looking forward. While we do not yet have all the details about the failures of the two Banks, we do know that the recent developments are very different from those of the global Financial crisis.

Back then, many financial institutions came under stress because they held low, low credit quality assets. This was not at all the res. The Catalyst for the recent events, Our financial system is significantly stronger than it was 15 years ago. This is in large part due to the post-crisis reforms for stronger capital and liquidity.

As you know, the Federal Reserve announced a review of the failure of SBB and the FDIC overview of Signature Bank I. Fully support these reviews and look forward to learning more. In order to inform any Regulatory and supervisory responses, we must ensure that our bank regulatory policies and supervision are appropriate from the risks old and new that Banks face today. Thank you to the committee for its leadership on these important issues and for inviting me here to testify today.

I Look forward to your questions I Recognized myself for five minutes for questions Under Secretary: Lang When do you become aware of the severe financial distress of Silicon Valley Bank Um, date and time would be helpful We became aware. when did you become aware I'm going to you're aware of issues at Silicon Valley Bank on Wednesday or Thursday Wednesday or Thursday I would like to have written a response to when you became aware, you can search your email that'd be helpful Vice Chair Bar What did you become aware? Thank you Mr Chair Uh, when did you become aware of the Sbb's financial distress? Uh, I was going to answer that Thursday Morning I received an email from staff indicating that Wednesday evening the bank had difficulty. Thursday Morning When did you become aware Vice Chairman: um I believe it was Thursday evening staff came into a meeting I was at Taylor the first Silicon Valley Bank Okay, along those lines and you had a staff presentation in February that included Silicon Valley Bank and the distress because of uh Rising interest rates on their portfolio. What did you do between that February staff presentation to you and the week of March 6th about Silicon Valley Bank Staff presented on the interest rate risk yes, that's what I said that was a February presentation what did you do as Vice chair supervision between that time and the bank the week of the bank failure, staff indicated that they were completing their review of the bank and of this broader horizontal review at that time and I was waiting for the results of that review.

Were you aware Silicon Valley Bank Raising Capital the week of March 6th I I believe I Became aware of that in this email that I described to you on Thursday morning that they had successfully raised the capital but they had just they were. they're facing financial distress I I was not aware um Thursday warning that there were deposit outflows I was trying to finish the answer to that question I was aware of the difficulty Wednesday night and raising Capital but the bank was reporting to supervisors Thursday morning that deposits were stable when did you become aware of the deposit flows and Thursday Thursday Afternoon late afternoon I became aware of deposit flows and Thursday evening that there was essentially a bank run. So Thursday afternoon, which could be mid-morning in California is that what you're suggesting I believe it was around noon in California and for me, around three o'clock Okay, and did you make provision for the discount window or pleasurable assets at that time you heard of their distress. My understanding from the staff is they were in discussions with the bank itself beginning Thursday afternoon to try and move pledgeable collateral over to the discount window.

That work continued Thursday Afternoon Thursday evening and actually overnight. Did you make provision to keep the discount window open so they could provision collateral to avoid a bank collapse. The the discount window um, uh. opening decision is sort of like a standard thing.

It normally closes a standard thing, except in a moment of Crisis it can be kept open I Think the vice chair for supervision should be able to make that phone call. Did you provision for that? Uh, or did you think you needed a provision for that? Mr Chairman At the time, my understanding was that the difficulty wasn't sending funds. The difficulty was actually getting the collateral, evaluating the collateral, and getting it Pledge to the discount window and staff were working with Silicon Valley Bank basically all afternoon and evening and and through the morning the next day to pledge as much collateral as humanly possible to the discount. So on Friday Morning Vice Chair uh chair Greenberg uh your appointed receiver.

When did you become aware that FDIC was going to have to take this measure or is going to receive this Bank I think when we were informed Thursday evening I mean you were you informed Thursday form Thursday evening by staff which meant you had Friday morning conference calls to make a decision. Was that part of it I think we were I mean I think we knew Thursday evening that the bank was going to fail and that we needed to make provision to take over the institution. Did you pick up the phone and call the vice chair supervision at the Fed and say how can we provision to keep this institution open for a Friday I can't recall that I My recollection is: Mr Chairman that the institution was experiencing a liquidity failure and that the it was going to fail and it was going to fail on Friday open or Friday evening. Were you provisioning for this for the weekend decision? For No.

I think the expectation in the in their experience was that the institution was going to be closed in the morning. At what point did you open an auction for Silicon Valley Bank on Friday I believe it was Sunday afternoon we did Sunday afternoon you open for auction. So that weekend what happened on We only heard the announcement of Congress receiving this information 11 20 on Friday morning. there's an idiosyncratic bank and Sunday afternoon was the next pronouncement from any of you three on the panel.

And it was a systemic risk designation. That's what shook the market for the last two weeks. That's the reason why we've had these extraordinary interventions in the financial system. and I want to know the key details of that weekend.

I hope we can drill into those those questions. With that, I'll recognize the ranking member for five minutes, thank you very much. Mr Chairman: We know that Svb bank nearly half of all. U.S Adventure Uh, U.S venture-backed startups, potentially tens of thousands of companies, which clearly pose the concentration risk to the bank.

Well, most of the bank's depositors were small and mid-sized businesses. They also had large customers too, with the top 10 accounts holding more than 13 billion dollars in Combined deposits chair Greenberg and vice chair bar. I'm concerned that departed's decision to run or stay where not necessarily made on their own, but by the strong encouragement of their Venture Capital backers who sit on the board to hold equity in their companies where a handful of large Venture Capital Depositors able to influence the withdrawal of 42 billion dollars all at once through their control over their portfolio companies. Congresswoman, you know I Think that is something we'll need to look at in terms of the post-failure review of these institutions.

I Couldn't tell you today? Um, you know with certainty. uh what occurred there I know both the FED in regard to Svb and we in regard to Signature going to do a careful, careful review of the events that occur. thank you very much and I agree with you I Think we really need to know the role that Venture Capitals played in this Bank Go on further. Vice Chair Bar You said yesterday that Svb received a three for its management rating, which is considered deficient but was considered sufficiently capitalized.

Given the bank's unique customer base, extremely large share of uninsured deposits and underwater asset portfolio, Liquidity management was also a key issue. The liquidity rating for a bank should account for interest rate risk and the bank's asset liability management. What was the bank's rating on liquidity? Uh, thank you representative. Waters My understanding is in the summer of 2022.

Although the composite rating was a three that is not well managed, the liquidity rating was a two, which would have been satisfactory. and one of the things we're looking at in the review is how that synced up with the supervisory matters requiring attention and matters requiring immediate attention with respect to liquidity that had previously been issued. So we're looking at whether those standards were sufficiently stringent, whether the firm should have been downgraded further, and whether further supervisory steps should have been taken. Whose responsibility was it understanding the deficient rating to do something that the Federal Reserve is is responsible for supervising this institution.

Did the Federal Reserve fail on that I Think that anytime you have a bank failure like this: Bank Management clearly failed, supervisors failed, and our regulatory system failed. So we're looking at all of that. Thank you Vice Chair Bar: You said yesterday that Svb received a three or for its management rating Uh and uh. You just responded in a way that says yes, that is true and perhaps something should have been done and you're going to look further at that.

Are you suggesting, perhaps legislation to deal with that? We're focusing in our review on our own supervision, ways that we could have done better as supervisors at the Federal Reserve and ways that our own regulatory structure might have played a role with respect to the failure of this firm. So we're inward looking. It's a self-assessment a proven thing. I Think for us to do it's what we tell Banks To do it's it's sort of the first thing you have to do to understand risk within your own institution.

and that's why we're doing it. I Wonder what it would take to receive a three, four, or five from confidential in order to prevent bankrupts. But doing so also prevents this committee from understanding how well the Fed and other Regulators are doing in raiding banks in the same way the stress testing results are public. Are there ways we can make the supervisory process more transparent to promote discipline and accountability? Uh, thank you representative.

Waters I Think one of the things we're trying to do here today is to provide that accountability and we'll do that in our report, which we'll do on May 1st it will include confidential supervisory information. We normally do not provide that information, but given the fact that this Bank failed and triggered a systemic risk exception, we're including that information including exam reports. thank you very much. Very important issue.

Uh Chair: Gruenberg Silicon Valley Bank was purchased over the weekend by First Citizens Bank and Trust Company As you know, I Wrote to you on March 18 about Pharma Svb's Community Benefits Plan which was intended to provide 11 billion in small businesses Housing and Community Development support to communities in my home state of California and in Massachusetts I Understand that 2 billion in affordable housing and other projects may be lost or delayed in California because of the failure. Will Citizens Bank and Trust continue implementation of the Farmer Bank's Community Benefits plan? Um, the agreement between the community organizations in Silicon Valley in regard to the community benefits agreement was an agreement between those two parties. First Citizens will now be taking over Silicon Valley There'll be an opportunity for the community organizations to engage with. First Citizens I Know First Citizens has a community benefits agreement with Community organizations where it's currently doing business.

So there'll be an opportunity for the groups in California to engage with citizens And I would note citizens is also subject to supervision under the Community Reinvestment Act and so we'll be able to evaluate the degree to which citizens is serving with the communities Pursuant to CRA Channel 80's time has expired. Um, we'll now recognize the vice chair the full committee Mr Hill of Arkansas for five minutes. Thank you Chairman. Thank the ranking member for this prompt hearing after these weeks of turmoil and thank the panelists for being here as well.

Mr Barr When were you nominated for your job I Apologize I Don't have the date in my head. It was the spring of last year and do you know when you were confirmed for your job? Yes! I Took my post up in July of this of last year July 2022. July of 2022. So between January 20th 2021 and July of 2022, who was in charge as Vice Chairman of supervision at the Federal Reserve there was no Vice chairman for supervision during that time period.

And So when that happens, Uh, what's the Fed's process for delegating that authority to another member of the Board of Governors or a staffer? Or how does that work? I Apologize I I Don't know. The technical answer to that question will have to get back to you with a written if you if you get back to me because what we're saying to my colleagues here is that from the turn of administration we did not have a Vice Chairman of Supervision from January 20, 20, 21 uh until July of 2022 and that is precisely the time frame to colleagues when this bank's business strategy went awry and was under this supervisory concern by the San Francisco Fed. So I just want to have that in the record and when I look at the results of this bank and the unit, the Ubpr, the call report data and looking at your good testimony about the timeline that you've disclosed. it appears to me that we have a lack of supervisory urgency.

Here you outline that the trends in 2021 are what triggered concerned by the Federal Reserve examiners and I assume the state of California. We haven't heard from the state of California We'd like to, but there was an exam in the summer of 2021 and then there was it. Took till the fourth quarter of 2021 to tell the bank we had some specific serious concerns so that you met with the board, then not you, but the supervisors and then the downgrades didn't come in. Those tough visits didn't come till the summer of 2022..

So really 12 months of discussion between the board and the state of California and the San Francisco fed? That doesn't sound like a very urgent supervisory process? What is it? Do you consider that urgent to take a full 12 months in that process? Mr Hill I Think you raise it an absolutely essential question. It's one of the things we're going to be asking in our review. Obviously, these events occurred before I arrived at the board I'm going back and looking at what what steps were taking and not taken and I think it's a completely fair question. Could the supervisor? should the supervisors really, you know been much more aggressive in the way that they responded to the risk that they saw and what they were noting.

we're gonna, We're gonna look carefully at that I think it's I think I just was shocked with the business plan. way out of line with peer. You have matters requiring attention which is a is a very low level. the lowest level editorial comment by bank regulator.

There was no proposal for a board resolution that I saw in your notes. So I look forward to the results of your comments on this issue of Dodd-Frank versus S2155. You know my reading of bank law. just those things are just almost not important compared to 12 USC 1818 on Cease and Desist where the FDIC the primary bank regulator the state can do whatever they want to a bank that's not operating in a safe and sound manner.

Isn't that right? Mr Barr The um, the Bank Regulators have substantial discretion to use those authorities when banks are operating in an unsafe and unsound manner. I agree with that and I thought Senator Crapo's comment yesterday was very, very important that in the rule of construction, that final bit of information in S2155 the bipartisan Bill bicameral Bill signed by President Trump It says nothing in this bill shall be construed to limit the supervisory authorities for safety and soundness in any way. Isn't that what that Rule of Construction says? Yes I agree with that I think we have substantial Authority Under existing law to regulate firms and supervise firms in a way that is appropriate for their risk and size and complexity. Thank you very much.

Mr Chairman Um Talking about the resolution process, Are you open to a full investigation not only of the deposit insurance and not only of the supervisory process, but also look carefully at the resolution process itself. Uh, yes, Congress And are you going to conduct that yourself? Or would you work with us on that? Well, we would certainly be prepared to undertake that review and be transparent with you in regard to it something. I want to see considered and I argue this back in 2008 as a private citizen and Banker which is in the resolution process to consider non-bank buyers for these assets, Do you agree that's important? We should consider that. yes it is.

Congressman Thank You Will now recognize uh Miss Velasquez of New York for five minutes thank you Mr Chairman Um Mr Barr The rescue of depositors in Silicon Valley Bank demonstrates that Regulators think Vans like Silicon Valley pose a systemic risk to the system just like Gypsy do Mr Bart Don't you think category three and four Banks should face the same rules as the mega Banks Thank you very much for that question. We are looking at Capital and liquidity standards for all large Banks including firms 100 billion and above I Still think a tiering approach makes some sense. It doesn't have to be the same rules for all banks, but we do need stronger rules for firms of this size. Stronger rules on Capital and liquidity I think are going to be really important with Mr Barney.

My view: the decision to ensure all depositors was a necessary and correct step. However, I am frustrated the time and time again we fail to regulate them like one and as a result we find ourselves in situations like the one that we are carrying currently in. Without proper regulations that account for the systemic risk profile of a bank, we are incentivizing Bankers to search for yield on inviting moral hazard. Mr Barr The Southern and immediate collapse of Silicon Valley Bank demonstrates the vulnerability of bands and the broader system to interest rate.

Rises Yet under our current capital rules, most banks are not required to recognize this risk. only GSX will the FED rewrite its rule to require all banks to account for interest rate risk. You raise it in absolutely essential point and and one that we're very carefully looking at. We anticipate engaging in a notice and comment rulemaking process on Capital rules with appropriate Transitions and that that is one of the areas that I think would be important for us to consider in that rulemaking process.

So do you think that the rules passed on their S. 2155 and written by the Trump Administration need to be Rewritten? We're going to look as part of our review at not only our supervisory issues, but also at the regulatory structure that the Federal Reserve put in place in 2019 and and see whether the size thresholds we use the standards we decided to put in place all of that is on the table we're reviewing that we're going to come back and and provide an assessment of that on May 1st thank you and Mr Bach The FED has been raising interest rates more rapidly than it has in decades in an effort to lower inflation. It appears that many banks were unprepared for this. Can you explain how the FED Bank supervision staff coordinate with this monetary policy focused staff to ensure that banks are properly prepared for well telegraphed shifts in monetary policy.

Does the FED C regulation and supervision are separate from monetary policy Are the the whole of the Federal Reserve staff communicate very well together. As you noted, the monetary policy decisions uh were very well telegraphed. The decisions were essential uh to meet our Congressional mandate uh of uh, price stability, uh, and maximum employment and we need to make sure that we continue to pursue that we have separate tools that we use, of course. and as I've said in other contexts, interest rate risk management is a core bread and butter issue in banking.

It's not an esoteric issue, an exotic issue, a complicated issue. It's a straightforward issue. And the bank management failed to do that here. Thank you! And during his news conference last week, Chairman Powell said that the Fomc considered a pause in the interest rate increases in light of the recent banking failures, but ultimately unanimously approved the decision to raise rates due to intermediate data on inflation and the strength of the labor market.

How will the FED balanced its supervisory role which is monetary policy role as it considers future interest rate increase. We have really all the tools that we need on the macro Prudential and micro Prudential side to assess Financial stability and Bank safety issues. And as I said, the banking system overall is is sound and resilient. Deposits are safe.

On the monetary policy side, we're going to be looking at incoming data, We're going to be looking at changing and changing Financial conditions and we'll really make a judgment on a meeting by meeting basis about that decision. Thank you Mr Chairman on your part will now recognize Mr sessions for five minutes Mr Chairman thank you very much. Uh and thank you to the witnesses for being here today. I Think you see that this committee will work together has questions, Uh and would wish to hold you accountable.

but I must confess to you after hearing the questions that have taken place. I've heard none of you three accept real responsibility for your role in this endeavor. I've heard that you were aware of it the week of. I've heard that that notice was given of oversight back in 21 at a Frailty was noticed I've heard us say that we used all of our tools I've heard you say things like the FDIC will use all of its authorities but I've not heard any of you three talk about a systematic failure.

Let the bosses know what's happening I've heard to use well this got staffed and that got staffed and staff did this I Think this is a wake-up called all three of you I hope it's a wake-up call to your organization that evidently they can see these bread and butter failures back in 2021, but evidently nothing realistic ever occurred to avoid what seemingly anybody that's a professional Banker could see. I've seen excessive regulatory oversight by this Administration Across the board, I've seen a lot of what I would call inattention by decision makers so I would specifically tell you that we will drill down on the need to know more about the recommendation for systematic exception that was invoked in other words, that was invoked by presumptively the people at this table. and yet it took all this time to filter up before you're even aware failure occurred was occurring and then you were given notice. So I would hope myself that there would be some inward thinking about your actual roles instead of Staffing everything and waiting for it to Bubble up to you that there should be hooks in place I Spent 16 years in the private sector, ran a large organization over 700 employees I had a more than a fiduciary responsibility Adam and material responsibility to report up the things that we saw to a very large organization and I Believe by and large those people welcome to my feedback and set ourselves up for that.

So take the remaining minute and 50 seconds and give me some inward thinking because I heard no one say we were part of the problem. We need to look at us being part of the problem and we need to be a part of the solution because as was noted, this will be paid by all banks across the country of the FDIC please Mr Barr thank you very much Mr Sessions I I Agree with you I Think we need to take a good hard look inside at the Federal Reserve at our supervision at our regulation I Think we need to be humble about that and I think we're going to be unflinching in our review about it. Does that include your role? Absolutely, Absolutely. And I'm here today to be accountable to you for that purpose.

Well, accountable is one thing. but coming back and actually admitting that you were part of the systematic failure is an entirely different process. People say, well, we'll hold accountability, but actually it's banks that are across the country that play by these rules and offer this money are the backstop. And while I don't want to argue against that I do want to say I believe there's lots of room to say someone should have caught this as early as and done something back in early 22.

Chairman: Congressman I Really don't mean to shirk responsibility here I Think we share responsibility I think Bank Management had responsibility I think we as The Regulators of the institution had responsibility I think we're going to conduct reviews to get the facts as to what occurred and a measure of internal as well as external accountability. My own sense here in terms of the supervision of these institutions from my perspective is that both agencies and I would include ourselves were aware that there were issues that these institutions and are trying to address them through the supervisory process. It's also my judgment I think and we're going to conduct a review to to get all the facts here. If I may say the general I can answer the rest for the record.

Uh, with that, we'll now recognize Mr Sherman of California for five minutes. Our banking system is strong. Our Regulators avoided a crisis by quick action this month, but the solution was not free. Some 22 billion dollars of special assessments will be imposed on banks that will lead to lower rates on certificates of deposit.

Perhaps a quarter percent. Perhaps an eighth of a percent, and our entire economy has been hurt. It's been rattled by what happened this month. Our bank regulatory system has some real flaws.

It's an undemocratic system in which Fasby writes the accounting rules and doesn't even claim to be part of a democratic government. The Federal Reserve boards. Um, Regional Banks It's not one person, one vote. It's One bank.

one vote. The bankers vote on who's on the regional board and the bankers of my state elected the CEO of Silicon Valley Bank Uh, Banks Get to pick their Regulators state or federal holding company or no holding company. Federal TC They can use regulatory Arbitrage and every regulatory agency knows that if it gets a reputation of being too tough, the banks can flee and go to one of their regulatory competitors. Our accounting system for banks is absolutely perverse.

If you make a Main Street loan, you're penalized under the Cecil system and you will always list that loan on your balance sheet as being worth less than you paid for. The Note: If you instead go to Wall Street and buy long-term bonds, you are rewarded. If the bond goes up in value, you can sell it or classify it as available for sale and recognize a profit and justify a bonus. If the bond goes down in value, you can hide it by listing it as peeled for maturity and listed at the original purchase price on your balance sheet even though you know it's worth 20 or 30 percent less.

The crypto billionaires fan the Flames because they understood that if they can besmerge our Banking and dollar system, Crypto goes up and they've made tens of billions of dollars. Uh, Silicon Valley Bank Uh Could have saved itself in 2022 by edging its risk or selling its long-term bonds, but they knew that would cut profits and bonuses. They decided to take the risk and here we are and our Force our clawback Provisions are inadequate. There are 600 uh, billion dollars of unrecognized losses on the balance sheets of American banks that needs to be juxtaposed with a 2.2 trillion dollars of capital American Banks have.

So we're overstating the capital of our banking system by perhaps a quarter. Um, Mr Barr Uh. Particularly watched your your Senate testimony in which you basically said it was bank mismanagement for them to ignore the good advice your people gave them. It is also misregulation to let Banks ignore that advice.

You are not running a Consulting operation. Uh, you are running a regulatory operation. Who can force Banks to follow that advice? Um, and interest rates go up. Interest rates go down.

Certainly are the FED in auditing Banks Ought to know that, especially when this is not a hundred year event. interest rates go up. Interest rates go down. I mean 2023 has its peculiarities, but it's particularly ironic.

It's the Fed that's raising the interest rates and then the Fed that's not examining Banks to see if they can survive if interest rates go up. Um, the concern we all have is are there other banks that could go under because they invest in long-term bonds that aren't worth as much as they paid for them? So I'll ask Uh, Mr Gunberg and uh, uh, and perhaps Mr Barr Are there any banks out there? and roughly how many that have capital of under five percent if you subtract from their stated Capital their unhedged, unrealized losses on long-term uh, debt? A Congressman. That's a fair question and a factual question. If I may let us get back to you on that, we'll get the numbers and share them with you very quickly.

And please don't give me the names. uh Mr Bard you have any other answer? No sir. Um Mr Gunberg I Know that you're going to be giving us a report about possibly expanding Uh FDIC insurance this spring I Look forward to it. and I hope that you would consider three million dollars of coverage, but only of non-interest-bearing accounts.

Uh, because when a bank is used as a utility for a checking account, we need that coverage if people are making. Investments chair on National Security Mr Luke Meyer for five minutes. Thank you Mr Chairman Uh, best chair bar for more than a year now. Financial news has focused on Fed raising rates.

There isn't personal financial services sector of the country that hasn't heard about it on a seemingly everyday basis since beginning of 2022.. oil has been the fastest rate increase in our country's history, which I believe is probably too fast. Chairman Powell has made intentions very clear. No banks should have been caught off guard by rate increases.

In fact, the Federal Reserve is in the same position themselves. Mr Powell Was here a couple weeks ago acknowledge that his bondholdings have got them in the interest rate situation to have is actually losing money as a result of this himself. So it's even more surprising that 100 billion dollar Banks not considering the effective rate increases is in fact, according to your testimony, the FED staff hasn't presented to the Board of Governors with its impacts on on Rising rates until mid 2023 of February of 2023, just last month. So are you telling me that every time the FED raises rates or drop rate, there is no economic analysis done on the impact on our economy? Uh, Mr Luke Meyer I was referencing that particular meeting because of the staff.

No, that's not my question. My question is, does the FED before it raises rates are lowers rates? Does it have an economic study done by its Economist They've got a team of economists there. Do you have an economic analysis done of the impact of that Mr Gabrina. Would you please move to your right? Please thank you? Uh yes.

We we evaluate all the economic conditions. You get a report that you do. Does a Fed board get a report from their Economist saying what the impact of their rates will be on the economy? Yes or no. Yes, We get staff forecasts that forecast the expected impact on the economy of of rate decisions.

Okay, how come you made a specific mention that this in your February report then is that is that. Why did why did you specify that you got the re that the rate? That's what I was trying to explain earlier. I Mentioned that because the report specifically called out Silicon Valley Bank We regularly discuss interest rate problems. Okay, interest rate risk is an important part of supervision or any butter issue.

Okay, a bank this size. Normally you'll have an examiner or two or a team that goes in there on a daily basis. Whether was there an examiner or team examiners in Silicon Valley Bay on a daily basis, the the team consisted of about 20 full-time equivalent staff At the San Francisco Federal Reserve Bank they were not in Silicon Valley Then I don't know precisely the extent of their on in in-person meetings versus their remote analytic work. Okay, that's another problem that we have to talk about having All this this work off site whenever they need to be on site being able to have access to the Daily data.

But as a result of this, I'll follow up on some of the questions that have been asked before, but ask in a little bit different way. Um, you knew that we had an interest rate risk problem and a liquidity problem. You acknowledge it all the way through from 2021. It's been established this morning.

We have examiners in the bank are watching it on a daily basis and you know that you get some reports that say we need to take some action. Why was no action requested or not forced on the bank? Uh, there was action requested of the bank in the matters requiring attention and matters requiring immediate attention. Why were they not address? Why were they not enforced I Think that's a question for our review. we don't know I don't yet know the answer.

Could the staff have escalated more? Should they more? What were the interactions with the bank? That's all part of the supervisory record that will be in the May 1st report? Well, that begs the question then. Mr Barb If you think you need more rules and you're not even enforcing existing ones, why do you need more rules? I Don't think we need to look at more rules until we figure out which rules were not being enforced, What messages were not being delivered to the bank to be able to do your job at that point, Then we can take a look and see what you want to do something else. But for you to make this statement, we need more rules and regulations. How about enforcing the listing ones? First, we're going to be looking as I said at our own supervision under the existing framework ways in which exist.

Okay, very quickly. One more quick question for you here. This also this situation points out a very unique situation because of the new social Media the world of instantaneously instantaneously being able to do some things I have Brave concerns because within less than a two-day period, 42 band dollars rolled off the books here. basically as a result of a Twitter little informational thing.

It begs the question down the road here. Uh, Mr Barr Uh, it opens up the possibility when we have a bunch of significantly distressed banks that there could be a short sale on some of these things that could be out there. We need to be talking about that. Are you thinking about that at all yet? Yes.

I Think you're You're raising absolutely important and critical questions about the role of social media, the role of networks depositors with each other. Uh, and and you're working on a real-time payment system. It's right. For a problem like this with Twitter expired, it can.

You can just turn the record I will now go to Uh Mr Scott of Georgia for five minutes. Thank you very much. Advanced Share: We know that this was basically the fog of the management, but what we want to know is: where did the FED go wrong? Where did the FED go wrong? Um, and specifically did the FED Miss red flags or ignore warning signs that were brought to you by your staff months or even years before the collapse? Thank you very much for the question we do have in in a supervisory record Staff reaching out to the bank highlighting these problems. As you noted in the first instance, it's Bank Management's responsibility to fix those problems.

they didn't do so well. Guys shared. Is it true that the San Francisco Fed, which supervised Silicon Valley Bank sent multiple warnings to the base management about the risk it was taken, including a substantial Holdings of treasuries and other bonds that were steadily losing money as interest rates? Rose Yes, The supervisors pointed out to the banks that they were exposed to interest rate risk and liquidity risk and and that they didn't have the management risk management in place to address those and I failed to fix those problems. And how often did Fed stab share with the Board of Governors that Rising interest rates were threatening the finances of some banks and in particularly the risk-taking at Silicon Valley Banks My understanding is that the particular issue with Silicon Valley Bank did not rise to the level of the board until mid-February of this year.

And and the other question is the Board of Governorization Uh, why do you think that to full extent of the bank's vulnerability did not become apparent until it was too late, Especially when the FDIC data was showing that SBB was doubling in size in 20 and 21. doubling in size within 12 months? My my is that not a red flag? Well, I think you raised I apologize I didn't mean to cut you off there at the end. Uh, I Think that one of the things we're looking at is that the way the Federal Reserve's Regulations set up the structure for approach to supervision treated firms in the 50 to 100 billion range with lower levels of requirements and had a phase-in period to for firms that got above the 100 billion line. That meant that their transition into those higher standards took a long time.

So by the time of the the group was actually looked at in an intense way by the group in the large and foreign banking organizations team. A lot of that growth and a lot of that activity had happened. and so in a sense it was very late in the process and that's one of the things we're looking at in our review. Good.

And I want you to know that I appreciate your recent announcement that a formal review into whether the FED failed is good to admit failure. That is the first step for correcting the problem and whether the FED failed to properly oversee Silicon Valley Bank will take place and more importantly, that it will be shared with us in the public. Is that true? Yes, that's absolutely right. We thought that it's really important as a first principle of risk management for us to do our own self-assessment We have a team of people working on that self-assessment who are not involved in the supervision of Silicon Valley Bank We're going to make all of those findings and recommendations public on May 1st and let me also say we welcome other outside reviews as this body is doing today and others will as well.

Thank you very very much. Vice Chair the children from Uh Michigan Mr Heisinger, the chair of the oversight secret who's recognized. Uh, thank you Mr Chairman I'm going to quickly move ahead here. Um, a loss and confidence in the banking system is a loss of confidence in regulators and many of our minds um, and The Regulators seem to have had the tools at their disposal to prevent these failures from happening.

They seem to have missed that. We're going to be exploring that as Chairman of the Oversight Investigation Subcommittee I Find it necessary to reiterate how important the Congressional oversight is and and that it's a constitutional Authority that we have and frankly, an obligation that we have uh to maintain the well-being of our system of government. Mr Barrio Just had said it was appropriate for Outsiders to do their independent reviews. That's what we are trying to do here today.

You were authorized though on March 13 to do your report correct who who authorized that chair pal and I'm okay. That's that's all I need to know. Chair Powell will authorize you chair Pell and I jointly made the decision. Okay, is it is it your understanding as well that under Dodd-Frank anytime 13-3 is invoked and utilized that the GAO is also supposed to do a report? Um, I I'm not familiar with that precise provision, but it makes sense to me that GAO should do a review.

Okay, Um, and do you know when GAO is going to be starting their report I Respect investigation of the GAO and suggested on page two of your testimony. Uh, you said that the Mayor report will include confidential supervisory information. Uh, will you be providing that uh, that? CSI to uh, the GAO Yes, Consistent with okay, normal practice, right? Well, we might have to unpack that a little bit. Uh, will you also commit to me and this committee and to the Chairman that you will provide this committee with all those same related confidential supervisory information needed to appropriately assess on our and uh, what happened? Yeah, the same information in the May 1st report will be available, not not in the report you're giving the.

If you're giving that that that supervisory information for The GAO to do their review not before you review it yourself and decide what is what is appropriate and not appropriate you I Thought you just said that you would be providing GAO with all of that data and information that you will be using to make your report. Is that correct? We will make the information that we are using for the report available to you and to the GAO. And okay, so we have your commitment that you are going to be providing us with all of that raw, confidential uh supervisory information so that we can do our job the same information that we'd use for the GAO and for the public report I'm not looking for the report though I Want to make sure we've got the information I'm just trying I'm trying to make sure that our semantics I will I will accept the answer that you are going to give us the exact same information in a timely fashion that you are using for your report. Bear Yes.

Okay, all right. um the uh Mr uh Mr Groomberg I Want to uh, touch on uh on the treasury's commitment I'm sorry the FDIC um uh to uh to to look at what is, uh, what's going on there? um it the uh. The same question really is to you. Will you commit to providing the committee with all related uh, confidential supervisory information that is needed for us to assess? Yes Congressman I Want to thank You Have the authority to compel that information will be responsive to you.

Okay, uh. timely manner is the Uh is the key watch word here. Uh, we between myself and the Chairman uh Chairman McHenry Uh, we have a number of Uh requests to all of you. Um Ms Lang I Want to touch on this Uh to obtain uh the information.

You Fsoc was convened on both March 10, March 12 and March 24. as Fsoc met since March 24. Oh, they have not met since. Okay, Um, so it was reported that Secretary Yellen convened these officials via video conference.

Is that correct? Okay, and you were part of that. I was part of the second one. Um I was not part of the first one. You are not part of the tenth.

Okay, it's not. That was the evening I Believe we announced I was not part of the March 12th week. We're minutes taken at those meetings as by process by normal process minutes would have been taken and well we have access to those minutes. Yes, they are released for their release because we only have minutes from December 22.

there is nothing that has been released publicly since December 22. that is correct I Believe the process is minutes are released following the next formally scheduled F-stop meeting. Only a formally scheduled we can come back to you on that when they will be released so we have to wait till the next formally scheduled time to get those minutes. I is the process, but we'll be following up in writing.

Thank you! Uh, we expect a written response for for that Under Secretary I will now recognize Uh Mr Lett Uh Mr Lynch of Massachusetts for five minutes. Uh, thank you Mr Chairman and thank you ranking member for holding the sharing I Want to follow up on Uh Ms Waters Line of questioning: Uh prior to its collapse Silicon Valley Bank Uh was a major lender and investor in low and income low in moderate income housing in Massachusetts in my district Uh in large part because it acquired the Boston Private Bank and Trust Company back in 2021. So that includes not only deposits, but but construction financing, permanent financing, mortgage lending for low end moderate income home buyers Equity Investments and direct purchase of tax exempt bonds for affordable housing development. So right now I've got 18 uh, affordable housing developments in my district and and on the outskirts of my district currently in construction in Massachusetts and they depend on the Fulfillment of outstanding debt and Equity commitments that were made by Silicon Valley Bank.

So these developments uh, and this is the back of the envelope. I'm sure there are more, but I have 754 homes including 702 affordable homes for residents with low incomes and 110 118 homes for residents with extremely low incomes as well as Workforce housing. So uh, while the vast majority here's the thing, while the vast majority of high net worth investors uh and and depositors at Silicon Valley Bank have been held harmless, they've been rescued. They've been rescued.

Uh, the First Citizen Assumption agreement is completely silent on the status of these low-income victims and that is a problem that flies in the face of your mission and and mine. And uh, so Mr Gruenberg Uh now and I appreciate all three of you and the work you you worked quickly once you saw the problem. and and I I find great fault with the The Reckless Management on the part of Silicon Valley Bank in that they concentrated so much risk and there was an absence of meaningful risk management. But we have a problem and and while the the bank crisis might be over, it's not over in my district.

With all these families, all these low-income families that are that are struggling you know I got cities like Brockton Massachusetts Uh, we got a great mayor there doing a wonderful job and they're really they're all going in the right direction and as well as Boston and Quincy and others. But uh, we need help. We need to resolve