Bank / Credit Union

Congress grills bank regulators following SVB collapse

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March 29, 2023

The Senate Banking Committee grilled bank regulators on March 28 regarding the collapse of Silicon Valley Bank and Signature Bank. Several senators including Sen. Sherron Brown, Democrat from Ohio, said regulators "dropped the ball," according to a report by CNBC.

Regulators fought back against allegations of mismanagement. Michael Barr, vice chair for supervision at the Federal Reserve, claimed SVB failed, " because its management failed to appropriately address clear interest rate risks and clear liquidity risks."

Sen. Elizabeth Warren, a Democrat from Massachusetts, asked the regulators if they would support stricter rules for mid-sized banks. Martin Gruenberg, chairman of the Federal Deposit Insurance Corp., Barr and Nellie Liang, undersecretary for domestic finance at the Treasury Department, agreed with the statement.

"We must evolve our understanding of banking in light of changing technologies and emerging risks," Barr said, according to CNBC. "To that end, we are analyzing what recent events have taught us about banking, customer behavior, social media, concentrated and novel business models, rapid growth, deposit runs, interest rate risk and other factors... And for how we think about financial stability."

Gruenberg also said regulators should look closely at uninsured deposits.

"One clear takeaway from recent events is that heavy reliance on uninsured deposits creates liquidity risks that are extremely difficult to manage, particularly in today's environment where money can flow out of institutions with incredible speed in response to news amplified through social media channel," Gruenberg said.

The regulators will next go before the House Financial Services Committee on March 29.