Transcripts For CSPAN3 Federal 20240706

Housing affairs will come to order. Thanks to the new deal and the hard work of our regulators today, most Bank Failures of course never a good thing or generally not a big deal but the quick collapses of Silicon Valley bank and Signature Bank were no ordinary failures. In less than a day, Silicon Valley Bank Customers pulled 42 billion dollars out of the bank fueled by Venture Capitalists and their social media accounts. They created the largest and fastest bank run in history in the following days Signature Bank lost 17 billion dollars. Regulators both republicans and democrats came to gather to prevent the panic from spreading. They increase liquidity, they promoted confidence in our Banking System, they protected deposits of customers and Small Businesses not notably the investors the investments of executives and shareholders. I spent that weekend on the phone with ohio Small Businesses and banks and credit unions. While Small Business owners simply wanted to make payroll. They did not want to see years of hard work go down the drain because of Venture Capitalists panicking on twitter 2000 miles away. One woman told me she was terrified she would not be able to pay her workers next week and i heard that story over and over. Ohio banks and credit Union Institutions institutions that are sound and well capitalized did not want to see deposits flee their institutions for the biggest wall street banks. For anyone who lived through the Global Financial crisis, its impossible not to think of 2008. Once again, Small Businesses and workers feared they would pay the price for others bad decisions. Were left with many questions and justified anger toward banking executives and boards towards Venture Capitalist, towards federal state Bank Regulators, towards policy makers. The scene of the crime does not start with the regulators before us. Instead, we must look inside the bank at the bank ceos, at the trump era banking regulators who made it their mission again to give wall street everything it wanted. Monday morning quarterback aimed only at the actions of regulators this month. Its as convenient as it is misplaced. Coming from those who never met a wall street wish list, they did not want to grant. Many who are the first to school the regulators for their failures offer ready years whenever bank seals lineup at their offices complaining about out of control Bank Examiners. Remember some of those complaints in our hearing with fed chair powell over the fed merely reviewing capital just three days before Silicon Valley bank failed . How soon we choose to forget. When we ask who shouldve known how the rest were building in these banks, we should start at the source with the executive. Silicon valley bank almost quadrupled in size over three years, Signature Bank more than doubled in that time. The principles here are not complicated. Banks should be prudently managed, mindful of the full scope of risk they face should diversify across companies and products. The committee must consider how these banks exploded in size in the way that was clearly unsustainable. Some explanations will focus on complicated sounding concepts like balance sheet, balance risk and moral hazard, stress test and liquidity ratios. Really though it comes down to more basic concepts. Hubris, entitlement, greed. Always always, always with paydays at the end for the executives at the top. The ceos own pay was tied directly to the growth of svb. And svb, executive owners were return on equity so they took more risks by buying assets with higher yields to make higher profits. When those investments started to lose money, they did not back down. It wont surprise anyone that Silicon Valley bank went nearly a year without a chief risk officer. Venture capitalist fueled the banks growth by forcing the Companies Invested in and advised to keep their money at silicon bank. And then those same vcs turned around and sparked the bank run by telling companies to pull their money out creating more chaos, more panic. Signature bank found themselves in the middle of a sand bank with a climb summary at the Crypto Exchange ftx. At the banquet them open multiple banks, they ignored red flag after red flag. Its all just a variation of the same theme. The same root cause of most of our economic problems, wealthy elites do anything to make a quick profit and pocket the rewards. When they are risky behavior leads to catastrophic failures, they turn to the government. They turn to the government asking for help expecting workers and taxpayers to pay the price. Too often workers do. Even though no taxpayers money is being used to say the deposits and i understand why americans are angry even disgusted at how quickly the government mobilize with a bunch of elites in california are demanding. And people have a pretty good sense of whose problems get taken more seriously than others in this town. Of course we have to prevent systemic threats to the economy Book Corporate trade deals are a systemic threat to towns like i grew up in mansfield ohio and across the industrial midwest. As a wall street Business Model the reward of short term process that over investment when workers . Those threats are not only tolerated, they have been actively pushed by the same crowd that this month clambered for the government to save them. Justice, there are no atheist and foxholes. It appears that when there is a bank crash, there are no libertarians in the Silicon Valley. I hope that from now on those who have no problem with Government Intervention to protect their own livelihoods will think a little bit harder about what their work version of the free market has done to workers in ohio. May be tempting to look at all this and say we do not in the new rules. The problems are with those arrogant executives. They will always be arrogant executives. That is exactly why we need strong rules. Public servants with a courage and guts to stand up to Bank Lobbyists and enforce those rules. The official sitting board knows they predecessors roll back protections like capital liquidity standards, stress test, brokered deposit limits and even be sick supervision. They greenlight at those banks to grow and grow and grow too big, too fast. There are important questions about deposing assurance we must consider whether the current amount works for everyone including Small Businesses whose real goal is to make payroll. We expect Bank Executives to understand basic principles of Bank Management to know they cannot grow a bank by over concentrating business and specialized area that pay themselves huge bonuses right up until things blow up. That is not being a trusted partner to your customers, its taking advantage of them. These executives must answer for their banks downfalls. I have called in the former ceos of those banks, those failed banks to testify. I think Ranking Member scott for joining us on that effort. They must also face real consequences for their actions. Right now, none of the executives who ran these banks into the ground are barred from taking other banking jobs. I have had their compensations clawed back. None have paid any fines. Some executives have decamped to hawaii. Others have gone to war farther banks. Some simply wandered off into the sunset. It will surprise no one in ohio that these Bank Executives face less accountability than a cashier who missed counts it cashier box. That is why it will be legislation to strengthen regularlys ability to oppose fines and penalties, to claw back bonuses, ban executives who caused Bank Failures from ever working in another bank. We need to look at Bank Regulators ability to not only identify risk and problems at banks but also be empowered to actually make the banks fix them. Today, my colleagues and i are asking g. A. O. To follow up on a 2019 report where they highlighted communication failures in the extent to which senior Bank Management fully addressed identify deficiencies. I am looking forward to hearing from our financial watchdogs today. We will be watching them to make sure they assess the damage, hold accountable of those responsible, fix what is broken. Last, i asked my colleagues to Work Together to make sure that our Financial System is stronger after this crisis. Americans have watched the same pattern over and over and over and over again. A crisis occurs, some of us push for reform, if we are lucky we are be able to seize the moment it actually passed some. But then the Bank Lobbyists go to work and they are so good at their jobs. Politicians spending suing years rolling back reforms right up until the next crisis. That crisis happens because, you guessed, it we roll back regulations in this body enabling the regulator several them back even further. We know who is the first to get help in any crisis. Its Little Wonder that workers in ohio and around the country do not trust banks. They do not trust their own government. It is time we prove them wrong. Ignore the corporate lobbyists and put workers and the families first. Senator scott . Thank you, mister chairman today, we are here to understand just how we found ourselves in the middle of the second and Third Largest bank failure in the United States history. Our questions are nowhere near answered, this is an important first step in providing transparency and accountability necessary to the american taxpayer. I would like to thank mr. Chairman for taking the time and working with me to try to bring the bank ceos in to this hearing. I think its incredibly important that we hear from the folks specifically and uniquely responsible for the failure of these banks. Folks who manage them. By all accounts, this is a classic tale of negligence and it started with the banks themselves without any question that is where the buck stops. So it is imperative that we hear straight from the horses mouth, so to speak, to find out why these banks were so apparently poorly managed and poorly managed the risks. Unfortunately, the banks ex are not the only managers listening. The secretary of the treasury and the chairman of the Federal Reserve are also not here to testify. I do not mean to offend the witnesses that are here but it is hard to believe that the Biden Administration seriously is concerned about the failure that we are seeing when they themselves are shielding the top official at the apartment of treasury. The same official that briefed the president invoked the system risk conception. Nor do we have chairman powell here. Instead, we have the vice chair of supervision here to use a committee as a platform to talk about the wrongs under his supervision. As a Federal Reserve that has already announced he is conducting a review to assess any supervisor failure which is an obvious inherent conflict of interest and a classic case of the fox guarding the henhouse. The feds should focus on the admission of the climate arena. This is a waste of time, attention and man power. All things that could have gone in to bank supervision. Banks, like any other businesses, must manage their risk and be good stewards for their customers. Unlike other businesses banks are highly regulated. Sometimes banks even have the regulators sitting in their banks and continue monitoring the risk of activities as is the case with Silicon Valley bank. For the last two and a half weeks, they have consistently described Silicon Valley as unique and highly idiosyncratic. Meaning, the warning signs should have been flashing red and svb should have stood out as what it was. Absolutely a problem child. Clear as a bill for the warning signs. In fact, reports indicate that these warning signs were all ready flashing. On march 19th, your times wrote that Silicon Valley bank risky practices were on the Federal Reserves radar for more than a year. Moreover, Silicon Valley suffered from extreme Interest Rate risks. Due to investment and long term securities, that declined in value because of soaring inflation. Of all our supervisors, the Federal Reserve should have been keenly aware of the impact Interest Rate hikes have on the value of the securities and it should have been actively working to ensure the bank it supervises would hedge their bets and covering their risk accordingly. Now we know, based off your testimony, mr. Barr, that the fed was aware. In fact, in 2021, your supervisors found deficiencies in the banks liquidity. Fits management resulting in six supervisory findings. Later in 2022, supervisors then issued three findings related to ineffective or oversight, Risk Management weaknesses and the banks internal audio function. What were the supervisors making . The law the regulations are Crystal Clear. The Federal Reserve cant take any supervisory or enforcement action it seems necessary to address unsafe and unsound practices. Recent reports confirms what we already know. Your priorities and your work with the San Francisco Federal Reserve bank for president centered on Climate Change, the issue holding unrelated to the Federal Reserves dual mandate and the role of supervisor. Given svb social and climate agenda, one must ask, if svbs investments and climate cause regulators to be a bit more permissive of its risks for. If you cannot stay on mission and enforce the laws as they already are on the books, how can you ask congress for more authority with a straight face. To that end, i hope to learn how the Federal Reserve could know about such risky practices for more than a year and failed to take definitive corrective action. By all accounts, our regulators appear to have been asleep at the wheel for. In addition, i also hope to learn more from the fdic about the role in the receivers ship and sale of boat svb and Signature Bank especially on the auction and the due process. I am very concerned that private sector offers appear to be submitted and yet were denied. If Silicon Valley bank has been purchased before it failed, the panic and the shock to the market and the markets confidence we have seen over the past two and a half weeks may have been avoided. If Silicon Valley had been purchased over the weekend of march 10th, confidence in the marketplace may have sustained Signature Bank and prevented its failure. The fdics auction process has been a black hole for congress and the American People and we deserve answers. I know in hindsight its 2020, but when you hear rumors of this process being delayed because of the white house does not like mergers and in any shape, form or fashion, it makes you wonder what actually its going on. Sometimes when it looks like a duck, quacks like a duck, its just a duck. As i close on this Opening Statement, three things remain clear to me regarding svb. First, the bank was rife with mismanagement. Second, there was a clear supervisory failure. Our regulators were simply asleep at the wheel. Finally, President Bidens reckless spending caused high inflation and the country, as well as the bank, experience tremendous loss. Thank you Ranking Member scott. I want to introduce the three witnesses today. Martin was sworn in at the board of directors january of 2023. Michael barr took office as vice chair for supervision of the board of governors and Federal Reserve in july of 2022 for a fouryear term. He serves also as a member of course of the board of governors. Nellie liang has been the undersecretary for domestic finance, the u. S. Department of treasury since july of 2021. Thanks for all of you for joining us and if you would begin, thank you. Thank you, mister chairman. Chairman brown, Ranking Member scott, members of the committee, i thank you for the opportunity to appear before you today to address the recent Bank Failures and the federal regulatory response on march 10th, just over two weeks ago, Silicon Valley bank or svb as its known with 209 billion dollars in assets year and 2022 is closed by the California Department of financial protection and innovation, which appointed the fdic as we see here. The failure of svb following the march 8th announcement by silver gate back that it would voluntarily 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 that year in 2022 was closed by the new York State Department of Financial Services which also appointed the fdics receiver. With other institutions experiencing stress, serious concerns arose 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 the depositors and winding down svb and Signature Bank. Its worth noting that these two institutions were allowed to fail. Shareholders love 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 cause and for any misconduct in the management of the institutions and the fdic has already commenced these investigations. Further, any losses to the fdics Deposit Insurance Fund as a result of uninsured deposits Insurance Coverage will be repaid by a special assessment on banks as required by the law. The fdic has now completed the sale of both bridge packs to acquiring institutions, your Community Bank for signature and for its citizens for svb. By 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 and the fbi act to protect all depositors and those banks following those failures. Further describes the management and disposition of the Bridge Institutions that were established. It also discusses the fdics assessment of the current state of the u. S. Financial system, which remains sound despite recent events. In addition, to share some preliminary Lessons Learned and 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 1st that will include policy options for consideration, relating to deposit Insurance Coverage levels, access deposit insurance and the implications for risk based pricing and deposit insurance adequacy. In addition, the fdics chief risk officer will undertake a review of the fdics provision of Signature Bank and will also release a report by may 1st. Further, the fdic will issue in may a proposal rulemaking for the special assessment for Public Comment. The two Bank Failures demonstrate the implications that banks with assets over 100 billion can have for Financial Stability. The potential regulation of these institutions merit serious attention particularly for capital liquidity and Interest Rate risk. Resolution plan requirements for these institutions also merit review including Long Term Debt requirement to facilitate quarterly resolution. Recent efforts to stabilize the Banking System and stand potential contagion from the failures of fsb and signature have ensured that depositors will continue to have access to their savings and Small Businesses and other employers can continue to make payrolls and that other banks, small, medium and large, can continue to extend credit 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. That concludes my statement and i would be glad to respond to questions. We mr. Barr, you are recognized. Thank you. Chairman brown, Ranking Member scott, other members of the committee, thank you for the opportunity to testify today on the Federal Reserves 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 the Banking System. These actions demonstrate that we are committed to ensuring that all deposits are safe. 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 a 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 what more 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 banks management did not effectively manage its Interest Rate and liquidity rate. The banks suffered a devastating unexpected run bites uninsured depositors and in a period of less than 24 hours. Immediately following svbs failure, chair powell and i agreed that i should oversee a review of the circumstances leading up to svbs failure. In this review, we are looking at svbs growth and management. Our supervisory engagement with the bank and regulatory requirements that apply to the bank. The picture that has emerged thus far shows as the inadequate Risk Management and internal controls that struggle to keep pace with the growth of the bank. Supervisors begin delivering supervisory warnings near the end of 2021. Our review will consider whether the supervisory warnings were sufficient 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. The Federal Reserve framework focuses on size threshold. Size is not always a good proxy for race particularly when a bank has a nontraditional Business Model. Turning to regulation, we are evaluating whether will prompt one for failure. Staff are also assessing will have capital liquidity under those standards will. It could have forestall the banks failure or provide further resilience to the bank. We won the endgame reform. A Long Term Debt requirement for banks and enhancement to stress testing with multiple scenarios so that it captures a wider range of a 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 resilience of the Financial System. In addition, recent events have shown that you must evolve our understanding of a banking in light of changing technology and emerging risk. Part of the Federal Reserves core mission is to promote the safety and soundness of the bank be supervised 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 svbs failure improving the broader implications is critical to our responsibility for upholding that mission. Thank you and i look forward to your questions. Mr. Barr, miss liang, i see you. Thank you for being here. Thank you. Chairman brown, Ranking Member scott, other members of the committee, thank you for inviting me here to testify and for the opportunity to speak and treasury regarding current events. The American Economy relies on a healthy and diverse Banking System. One that includes a large, small and mid sized banks and provides for the financial needs of Family Businesses and local communities. Nearly three weeks ago, problems emerge that to 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 u. S. Economy. On march 9th, depositors at Silicon Valley bank withdrew 42 billion dollars in deposits in a period of two hours. After concluding that significant deposit we and the california close svb as a receiver. The new york regulator close Signature Bank which also had experienced a deposit run and appointed the fdic as receiver. Treasury were to assess the effect 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 deposits runs and to prevent significant disruptions to households and businesses. First, the boards of the fdic and the Federal Reserve recommended unanimously and secretary yellen approved after consulting with the president to actions that would enable the fdic to complete its resolution of the two banks and a manner that fully protects all of their depositors. These actions ensure that businesses could continue to make payroll and the families could access their funds. Depositors were protected by the Deposit Insurance Fund. Equity holders and bond holders were not protected. 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 Government Agency securities. This program along with the preexisting discount window has helped banks to meet depositor demands and bolstered liquidity in the Banking System. This twopronged target 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 provide depositors with confidence that their funds were safe. It addition to these actions on march 16th, 11 banks deposited 30 billion dollars into First Republic bank. The actions of the large and mid sized banks represent a vote of confidence in the new Banking System and demonstrate the importance of banks of all sizes working to keep our economy strong. Moreover, on march 20th, deposits in certain assets of signature bridge bank were acquired from the fdic and on march 26th, the Silicon Valley bridge bank were acquired from the fdic. We continue to closely monitor developments across the banking and Financial System and to coordinate with the federal and state regulators. As secretary yellen 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 know that the recent developments are different from those of the Global Financial crisis. Back then, many financials to shuns came under stress because they have low credit quality assets. That is not at all the catalyst for recent events. Our Financial System is significantly stronger than it was 15 years ago. This is in large part due to the postcrisis reform for stronger capital and liquidity. As you know the Federal Reserve announced a review of a failure of svb in the s fdic a review 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 for the risk and challenges that they face today. Thank you to the committee for its leadership on these important issues and for inviting me here to testify. I look forward to your questions. Thank you, miss liang. Almost every member of the committee will be here today emphasize of the aisle. Make your answers as brief as possibly can. What. When 2019 a vote of 4 to 1 in 5 to 1 and now chair of the nec and every one of those strong rules and was responsible for supervising Silicon Valley bank. The defense dropped the ball because it did not see the risk it was building . Thank, you chairman brown for that question. Fundamentally the bank failed because its management failed to appropriately address clear Interest Rate risks and clear Liquidity Risk that Interest Rates can Liquidity Risk was cited was highlighted by the supervisors firm beginning in november of 2021. The board and sorry the Federal Reserve bank brought forward the problems to the bank and they failed to address them in a timely way. That exposure led the phone to be highly vulnerable to a shock and that shock came on the evening of ones a march 8th when it very belatedly attempted to adjust its Liquidity Position and reported a losses on its available for sales security. The Market Reaction to that was quite negative and that eventually on thursday sparked a deposit run. Some of their practices appeared to violate the basic principles of banking oneonone. Concentration risk, over a lying on insurance policy, forest management, the list goes. On how poorly managed was as . Bank supervisors had rated the bank and a very low rating. Normally we would not be describing these matters, confidential matters. Given that the firm failed and triggered a Systemic Risk determination, im prepared to talk about that confidential information. The firm was rated a three in the camel scale which is not well managed. At the Holding Company level, it was rated deficient which is also clearly not well managed. Thank you. We share gruenberg, i heard from Small Businesses that had money and svb and making payment in ohio. I heard from ohio small bank and credit union worried about deposits, leaving their institutions. I know i am not unique. Many of my colleagues from both sides of the aisles heard those same concerns in their state. Given the unprecedented scale of the bank run, what would have been the impact on small bank and Small Businesses across the nation if you and other regulators had not taken action to protect depositors and svb and Signature Bank . Senator, that was our central concern. I think the evidence suggested from the sequential failures of Silicon Valley and then signature that there was a significant risk of contagion to other institutions. In fact over that weekend, we were seeing serious stress at other institutions. I think the potential knock on effects of that contagion is really what led to the Federal Reserve board in the fdic board unanimously recommend the treasury sector you are seeing the actions taken were the least bad option for Small Businesses and banks across the nation if you had not acted that way you think there wouldve been a contagion . I think there wouldve been a contagion and i think we would be in a worse situation today with consequences for the actors in our economic system. Regulators, republicans, democrats across the board, there was agreement on those actions . Yes. Secretary liang, do you agree with that . Senator, i do agree with that. I think the actions that were taken have been working to stabilize deposits had they not been taken, the runs by uninsured depositors from many small and regional sized banks and mid sized banks would have intensified and caused Serious Problems for small banks, liquidity and their ability to support Small Businesses. Thank you. If you could answer this really briefly because i do not want to go over my five minutes. The fbi see announce fdic from North Carolina estimated cross Deposit Insurance Fund approximately 20 billion dollars. How is that cost covered . It is required by law indicated in my Opening Statement. The fdic has to impose an assessment on the Banking Industry to cover the cost of a coverage for any uninsured deposits. I would note that the law provides fdic authority in implementing that assessment to consider the types that benefit from any action or assistance provided. As i also indicated in my statement, we expect to issue a notice propose rulemaking for Public Comment in may to implement the assessment. [interpreter] i would point out in your testimony and your answer that there are no tax dollars, nothing funded through the congressional appropriations process. Senator scott . Thank you, mister chairman. What is the future of Regional Banking . I think we have a strong set of Regional Banks in the United States. As a general matter the liquidity is a main remained stable through this episode. I think its a good indication frankly that in the two failed institutions in both of those cases, the strongest bids we received to acquire those failed institutions were from two other Regional Banks that had the capability and strategic business interest to acquire them. There is a lot of cautionary lessons to be learned from the senator. I completely agree with that. We are going to need to carefully review this episode but as a general proposition, i think Regional Banks in the United States remain a source of strength for the system. I walked in on the chairmans comments about the actions that were taken in the weekend of the march 9th and how important it was and the importance of making sure we get credit for doing something that actually i thought could have been avoided, frankly. I thought it could have been avoided if we had someone in the private sector make the decisions by the bank, by the assets. Had that been done on friday, march 10th, i think we could have literally eliminated the fiasco that we saw over the weekend. Were there folks interested in buying Silicon Valley bank on friday . Senator, just to be clear, before the bank failed on an open institution basis . After. After the failure on a close basis . Yes. We have expressions of interest. Remember, this was a very rushed process if i may say, you know, the bank failed on friday morning. We had to the other institution failed over the weekend. We had to set up to Bridge Institutions to manage the build banks. To your point though, we had expressions of interest. We quickly set up a bidding process that we ran on sunday. We receive two bids. One was invalid because it had not been approved by the board of a bank and the other after we evaluated it indicated that it was more expensive then a liquidation of institution wouldve been to the fdic. As a matter of fact, we did not have an acceptable bid and it was really a determination that we set up to Bridge Institution to manage for a short period of time. These short fail banks. To organize a bidding process, an open bidding process for those institutions which we ultimately were able to implement successfully and so Signature Bank feed previous weekend, two weekends ago and then to sell svb this past weekend. Are you suggesting that the fact that the board had not approved the decision off the offer that was on the table was the primaries and you turned down that offer . One of as a matter, we require, for a bank, to make an offer for the board of the bank. To approve the offer . Yes. That was the primary than you did not go for that one . For that bid. The other bid to not have that issue. The other bit was more costly than liquidation wouldve been. You are suggesting that a private sector engagement wouldve increased the cost, not decrease the cost. At that point, i think in part because it takes a bit of time this is a substantial institution, it takes time for the bank to do appropriate Due Diligence to evaluate the assets and liabilities and to make an informed bid for the institution. I think, as a practical matter, that was difficult to do given the compressed timeframe over that initial weekend. I think that is why we set up the Bridge Institutions to try to put in place, quickly, and orderly bidding process for any interesting parties able to submit a bid, to have an opportunity to do Due Diligence in order to evaluate the institution and to make an informed bid. I think we were ultimately able to do that for both of these failed institutions. I will just say with my remaining time, i look forward to the second round of questions, i will say that, without question, if we would have had a better private sector engagement with quicker action from the feds i think that we could have avoided the concept that rushed us to a decision, which was a concern of contain jim. In part, that couldve been avoided if we had had the decision made on friday if there were private sector folks who are willing to make a decision. We will have an opportunity, hopefully, on the second round. Thank you, senator warner from virginia. Welcome. Thank you, mister chairman. Thank you for having this hearing. It is good to see all of you. A couple weeks ago we were on the finance committee i asked secretary yellen, i thought that it was very important that we try to get all the facts out about what happened here. I very much appreciate vice chairman barr taking on this unenviable task of sorting this out. I have got real questions. Was this a regulatory and Bank Management failure . Or, was it, and some on my side of the aisle have indicated, was it a statutory failure . If it was a statutory failure, was it an initial test or activity that was needed i am all for putting in place. My operating premise, at this point, if this had been not a two billion dollar bank but a five billion dollar bank that managements mistakes, not having a risk office or other items, and the failure of basic prudential regulation should have caught this. Caught the attention of the chief regulator. A state regulator. At some point the chairman thought we would get the funds to. Where were they . Obviously, the San Francisco fed. Im going to be very interested in making sure we get to the bottom of this. I think some things you have already pointed out, vice chairman barr, the banks business is concentrating in one industry. An industry i used to be a part of. The fact that there was such high concentration of Counter Party risk, my understanding ten deposited alone had about 13 million of deposits. Again, it seems to me Interest Rate mismanagement is banking oneonone again even at a five billion dollar bank this should have been called out. I also think that the speed, i have often cited the fact that the large bank failure we have seen was back in the crisis. 16 billion dollars left that bank over a tenday period. In this case, 42 billion dollars the equivalent of 25 cents on every deposit went out in six hours. Im not sure, at that point, what regulatory structure could have prevented that. At least from reports it seems to me that and i say this as someone who used to be in the veasey industry, some of the very vcs who banked for a long time at svb may have started this run. And they have demanded all of their ancillary companies all go out at once. Vice chancellor bar, can you take us go go through friday night to sunday afternoon, how we got here. What you have seen so far . Thank you very much, senator. I will start where you did which is this is a textbook case of Bank Mismanagement. The risk the banks faced. Interest risk and Liquidity Risks those are bread and butter banking issues. The firm was quite aware of those issues. They were told by regulators, investors were talking about problems with Interest Rate and Liquidity Risk, publicly. They did not take the action necessary. They were quite vulnerable to risk, to shocks, and they did not take the action necessary to meet that. What happened on wednesday nights day, belatedly, attempted to improve their Liquidity Position. They did it in a way that spooked investors, that spooked depositors, and spooked the market. Nonetheless, on thursday morning, things appeared calm, according to the banks report to supervisors. Later thursday afternoon, deposit outflow started and by thursday evening, we learned that more than 42 billion dollars, as he had indicated, had rushed out of the bank. That is an extraordinary pace and scale. Federal reserve bank staff worked with the bank through the afternoon, and evening, into the overnight to try to find enough collateral that the Federal Reserve could continue disco and a landing against. On friday morning it appeared that it might be possible to meet the outflow that was expected the day before. That morning the bank lettuce now that they expected the outflow to be vastly larger based on client requests in the queue. A total of 100 billion dollars was scheduled to go out the door that day. The bank did not have enough collateral to me that, therefore they were not able to actually meet their obligations to pay their depositors over the course of that day and they were shut down. Senator crapo it is recognized. Thank you very much, mister chairman. In your testimony, mr. Barr, you indicated that youre going to be one of the aspects he would be working on wouldbe will looking at whether more stringent standards are needed. I dont want to follow up on senator warner questions related to this argument that has been put out there, part of the blame shifting game. There is a lot going on right now. That it was a statutory failure. That brings us to the 2018 reforms. Sanibel 20 1 55. I just want to read to you a couple of sentences out of senate bill 20 1 55. If that legislation prohibited the federal legislature from doing anything they needed to do with regard to applying the appropriate strict standards to start out with i will read what senate bill 21 55 did was to stop a one size fits all system and mandated by making the word shall to tailor the reservation to the risks and so forth. I want to read the language. It mandates that the Federal Reserve differentiate among companies on an individual basis or by category taking into consideration their capital structure, riskiness, complexity, financial activities, including financial activities of their subsidiaries, size and any other risk related factors that the board of governors deems appropriate. At the conclusion of the statute, that section of the statue makes it Crystal Clear this is the statutory language, nothing in subsection a shall be construed to limit the authority of the border governors of the Federal Reserve system in prescribing prudential standards under this section, or any other law, to tailor and differentiate among companies on an individual basis or by category, taking into consideration their capital structure, riskiness, complexity, financial activities including financial activities of their subsidiaries, size, and any other risk related factors that the board of governors deems appropriate. I could go on with multiple times that language was repeated. My question to you is, was there any statutory restriction faced by the federal board of reserves as it issued its regulation on tailoring that wouldve prohibited them from applying the strictest standards they could to address the prudential needs of our Banking System . Thank you senator crapo. I agree with you that there was substantial discretion under that act for the Federal Reserve to put in place tailing rules that were different than the tailing rules it put in place in 2019. I think there is, still to this day, substantial discretion in changing those by noticing common rulemaking. That is one of the areas that we will be looking at in our review. Whether there should be appropriate changes. There are some areas, particularly for smaller firms. Firms between 50 and 100 billion where the act is more prescriptive. For the firms of the category we are addressing today there is substantial discretion for the Federal Reserve to change the rules, in a way that is supportive of safety, sadness, and Financial Stability. Thank you. I appreciate your answer. You said recently that the bank failed, referring to svb, as the public began focusing on changes on values immaturity in the banks healthily account . That is correct, right . My question to you there is, did the standards on that risk that are used for supervision, where those changed at all in senate bill 2155 in 2018 . The standards for capital rules are determined by the Bank Agencies. The Bank Agencies made a decision to for smaller categories of these large banks to not require the pass through of aoci to pass through the capital structure. That is a decision that is able to be altered by the discretion of the banking agency. And was not mandated by 2155 . No, was not mandated by 2155. Last question is under the current standards that are applied with regard to capital, was s v b adequately capitalized . Prior to yes, prior to its failure it was categorized under current capitol rules as well capitalized. All right, thank you very much. Thank you senator crapo, senator cortez masto from nevada is recognized. Thank you mister chair. Think all three of you for being here. Vice chairman barr, let me start with you. You have talked about how the Federal Reserve is undergoing an investigation to determine whether the Federal Reserve actually failed in this instance. Is the Federal Reserve the appropriate body to conduct this investigation . Or should we have an independent investigation . I thank you, senator. That is a terrific question. We describe what we are doing as a review. We are reviewing our own practices. I think it is an important part of richmond meant to do self assessment. It would be irresponsible and imprudent of us not to do self assessment. We are going to take that very seriously. We are going to be thorough, we are going to be transparent, and we are going to be farreaching in that self assessment. I also think that it is appropriate for outsiders to have independent reviews. We expect and welcome independent reviews of our actions. If you uncover, in your investigation, that the Federal Reserve failed here and some of its supervisory roles, what do you make that public . Yes, we intend to make a report fully public on may 1st. That report will include, normally it is not our practice to include, but that report will include confidential supervisory examinations, such as the exam reports. In the scope of your review you identified the scope of your review in your written testimony. Is there anything in addition to urine testimony that you will be revealing in that scope . Thank you, senator. I asked the staff to be far reaching. If they determine that an issue should be in scope, they have full discretion to put that issue in scope and to address it in the review. There are no limitations on their ability to review how the Federal Reserve conducted supervision and the Regulatory Oversight of the firm. Thank you. One final thing, there has been a lot of discussion about the previous rollback of some of the regulation in votes in this body, just recently. If you find that that change in the law impacted the Federal Reserves ability to conduct the appropriate test based on the tearing of the banks assets, would you be forthcoming with that and say so . Yes. We intend to describe where we think supervisory and regulatory failings occurred. If changing those to make them what we think is the right standard would require an act of congress we will say so in that review. Chairman groom bergh, same to you . You are conducting a scope of the fdic. Are you comfortable you can conduct that in the transparent and accountable . Or, should there be an independent body looking at this . I think there is room for birth. I think there is important for both of our agencies to look internally at our supervision of these institutions and to draw lessons from. In our case we asked our chief risk officer, who is not directly involved in the supervision process, in whose role is to evaluate risk at the fdic to undertake this internal review of our supervision of Signature Bank. Thank you. There has been a lot of talk in the media about the executive salaries, about the executive bonuses, about the sale of stark. Let me ask the three of you, my first question is, what authority do you have to claw back any of those bonuses or the executive pay or to deal with the sale of the stock . Mr. Gruenberg, lets start with you. Thank you, senator, as i indicated in my Opening Statement the fdic for every field institution is required undertake an investigation of the conduct of the members of the board, the management of the institution. As well as professional Service Providers and other Institution Affiliated parties. We have already begun that investigation. We have significant authority, under the law, depending on the findings of the investigation to impose money penalties, restitution, and as well, bar individuals from the business banking. The authorities are substantial and we are going to pursue this as expeditiously as we can we do not have, under the federal deposit act, explicit authority for clavicle compensation. We can get to some of that with some of our other authorities. We had that specific authority under title two of the doddfrank act. If you are looking for a specific authority under the fbi act it would probably have some value there. Thank you. Mr. Barr . Thank. You the board does have authority to pursue actions against individuals who engage in violations of the law. Who engage in unsafe or unsound practices. Who have engaged in breaches of fiduciary duty. We maintain this Authority Even after a bank fails. We stand ready to use this authority to the fullest extent based on the facts and circumstances. As with chair greenberg, potential consequences include prohibition from banking, civil money penalties. Or the payment of restitution. We intend to use these authorities to the fullest extent that we are able. Thank you. If the chairman would indulge yes, i defer to the fdic in the Federal Reserve on this. Thank. You thank you, that was brief. Senator from south dakota is recognized. Thank you mister chairman. First, well thank you for appearing in front of our committee today. Vice chair bar, in your testimony you said that in november the fed supervisors delivered a supervisory finding and Risk Management to Silicon Valley bank. As you know, the communication of supervisory findings must be focused on significant manners that require attention. Matters requiring immediate attention are mri a. Our matters of significant import meant that the fed believes need to be able to resolved right away. Including matters that have the potential to pose significant risk to the safety andsounding of banking organization. My question, vice chair barr, is managing Interest Rate wrist mentioned in the finding issued to svb . And, if it was not, why not . Senator, we are still reconstructing the supervisory record. We just started the review. My understanding is they were issued a matter requiring immediate attention based on the in accuracy of their Interest Rate risk modeling. Essentially, the risk model was not at all aligned with reality. That is a pretty interesting statement, not aligned with reality. I recognize that youre going to have a complete report. Im not gonna try to push it too far into this but i am really curious, what is the timeframe expected for a response for and mri a, one that requires immediate attention . Senator there is not a fixed amount of time it depends on the issue, the scope of the issue, the complexity of resolving the issue. I do not have a way of giving you a firm baseline on the action but they are expected to be a top priority for management to address. Particularly in the Interest Rate environment that we are in, knowing that the firm had been cited previously for other problems with liquidity Risk Management and Interest Rate Risk Management, supervisors would expect that would take a high priority tend to buy top management. The supervisors met with the cfo of the firm in the fall, october of 2021, to convey the seriousness of the findings directly. During this time period, perhaps for as much as six months in the previous year, the bank was without a Risk Management officer. Is that correct . That is my understanding. I think it is terrible Risk Management, obviously, not to have a tro at the firm. You need an effective c r o as part of richmond meant in a firm. As i indicated previously the supervisors had told the firm in the summer that they had deficiencies in governance and controls at the Management Level in the board level and that was related to their failure to appropriately manage risk. My understanding is they had a period of time without a cfo, is that correct . I do not have the details of that but im happy to get back to you. Okay. And, i recognize that there is a difference between a matter requiring immediate tension and a matter requiring attention. Can you share with us the difference . There is clearly a defined difference between a matter of such importance that it requires immediate attention versus one that it requires attention. Can you talk a little bit about the expectations between the two . They both really signaled that Bank Management to pay tension to what is in front of them. They are not issued lightly. A matter requiring a media tension, as its name suggests, telling managers that they should place a priority on fixing this issue over other issues. The exercise of the line between the two is a matter of supervisory judgment. Just to follow up a little bit, recognizing once again that we will get a full report in the next couple of weeks but, seems to me that when it turns into and mria, there is an expectation that the board, or the executive officers, would respond fairly quickly. To your knowledge, at this point, was expectation meant . I think the fundamental fact is the firm failed because of its Interest Rate risks and its Liquidity Risk. That is evidence of the fact that they did not respond sprung lee enough and promptly enough. In other words, with the information that you had and the regulators had they were able to determine that there was a problem at the bank. Bag rectitude that there be response, immediately. An immediate response. Based upon the data that they were able to gather at that time, that is a reasonable assumption, is it not . I do not know what the timeframe set out in each of the individual orders were. Im not able to answer your question with precision. I want to be careful to do that thats fair. Let me just finish this, we will receive that information when the full report comes out . Yes. On may 1st we will release the full report. It will include the reports of examination. People will be able to see what is in the record. Very good. Thank you. Senator menendez of new jersey is recognized. Thank you, mister chairman. In 2019 Congress Passed a bill, which was signed into law by president trump, which relaxed regulation for institutions like Silicon Valley bank. That law, which i opposed, exempted banks from exams protection standards, stress test, raise the threshold under which a bank would be considered systemically important, even as that long kept Silicon Valley bank off the list of systemically important institutions, the fed and the fdic are rightly citing Systemic Risk to justify their actions to prevent runs another banks. Mr. Barr, mr. Gruenberg, each of you voted to invoke what is known as the, quote, Systemic Risk exception. With a simple yes or no, can you tell me that the situation that Silicon Valley bank posed Systemic Risk . Thank you, senator. I think it is an absolutely crucial question. The invocation of Systemic Risk exception requires judgment, as well as incoming data. Our best assessment, the assessment of a unanimous Federal Reserve board, and a unanimous board of the fdic and the treasury secretary was we were seeing signs of contagion in the Banking System that threatened to put at risk depositors, and banks, across the country. To make sure that banks could continue to land in their communities, to make sure that the positives were safe, to make sure the businesses could pay payroll, we thought it was important to invoke that Systemic Risk determination because you felt that Silicon Valley bank was a Systemic Risk at that time . The judgment was really broadly about the risk that the failures of these institutions, and other stresses in the systems, were posing as a whole. As opposed to a particular decision it seems to me that that sounds like a distinction without a difference. If anything a banks failure can cause contagion, that threatens a system, then it seems that the bank should be considered systemically important. You all need to have an obligation to be clear with us, and with the American People, when you took extraordinary steps to protect uninsured depositors that could very well lead to increased charges on banks and ultimately, to consumers. I think we need to be clear about what is a Systemic Risk. I am looking for a more crystalize version of that. I was here in 2008. I didnt want to live through that again. Do you agree with President Biden statement to week ago that congress should strengthen rules for bank to make it less likely that we will see another failure similar to that of Silicon Valley bank . Thank you, senator. I think it is important for us to strengthen capital in the quality rules. We are working on strengthening them as part of our reforms and our holistic reform of capital. I think that we need to move forward with that. As both chair greenberg and i suggested, with a Long Term Debt requirement that would require an additional cushion, in addition to capital, for large institutions that work. We will need to go through noticing comp and rulemaking. I think that is really important work for us to do and i am committed to doing it. Let me ask you, mr. Barr. This morning, i along with senator round and other members in the community asking senator powell and explaining why the feds enhanced the provision and potential standards to Silicon Valley bank, or any some of the science bank, using the feds existing authority. We have also learned from public reporting that fed supervisors began flagging problems at svb as far back as 2021. Now, i understand that we have a lot more to learn about the fact that have transpired. Both the bank in any management failures. I expect that we are going to see that all factored in as part of a review. As you begin that review let me ask you, do you agree with chairman powell Statement Last week . It is quote, clear, that we do need to strengthen supervision and regulation . Yes, i absolutely agree with that. Lastly, what i would love to know, mr. Greenberg, as we think about should we raise the federal deposit insurance, what percent of account holders, how much is private versus business, whatever costs associated with it . I would just put that out there. For you to submit an answer to the record. You would have to have more time than i have. We have seen a flay from regional and Community Banks to, quote unquote, too big to fail banks. The concentration of deposits and a select few institutions also brings about its own rinks to the Financial System. At the and the day it seems that we are incentivizing entities to go to too big to risk fails and only makes it more consequential that we measured the too big to fail banks. Is that what we ultimately want to achieve in this process . Senator, i think the goal of the actions that we took our to make sure that we have a thriving and diverse system of thinking in the United States. Including Community Banks and Regional Banks, which are the lifeblood of many communities all across the country. Senator kennedy of louisiana is recognized. Thank you all for being here today, chairman barr, the Federal Reserve stressed tested 34 banks in 2022. Is that terrell act . Senator, i do not have the exact number in front of me. I have your report. It says 34. The cut off was 100 billion dollars. Is that right . Yes. Okay, you didnt stressed test Silicon Valley bank, did you . Under the Federal Reserve board rules that were put in place for transition into distressed testing, it takes a while for a firm to be considered above the threshold. They need to have a rolling for quarter average. Did you stress test Silicon Valley bank in 2002 . No. Silicon valley bank had more than 100 billion dollars in assets at the end of 2021, did it not . Senator, as i was explaining the transition rules in place at the time require a rolling for a quarter average to be above that amount. If the firm happens to be in a year that isnt the year since it is an every other year test. And waits until the next year. For Silicon Valley bank that wouldve meant 2024 would be its first stressed test. The point is you didnt test Silicon Valley bank we did not apply a stress test Silicon Valley bank. It was using its own stress test. Did you have the authority to do . It under our existing regulations, no. We would have to change our regulation to have that authority. Under calm versus amendment to doddfrank, senator crapo talked about 21. 55, isnt it a fact that we gave the Federal Reserve the authority the authority to stress test a bank . Under that legislation the authorities couldve put a place in a different place then was done. Right. But you did not, didnt you . The Federal Reserve did not do that. If you had stress tested let me put it this way. If you had stress tested Silicon Valley bank in 2022, it wouldnt have made any difference, would it . I dont know the answer to that question. You didnt test for Silicon Valley banks problem. I read your report. Your stressed test these 34 banks for fall in gdp, spikes in unemployment, defaults in commercial real estate. Is that correct . Yes, in a typical address for banks we are testing falling Interest Rates. That wasnt a problem in 2023. I completely agree with. You the problem is inflation, high Interest Rate, loss of value in high interest bonds. I completely agree with you. You stress tested, in 2022, for the wrong thing. The stress test is not the primary way that Federal Reserve, or other regulators, test for interest risk. You stressed tested for the wrong thing. As i said, senator, i agree with you would be useful to test for higher Interest Rates. That is why, in my alternative scenario, the multiple scenarios we put in place for this year stressed test we do that. These decisions were made before i arrived. I agree with you its like someone going in for a test for covid and getting a test for cholera. Isnt it . I dont know enough about either of those tests to know. Well, they are different. On the business and bow the amendment to doddfrank kept them from stressed testing. The way i see it, you chose not to stressed test. If you had stress tested Silicon Valley bank you would not have caught the problem. As i said, senator. I agree with you that this stature requires periodic stressed testing. The Federal Reserve made a decision on how to implement that in 2019 that resulted in svb not being tested, planning to be tested until 2024. The stress test requirements im sorry coy but the chairman is gonna cut me off in a second. You knew the Federal Reserve knew, well in advance, Silicon Valley bank had a problem holding too much of its money in Interest Rates in government bonds, didnt . Day i think the investing public, and the Federal Reserve which cited it for Interest Rate problems knew that it had Interest Rate risks. Nobody knew anything about it . Im sorry, i didnt hear you. The Federal Reserve didnt do anything about it, did a . I disagree with that, senator, respectfully. The Federal Reserve did cite these problems to the bank and required it to take action. Bank management failed you didnt follow, i did you . The senators time has expired i sit here and watch mr. Barr reluctant to criticize some of the moves of his predecessor that the Federal Reserves. I believe that. Senator spacemen minnesota is recognized. Thank you mister chair. Thank you to the folks for being here today. We very much appreciate it. I want to start by reiterating what i know what some of my colleagues have said. As these two banks collapse, i heard you say very clearly, vice chair bar, that Silicon Valley bank, in particular, collapsed because of what looks like gross mismanagement. Failure to manage even the most basic of risk and Liquidity Risks. The Biden Administration and regulators took strong and Decisive Action to protect people and to keep our Banking System safe and secure. The reality is that that action that you took was necessary. It was also an extraordinary action. Extraordinary actions were called for in the moment. Of course, you dont want to have to use extraordinary action. You want to rely on banks to make good decisions and to protect their shareholders and protect their depositors. Let me clarify one thing i want to follow up on senator kennedys questions, the fed under the previous vice chair of supervision put into place rules that, i think there is a question about those rules. Even in the moment you were critical of the rules. Is that right . Yes, that is correct. So, your review will take a look at what would have happened if those rules had been in place. Then you can make decisions about what new rules need to be in place to protect from this kind of extraordinary situation that we saw with these two banks. Is that correct . Yes, that is correct, senator. I think that is important for us all to understand here as we think about what has happened. Silicon valley banks failure was a result, and appears, from Management Levels all coming down at a particular time. Im particularly struck with the banks failure to manage Interest Rate risks. We talked about this last week. It is basic Bank Management. It is not Rocket Science to manage Interest Rate risks. Interest rates were near zero for more than a decade. A lot of Business Models, it appears, and includes Silicon Valley bank, Business Model was predicated on, basically, free money. That obviously present risks among that changes. Im concerned, but as chair barr, about other institutions banks in a big ally. How they are managing similar Interest Rate risks. Could you address that . Talk about how the fed and others are monitoring that Interest Rate risk and what that tells you about what we need to do differently . Thank you senator. Let me just start with an statement that the Banking Sector is sound and protected familiar. Most banks are able to manage Interest Rate risks. It is the bread and butter type of banking management. We are monitoring the Interest Rate risks. We are looking at Liquidity Risks across the Banking System to assess where banks need to do better in Interest Rate risks in the quantity richmond meant, we are pointing that out. I think the fundamental point is the Banking System is sound and resilient. I might have mentioned to you when we spoke that i and a chance to meet with a group of minnesota bankers. Including minnesota has more Community Bakers perk out of than any other state in the country. They were eager to pointed to me that theyre in Business Models are very different than the business mom of highly risky Enterprises Like Silicon Valley bank. I appreciate you raising that. In fact getting text from some bankers today watching this hearing, warning to point out that difference. Mr. Barr, can you talk about the risks of Interest Rates, Interest Rate risk as it might affect nonbanking institutions. For example, Mortgage Loan companies . Thank you, first let me just say, as you indicated, a hair from Community Bankers, as well. I know many other senators have in their home states. The vibrancy and the health of that Community Banking sector we see that, as well. We are looking at Interest Rate risks at the defects bank and the non Banking Sector. We look at, of course, Non Bank Mortgage services. We are looking at hedge funds. We are looking broadly across the financial landscape to see where those risks might arise and how those might propagate in other ways into the Banking System. We are highly attuned to that. Again, and think the basic point is that the Banking System is sound and resilient. Depositors are safe. We have, through our actions, demonstrated that. Thank you, very much. Thank you, mister chair. Senator lummis of wyoming is recognized. Thank you mister chairman. Thank you panel. I want to follow up, a little bit, on senator kennedys line of questioning. As i read statue 53 65, sanctions see, risks to Financial Stability, safety, and soundness, the board of governors may order or rule excuse me, the board of governor may by order rule prom again pursuant to section 5 53, any standard supply and in this action to any bank Holding Company with consolidated assets equal to or greater than 100 billion dollars. That was Silicon Valley bank. You have got statue 20 1 55. When it was changed from may two shall, made mandatory, a new duty on the Federal Reserve to take into account higher risk profiles presented by certain breaks and to strengthen supervision of those banks. You look at Silicon Valley bank and, they have a number of activities with above average risk profiles. The concentration of deposits. The quantity of uninsured deposits. 94 uninsured deposits. You look at Federal Reserve authority under regulation yy. To impose additional risk based or liquidity requirements that the board deems necessary to carry out the purposes of doddfrank. I look at all this and i think among all these statutes and regulations, the fed had plenty of authority to prevent Silicon Valley bank. And the problems that it encountered. Was aware, pretty early on, that there were unique problems there and that it was a very unique Financial Institution because of its risk profile. They didnt do it. As i look at what authority you have been given, i cannot think of another additional rule regulation or law that you needed. Tell me whether you agree with that or not . I agree that the Federal Reserve has substantial the rules that were put in place in 2019 with respect to firms over 100 billion. There are some areas that the statute would provide some limitation to. There is substantial discretion for the Federal Reserve to change its rules for firms in the hundred to 200 billion dollar range. What would have to do . I do not mean that procedure for changing rule. I mean what changes would you make to the rule . Senator, we have not made a definitive conclusion on that. We are undertaking this review of s b. B. s failure in order to better assess whether it would be appropriate to change capital rules and liquidity rules for this type firm, for rules for firms more generally. It is reserved banking overly risky in this age of Online Banking . Senator, let me just say, repeat what i said before. Overall the safety and soundness of the Banking System is strong. Banks are safe and sound. The positives should feel secure that their deposits are safe. As i see it, the way these banks have made managed wyomings Community Banks may end up paying for this through higher assessments from the fdic. Am i correct, mr. Greenberg . As i indicated senator, in regard to the two institutions, any cost to the Deposit Insurance Fund from covering uninsured deposits is required, by law to be recovered through an assessment of the Banking Industry. If i can make one additional point, a law does give the ftc authority in implementing that assessment to consider the types of entities that benefit from any action taken or assistance provided. Are you saying you are able to exempt wyomings Community Banks from paying for in this . Im suggesting we have some discretion there. We are going to consider that carefully. Will you exempt Community Banks from having to pay for this . That is a judgment my board is gonna have to make. As we indicate we anticipate going out for notice and comment, public rulemaking, in may, to implement the assessment as indicated we have discretion. Do you have to go through apa rulemaking to assess . That is the law. That is a legal requirement. Thank you, mister chairman. Thank you senator lummis. Senator warren of massachusetts is recognized. Thank you mister chairman. We just experienced the second and Third Largest Bank Failures in american history. Executives at svb, and signature, took wild risks and must be held accountable for exploding their banks. I will soon introduce a bipartisan bill to do exactly that. Lets be clear. These collapses also represent a massive failure in supervision over our nations banks. Coming out of the 2008 crisis, congress put tough banking rules in place. Big banks hated them. Their ceos. Lobbied hard to weaken those rules. Ultimately, congress signed off and then it got bad, really bad. Regulators bird down dozens of safeguards that were meant to stop guys from making risky bets. The three of you here represent the u. S. Treasury and to have a top banking regulators. I would like to know if you believe that we need to strengthen our banking rules Going Forward to ensure the safety of our Financial System. Vice chancellor bar, do you believe that we should strengthen our financial rules Going Forward . Yes i do, senator. Vice President Biden agrees with you, as well. Two weeks ago he stated that we must, quote, strengthen the rules for banks to make it less likely that this kind of bank failure would happen again. Chairman greenberg, what about you . Do you agree with President Biden that we need to strengthen our banking rules . I do agree, senator. Good. Now under secretary leana, do you agree with the president on this . Senator, i agree that we do need to prevent these types of Bank Failures. Of course we need to prevent them that is not by simply wishing it. It is by a stronger regulation, is that right . I agree, senator. Okay, good. We need better laws in congress but lets also talk about how we can strengthen the rules today even before congress acts. Under current law the Federal Reserve has the discretion to apply stronger prudential standards on banks with assets between 100 billion and 250 billion. Exactly the size of Silicon Valley bank. That authority is not being used right now. Vice chair bar, will you use your authority to strengthen rules for the largest banks in this country . As you use your authority to strengthen the rules for the large banks in this country, will you be reaching banks with assets of a least 100 million 100 billion dollars . Senator, we, of course, would need to go through a notice in common rulemaking in this process but i anticipate the need to strengthen capital on the quitted east and urge for firms over 100 million. Okay. This is the area we are looking at. We are going to push down further in terms of the greater scrutiny. Chairman gruenberg, let me turn to you. Once the fed began torching rule after rule in 2018 for big banks, the fdic, under your predecessor, joined in on the fun and also started weakening fdic rules across the board. Capital and liquidity requirements, stress test, you name it. In fact, your predecessor explicitly told these banks that if fdic Bank Examiners were asking too many questions that they should, quote, let us know and quote. There is a banking regulator that makes it clear that she is there to serve the big banks instead of the american public. Chairman greenberg will you commit to using your authority to undo the rollback that your predecessor initiated . And to strengthen the rules and supervision for banks in greater than 100 billion dollars in assets . Senator and i think you know i was a member of the board of at that time. I voted against that measures. I certainly think it is appropriate for us to go back and review those actions in light of the recent episode. And consider what changes should be made. I have to say a review sounds a little wish he here. They didnt think my views havent changed you still think that they were a bad idea . I do. Got it. You know each of you at this table has authority that you could exercise right now to strengthen rules for big banks and to ensure that our Banking System, and our economy, are safer. I urge you to use that authority. I urge my colleagues here in congress to do our part to protect American Families and Small Businesses from yet another banking crisis. Thank you thank you mister chairman. Thank you senator warner. Thank you mister chairman. If you would allow me to speak to the tragedy that occurred when the Covenant School in nashville tennessee yesterday a depraved person a sick person executed a tragic act and yielded terrible results my entire community is mourning. We are mourning for the families, for the victims, for everybody concerned. I also want to acknowledge the bravery of the Nashville Police department. They stepped into harms way and within 14 minutes brought the situation under control tremendous bravery at a time when it is called for and i want to acknowledge their sacrifices now lets turn to the matter at hand i know that politics in washington away seizes upon any crisis as an opportunity to achieve whatever regulatory or legislative or goal may be in front of them. I would like to talk about managerial execution here. Specifically, i would like to talk to chairman greenberg and in particular a series of events that happened at maybe two weeks ago. Failure happened on friday morning, which can be fdic three days to find a buyer before monday morning. 18 years of experience on the ntsb board, yourself. You have detailed resolution plans. Over 5000 employees and interest from a number of banks to bid, including at least one form offer, as i understand. Instead of six of the extremes process however the fdic easy Systemic Risk exemption to guarantee all deposits fe be, creating tremendous uncertainty across our county. Now, too excited, the ftc has announced the sale of less than half the failed banks assets at a loss of 16 and a half billion dollars. My first question, in the joint Statement Released on march 12th e said, quote, no losses associated with the resolution of Silicon Valley bank will be worn by the taxpayer. Is that still your position . Senator, yes, and you know the problem is, with two partial sale completed in over 22 billion losses oh ready accrue that position doesnt square with reality. These losses are borne by the Deposit Insurance Fund. That deposit is going to be banks across the nation which had nothing to do with the mismanagement and Silicon Valley bank. And dressed by the special assessment of the banks. As we all know, these banks will have to pass these costs along. Last time i checked those costs get passed along to the consumer, those consumers are american taxpayers. Chairman greenberg, invoking the Systemic Risks exemption is a last resort emergency opt into the typical method the resolution. It begs a question of, why did you have to invoke that extraordinary exception . Just this past sunday that a new purchaser as part of svb not only where theyre serious losses but the fdic entered into a launching remote with the acquiring bank any 70 billion dollar line of credit was extended to the purchaser. That is a pretty sweet deal. I wonder what prevented the fdic from coming to a deal like this two weeks prior . You told Ranking Member scott that you received bids for svb over the weekend following its collapse but they were insufficient. What was your counter offer . Did you engage with the board of the bank didnt improve this to get them to step up and improve it . We received one offer that was, frankly, more expensive than the cost of liquidation. It didnt appear to be a viable offer at that moment was there a counter offer to that . I would have to check with our staff in terms of how much of a back and forth occurred. Lets talk about the bidding process itself. Certain banks may have been dissuaded by you or anyone else associated with this from bidding on svb, either before or after the ankle taken into receivership . No, senator. Throughout the course of that weekend i was inundated with phone calls telling me that legitimate bitters were being waved off of the process. It is one thing to reject a bid if it is bad. But if a algae had anything to do with this entire community will be deeply concerned on that. I look forward to results of this review because the results of this puts the Banking Center in a state of disarray that we have never seen before. Despite of all the preparation tools at your proposal the ftc failed to do its job. There was often see enough demand orchestra to sail. What it looks like to the American People as you didnt feel the incentive to execute and yield the Systemic Risk exemption to buy time. Doing so you place the entire u. S. Banking sector into uncharted waters. I dont see any apparent improvement outcome. This is a disgrace. I look forward to the review. I hope that we get to the bottom of this. Vice chair bar, very quickly, out like to come to you. In response to the 2008 financial crisis size and scope of the crime scene which man expanded by congress. Regulators like yourselves having empowers, not to mention hundreds of academics at your disposal, whats the sole job of monitoring addressing risk to the Financial System. All of this was in the hope of identifying in preventing Bank Failures that pros Systemic Risks. In spite of all these tools, we find ourselves in a situation today that is unprecedented. It is pretty clear that Silicon Valley bank was woefully mismanaged. Their management team, which dont have a chief risk officer for eight months last year yet created maintain the chief Diversity Inclusion officer allow the bank to accumulate through the shocking levels of risks. While this was occurring the San Francisco fed was focused on researching leftwing policy that they had absolutely no expertise in. Ignoring one of the most basic risks in banking, Interest Rate risks. Perhaps most damning of all, until the day of their failure, svb ceo sat on the board of the San Francisco offense. Mr. Barr, in your review of what went wrong under your supervision, when you consider the level of managerial distraction that was evident at the San Francisco fed . Senator, the staff have free reign to examine any issue that might have addressed supervision. I think the core issues of the one that i suggested at the out site. They are really basic. Interest rate risk mismanagement by the bank, liquidity Risk Management by the bank. The San Francisco examiners the, examiners at the San Francisco Federal Reserve bank called those issues out to the board, they called him out to the bank. Those actions were not acted upon in a timely way. I hope you will dig into the sense of urgency that was brought to bear on this and that sense of pressure. Every tool at their disposal to use. They were certainly doing other things well beyond the remit. Thank you. Thank you mister chairman. Absolutely. Thank you for your questions. Im going to ask questions now, if i might. In 2008 and voted against the bailouts of the big banks because i do not support taxpayer bailouts. We do need to protect American Consumers and Small Business folks. We need to hold Bank Executives accountable when they screw up. If the regulators are asleep at the wheel then we need to hold them accountable. Look, a correlation that i would say i look at the price of diesel fuel and seed, if that is on the lookout and look at the whole picture. Quite frankly i will not be in business long. If regulators are only looking at capital then that is not everything that is going on. At silicon bank they had a concentration in a highly waldo industry that had grown rapidly. Mostly uninsured deposits. Their investments were poorly timed with Interest Rate increases that were clearly forecasted. All setting the condition for a classic bank run. One that happened quickly due to new technologies that are out there. Vice chair barr, from 2020 to 2022 it is Silicon Valley bank grew from 71 billion to more than 200 billion. This was a very rapid growth. It was heavily concentrated with tax and startups. Industries that have always been volatile. The bank took mostly uninsured deposits invested in long term u. S. Treasuries. When the fed have been clearly forecasting that rates were going to go up. Which the Bank Executives should have known because their ceo was a director at the San Francisco fed. For two years it seems that federal regulators were flagging concerns about the situation. Is that a fair statement . For two years the fed was flagging concerns about this banks went into a liability . Senator, the examiners were focused on Interest Rate risk in the quantity race in the beginning of november, 2021. As far as i know from the supervisory record thus far i have not seen something that said that the supervisors were focused on whether the firm was liable. Our review is underway. Doesnt that impact the viability . Yes, senator, a core safety and soundness risk. Liquidity risk, Interest Rate risks are core risks that the bank mismanaged. Were the regulators physically in the bank . I have talked to a lot of intermediate sized banks. They tell me the regulators are at their five days a week. Seven days a week if theyre open 70 the week. Where the regulators in that bank . Physically speaking i actually dont know. Part of the supervisory period was during the pandemic when activities were happening, in part, ramon. I do not have, yet but we will have a just want to point out the fact that the pandemic has been over for a, quite a bit. The opportunity for those regulators to be in there wouldve been long before a month ago. Yes senator i dont have the full supervisory record. We have just begun our view. I want to begin by answer questions that we know. Do you know the fed supervisors met with the board of directors that Silicon Valley bank . I do not know that i know that they met with senior management. He wouldnt know if Silicon Valley bank had a Risk Committee and if the supervisors met with the Risk Committee . I will know that by the may 1st report. Were they warned about potential fines . Im sorry, could you say that again . Look, they had some problems. Were they warned to either fix them that they were going to get fined . The matters requiring attention and immediate attention to my understanding require the fixing of their problem. I do not know whether they highlighted any additional steps that may be taken. Certainly the firm was on notice that they needed to fix the problems, quite clearly, since november of 2021. Yet they didnt. They did not. So, at what point in time does a fed regulator drop the hammer on this outfit . I mean, i dont even need to get going on the bank ceo taking a ton of money right before this thing went belly up, as it was going badly. What point of time, we can have all the regulations on the book. Ive spoken with a lot of bankers who said if this had happened before doddfrank the regulation will stop this from happening. We have doddfrank. We did make 20 1 55 to tailor the regulation to fit the risk. That was a big part of it. And in fact on the small banks as well. Yet for over a year, correct me if, im wrong mr. , barr for over a year regulated or saying to this bank straightup, fly right, and they never did a darn thing about it. Regulators did not make it so darn miserable, my understanding is regulated a pretty good at that when they want to be, make it so darn miserable that these folks would adjust their Business Plan to take care of the risks that were in their bank. Senator, i agree that the risks are there. That the senators and the banks did not take action. Its also intimate and it is in the first interest the Bank Management responsibility to fix these problems and they failed to do it we didnt take enough action of the Federal Reserve supervisors didnt take enough action well be talking about that in our review. We expect we have accountable for it. I have got to tell you, i am not a banker. I aint even close to being a banker. I am a dirt farmer. I have got to tell you, when they laid out what happened in this bank over the last two years you did not have to be in accounting to figure out what the heck was going on here. I agree. All i have to say is, as you do youre looked back into what transpired it better be fixed. If it is the regulators fall it better be fixed. If it is the regulations fall, and better be fixed. If it is Something Else i have learned a report to this committee saying, you know what guys . This could happen again unless this happens. It looks to me that, im looking out from the outside in, and looks to me that the regulators knew the problem but nobody dropped the hammer. I thank you, senator tester. And as i say, a review is going to be thorough, open, if we find problems like the ones you just described we will say clearly in describe what when you think that report will be available . May 1st. We should have them back after the report is done. We look forward to that thank you senator. Thank you to the three of you for being here. I want to talk about the inherent unfairness of what transcribed i come for the Venture Capital industry. This is a stable to get interest. Its certainly a statement against the interests of some of my friends the Business Model of Silicon Valley Bank Acquires Venture Capital firms and to Venture Backed Companies. If you think about the fundamental trade that was implied, i would even say, explicit in their Business Model what they did was they offered a highly beneficial product into Venture Backed Companies into Venture Capital is in exchange for having a large number of deposits in your Silicon Valley bank count. Sometimes, often, exclusively so. A common practice, for example, was to say that you would provide a line of credit to a Venture Capital firms but only if that firm put all of its money, 100 of its deposits, in Silicon Valley bank, or they would offer private jet financing and other goodies that have been available only to the very wealthy in exchange for having all of your deposits as they can valley bank. Given that that was implied in the Business Model of the bank i think it is important that we use the term bailout. I know some of you dont like that term but i think it is the only term that applies. We, using excess fees on Community Banks of across a country effectively chose to bail out the uninsured depositors of Silicon Valley bank. There are some outrageous examples there. I think one firm had deposits over three billion dollars. Roku had deposits of 500 million. There were a lot of people a lot of firms at Silicon Valley bank that had deposits well over 1 million well over 5 million. What we did, in practice, do was bail that now. I guess my first question i put this to all three of you and because time is limited i would like to i would like for you to answer quickly. What is the threshold . Whether you guys meant to or not, i think the implication of what happened with Silicon Valley bank is that there are a lot of people who expected their uninsured deposits are, effectively, ensured at an unlimited level. Or, if you are banker there is an assumption for a lot of people that at, a certain level, if you are systemically important enough youre uninsured depositors are going to get bailed out. Can you go from left to right, starting with mr. Greenberg, but at what level do you think uninsured deposits, in theory, are effectively unlimited uninjured in our Banking System today . If i may say, senator, you are asking important questions. I think we have a lot of questions to learn from this episode. The decision to cover uninsured depositors at these two institutions with a highly consequential one. It has implications for the system. I think that we need, and i indicated in my statement earlier, we need to do a comprehensive review about president insurance esteemed and consider the questions that you raise. The fdics going to undertake that. By may one we will deliver a report including policy considerations to take into account. We want to try to be responsible with that. Thank you. Mr. Barr . I also thank you. You raise important questions. We were looking at Systemic Risk determination with respect to these institutions. We were thinking about the risk to the broader Financial System. Not the particular depositors at one or two institutions we are thinking about the concern and the extent to which that could impact Regional Banks across the country and we were hearing concerns from bankers and from depositors, businesses, around the country. It is a difficult judgment. But one at the end of the day that the unanimous fda seaborne the fda seaboard, the critics actually agreed that that wrist to the system was not a risk that was worth taking. So, today i think we can say that the Banking System is sound and resilient. The steps that we took demonstrated that resilience and the safety of deposits around the country. I was concerned with the decision itself. Although i do have a lot of questions there i think that there is an open question about whether we couldve provided a confidence in the Banking System with a liquidity that was needed in case of a bank round without banking uninsured Silicon Valley bank depositors. I think that is the topic for a followup hearing. What i worry up is the fundamental unfairness here. We have drawn a line. I dont know whether the bank may be goes much further, maybe it stops there. If you are systemically important, which is a term that is impossible for anybody here to define with confidence, if you are systemically important near uninsured deposits are effectively unlimited. In their insurance. Whereas if you are not systemically important, a Regional Bank in ohio, there is a very good chance that youre uninsured depositors will not receive that bailout. I think that uncertainty is a really, really, big problem with what you guys have done. Im not saying that in an accusatory way. I understand that there are reasons to do what you did, even though i dont think it was the right decision. Im just saying that had a real world hazard here. I know im overtime. The one thing i would ask is, just unanimous consent to introduce a letter to the record from american share instruments. This is the company that provide private deposit insurance to most state chartered credit unions, including the 43 on ohio. On this point of hazards and unfairness i would like you guys to consider is extending the same implied offer that you gave to the Silicon Valley Bank Uninsured depositors, to do it a little further down to the banking ladder so that everybody benefits from the rule you cascaded for Silicon Valley bank. Without objection,. Think you. Senator . Thank you. Thank you, mister chairman. Thank all of you for your service and testimony today. Mr. Greenberg or, are you aware, all you, not that the ceo of svb sold three point 6 million in Company Stock just ten days before the bank collapsed and the fdic took over its deposit . You are aware of that, right . I am, senator. Are you aware of the fact that other executives of the bank, and employees of the bank, received bonuses literally hours before svb collapsed . Yes, senator. Now, i believe that we need to have an independent investigation into any criminal culpability the possibility of Insider Trading in this case. Regardless of any criminal culpability that maybe there, i think that it is simply wrong. I think almost every american would agree that it is simply wrong for the ceo and top executives to profit from their own mismanagement and then leave fdic to be holding the back. Would you agree with that proposition . That that would be wrong. Yes, senator. Doddfrank provides claw back authority that applies to the biggest banks under the authority of the oh l. A. As i understand it, that authority does not apply to svb bank, am i right about that . That is correct, senator. Could i elaborate on that briefly . If you could briefly. We do not have explicit claw back authority. We do have an obligation to investigate any misconduct by the board and management of the institution. We do have authorities to impose consequences, including civil money penalties, restitution, and barring individuals from the business of banking. We can get to see some of the issues raised. It is true that we do not have explicit claw back authority. As indicated earlier, it would be reasonable to create parity between the doddfrank act in the federal deposit shermans acting that regard. Im glad that you raise that. I heard a response earlier. Senator kennedy, a member of this committee and i are working, right now, on Bipartisan Legislation to accomplish exactly what he said. I hope that we can introduce at this week. I know the chairman of the committee is interested, as well, in pursuing that. I asked secretary yellen in a another hearing last week whether she and the Biden Administration fully supported it. The answer was yes. I hope that we can move forward on that keys as quickly as possible. There does seem to be a hole in your authority. You have some of the authority, as you indicated. But there is a hole in that authority that we have to plug. You agree with that . I do, senator. So, vice chair barr, i wanted to ask you about some guidance. In fact a rule that was issued by your predecessor. Former vice chair of supervision corals shortly before his departure in march, 2021. This rule established that supervisory guidance does not have the force of law, it cannot be used in the event that it would hold banks ability to conduct mergers and acquisitions in that sort of thing. I fully understand the distinction between supervisory distinctions and advisory law. I think it is important to know that this request for this rule, according to the feds staff memo, that this guidance was issued upon industry request. And they specifically note the bank policy institute, the american bankers association, the submitting position for this rule to provide guidance to try to weaken the punch of the supervisor rules. Are you aware of that . Yes, senator. This goes into the frame with the Chairman Committee made early on where we got a lot of folks that had been saying for months and years, lets rain in the bank supervisors, and now all of a sudden, its like, where were the supervisors, why werent they being more aggressive . Do you agree that the guidance, putting that into rule sent a message that you dont have to listen to supervisors, guidance that much, and would you be billing to take a look at whether that should be repealed . Senator, im not sure of the impact of that guidance. I think it is appropriate area for us to be looking at. I know that staff are going to be thinking about that with respect to the svb case, whether it mattered or didnt matter. I do think it is an appropriate area to look at, but i do not have a firm conclusion about it. I hope youll take a look at it because it was done at the behest of the industry, and clearly the intent was to undermine the impacts or of the guidance provided by the regulators. And so it seems to be a part of a pattern of an effort to push back on regulators authority, and then come back and through the monday morning quarterbacking, and say where were they. Thank you mister chairman. Thank you senator van holland. Senator has yield to senator brett. Senator bretts realized from alabama. Thank you mister chairman, thank you senator gains daines. I appreciate the opportunity to be able to ask you a few questions. I am for starting by saying that i am proud to be from the great state of alabama where Financial Institutions are strong. A Regional Banks, our Community Banks, credit unions, and the Critical Role they pay from our main streets where rural roads could not be understated. And so im proud of the work that they do, and proud of the strength they continue to exhibit. Mr. Barr, i want to follow up on a question i have that one of my colleagues brought up. You keep talking about the fed focusing on the size of svb and banks. However, 20 1 55 also requires the fed to take into consideration riskiness, complexity and financial activities along with other risk related factors. Tailored supervision ensures that the fed focuses on the most risky banks. You have said repeatedly that Bank Mismanagement led to svbs failure. The whole point of 20 1 55 was so that you could tailor your supervision to risk. And so why did you not require definitive, corrective action based on the flaws that you saw . But you very much senator brett, and i appreciate your comments about the alabama Banking Sector, which i think is a thriving sector, it is contributing to its communities. And like bankers across the country, strong and vibrant. You should be very proud. Thank you, we are. We are looking at the range of tailoring approaches that the Federal Reserve took. The decision to set those lines by asset size and other risk factors was made back in 2019. I joined the board back in july of 2022 and began looking at that approach. I expect to continue to review it as part of the svb review, and i believe that we have substantial discretion to alter that framework. Excellent. So youve talked about your view, which is ongoing. And that review, will you take a look at if you used all of the tools in your tool box to prevent this, both before and after. Will that be part of your review . Yes senator. The staff are reviewing the steps that supervisors took, and whether they shouldve taken more aggressive action. So i current, though you cannot speak to whether or not you utilized all of the powers that were given to you . I really would like to wait for the formal review for the staff to come evaluate the full supervisory record to make a assessment. But we are certainly very focused on that question, and if we didnt do the right steps, we are going to say that. I find it concerning though when you all were asked, each one of you were asked, would you like to see more powers, more strength. Every one of you said yes, when you dont actually know if you utilize the tools in your tool box, correctly, or if the people who are under your supervision or supervising appropriately. I think that is what people hate about washington. We have a crisis, and you come in here without knowing whether or not you did your job, you say you want more. That is not the way that this works. You need to be held accountable, each and every one of you. Im a big believer that you have to own your own space, and speaking of mr. Guttenberg, i want to talk about yours. So you are not the primary supervisor here. Obviously, that is the fed, but you are the non primary supervisor for svb, or were, is that correct . Yes maam, back up to provision. Backup supervision, you are the four doddfrank, correct . Yes. Granted after doddfrank, correct . And 20 1 55 did not change that responsibility that you had . Thats correct. So in that role, what did you do prior to the banks failure to exercise that power . In this instance, we were working with the fed as the institution was experiencing difficulties. But i think its fair to say that it was in the support of roe with the primary regulator. But you did raise this to the primary regulator . You did exercise . That we were working with the primary regulator with regard to the institution. Excellent, im so glad to hear that. We have to make sure that we are working together doing our job inward to prevent these things from happening. Happening in the future. One of the things that i also want to talk about is just a different responsibilities that each of you have, and whether they were executed, and then additionally, want to talk, you move into the fdics bank auction process for just a minute, although only have 33 seconds left. It seems that you failed to put the bank in receivership, and the fdic passed on allowing Silicon Valley bank to be purchased. Is that a correct assessment, or do you feel like that has been incorrectly identified throughout the news cycles . Yes senator. The bank was placed in receivership on friday morning, and we endeavored to solicit bids over the weekend. As i indicated previously, it was a rapid failure, and so there is no opportunity prior to failure to prepare for a resolution. We took two bids, and neither would have been less costly then liquidation. And so weve been proceeded to put in place a process where we were able to bid up. Yes, and im out of time, but i will say that six months prior, jp morgan knows that there was a problem there for the Research Team in the movies obviously met with svb prior to the saying that they were going to downgrade. And so ive heard you all say that this was a rushed process. If the outside sector knew this was happening, even the fed and the 4000 examination of know that this was coming as well. Senator warnock of georgia is recognized. Thank you very much mister chairman. Many americans, in fact all of us, we remember the unfairness of the 2000, 2008 and that crisis when bankers who made bad decisions, who played games with our economy. Not only did not go to jail, they got to keep their jobs. And their multi Million Dollar salaries. I feel that, in a particular way, as someone who pastors in moves in communities where poor marginalized people have the weight of the law come down upon them for the smallest of infractions. One baker went to jail and kept their multiMillion Dollar salaries. Bankers made risky bets that threatened our entire economy, they got to cash in. They should be held accountable. We discovered shortly after regulators took control of Silicon Valley bank that top executives at the bank offloaded and millions of dollars worth of stock, in the weeks leading up to the collapse. Very convenient. Including a former ceo who sold three point 6 million worth of stock two weeks before the bank crashed. The doddfrank banking reform law included a compensations claw back provision for executives identified as excessive risk takers. In other words, those who put their banks in the entire economy in jeopardy. Mr. Gluenberg, the fdic in conjunction with the other financial regulators began working on a role to implement this provision in doddfrank in 2011 and again in 2016, but a final rule was never issued. Does the fdic have plans to revisit this rule . It has been discussed, senator, and it seems to be appropriate. Its appropriate, and i would say urgent. I know that the Justice Department and the scc are looking closely into this matter, and i would encourage them to include any evidence of Insider Trading that seems only appropriate given the circumstances. That should be a part of the scope of their approach. But there is a scenario where these executives not only get away scotfree, but also with sizeable paydays. And the fdic should use every tool it has at its disposal to prevent it. We certainly dont want to incentivize this kind of behavior. And so again, mister gluenberg, outside of this rule, tell me, where Good Congress have been to stop and some of i mean their high risk behavior. Does the fdic mean additional legal tools for excessive risk takers . Thank you senator. First, as a matter of law, whenever a bank fails, the fdic is required to conduct an investigation of the conduct of the board and the executives at the institution, and we have authorities under the law to impose accountability, including civil money penalties, restitution, and barring individuals from the business of banking. So we have significant civil authorities under the law now. It was mentioned earlier, i think its appropriate that we do not have explicit claw back authority with regard to compensation. We can get that issue through our existing authority, but certainly providing explicit claw back authority into the federal deposit insurance act, as the fdic has under the doddfrank act would be appropriate, in addition to completing the rulemaking that you raised previously. Both of these things are important. We have to complete the rulemaking, and look and see whatever additional tools may be necessary. Certainly as the ship is sinking, we dont want bakers to be able to move all of their products on a lifeboat. And so we have to address this. I want to switch to a related topic. For several days, payroll dividers banking with svb or synergy bank had no way to access their posits deposits. Leading to Many Americans receiving their paychecks late, or having missing paychecks. Too Many Americans live paycheck to paycheck, and in this case, they got it late. And as a result, some of the 64 million americans living paycheck to paycheck were hit with Overdraft Fees, nonce fund fees due to the disruptions, something i have addressed in other settings. Thats why i sent a letter with senator booker urging regulators to issue a temporary moratorium on overdraft and Nonsufficient Fund Fees for folks to encourage these fees and no fault of their own. Mr. Gluenberg, does the fdic have a plan surrounding overdraft and Nonsufficient Fund Fees protections in the event that we experienced broader systemic issues . Senator, you raise an important question. And we received a letter. As a starting point, you know that there are delays, and we really want to get the facts in terms of if Overdraft Fees were really imposed as a result of those delays, if we can confirm that information, then we can consider what actions to undertake, and are glad to work with you and your staff as we follow up on that. I look forward to working with you on this. Here is the bottom line. Ordinary folks who just showed up, put their deposits, they should not have to bear the brunt and burden of these bad decisions made by Bank Executives. Thanks senator warnock. Senator daines from montanas recognize. Senator thank you. The failure of ctrip Silicon Valley bank and Signature Bank are direct result of the fillies of regulators, including agencies that we have before us today. Also the executive teams, of these financial touche, and inflationary environment sparked in a small part by the Biden Administrations reckless spending. I remember having debates right here with the Banking Committee about these massive stimulus bills at one point, nine trillion dollar spending bill, that even Lawrence Summers says was inflationary on a purely partisan vote to get passed, with democrat supporting republicans opposing. But each of these groups, back to Silicon Valley bank, Signature Bank, failed to prioritize properly clear and present risks of the inflationary environment, rising Interest Rates, bond values, and instead opting to focus on Climate Change, equity, and other factors that did not contribute in any way to the crisis that we have before us. I raise these issues of misaligned priorities with secretary yellen during a finance Committee Hearing back in june of 21, which identify Climate Change, Non Bank Financial in a mediation, and treasury market resilience as the key priorities for fsoc. And so now we are facing a situation where responsible banks of my home state of montana and elsewhere will be on the hook, providing tens of billions of dollars and potentially more to bail out irresponsible, coastal banks for wrist taking that regulators failed to act upon despite first noticing as far back as 2019. Not to my question, vice chair barr, you stay in your testimony that the review is quote, focusing on whether the feather will reserve supervision was appropriate for the rapid growth and vulnerabilities of the bank, end quote. The question is, if you find that is part of your review that certain individuals were clearly negligent in the performance of their duties, are you willing to recommend they be fired . Senator, i dont want to prejudge in any way the review. Im going to get that evidence back, understand it fully i said that if you find that are negligent, would you recommend that they be fired . Its hard for me to answer the abstract, sir. I believe it will take appropriate action with respect to the supervisory structure as a whole, weather with with are you willing, extermination one of the options . Thats an easy question. Its an option, is that an option . Can somebody be fired for this . I would have to understand the basis in our Human Resources law. The Bank Executives lost their jobs, i showed some of these regulators. Shouldnt that be the case if theyre asleep at the wheel . Senator, i wanna be very careful there. There are laws and procedures with respect to how you treat but you can make a recommendation to hr, and they can tell you whether or not that is allowed or not. Ive been in the corporate world for most of my career. Ive worked in hr, as untruth and the federal government. You can make a recommendation of somebodys asleep at the wheel, and negligent. I would be happy to follow up with you, senator, and i promise that we will take appropriate action based on the review, but i dont have a definitive answer for you at this moment. I do find it ridiculous that you are unwilling to say that if people failed to perform their responsibilities, that you might recommend they be fired. Vice chair barr, if you visited the San Francisco fed in october of last year . October of last year . What year . In 2022. I dont believe so . Okay, well the San Francisco fed the Top Priorities that you outlined with that visit, along with their Top Priorities. Maybe that i did a virtual seminar for a range of supervisors, and so the San Francisco fed folks were in attendance for that, but i dont believe that i was in San Francisco. And so the regulars perspective it came out of the 12 district with the feds that they were aligned with what was top of mind for the work being in the 12th district. The first thing it says is Financial Risks from Climate Change. Is that a time back in october of 2020 when he saw the discount rate was up three he saw the increase is coming out of the fed over and over, and they were communicating that it was probably going to continue. And that was about the time that also the richmond fed, in the fifth district, they had a different view in terms of prioritizing risks, and they thought perhaps a rising rate environment might be the highest risk in terms of priority to look at, for San Francisco fed, says it is about Climate Change with the number one priority listed, stacked, right with the three they placed out. It is clear in hindsight that the richmond fed was focused on the clear and present risks of rising Interest Rates, while the San Francisco fed was not. My question is, since you were confirmed in july, what percentage of your time have hes been focusing on Climate Policy and financial inclusion, versus how the Federal Reserves Monetary Policy might impact banks like Silicon Valley bank. These brief as you can that answer, thank you. Senator, ive been focused on risk throughout this process, short term and long term risks, and Interest Rate risk is a bread and butter issue in banking. Its mostly prefers to all the time. Thank, you super same francisco that said it was Climate Change senator is recognized. Thank you chairman thank you progresses for being here today. Todays hearing is about trust. Who is trust has been broken, who broke that trust, and how all of us Work Together to reaffirm and we build that trust. Trust is a key principle that the modern Banking System is built on. Families trust of the hard earned savings are safe in the u. S. Banking system. Congress interest our federal banking regulators with the power to supervise, regulate, and examined banks. We trust you to be the cops on the beat, and ive given you the tools to do that job. The failure of Silicon Valley bank on the Federal Reserve watch very clearly calls into question whether or not some of that trust was misplaced. Make no mistake, the lion share of the blame is on and competent Bank Executives. And it is outrageous that these people took bonuses and sold stock in the days leading up to the banks failure. We should hold these executives accountable court the fullest extent of the law, and claw back those bonuses and stock sales. Im cosponsoring a bill to do just that. But as i laid out in a letter to you, vice chair barr, that by the way it was signed by 11 other senators, spanning the ideological spectrum, it is gravely concerning that retail participants, literally just regular everyday people, were able to figure out that something was wrong with Silicon Valley bank before you regulators took a procreate action. Now these folks dont have access to non public information, like the Bank Examiners do, but when people on reddit and twitter can spot Bank Mismanagement before the regulators, something is terribly wrong. So my question today for you, vice chair barr, i have lots of questions. So id like concise answers, and we will follow up in writing. You are sworn in as vice chair for supervision on july 19th 2022. Your testimony indicates that due to ongoing review, you will focus on what you know, so lets start there. The fed knew of problems at the bank, dating back to 2019. Were you personally made aware of major deficiencies at Silicon Valley bank prior to the collapse, and if so, which ones, and when we notified . Thank you senator. The staff made a presentation to the board, the board of governors in the middle of february of this year that was focused on Interest Rate risk, broadly, and the Banking System and how banks and managers and supervisors are addressing those risks. And as part of that presentation, the staff highlighted that the Interest Rate risk that was present at Silicon Valley bank, and indicated that they were, in the middle of a further review and expected to be basically coming back to the bank shortly with further information about their status. I believe that is the first time that i was told about Interest Rate risk at Silicon Valley bank. So you were first notified shortly, shortly after folks on your staff learned about these deficiencies . Senator, the supervisors began highlighting these deficiencies at the firm and Interest Rate Risk Management, and liquidity Risk Management in a serious way in november of 2021 as far as i know. About a year prior to that. They intensified that supervisory review as part of its full scope exam in the summer of 2022 when the firm was downgraded for deficiencies and its Risk Management practices. And they brought us issues again according to the record to the cfo of the firm in october, and issued Additional Findings in november of 2022. And so that is, as far as we know from the current supervisory record, is the picture. And that is when you, so you were first notified in october in november of 2022 . No, senator. To the best of my knowledge, i first learned about the issues at Silicon Valley bank with respect to Interest Rate risk in mid february 2023. So several weeks before the ten failed, staff made a presentation to the board about Interest Rate risk broadly, and with a particular highlight if you will on Silicon Valley bank, and indicated that they were following up with the bank with further measures. So your testimony says that asset size is not necessarily a indicator of complexity, and i agree, which is why section for one of s 20 1 55 2155 gives the fed explicit authority to impose regulations supervision normally reserve with a large institutions. And you can do that between any bank with 100 billion 250 billion in assets. The fed is given this authority to mitigate risk to the Financial Stability of the u. S. We both agree that this is existing authority that the fed has had since the enactment of s 2155 in 2018, correct . Yes, the fed has Broad Authority to change the rules that uses for different approaches to supervision affirms. One of the rules that were put in place in 2019, the firm was budgeted by a set of categories. And i think that is important to revisit those, as i have been doing since arriving at the Federal Reserve in july. So give the documented issues youre overtime, wrap up if you can. This will be my last question, thank you mister chairman. So given the document issues that you supervisors found with svb, that we just kind of went over, did the fed ever consider using its existing section for one authority for the failure to more aggressively regulate the bank . Based on the current supervisory record it looks like the escalations that occurred were in the format of mris and matters requiring attention and immediate attention, and the supervisors also put in place which is called a for him agreement, which is a limitation on the firms ability to engage in merger transactions with financial companies. Thank you, senator senator tillis. Thank you mister chair, thank you all for being here. I want to start maybe with a question that i think vice chair barr, you answered, senator warren, saying you thought banks over hundred building dollars should have additional credential requirements, that i hear that correctly . I think its important for us to strengthen capital, and liquidity requirements for large banks, really up the spectrum. Is there any of the tools, just going back, and mister chair, i like without objection to submit this to the record. This is the regulatory regimen that applies to banks of certain categories. So im curious, i always worry about when we create a arbitrary asset limit for doing something, because it was the activities of Silicon Valley that got them in trouble, and so i want to ask briefly, i have a lot of questions, and i want to get them done on time. Youve mentioned a couple of times, vice chair barr, that the 2019, i guess implementation of senate bill 2155, im inferring that, budgeted Silicon Valley in a certain regulatory regiment. That mean that it restricted it from having supervisors, that the increase credential regulations, or supervisory functions could not occur . Senator, we are bound by the rules that we put 2155 out. So if we want a new framework, in 2019, a different ministration predates your tenure, are you saying that 20, the promulgation, the implementation of 20 1 55 2155 took certain supervisory regulations off the table for Silicon Valley bank . The Federal Reserves implementation in 2019 set basically the standard for how that would apply. I think that regulators supervisors to have judgments, and they can put in place. Thats my point, when i hear bucket, and i think about refencing, im wondering if that meant that it supervisor in my opinion, if you take a look at the matters requiring immediate tension, and immediate attention, do you know yet, i know we will get the report of may, but do you know yet how many of those mris were fined by a mri. So in other words, the six that were issued over the course of a year and a half or two years, how many of them were an escalation of the matter following attention to immediate attention if any. And if you dont know that, you can submit it, or if you will, just a minute for the record. But we have a ceo of Silicon Valley bank that is a class a member of the board of the San Francisco Federal Reserve, who got summarily terminated on the day of the banks collapse. And you review, what we also have insight into californias role in regulating this bank, or the speech purely federal jurisdiction. We are looking only at the Federal Reserve, and the state of california is initiating its own review with respect to this. I think thats going to be very helpful, because in my opinion, i agree with former fed to reload that he sees this as a regulatory laps. Terrell o is never complimentary of bill 2155. He was implementing doddfrank when we did it, and he was hammering it, and he made the statement, it mister chairman i would also like to cement the record a article of interview with mr. For marketplace, that he specifically says in here, 20 1 55 is likely to be the root cause of the problem, i am paraphrasing. He was saying that looks like a regulatory and supervisory collapse. And i think were going to find that lapse is not only with the fed, but more likely even the supervision and the state of california. Was involved in. So, im also kind of curious, are we going to see any movement, and im not a conspiracy theorist, but there is one question of did we have a level of comfort with this bank among some of the supervisors, do we know or have any insight over the past few years of anybody who works for the fed works for this bank . We know that the ceo was on the fed board, or on a board at the fed. Senator, just with respect to the class. The directors that you mentioned, class a directors are prohibited from participating in any way in supervision. No, i get that. But its just people and proximity maybe people call them balls and strikes. Theviso didnt get that quite right. I think that there are some people who, and i want to find the root cause of the problem. I think you all will find a lot of information when you issue a report i dont think that we are doing the Banking Industry any service Going Forward. If we talk about, now weve just got to rein in the small banks. Weve got to increase, by default, regardless of the activities of the bank, weve got to increase by default their credential requirements. With your holistic reviews, capital requirements, a number of other things. When you have a run on a bank like you did with Silicon Valley. Could any bank possibly have enough to cover the run . Any bank . Senator, the particular banking question was quite unique in its structure. Its liability approach, and its Interest Rate Risk Management. I can just speak to that particular bank. Thats what i want. If you look at that theyre literal liquidity stress testing on their contrasting and Interest Rate exposure. This does not take a highly sophisticated person to understand the risk, it dank sure had to be known months before that the chickens came home to roost i wish that we could focus on that problem. And not use the red herring of some laps in Regulatory Oversight that was the root cause of this main collapse it simply was not and i would love to find anybody to prove it wrong. I dont care how you feel about regulatory tailoring. But use a valid argument to fight against it. Do not use Silicon Valley bank as an example. Not suggesting that you have. But there are many people that sit up here who have, at the expense of looking at how we can prevent this in the future. I do have questions for the record that i will submit. Thank you all. Thank you senator tillis. Thank all three of you for the your testimony, your public service. I look forward to the reviews on these Bank Failures. Thank you for helping start that process. Its interesting, many of my republican colleagues are now so eager for Bank Regulators to crackdown on banks for taking on too many risks. I hope they remember that when it comes time to empower regulators and strengthened guardrails, including protecting the independent funding of financial regulators. The events in the last month have shown why we need independent regulators, funding, and stability for all of our financial watchdogs. But now it as the paris Court Considers whether the cfpbs and defending fundings constitutional, these independent watchdogs ability to keep our Financial System stable faces an existential threat. U. S. Financial regulators, as we know, our independently funded. So they can quickly respond when crises happened. On this, and every issue, i will continue to fight to protect American Workers from wall street arrogance and greed. Thank you for joining us. Meeting is adjourned