Democracy. Watch video on demand any time online at cspan. Org. And try our points of interest feature, a timeline tool that uses markers to quickly guide you to news worthy and interesting highlights of our coverage. Use points of interest any time online at cspan. Org. Michael cn official at the Government Accountability office, testifies on his agencys review of now Michael Clements testifies on his agencys review of the Signature Bank and Silicon Valley bank collapses. This runs about 90 minutes. Without objection, all members will have five legislative days to submit extraneous materials to the chair for inclusion in the record. I would like to take five minute heres for mr. Huizenga i would like to take five minute heres far brief opening state. Congressional oversight is a Constitutional Authority used to maintain the well being of our system of government. This is a lesson i learned from my fellow congress sorry surt the timer going. There we go. This lesson of oversight was something that i learned from someone who is considered the lion of the house, john dingell. He was still in congress when i first came here and he taught me a couple of things. One, he called it the tyranny of the vote. Didnt matter who you were with, what you were doing, what was happening or where you were. When they rang the bells we had that time to go to the house floor to vote. The other was, our constitutional standing, our obligation, frankly, of oversight of administration. And he was an expert at that. Didnt matter what the party label was. He always fought for the standing of congress. Well, the g. A. O. Office is the Government Accountability office is an investigative arm of congress. They provide factbased, nonpartisan information that can be used to improve government and save taxpayers billions of dollars. Committee republicans and democrats should support robust oversight of our financial regulators aiming to seek transparency and demanding that accountability. Unfortunately as youll hear in todays testimony, regulators in washington are attempting to paint a bit of a different picture. But the facts are clear. The collapse of s. P. B. And Signature Bank were the result of Risky Business strategies, no doubt, and years of failed supervisory action. Some of the concerns identified in g. A. O. s april report are now not new. In 2013, a report titled Financial Institutions causes and consequences of recent bank failure, the g. A. O. Highlighted that Aggressive Growth strategies using nontraditional riskier funding similar to those of s. P. B. And signature were key factors in those failures. This accounted for much of their total asset which is the fdic noted in 2019 could pose risks to Regional Banks. S. P. B. Was also affected by Rising Interest Rates, fueled by reckless spending in the Federal Reserve that was too late to react. In 2015, g. A. O. Report on Bank Failures conclude the regula tirrer to process was not always effective or timely in correcting the underlying problems before the banks failed. In years prior to their collapse, the Federal Reserve and the fdic identified management risks at both banks. Yet allowed those risks to go unfixed. The failure of federal regulate dwrors mitigate or escalate management concerns proved costly. While the f. A. O. s report that examining treasurys use of the Systemic Risk exception, the s. R. E. , and the establishment of the Bank Term Funding program, particularly the use of the s. R. E. Is a powerful emergency tool and that has not been without criticism. In part of our investigation into the governments response to these bank failure, the subcommittee hopes to better understand how Federal Reserve and the fdic concluded that the that recommending use of the s. R. E. Was the last resort. Again, the g. A. O. Has previously reported that use of the Systemic Risk exception, quote, may weaken Market Participants incentives to properly manage risk, close quote. While the treasury secretary has warned the public not assume the action create guarantee of deposits, its hard, frankly, to think otherwise. Ultimately whatever losses to the Insurance Fund will be passed down to hardworking americans. Frankly, any loss in confidence in our Banking System is a loss in confidence of our regulators. Regulators had the tools at their disposal to prevent Bank Failures from happening and they missed it. Period. And instead of concentrating on the basic, the things that they didnt get right, some of my friends on the other side of the aisle want to give our regulators even more complicated rules. The g. A. O. s report provides no evidence they failure of s. P. B. Or Signature Bank were the result of relaxed regulations. I believe it necessary to reiterate how important it is that this committee receives the information that has been requested and the information we will be requesting moving forward. The American People deserve answers. We should not allow history to be rewritten and i welcome the fdic and the Federal Reserve to appear at future subCommittee Hearings to further answer our questions. Im committed to making sure this subcommittee doesnt just draw conclusions but bases its findings on evidence. That is what oversight is and as chairman thats my commitment to our members. I look forward to hearing from director cle menthes clements and i yield back the balance of my time. With that, i recognize the gentleman from texas, mr. Green. Mr. Green i commend the prompt response of President Biden, Ranking Member waters and federal regulators to the failures of Silicon Valley bank and other banks. It prevented contagion, prestherved integ i have to our Banking System among many other things. The rapid collapse of these banks reveals how quickly bank runs can occur in our increasingly connected world. Although fingers will be pointed at technology, President Biden, and regulators as factors in the failure of Silicon Valley bank and Signature Bank, they were not in not, not the root cause of bank failure. The focus of todays hearing should be the mismanagement of these banks by their executives in the years leading up to the collapse. In tandem with the trump era deregulation that enabled this mismanagement to fester. Both Silicon Valley bank and Signature Bank experienced outsized greet between 2018 and 2022. Signature bank grew from approximately 47 billion in total assets in 2018, 110 billion in 2022. Silicon valley Bank Increased from 56 billion to 209 billion over that same period of time. Mr. Chairman, some things bear repeating. Silicon valley Bank Increased from 56 billion to 209 billion over that same period of time. This outsized growth in assets was fueled by more than 70 uninsured deposits at both banks, for a higher than the median of 32 for comparable banks. Executives at beth banks knew, or should have known, that their Risk Management practices had to be strengthened appropriately as they grew exponentially. Adding insult to injury, mr. Chairman, Silicon Valley bank irresponsibly operated without a chief risk officer from april until december of 2022. Is it a coincidence, i ask . That these banks grew rapidly beginning in 2018 and failed to adequately manage their risk around the same time that former President Trump signed s. 2155, his Bank Deregulation bill, into law . S. 2155 diminished regulatory standards on these mid sized banks, resulting in much less enforcement security. Friends, blaming President Biden and regulators wont reinstate stronger regulations on mid sized banks or promulgate needed legislation to enable lawful clawbacks of illgotten mismanagement executive compensation. Only legislation can do this. I want to thank you for the time and i want to ask the Ranking Member of the full committee if she desires time. Yield to the Ranking Member. Ms. Waters i thank the g. A. O. For preliminary review issued at mine and chairman ken distribution request on sill von valley and Signature Banks. It clearly describes how the fdic failed repeatedly to inform these banks as early as 2018 about deficiencies in their liquidity and Risk Management. Instead of taking actions, these banks ignored warnings. Let me be clear. Regulators need to be more aggressive, something i have long been demanding with regard to repeated abuses at wells fargo. However, it was the responsibility of the banks first and foremost to swiftly and thoroughly correct the deficiencies that were flagged regulators. We now need to hold banks and their executives accountable, reverse trump era deregulation, enhance supervision of banks, and reform deposit insurance. Bawng and i yield back. Mr. Huizenga the gentleman yields back. Today we welcome the testimony of mr. Clements who leads the g. A. O. s work in overseeing Financial Markets and regulators. Mr. Clements led the team responsible for preparing the interim report by the g. A. O. Weeks ago on the march, 2023, Bank Failures. Since 1999 he has contributed to the g. A. O. And previously the Broadband Communications and Telecommunications Industries as well. We thank you for taking your time here today sir. Youll be recognized for five minutes to give an oral presentation of your testimony and without objection, your written statement will be made part of the permanent record. You are recognized for five minutes. Mr. Clements thank you, chair huizenga, Ranking Member green, Ranking Member waters. I am here to speak about the bank failure as reflected in our april, 2023, report to the committee. At the time Signature Bank and Silicon Valley bank were the 16th and 29th largest banks in the country respectively. Their failures could have posed a 25 billion cost on the Insurance Fund. While not part of our work, First Republics recent failure could have posed another 13 billion cost on the fund. I will focus on one banks specific factors that contributed to the fail yurks and two, supervise yory actions regulators took leading up to the failures. First, the bank failure. We found that Risky Business strategies and weak liquidity contributed to the failures at s. V. B. And Signature Banks. S. V. B. And signature both exceeded rapid growth, exceeding that of pure banks. S. V. B. s assets more than tripled in the three years prior toits failure. S. V. B. And signature also relied heavily on uninsured deposits. Signature funded 82 of its assets with uninsured deposits. S. V. B. And signature also exhibited weak liquidity and Risk Management controls. When confronted with external pressures, Rising Interest Rates for s. V. B. And weakening Digital Asset markets for signature, the Risky Business strategies and weak management contributed to the banks failure the banks failures. Secondly, the regulators supervisory ry actions. We found the regulators identified problems at s. V. B. And Signature Banks but didnt escalate in time to mitigate the risk. Federal reserve staff who examined s. V. B. And fdic staff who examined signature identified problems at the banks. For example, between 2018 and 2022, the Federal Reserve issued 10 matters requiring attention to s. V. B. For liquidity and Risk Management problems. Likewide, fdic issued matters requiring board attention and other recommendation for similar problems. However we found the Federal Reserve and fdic did not adequately escalate their superviedzry actions. The fdic was largely positive in ratings of s. V. P. From 2018 to 2022, rating them as satisfactory. When s. V. B. Moved from the Federal Reserve regionalling or neenyization they began to downgrade. Yet despite serious management problem, the Federal Reserve didnt issue and enforcement action before the bank failed. Likewise, fdics ratings of Signature Bank found its overall condition was satisfactory from 2018 to 2021. Fdic staff told us they were considering escalating supervisory actions in 2022 including taking Enforcement Actions. However, despite stig in atures repeated failures to remediate the liquidity and management problems, they only issued Enforcement Actions the day before the bank failed. In 2015 we reported that though regulators often identified risky failures, their actions were not timely or effective in correcting the problems. Mr. Huizenga ive just gotten notice that theyre having a difficult time hearing you through the audio. If you could pull that closer. We can hear it all well here in the hearing room, but apparently just not through television. So if just pick up where youre at. Thats helpful. Sorry about that. Mr. Clements in 2011, following the financial crisis we recommended they added noncapital triggers to the prompt corrective action framework to help give more advanced notice of deteriorating conditions and in 1991, following the savings and loan crisis, we found that regulators did not always use the most forceful actions available to them to correct unsafe and unsound practices. We continue to believe taking early action would give regulators and banks more time to address deteriorating conditions. Chairman huizenga, Ranking Member green, members of the subcommittee this completes my prepared statement and im happy to respond to any questions you may have. Mr. Huizenga we appreciate that. We will turn to member question. The chair recognizes himself for five minutes for questioning. Again, mr. Clements, thank you for testifying before our subcommittee today here, the work you and your team have done to complete the preliminary report so quickly is much appreciated. Your report is the only impartial review conducted on these Bank Failures in my estimation and id like to start by setting the stage, starting with how the preliminary review was conducted. I understand you conducted interviews with staff from the Federal Reserve, fdic and treasury. Can you talk to us about how those witnesses were identified for you to interview . Did you do that on your own . How did that work . Mr. Clements we had one meeting with each of those entities. Our Standard Practice is to send our list of questions over to the agencies and then the agencies will identify staff who are best positioned to answer those questions and do any followup work. We will be more specific in asking for particular individuals to speak with. So in the case of the Federal Reserve, we met with board staff and supervisor and supervision and Regulation Division and also with staff from the Federal Reserve bank of San Francisco. Mr. Huizenga did you feel like you had full access to agency staff . Were you table do followup with those folks as we were getting back with some of these answers . You said you passed the questions along, they selfidentified who would be best to answer those, were you table interview those folks and do some followup . Mr. Clements at this point we just had one meeting with the three agencies. Moving forward well have further meetings with them. Mr. Huizenga were they in person . They were virtual. Mr. Huizenga ok. And then do you know that the interviews that you conducted, were there others, were there multiple people on at the same time . Was it with one individual . Mr. Clements these were among the entire staff that the agencies identified for us. Mr. Huizenga so it was a whirlwind, you had everybody on the screen doing the zoom . Mr. Clements its a preliminary initial meeting with the agency to go over what t