Peace Garden News

WASHINGTON – U.S. Senator Kevin Cramer (R-ND) at a Banking Committee hearing questioned regulators about the supervisory shortfalls which contributed to recent bank failures. Witnesses included Michael Barr, Federal Reserve (Fed) Vice Chair for Supervision, Martin Gruenberg, Chair of the Federal Deposit Insurance Corporation (FDIC), and Michael Hsu, Acting Comptroller for the Office of the Comptroller of the Currency (OCC), among others. Excerpts and full video are below.

https://youtu.be/Q6F-Y5J_Dqs

The Senator first compared the responsibilities of banking system supervisors with those of soccer referees, demonstrating the importance of enforcing existing rules and regulations.

“I was a soccer referee before I took up this other crazy job. If I didn't pull out my yellow card at the first reckless act, that was a license for [players] to go crazy. But when I did put up my yellow card with the first reckless act, everybody on the pitch knew if somebody else did it or they did it again, it could be a red card. If I warned them gently, they often just kept playing rough. More rules and regulations without appropriate regulating will get us nowhere.” 

He shifted gears to discuss how social media may have escalated public panic surrounding Silicon Valley Bank (SVB), and in turn, accelerated the March 2023 run.

“What if there hadn't been a run on SVB? What if everything was the same, we know they made some sales that raised some concerns, legitimately. But what if there hadn't been a social media pitch that caused this run? Would we even be here today? Is it possible that nothing would have ever happened had there not been this sort of panic, fear?” asked Senator Cramer. 

“What we focus on as supervisors when we're doing our jobs right are the vulnerabilities a firm faces and making sure the firm is addressing those vulnerabilities, and making sure we have resilience in the system with good rules on capital and liquidity. So, if there's a shock nobody anticipates, they're not hit in a way that causes contagion in the financial system,” responded Fed Vice Chair Barr. 

He also asked about the sale of First Republic Bank to JP Morgan and the factors the FDIC and OCC consider when reviewing such transactions.

“There's been a lot of talk about the sale of First Republic to JP Morgan – speaking of big getting bigger, the irony’s rich. Tell me, I know the bid price is the big thing, that's easy go-to at an auction, but is there more to it? Should we have considered other factors in approving that sale when there were other bidders?” asked Senator Cramer. 

“The statute under which the FDIC works in these matters is clear and it gives us one factor to consider, which is least cost. That was the only factor we are allowed to consider under the law in reviewing the pitch we've received for First Republic,” responded FDIC Chair Gruenberg. 

“The factors we’re subjected to are laid out by the Bank Merger Act, and those statutory factors relate to competition, convenience, the needs of the community, financial stability, BSA, AML, managerial, financial resources, etc. We also have guidelines we've released that articulate the frameworks for reviewing those. In a failing bank case, especially where there's a larger institution, the financial stability factor becomes quite important. It's very important for us to ensure the actions we take ensure coordinated and timely government action, support a minimal cost to the DIF, and check the risk of contagion and uncertainty,” responded OCC Acting Comptroller Hsu.

Finally, in reference to the report the Fed published on SVB's collapse, Senator Cramer called on federal regulators to improve their focus for more forceful responses: "It'd be better if regulators focused on the things they're supposed to focus on. You've articulated your parameters very well; let's stay in those parameter and focus." 

Original source can be found here.