Tuesday started two days of hearings about the failure of Silicon Valley Bank and the role of federal regulators both before the bank’s collapse and since then. Lawmakers from both parties criticized top officials and dug into what went wrong. Congressional Correspondent Lisa Desjardins reports.

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LEARN MORE ABOUT: Bank Failures

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The United States Congress has launched an investigation into why bank failures were not prevented despite warning signs. The investigation comes as a response to the recent bank failures across the country, which has left many wondering how these institutions were allowed to fail despite clear indications of impending troubles. Congress has vowed to seek answers to the questions surrounding the matter and take necessary action to prevent future failures.

The investigation will focus on several key areas, including regulatory supervision, corporate governance, and risk management. Experts believe that these areas have been deeply affected by the pandemic, leading to a rise in the number of bank failures. The investigation will also delve into the banks’ lending practices and their response to the changing market conditions.

One of the key issues the investigation will examine is whether regulatory supervision was adequate. Many experts argue that under-regulation may have played a significant role in the recent bank failures. Congress aims to explore the regulatory framework put in place to ensure that banks are operating within safe boundaries. This, coupled with a lack of adequate monitoring, could have led to banks taking excessive risks, leading to financial ruin.

Corporate governance will also be under scrutiny in the investigation. This aspect covers the policies, structures, and procedures that govern the institution’s operations. Recent reports suggest that many banks’ corporate governance may have been suspect, leading to ineffective internal controls and weak oversight. The investigation will consider reforms in corporate governance to ensure institutional accountability.

Another critical area that the investigation will focus on is the risk-management practices of banks. Experts point out that many banks have failed to anticipate risk and effectively mitigate any potential threats, creating a high-risk environment that led to failure. Congress will explore best practices in risk-management, including effective risk assessment, monitoring, and mitigation responses. This will enable banks to respond to the dynamic financial environment and put effective measures in place to mitigate risk.

Lastly, the investigation will review the banks’ lending practices. As a result of the pandemic, many banks revised their lending policies, offering forbearance and lenient repayment terms. Congress will explore whether lending practices were responsible for the recent bank failures and seek better lending practices that will help mitigate the risk in lending. This could include enforcing lending regulations, creating effective monitoring frameworks, or empowering relevant government agencies to protect borrowers.

In conclusion, the Congress investigation into the bank failures is a step towards ensuring that such failures do not occur in the future. The investigation will help identify the potential causes of bank failures and provide recommendations for reform to strengthen the banking system. Congress intends to put robust reforms in place to ensure that the banking system functions effectively, leading to greater stability in the financial sector. Ultimately, a stable banking sector translated to a healthier economy for the country as a whole.