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On Wednesday, March 29, 2023, at 10:00 a.m. (ET) full Committee Chairman McHenry and Ranking Member Waters will host a hearing entitled, “The Federal Regulators’ Response to Recent Bank Failures.”

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Witness for this one-panel hearing will be:

• The Honorable Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation

• The Honorable Michael S. Barr, Vice Chairman of Supervision, Board of Governors of the Federal Reserve System

• The Honorable Nellie Liang, Under Secretary for Domestic Finance, U.S. Treasury Department

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Background

This hearing will examine events leading up to the closure of Silicon Valley Bank (SVB), Santa Clara, CA and Signature Bank (Signature Bank), New York, NY by state and federal banking regulators. The hearing will also review the activities of federal and state regulators, receiverships, and steps toward resolving the failed banks by the FDIC, including the emergency measures taken by the U.S. Department of the Treasury, Federal Deposit Insurance Corporation, and Board of Governors of the Federal Reserve System.

Timeline of Events:

March 8, 2023:

• SVB announced that it had sold $21 billion of securities holdings to cover withdrawal requests at a $1.8 billion loss. In response, SVB Financial Group (SVB’s holding company) announced its intention to issue $2.25 billion in share offerings to raise capital.

March 9, 2023:

• SVB experienced $42 billion in outflows.

March 10, 2023:

• The California Department of Financial Protection and Innovation closed SVB and appointed the FDIC as receiver.

March 11, 2023:

• The FDIC reportedly conducted an auction for a purchase and assumption (P&A) of SVB.

March 12, 2023:

• The FDIC announced that Signature Bank was closed by the New York Department of

Financial Services and the FDIC was appointed receiver.

• The FDIC, in conjunction with the FRB and Treasury Secretary invoked the Systemic

Risk Exception to the FDIC’s least cost resolution mandate to insure all deposits of SVB and Signature.

• The Federal Reserve, using Federal Reserve Act section 13(3) authority, established the

Bank Term Funding Program, offering banks loans of up to one year on U.S. Government collateral at the par value of the securities.

• The Treasury Secretary, in her role as Chairperson of the Financial Stability Oversight Council (FSOC) convened an FSOC meeting to discuss developments associated with the failures of SVB and Signature Bank.

March 13, 2023:

• The FDIC announced that it will restart the P&A auction for SVB and began an auction for Signature Bank.

• The Federal Reserve Board announced that Vice Chair for Supervision Michael Barr will lead a review of the supervision and regulation of SVB, in light of its failure.

March 17, 2023:

• SVB Financial files for Chapter 11 bankruptcy.

March 19, 2023:

• The FDIC announced that Flagstar Bank, N.A. a wholly owned subsidiary of New York Community Bancorp, will purchase the loan portfolio and substantially all deposits of Signature Bridge Bank, N.A.

March 20, 2023:

• The FDIC announced an extension of SVB’s auction proceeding.

Hearing page: …(read more)

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The recent bank failures have raised concerns about the stability and reliability of the banking system in the United States. In response to these failures, federal regulators have implemented measures to ensure the protection of depositors, prevent future collapses, and promote stability in the financial system.

The first step taken by regulators was to provide assurance to the public that their deposits were safe and would be protected. Under the Federal Deposit Insurance Corporation (FDIC), deposits of up to $250,000 per depositor per insured bank are guaranteed. In addition, the FDIC has increased its monitoring and supervision of banks to identify potential problems early on. This will allow for swift intervention to minimize losses and avoid bank failures.

Another measure taken by the regulators was to assess the risk levels of banks and require them to maintain adequate capital reserves. Banks with high levels of risk are required to hold more capital as a cushion against potential losses. This is known as the Basel III framework, which sets standards for capital adequacy, liquidity, and leverage.

The regulators have also increased their scrutiny of the activities of large banks and other financial institutions. Following the financial crisis of 2008, the Dodd-Frank Act was passed to strengthen regulations and prevent future crises. The Act created the Financial Stability Oversight Council, which has the power to identify and monitor risks to the financial system and take action to address them.

Finally, the regulators have emphasized the importance of transparency and accountability among banks. The public needs to be able to trust that banks are operating in their best interests and not taking undue risks. The Securities and Exchange Commission (SEC) requires banks to disclose information about their activities and to engage in responsible lending practices.

In conclusion, federal regulators have taken a proactive approach to prevent future bank failures and promote stability in the financial system. Their measures include the protection of depositors, increased monitoring and supervision of banks, proper risk assessment, increased scrutiny of large banks and financial institutions, and an emphasis on transparency and accountability. The implementation of these measures is essential to maintaining the confidence of the public in the banking system and ensuring the stability of the US economy.