PBS News Hour: Congress investigates why bank failures were not prevented despite warning signs

by Lisa Desjardins, Alexis Cox and Eliot Barnhart

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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  • Geoff Bennett: Lawmakers also dug into what went wrong and the role of federal regulators both before the bank’s collapse and since then.Congressional correspondent Lisa Desjardins reports on the hearing.
  • Sen. Jon Tester (D-MT): It looks to me like the regulators knew the problem, but nobody dropped the hammer.
  • Lisa Desjardins: In the first formal congressional hearing on the collapse of Silicon Valley Bank, senators grilled top federal regulators on why they didn’t do more to prevent the bank’s demise.
  • Sen. Thom Tillis (R-NC): This does not take a highly sophisticated person to understand the risk, and it damn sure had to be known months before the chickens came home to roost.
  • Rep. Katie Britt (R-AL): If the outside sector knew this was happening, you and the Fed and the other 4,000 other examiners should have known that as well.
  • Lisa Desjardins: Officials, including the Federal Reserve’s top regulator, Michael Barr, laid the blame primarily on the bank itself, saying SVB grew too quickly and, rolled the dice, rather than acting, as rising interest rates created high risk.Michael Barr, Vice Chair of the Federal Reserve: This is a textbook case of bank mismanagement.
  • Lisa Desjardins: But senators’ gaze was pointed equally at the Fed.
  • Sen. Sherrod Brown (D-OH): Mr. Vice Chair Barr, did the Fed drop the ball because it didn’t see the risk that was building?
  • Michael Barr: Fundamentally, the bank failed because its management failed to appropriately address clear interest rate risk and clear liquidity risk. The Federal Reserve Bank brought forward these problems to the bank, and they failed to address them in a timely way.
  • Lisa Desjardins: Senators asked why Fed regulators didn’t act sooner, with some Republicans noting that the agency saw signs of risk and flagged them as early as 2021.
  • Sen. John Kennedy (R-LA): The Federal Reserve knew well in advance that Silicon Valley Bank had a problem with holding too much of its money in interest rates since the long government bonds, didn’t you?
  • Michael Barr: I think the investing public and the Federal Reserve, which cited it for interest rate risk problems, knew that it had interest rate risk
  • Sen. John Kennedy: The Federal Reserve didn’t do anything about it, did it?
  • Michael Barr: I disagree with that, Senator, respectfully. The Federal Reserve did cite these problems to the bank and required them to take action. Bank management failed to act on those.
  • Sen. John Kennedy: You didn’t follow up, did you?
  • Lisa Desjardins: Some Senate Democrats like Elizabeth Warren are urging more regulation, but not all. Jon Tester of Montana voiced his larger frustration.
  • Sen. Jon Tester: I am not a banker. I ain’t even close to being a banker. I’m a dirt farmer. And I’m going to tell you, when they laid out what at this bank had happened over the last two years, you didn’t have to be an accountant to figure out what the hell was going on here.
  • Lisa Desjardins: Rafael Warnock of Georgia.
  • Sen. Rafael Warnock (D-GA): Here’s the bottom line. Ordinary folks who just showed up, put their deposits, they shouldn’t have to bear the brunt and burden of these bad decisions.
  • Lisa Desjardins: The FDIC is in the middle of a review of what happened and how it insures bank customers. As for the Fed, Barr said it will consider stricter regulations for banks going forward.For the “PBS NewsHour,” I’m Lisa Desjardins.
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