Here Are the Key Takeaways From the Senate Hearing on Bank Failures

Here are five key takeaways from the US Senate Banking Committee’s questioning of federal regulators on the recent banks failures:

(Bloomberg) — Here are five key takeaways from the US Senate Banking Committee’s questioning of federal regulators on the recent banks failures:

Several Republicans took aim at the Federal Deposit Insurance Corp.’s handling of Silicon Valley Bank right after its failure, specifically asking Chairman Martin Gruenberg why it rejected two bidders who might have taken over the bank before regulators were required to bail out uninsured depositors. Gruenberg said there was too little time in that window to properly assess the bids, and the FDIC’s legal restrictions on resolving a failed bank required it to reject the bids.
Senators of both parties had tough questions, but few answers, on why the Federal Reserve didn’t “drop the hammer,” in the words of Senator Jon Tester, on SVB before it collapsed, despite first flagging its interest-rate risk back in 2021. Did Fed supervisors exercise, or were they allowed to exercise, their full authority in addressing problems identified at SVB as early as 2021? Senators of both parties also said they want to claw back executive compensation at the banks.
The two parties split dramatically over the need for tougher regulation. Democrat Elizabeth Warren got all three witnesses to agree stronger regulation is needed. Republicans like Thom Tillis, however, worried banks that don’t engage in SVB’s risky practices would face onerous new requirements as a result. Lawmakers also sparred over the 2018 Trump-era law that led to the Fed rolling back regulations on banks like SVB and Signature.
Gruenberg also suggested that the FDIC will have to decide which banks will have to pay for tens of billions on anticipated losses from SVB and Signature. The FDIC has some flexibility to decide who should pay what and is under pressure from senators to exempt smaller banks.
Going in to today’s hearing, analysts said they didn’t expect much of a market reaction unless there were any strong announcements related to expanded FDIC insurance or bank assistance. Broader markets didn’t seem to move much with the Senate hearing. The KBW Bank Index, tracking national and regional banks, posted modest moves. Toward the start of the hearing, the index gained as much as 0.9%. But by the end, it had pared back those gains and as little changed on the day.

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–With assistance from Carly Wanna.

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