A bipartisan group of senators has sent a letter to Federal Reserve Chair Jerome Powell questioning whether the central bank exercised its full legal authority to oversee Silicon Valley Bank and other midsized financial institutions.
(Bloomberg) — A bipartisan group of senators has sent a letter to Federal Reserve Chair Jerome Powell questioning whether the central bank exercised its full legal authority to oversee Silicon Valley Bank and other midsized financial institutions.
The five lawmakers, including Bob Menendez, a New Jersey Democrat, and Mike Rounds, a South Dakota Republican, are members of the Senate Banking Committee.
In the letter, a copy of which was obtained by Bloomberg, they asked whether the Fed used its powers under federal law to apply an “enhanced supervision and prudential standard” for Silicon Valley Bank or any bank with between $100 billion and $250 billion in assets.
The law allows the Fed to do so in order “to prevent or mitigate risks to the financial stability” of the US and “to promote the safety and soundness of the bank.”
The senators requested answers by April 10 in the letter, which was sent on Monday.
Such an assessment would have subjected SVB to more stringent standards faced by the largest banks, including higher capital and liquidity requirements and annual stress tests. SVB reported $211.79 billion in assets before its failure earlier this month, well within the statute’s prescribed jurisdiction.
The question points to a key issue in reform legislation passed in 2018 that guided regulators to tailor their supervision to banks by size.
The law increased the asset threshold to which enhanced prudential standards apply from $50 billion to $250 billion but allowed regulators discretion to decide once a bank crossed the $100 billion mark. In effect, law gave regulators authority to step up oversight on smaller, but risky banks.
The Banking Committee is holding its first hearing Tuesday since the failure of SVB and Signature Bank. Fed Vice Chairman for Supervision Michael Barr is scheduled to testify along with Federal Deposit Insurance Corporation Chairman Martin Gruenberg and Treasury Undersecretary For Domestic Finance Nellie Liang.
The lawmakers in their letter wanted to know whether the central bank ever used its authority to apply stricter oversight standards on SVB or any other midsize bank. The answer is a key part of the puzzle over what went wrong with SVB. While some Democrats have blamed the recent turmoil on the 2018 legislative changes, others have painted it primarily as an apparent failure by the banks’ supervisors.
The other three senators who signed the letter are Democrat Catherine Cortez Masto of Nevada and Republicans Thom Tillis of North Carolina and Cynthia Lummis of Wyoming.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.