Regulators Seek ‘Unflinching’ Look at SVB and Bank Supervision at Capitol Hill Hearings – PYMNTS.com

It’s common practice on Capitol Hill for witnesses — appearing before various committees — to release their testimony ahead of time.
And what’s written down sets the tone for the conversation and the questioning that’s sure to follow.
Ahead of his appearance before the Senate Banking Committee, slated to focus Tuesday on Silicon Valley Bank (SVB) but sure to broaden into the oversight in banking in general, Michael Barr, the Federal Reserve’s vice chair for supervision, has said that the banking system is “sound and resilient,” with “strong capital and liquidity.”
But a lot’s going to be on the table — including whether things are going to change on the regulatory front.
In his prepared remarks, Barr noted that “our first step is to establish the facts — to take an unflinching look at the supervision and regulation of SVB before its failure. This review will be thorough and transparent, and reported to the public by May 1.”  That report, he said, will include confidential supervisory information, including supervisory assessments and exam material “so that the public can make its own assessment.”
SVB’s collapse, he said, was spurred by inadequate risk management and internal controls.
But in what seems a nod to looking beyond the confines of SVB, there are hints that we’re about to see more focus on what regulators were examining and whether it went far enough. You might call it a form of  supervising the supervision.
Barr said in the statement that “in addition, recent events have shown that we must evolve our understanding of banking in light of changing technologies and emerging risks. To that end, we are analyzing what recent events have taught us about banking, customer behavior, social media, concentrated and novel business models, rapid growth, deposit runs, interest rate risk, and other factors, and we are considering the implications for how we should be regulating and supervising our financial institutions. And for how we think about financial stability.”
Size thresholds may not be a “good proxy for risk,” he said — and to that, the door will be opening to examine other proxies.
Martin Gruenberg, chairman of the Federal Deposit Insurance Corp., and Nellie Liang, the Treasury’s under secretary for domestic finance, are also set to testify.
And in drilling down into Gruenberg’s statement (Liang’s was not available as of this writing), the FDIC is also set to release its own findings on oversight of the failed banks, where a report is scheduled by the end of next month.
In discussing the determination to backstop uninsured deposits, Gruenberg’s statement detailed that “a significant number of the uninsured depositors at SVB and Signature Bank were small and medium-sized businesses. As a result, there were concerns that losses to these depositors would put them at risk of not being able to make payroll and pay suppliers.  Moreover, with the liquidity of banking organizations further reduced and their funding costs increased, banking organizations could become even less willing to lend to businesses and households.”
“The two bank failures,” Gruenberg noted, “demonstrate the implications that banks with assets over $100 billion can have for financial stability. The prudential regulation of these institutions merits serious attention, particularly for capital, liquidity, and interest rate risk.”
In an interview published Monday, QED Partner Amias Gerety, a former Treasury official, told PYMNTS’ Karen Webster that lawmakers will have a chance to ask the regulators the important questions.
As he told Webster, “This is a good opportunity to zoom out and actually ask people who are on the ground and in the room, ‘What are you seeing? Are the things that you wish we had done differently? Are you things that you wish you had?’”
Whether the lawmakers seize upon that opportunity … well, that’s another matter entirely.
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