Was it really necessary to bail out all of those depositors?
That’s likely to be one of the major questions from lawmakers on Tuesday, when the Senate Banking Committee holds its first hearing on this month’s collapse of Silicon Valley Bank, as well as the extraordinary federal intervention that backstopped its deposits. Federal Reserve Vice Chair for Supervision Michael Barr is testifying, as is Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation.
Republicans on the panel, led by South Carolina Sen. Tim Scott, are expected to ask whether the FDIC rejected a bid from another bank to buy SVB because regulators did not want to further supersize any “too big to fail” financial institutions, according to a committee aide. Semafor previously reported that the largest US banks were initially excluded from the auction process that the Biden administration organized.
It’s a politically sensitive issue, since backstopping deposits wouldn’t have been necessary if regulators had been able to find a buyer. If they did reject bids, it could expose the Biden administration to charges that it unnecessarily bailed out the startups and venture capitalists who banked at SVB, and possibly weaken the case for policy changes members of Congress have discussed, such as raising deposit insurance limits.
House Republicans have raised the same issue recently as well, and will get their own chance to probe it when the House Financial Services panel holds its own hearing Wednesday.
“What we don't know is the key decisions that were made that weekend that made us have a very stressful 12 days since then,” House Financial Services chair Patrick McHenry told reporters last week. “Did they have better options they didn't pursue because of some ideological lens on the regulators and this administration? But we’re going to pursue those things.”
Many Democrats like Senate Banking Chair Sherrod Brown, D-Ohio, are making the case for stiffer oversight over Wall Street after regulations governing mid-size banks were scaled back in 2018. “These bank executives were clearly incompetent at these two banks and we’ll explore beyond that,” he told Semafor on Monday.
But Republicans so far are opposed to new regulations on the banking sector, arguing the bank failures stem from a one-two punch: executives who miscalculated the health of their balance sheets and lax oversight from the San Francisco Fed, whose bank examiners have been accused of falling down on the job.
Barr is expected to defend the Fed’s performance. In testimony posted Monday, the vice chair says bank supervisors warned SVB about its poor risk management in 2021 and 2022. “We need to ask why the bank was unable to fix and address the issues we identified in sufficient time,” his testimony reads. “It is not the job of supervisors to fix the issues identified; it is the job of the bank's senior management and board of directors to fix its problems.”