March 28 (UPI) — During a Tuesday meeting of the U.S. Senate Committee on Banking, bipartisan lawmakers sharply criticized financial regulators over the collapse of Silicon Valley Bank.
Michael Barr, the second vice chair of the Federal Reserve for supervision testified Tuesday, answering questions from both sides of the aisle about why the California bank failed suddenly earlier this month.
“In less than a day, Silicon Valley Bank customers pulled $42 billion out of the bank — fueled by venture capitalists and their social media accounts. They created the largest and fastest bank run in history. In the following days, Signature Bank lost $17.8 billion,” Sen. Sherrod Brown, D-Ohio and who chairs the committee, said during his opening remarks.
“One woman told me she was terrified she wouldn’t be able to pay her workers the next week,” he said.
State regulators shut down Silicon Valley Bank March 10, the first FDIC-insured bank to fail in the United States in more than two years.
Tech-focused Signature Bank was closed days later.
Barr testified Tuesday, that had federal authorities not stepped in, that $42 billion figure could have been closer to $100 billion in cash the next day, calling both situations a “textbook case of mismanagement.”
Sen. Steve Daines, R-Mont., asked Barr if he would recommend regulators be fired, if his review pointed to negligence.
Barr agreed stronger regulations are required to ensure future compliance. But all lawmakers who spoke Tuesday, including Chairman of the Federal Deposit Insurance Corporation Martin Gruenberg, reiterated they have confidence in the U.S. banking system.
“By all accounts, this is a classic tale of negligence, and it started with the banks themselves. Without any question, that’s where the buck stops. So, it is imperative that we hear straight from the horse’s mouth, so to speak, to find out why these banks were so poorly managed and so poorly managed [their] risks,” Sen. Tim Scott, R-S.C., the committee’s ranking member said Wednesday.
“Unfortunately, the bank executives aren’t the only managers we’re missing.”
Executives from Signature Bank, and Silicon Valley Bank, including CEO Greg Becker, did not appear Tuesday. Federal Reserve chair Jerome Powell also was absent, which Scott also lamented.
“Instead, we have the Vice Chair of Supervision here to use our committee as a platform to talk about the wrongs under his supervision. As the Federal Reserve has already announced, he is conducting a review to assess any supervisory failures, which is an obvious, inherent conflict of interest and a classic case of the fox guarding the hen house,” he told the committee.
Powell in mid-March announced a review of supervision and regulatory procedures, which is being led by Barr.