US regulators face sharp questions from Congress over bank collapses

Lawmakers demanded details from top US bank regulators on the unexpected failures of regional lenders Silicon Valley Bank and Signature Bank during testimony on Tuesday.

Regulatory officials for the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Treasury Department are testifying before congressional committees on the swift collapse of the two banks earlier this month. The failures set off a broader loss of investor confidence in the banking sector.

Senior members of the Senate Banking Committee said the banks had been mismanaged, but also wanted to know how the firms ended up in such a precarious position, reports Reuters.

"The scene of the crime does not start with the regulators before us. Instead, we must look inside the bank, at the bank CEOs, and at the Trump-era banking regulators, who made it their mission to give Wall Street everything it wanted," said Senator Sherrod Brown, who chairs the panel.

While lawmakers in both parties agreed the banks were mismanaged, Republicans reserved ire for regulators as well, who they said should have identified and addressed the problems sooner. Senator Tim Scott, the panel's top Republican, cast doubt on giving regulators more authority in the wake of the crisis.

"The warning signs should have been flashing red," said Scott, the panel's top Republican. "If you can't stay on mission and enforce the laws as they already are on the books, how can you ask Congress for more authority with a straight face?"

Regulators have vowed to review their rules and procedures after the twin failures while insisting the overall system remains sound.

In opening remarks, officials from the Fed and FDIC said depositor funds are safe and sound. But they both said they are reviewing what led to the bank failures, and what rules need to be changed to prevent such collapses in the future.

Critics have noted how both firms, but particularly SVB, rapidly grew in size and ended up with huge amounts of uninsured deposits. Those funds quickly fled at signs of trouble, according to Fed Vice Chair for Supervision Michael Barr.

"It may be tempting to look at all this and say, we don’t need new rules. The real problem was these arrogant executives," said Brown. "But there will always be arrogant executives. That’s exactly why we need strong rules."

Barr promised an "unflinching" look at how SVB was supervised, but also noted it ultimately falls to bank management to address shortcomings, not supervisors.

Some Democrats, including major bank critic Senator Elizabeth Warren of Massachusetts, have also argued a 2018 bank deregulation law is to blame. That law, mostly backed by Republicans but also some moderate Democrats, relaxed the strictest oversight for firms holding between $100 billion and $250 billion in assets, which included SVB and Signature.

In their remarks, both Barr and FDIC Chairman Martin Gruenberg indicated they are looking into tightening rules for banks and applying stricter oversight for firms similar to SVB.

The hearing is expected to be the first of several. The House Financial Services Committee will hear from the same regulators Wednesday, and congressional leaders have already said they want to question former CEOs of the two banks on what went wrong.