[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]




 
                    THE FEDERAL REGULATORS' RESPONSE


                        TO RECENT BANK FAILURES

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 29, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-12
                           
                           
      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]        
      
      
      
      
      
                               ______
      
             U.S. GOVERNMENT PUBLISHING OFFICE 
 52-390 PDF           WASHINGTON : 2023
                           
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas                EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota                 JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia            BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia   JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio                JUAN VARGAS, California
JOHN ROSE, Tennessee                 JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina      SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania             STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York           RITCHIE TORRES, New York
YOUNG KIM, California                SYLVIA GARCIA, Texas
BYRON DONALDS, Florida               NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
MIKE LAWLER, New York                BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 29, 2023...............................................     1
Appendix:
    March 29, 2023...............................................    91

                               WITNESSES
                       Wednesday, March 29, 2023

Barr, Hon. Michael S., Vice Chair for Supervision, Board of 
  Governors of the Federal Reserve System........................     4
Gruenberg, Hon. Martin J., Chairman, Federal Deposit Insurance 
  Corporation (FDIC).............................................     6
Liang, Hon. Nellie, Under Secretary for Domestic Finance, U.S. 
  Department of the Treasury.....................................     7

                                APPENDIX

Prepared statements:
    Barr, Hon. Michael S.........................................    92
    Gruenberg, Hon. Martin J.....................................   103
    Liang, Hon. Nellie...........................................   126

              Additional Material Submitted for the Record

McHenry, Hon. Patrick:
    Letter to the Honorable Eugene Dodaro, Comptroller General of 
      the United States, dated March 17, 2023....................   129
Donalds, Hon. Byron:
    Wall Street Journal article from November 11, 2022, ``Rising 
      Interest Rates Hit Banks' Bond Holdings''..................   132
    Peter Wallison, American Enterprise Institute, ``The U.S. 
      Needs a New Bank Supervisory System''......................   137
Waters, Hon. Maxine:
    Written statement of Engine..................................   140
    Written statement of Joshe Ordonez, Founder, CEO, and 
      Creative Director, Airpals.................................   147
Barr, Hon. Michael S.:
    Written responses to questions for the record from Chairman 
      McHenry....................................................   150
    Written responses to questions for the record from 
      Representative Barr........................................   156
    Written responses to questions for the record from 
      Representative Casten......................................   165
    Written responses to questions for the record from 
      Representative Donalds.....................................   168
    Written responses to questions for the record from 
      Representative Kim.........................................   171
    Written responses to questions for the record from 
      Representative Luetkemeyer.................................   175
    Written responses to questions for the record from 
      Representative Nickel......................................   177
    Written responses to questions for the record from 
      Representative Nunn........................................   180
    Written responses to questions for the record from 
      Representative Wagner......................................   185
Gruenberg, Hon. Martin J.:
    Written responses to questions for the record from 
      Representative Flood.......................................   187
    Written responses to questions for the record from 
      Representative Steil.......................................   188
    Written responses to questions for the record from Chairman 
      McHenry....................................................   192
    Written responses to questions for the record from 
      Representative Barr........................................   200
    Written responses to questions for the record from 
      Representative Donalds.....................................   205
    Written responses to questions for the record from 
      Representative Sherman.....................................   211
    Written responses to questions for the record from 
      Representative Lawler......................................   214
    Written responses to questions for the record from 
      Representative Garbarino...................................   217
    Written responses to questions for the record from 
      Representative Nunn........................................   218
    Written responses to questions for the record from 
      Representative Hill........................................   219
Liang, Hon. Nellie:
    Written responses to questions for the record from Chairman 
      McHenry....................................................   222
    Written responses to questions for the record from 
      Representative Donalds.....................................   224
    Written responses to questions for the record from 
      Representative Barr........................................   224
    Written responses to questions for the record from 
      Representative Sherman.....................................   226


                    THE FEDERAL REGULATORS' RESPONSE



                        TO RECENT BANK FAILURES

                              ----------                              


                       Wednesday, March 29, 2023

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:07 a.m., in 
room 2128, Rayburn House Office Building, Hon. Patrick McHenry 
[chairman of the committee] presiding.
    Members present: Representatives McHenry, Lucas, Sessions, 
Posey, Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, 
Hill, Emmer, Loudermilk, Mooney, Davidson, Rose, Steil, 
Timmons, Norman, Meuser, Fitzgerald, Garbarino, Kim, Donalds, 
Flood, Lawler, Nunn, De La Cruz, Houchin, Ogles; Waters, 
Velazquez, Sherman, Meeks, Scott, Lynch, Green, Himes, Foster, 
Beatty, Vargas, Gottheimer, Gonzalez, Casten, Pressley, 
Horsford, Tlaib, Torres, Garcia, Williams of Georgia, Nickel, 
and Pettersen.
    Chairman McHenry. The Financial Services Committee will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    Today's hearing is entitled, ``The Federal Regulators' 
Response to Recent Bank Failures.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    Today, let us put aside the pre-baked narratives that have 
dominated the political discourse. We are here because the 
American people deserve answers. Before we draw conclusions on 
regulations or changes to law, we need to establish the related 
facts. In the run-up to its failure, Silicon Valley Bank (SVB) 
experienced rapid growth, relying on an undiversified deposit 
base and investments made risky by a high-inflation 
environment. We know the bank was mismanaged. That much is 
clear. Now, we need insight into the decisions and decision-
making processes of the financial regulators related to the 
2nd- and 3rd-largest U.S. bank failures. We need insight into 
those key days in March when an idiosyncratic bank became a 
systemic risk, spawning a large-scale financial intervention 
that is still ongoing.
    Vice Chair for Supervision Barr, you have been on the job 
at the Federal Reserve for less than a year. You came to the 
job well-qualified. However, you made time to start a review of 
climate risks in banking and a review of capital standards for 
larger banks with no mention of changes to bank supervision or 
liquidity provisions, two matters at issue with this bank 
failure. In fact, I have never heard you say to Congress that 
you didn't have the tools to do your job. In fairness, though, 
neither the Dodd-Frank Act nor the technical corrections law, 
S. 2155, dealt with the issues presented in March with a 
digital bank run, the speed and volume of which had never been 
seen before.
    This committee would like to understand your thinking in 
the key hours of that first week in March where your decisions 
had a mighty impact. Was there adequate planning for a large-
scale bank run? Did the chief supervisor follow the playbook to 
ensure the bank did not fail? How did the chief supervisor and 
examiners miss the hole in the bank's balance sheet? These are 
related questions.
    Additionally, the committee has no insight into the 
decision-making or the actions of the FDIC Chair on Friday the 
10th through Sunday of that week when that systemic risk 
exception was announced. Again, did the FDIC Chair use all of 
the tools at his disposal to resolve the banks that weekend? 
Was there a viable private-sector solution?
    There are reports that multiple banks were interested and 
ran the traps internally to purchase Silicon Valley Bank that 
weekend. You confirmed as much yesterday, Chairman Gruenberg. 
But as we all know, Silicon Valley Bank was not purchased until 
late Sunday, March 26th, at an estimated $20 billion in losses 
to the Deposit Insurance Fund. Why wasn't a potential buyer 
accepted sooner? Was there an ideological lens that prevented 
the FDIC from pursuing a private-sector solution that could 
have staved off the uncertainty of the last 2 weeks?
    We know that on Sunday, March 12th, another bank was 
shuttered and placed into FDIC receivership, and together, this 
is deemed a systemic risk event. That evening, the Financial 
Stability Oversight Council (FSOC) met in executive session, 
with no meeting minutes, and no transparency for the public, 
just an announcement after the fact. That lack of transparency 
has a negative effect on the public view of the safety of the 
financial arena. Congress needs visibility into how and why 
this determination was made by the FDIC, the Fed, the Treasury 
Secretary, the FSOC Chair, and the President.
    I will finish with this: We need competent financial 
supervisors, but Congress can't legislate competence. Today, 
this committee wants to understand your thinking in those key 
moments and that decision-making in a moment of stress in our 
banking system. Thank you for being here, and for your 
willingness to give answers to our questions, at least that is 
the hope.
    With that, I now recognize the ranking member of the 
committee, Ms. Waters, for 4 minutes.
    Ms. Waters. Good morning. I would like to thank Chairman 
McHenry for working with me in a bipartisan way on 
investigating the failures of Silicon Valley Bank and Signature 
Bank. Today's hearing is the first of what I expect to be 
several hearings on this important topic.
    Chair Gruenberg, Vice Chair Barr, and Under Secretary 
Liang, the collapses of SVB and Signature Bank earlier this 
month marked the 2nd- and 3rd-largest bank failures in U.S. 
history. In fact, SVB customers withdrew a staggering $42 
billion in less than a day, making it the largest bank run 
ever, and threatening to snowball into a full-blown banking 
crisis. But 2023 is not 2008. Because of the Dodd-Frank reforms 
that Democrats on this committee passed, as well as the bold 
and swift response by President Biden, Treasury Secretary 
Yellen, and our banking regulators, a crisis was averted and 
our banking system remained strong.
    However, these events are a wake-up call. We must uncover 
how management, regulatory, and supervisory failures 
contributed to these events, and explore solutions to 
strengthen the safety and soundness of our banks. Small-
business owners should not be expected to serve as a financial 
regulator when paying their employees, and community banks and 
Minority Depository Institutions (MDIs) should not have to pay 
for the failures of bank mismanagement at SVB or Signature 
Bank.
    Since day one of SVB's collapse, committed Democrats have 
been on the case. In fact, under my leadership as ranking 
member, we quickly organized several bipartisan briefings with 
our nation's regulators to better understand what happened, 
share what we were hearing from constituents, and urge 
regulators to act. Since then, we have sent letters demanding 
answers from our regulators, and in response to President 
Biden's call to Congress, I and my colleagues are working on 
legislation to, for example, enhance clawbacks and other 
penalties.
    We also need answers from the CEOs who not only ran these 
banks into the ground but enriched themselves. It is also 
important to know how we got here: deregulation. Former and 
disgraced President Trump said he would do a, ``big number on 
Dodd-Frank,'' and his appointed regulators did just that. At 
that time, I sounded the alarm on the dangers of weakening 
capital and liquidity rules for banks like SVB. The light touch 
cautions from the Fed to SVB management are clearly not what 
Congress intended for bank supervision. I hope Republicans will 
join Democrats in strengthening compliance with bank rules and 
transparency over this process.
    Before I close, I want to address the extreme MAGA 
Republican narrative about the bank failures. Let me be very, 
very clear: Silicon Valley Bank collapsed because of management 
failures and possible regulatory weaknesses, not because there 
was one Black man on the board. We saw the same racist playbook 
during the 2008 financial crisis, when some Republicans blamed 
the Community Reinvestment Act (CRA) and loans made to people 
of color. Rest assured, Democrats will not stand for this 
blatant racism. With that, Mr. Chairman, I yield back the 
balance of my time.
    Chairman McHenry. The Chair now recognizes the Vice Chair 
of the committee, Mr. Hill, for 1 minute.
    Mr. Hill. Thank you, Mr. Chairman. Today, we are confronted 
with the results of 10 years of too-loose monetary policy and 
recent wildly-excessive spending. Some bank management teams 
have forgotten their prudential obligations to their depositors 
and their shareholders, and clearly, many customers forgot 
their own prudence and their own financial responsibility. But 
as our committee comes together, the chairman, the ranking 
member, and the members are concerned about the supervisory 
failures by the regulators who are supposed to keep a watchful 
eye.
    Some lawmakers have been quick to use this crisis to push 
their preferred policy outcomes, but that is premature. We need 
to first understand what happened, when, and why, both leading 
up to the bank failures as well as the decisions made by your 
agencies represented on our panel today. Only then can we 
design the proper path forward. That is why Republicans are 
conducting a comprehensive review, starting with oversight 
letters to the Federal Reserve, the San Francisco Fed, the 
FDIC, the FSOC, and the California and New York State 
regulators. We expect your full cooperation in this matter, and 
make no mistake, today's hearing is just a first step in that 
process. I thank the Chair for the hearing, and I yield back.
    Chairman McHenry. The Chair now recognizes the gentleman 
from Illinois, Mr. Foster, who is also the ranking member of 
our Subcommittee on Financial Institutions and Monetary Policy, 
for 1 minute.
    Mr. Foster. Thank you, Chairman McHenry and Ranking Member 
Waters, for convening this hearing at this crucial time, and 
thanks to our esteemed witnesses for being here today. I remain 
proud of what we did almost 13 years ago with the Dodd-Frank 
Act. Although COVID presented novel and considerable challenges 
to our banking system, the system held, and these recent events 
represent the first real stress events since the 2008 crisis 
when banks dealt with run risk and serious liquidity concerns.
    What we have learned is that we now have to reinforce our 
banking system against bank runs that can occur at the speed of 
the internet. This will require stronger emergency liquidity 
provisions to banks under attack, and it has to be available 24 
hours a day, 7 days a week. This will then require liquidity 
providers to have a clear and simple means of knowing that they 
are loaning to an entity which will ultimately remain solvent.
    I also believe that we have a lot to learn by the two side 
by side bank failures--Silicon Valley Bank, with total assets 
of less than 1 percent of GDP, and Credit Suisse, with total 
assets greater than 100 percent of Swiss GDP--and the 
difference, I believe, is contingent capital. Had we followed 
Congress' direction to include contingent capital in the stacks 
of U.S. large banks, we would have been able to resolve the SVB 
without hitting the Deposit Insurance Fund, and I will be 
bringing that up in my questions. And I yield back.
    Chairman McHenry. Today, we will hear testimony from the 
Honorable Michael S. Barr, Vice Chair for Supervision at the 
Federal Reserve Board of Governors; the Honorable Martin J. 
Gruenberg, Chairman of the Federal Deposit Insurance 
Corporation; and the Honorable Nellie Liang, Under Secretary 
for Domestic Finance at the U.S. Department of the Treasury.
    We thank each of you for your time, and you are going to be 
recognized for 5 minutes for an oral presentation of your 
written testimony. We will begin with you, Mr. Michael Barr.

  STATEMENT OF THE HONORABLE MICHAEL S. BARR, VICE CHAIR FOR 
 SUPERVISION, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Michael Barr. Chairman McHenry, Ranking Member Waters, 
and members of the committee, thank you for the opportunity to 
testify today on the Federal Reserve's supervisory and 
regulatory oversight of Silicon Valley Bank.
    Our banking system is sound and resilient, with strong 
capital and liquidity. The Federal Reserve, working with the 
Treasury Department and the FDIC, took decisive action to 
protect the U.S. economy and to strengthen public confidence in 
our banking system. These actions demonstrate that we are 
committed to ensuring that all deposits are safe. We will 
continue to closely monitor conditions in the banking system 
and are prepared to use all of our tools for any size 
institution as necessary.
    We will continue to closely monitor conditions in the 
banking system and are prepared to use all of our tools for any 
sized institution as needed to keep the system safe and sound. 
At the same time, the events of the last few weeks raise 
questions about what more can be done and should be done so 
that isolated banking problems do not undermine confidence in 
healthy banks and threaten the stability of the banking system 
as a whole.
    At the forefront of my mind is the importance of 
maintaining the strength and diversity of banks of all sizes 
that serve communities across the country. SVB failed because 
the bank's management did not effectively manage its interest 
rate and liquidity risk, and the bank then suffered a 
devastating and unexpected run by its uninsured depositors in a 
period of less than 24 hours.
    Immediately following SVB's failure, Chair Powell and I 
agreed that I should oversee a review of the circumstances 
leading up to SVB's failure. In this review, we are looking at 
SVB's growth and management, our own supervisory engagement 
with the bank, and the regulatory requirements that applied to 
the bank.
    The picture that has emerged thus far shows that SVB had 
inadequate risk management and internal controls which 
struggled to keep pace with the growth of the bank. Supervisors 
began delivering supervisory warnings near the end of 2021. Our 
review will consider whether these supervisory warnings were 
sufficient and whether supervisors had sufficient tools to 
escalate them. We are also focusing on whether the Federal 
Reserve's supervision was appropriate for the rapid growth and 
vulnerabilities of the bank. While the Federal Reserve 
framework focuses on size thresholds, size is not always a good 
proxy for risk, particularly when a bank has a non-traditional 
business model.
    Turning to regulation, we are evaluating whether 
application of more stringent standards would have prompted the 
bank to better manage the risk that led to its failure. We are 
also assessing whether SVB would have had higher levels of 
capital and liquidity under higher standards, and whether such 
higher levels of capital and liquidity could have forestalled 
the bank's failure or provided further resilience to the bank. 
We need to move forward with our work to improve the resilience 
of the banking system, including the Basel III Endgame reforms, 
a long-term debt requirement for large banks, and enhancements 
to stress testing with multiple scenarios so that it captures a 
wider range of risk and uncovers channels for a contagion like 
those we saw in the recent series of events. We must also 
explore changes to our liquidity rules and other reforms to 
improve the resiliency of the financial system.
    In addition, recent events have shown that we must evolve 
our understanding of banking in light of changing technologies 
and emerging risks. Part of the Federal Reserve's core mission 
is to promote the safety and soundness of the banks we 
supervise, as well as the stability of the financial system, to 
help ensure that the system supports a healthy economy for U.S. 
households, businesses, and communities. Deeply interrogating 
SVB's failure and probing its broader implications is critical 
to our responsibility for upholding that mission. Thank you, 
and I look forward to your questions.
    [The prepared statement of Vice Chair Barr can be found on 
page 92 of the appendix.]
    Chairman McHenry. The Chair now recognizes Chairman 
Gruenberg of the FDIC..

   STATEMENT OF THE HONORABLE MARTIN J. GRUENBERG, CHAIRMAN, 
          FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

    Mr. Gruenberg. Thank you, Mr. Chairman. Chairman McHenry, 
Ranking Member Waters, and members of the committee, thank you 
very much for the opportunity to appear before you today to 
address the Federal regulators' response to the recent bank 
failures.
    On March 10th, just over 2 weeks ago, Silicon Valley Bank, 
or SVB as it is known, with $209 billion in assets at year-end 
2022, was closed by the California Department of Financial 
Protection and Innovation, which then appointed the FDIC as 
receiver. The failure of SVB, following the March 8th 
announcement by Silvergate Bank that it would voluntarily 
liquidate, signaled the possibility of a contagion effect on 
other banks. On Sunday, March 12th, just 2 days after the 
failure of SVB, another institution, Signature Bank of New 
York, with $110 billion in assets at year-end 2022, was closed 
by the New York State Department of Financial Services, which 
also appointed the FDIC as receiver.
    With other institutions experiencing stress, serious 
concerns arose about a broader economic spillover from these 
failures. After careful analysis and deliberation, the boards 
of the FDIC and the Federal Reserve voted unanimously to 
recommend, and the Treasury Secretary, in consultation with the 
President, determined that the FDIC could use, emergency 
systemic risk authorities under the Federal Deposit Insurance 
Act to fully protect all depositors in winding down SVB and 
Signature Bank.
    It is worth noting that these two institutions were allowed 
to fail. Shareholders lost their investments, unsecured 
creditors took losses, and the boards and the most senior 
executives were removed. The FDIC has the authority to 
investigate and hold accountable the directors and officers of 
the banks for the losses they caused to the banks and for any 
misconduct in the management of the banks, and the FDIC has 
already commenced those investigations. Further, any losses to 
the FDIC's Deposit Insurance Fund as a result of uninsured 
deposit insurance coverage will be repaid by a special 
assessment on banks, as required by law. The FDIC has now 
completed the sale of both bridge banks to acquiring 
institutions.
    My written testimony today describes the events leading up 
to the failures of SVB and Signature Bank and the facts and 
circumstances that prompted the decision to utilize the 
authority in the Federal Deposit Insurance Act to protect all 
depositors in those banks following those failures. It further 
describes the management and disposition of the bridge 
institutions that were established. It also discusses the 
FDIC's assessment of the current state of the U.S. financial 
system, which remains sound despite these events. And in 
addition, it shares some preliminary lessons learned as we look 
back on the immediate aftermath of this episode.
    In that regard, the FDIC will undertake a comprehensive 
review of the deposit insurance system and will release a 
report by May 1st that will include policy options for 
consideration related to deposit insurance coverage levels, 
excess deposit insurance, and the implications for risk-based 
pricing and Deposit Insurance Fund adequacy. In addition, the 
FDIC's Chief Risk Officer will undertake a review of the FDIC's 
supervision of Signature Bank and will also release a report by 
May 1st. Further, in May the FDIC will issue a proposed 
rulemaking for the special assessment for public comment.
    The bank failures 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, and also the consideration of a long-term debt 
requirement to facilitate orderly resolution. Recent efforts to 
stabilize the banking system and stem potential contagion from 
these failures have ensured that depositors will continue to 
have access to their savings, and small businesses and other 
employers can continue to make payrolls, and that other banks--
small, medium, and large--can continue to extend credit to 
borrowers and serve as a source of support.
    The FDIC continues to monitor developments and is prepared 
to use all of its authorities as needed. The FDIC is committed 
to working cooperatively with our counterparts at the other 
Federal regulators as well as with policymakers in the Congress 
to better understand what brought these institutions to failure 
and what measures can be taken to prevent similar failures in 
the future.
    Mr. Chairman, that concludes my statement. I would be glad 
to respond to questions.
    [The prepared statement of Chairman Gruenberg can be found 
on page 103 of the appendix.]
    Chairman McHenry. Thank you. And Under Secretary Liang, you 
are now recognized.

 STATEMENT OF THE HONORABLE NELLIE LIANG, UNDER SECRETARY FOR 
       DOMESTIC FINANCE, U.S. DEPARTMENT OF THE TREASURY

    Ms. Liang. Chairman McHenry, Ranking Member Waters, and 
members of the committee, thank you for inviting me to testify 
today and for the opportunity to speak several times in recent 
weeks to share updates from Treasury regarding current events. 
The American economy relies on a healthy and diverse banking 
system, one that includes large, small, and mid-sized banks, 
and provides for the financial needs of families, businesses, 
and local communities. Nearly 3 weeks ago, problems emerged at 
two banks with the potential for immediate and significant 
impacts on the broader banking system and the economy. The 
situation demanded a swift response. In the days that followed, 
the Federal Government took decisive actions to strengthen 
public confidence in the U.S. banking system and to protect the 
American economy.
    On March 9th, depositors of Silicon Valley Bank withdrew 
$42 billion in deposits in a period of just a few hours. After 
concluding that significant deposit withdrawals would continue 
the next day, the California State regulator closed SVB and 
appointed the FDIC as receiver. Two days later, the New York 
State financial regulator closed Signature Bank, which also had 
experienced a depositor run, and appointed the FDIC as 
receiver.
    Treasury worked to assess the effects of these failures on 
the broader banking system, consulting regularly with the 
Federal Reserve and the FDIC. On Sunday evening, recognizing 
the urgency of reducing uncertainty for Monday morning, 
Treasury, the Federal Reserve, and the FDIC announced a number 
of actions to stem uninsured depositor runs and to prevent 
significant disruptions to households and businesses.
    First, the boards of the FDIC and the Federal Reserve 
recommended unanimously, and Secretary Yellen approved after 
consulting with the President, two actions that would enable 
the FDIC to complete its resolution of the two banks in a 
manner that fully protects all of their depositors. These 
actions ensured that businesses could continue to make payroll 
and that families could access their funds. Depositors were 
protected by the Deposit Insurance Fund. Equity holders and 
bondholders of the banks were not covered.
    Second, the Federal Reserve created the Bank Term Funding 
Program, a new facility to provide term funding to all insured 
depository institutions eligible for primary credit at the 
discount window based on their holdings of Treasury and agency 
debt securities. This program, along with the pre-existing 
discount window, has helped banks to meet depositor demands and 
bolster liquidity in the banking system. This two-pronged 
targeted approach was necessary to reassure depositors at all 
banks and to protect the U.S. banking system and the economy. 
These actions have helped to stabilize deposits throughout the 
country, and have provided depositors with confidence that 
their funds were safe.
    In addition to these actions, on March 16th, 11 banks 
deposited $30 billion into First Republic Bank. The actions of 
these large and mid-sized banks represent a vote of confidence 
in the banking system and demonstrate the importance of banks 
of all sizes working to keep our economy strong. Moreover, on 
March 20th, the deposits and certain assets of Signature Bridge 
Bank were acquired from the FDIC, and on March 26th, the 
deposits and certain assets of Silicon Valley Bridge bank were 
acquired from the FDIC.
    We continue to closely monitor developments across the 
banking and financial system and coordinate with Federal and 
State regulators. As Secretary Yellen has said, we have used 
important tools to act quickly to prevent contagion, and there 
are tools we would use again to ensure that American deposits 
are safe. Looking forward, while we do not yet have all of the 
details about the failures of the two banks, we do know that 
the recent developments are very different from those of the 
global financial crisis. Back then, many financial institutions 
came under stress because they held low credit quality assets. 
This was not at all the catalyst for the recent events. Our 
financial system is significantly stronger than it was 15 years 
ago. This is in large part due to the post-crisis reforms for 
stronger capital and liquidity.
    As you know, the Federal Reserve announced a review of the 
failure of SVB, and the FDIC announced a review of Signature 
Bank. I fully support these reviews and look forward to 
learning more in order to inform any regulatory and supervisory 
responses. We must ensure that our bank regulatory policies and 
supervision are appropriate for the risks, old and new, that 
banks face today.
    Thank you to the committee for its leadership on these 
important issues and for inviting me here to testify today. I 
look forward to your questions.
    [The prepared statement of Under Secretary Liang can be 
found on page 126 of the appendix.]
    Chairman McHenry. I now recognize myself for 5 minutes for 
questions.
    Under Secretary Liang, when did you become aware of the 
severe financial distress of Silicon Valley Bank? Date and time 
would be helpful.
    Ms. Liang. I became aware of issues at Silicon Valley Bank 
on Wednesday or Thursday.
    Chairman McHenry. Wednesday or Thursday. I would like to 
have a written response to when you became aware of it. You can 
search your email. That would be helpful.
    Vice Chair Barr, when did you become aware of it?
    Mr. Michael Barr. Thank you, Mr. Chairman.
    Chairman McHenry. When did you become aware of SVB's 
financial distress?
    Mr. Michael Barr. I was going to answer that Thursday 
morning, I received an email from staff indicating that 
Wednesday evening the bank had difficult--
    Chairman McHenry. Thursday morning. When did you become 
aware, Chairman Gruenberg?
    Mr. Gruenberg. I believe it was Thursday evening. The staff 
came into a meeting in which I was taking part.
    Chairman McHenry. Thursday evening, for Silicon Valley 
Bank? Okay. And you had a staff presentation in February which 
included Silicon Valley Bank and the distress, because of 
rising interest rates, on their portfolio. What did you do 
between that February staff presentation to you and the week of 
March 6th about Silicon Valley Bank?
    Mr. Michael Barr. Staff presented on the interest rate 
risk--
    Chairman McHenry. Yes, that is what I said. That was a 
February presentation. What did you do as Vice Chair of 
Supervision between that time and the week of the bank failure?
    Mr. Michael Barr. Staff indicated that they were completing 
their review of the bank and of this broader horizontal review 
at that time, and I was waiting for the results of that review.
    Chairman McHenry. Were you aware of Silicon Valley Bank 
raising capital the week of March 6th?
    Mr. Michael Barr. I believe I became aware of that in this 
email that I described to you--
    Chairman McHenry. On Thursday morning.
    Mr. Michael Barr. --on Thursday morning.
    Chairman McHenry. That they had successfully raised the 
capital, but they were facing financial distress.
    Mr. Michael Barr. I was not aware Thursday morning that 
there were deposit outflows. I was trying to finish the answer 
to that question. I was aware of the difficulty Wednesday night 
in raising capital, but the bank was reporting to supervisors 
Thursday morning that deposits were stable.
    Chairman McHenry. When did you become aware of the deposit 
outflows on Thursday?
    Mr. Michael Barr. Thursday afternoon, late afternoon, I 
became aware of deposit outflows, and Thursday evening, that 
there was essentially a bank run.
    Chairman McHenry. So Thursday afternoon, which could be 
mid-morning in California? Is that what you are suggesting?
    Mr. Michael Barr. I believe it was around noon in 
California and for me, around 3:00 in--
    Chairman McHenry. Okay. And did you make provisions for the 
discount window or pledgeable assets at the time you heard of 
their distress?
    Mr. Michael Barr. My understanding from the staff is they 
were in discussions with the bank itself beginning Thursday 
afternoon to try and move plegable collateral over to the 
discount window. That work continued Thursday afternoon, into 
Thursday evening, and actually overnight.
    Chairman McHenry. Did you make provisions to keep the 
discount window open so they could provision collateral to 
avoid a bank collapse?
    Mr. Michael Barr. The discount window opening decision is 
sort of a standard thing. It normally closes--
    Chairman McHenry. A standard thing, except that in a moment 
of crisis, it can be kept open. I think the Vice Chair for 
Supervision should be able to make that phone call. Did you 
provision for that, or did you think you needed to provision 
for that?
    Mr. Michael Barr. Mr. Chairman, at the time, my 
understanding was that the difficulty wasn't sending funds. The 
difficulty was actually evaluating the collateral and getting 
it pledged to the discount window. And staff were working with 
Silicon Valley Bank basically all afternoon and evening and 
through the morning the next day to pledge as much collateral 
as humanly possible to the discount--
    Chairman McHenry. On Friday morning, Chair Gruenberg, you 
were appointed receiver. When did you become aware that the 
FDIC was going to have to take this measure or was going to 
receive this bank?
    Mr. Gruenberg. I think when we were informed Thursday 
evening--
    Chairman McHenry. I mean you; were you informed Thursday?
    Mr. Gruenberg. Yes, I was informed Thursday evening by 
staff that--
    Chairman McHenry. Which meant you had Friday morning 
conference calls to make a decision. Was that part of it?
    Mr. Gruenberg. I think we knew Thursday evening that the 
bank was going to fail and that we needed to make provisions to 
take over the institution.
    Chairman McHenry. Did you pick up the phone and call the 
Vice Chair of Supervision at the Fed and ask, how can we 
provision to keep this institution open for Friday?
    Mr. Gruenberg. I can't recall that. My recollection is, Mr. 
Chairman, that the institution was experiencing a liquidity 
failure and that it was going to fail, and--
    Chairman McHenry. It was going to fail on Friday morning or 
Friday evening? Were you provisioning for this for the weekend 
decision?
    Mr. Gruenberg. No, I think the expectation and the 
experience was that the institution was going to be closed in 
the morning.
    Chairman McHenry. At what point did you open an auction for 
Silicon Valley Bank?
    Mr. Gruenberg. I believe it was Saturday, March 11th, with 
bids due Sunday afternoon. We just--
    Chairman McHenry. Sunday afternoon, you opened for auction. 
We only heard the announcement of Congress receiving this 
information at 11:20 on Friday morning. There was an 
idiosyncratic bank, and Sunday afternoon was the next 
pronouncement from any of you three on the panel, and it was a 
systemic risk designation. That is what has shaken the market 
for the last 2 weeks. That is the reason why we have had these 
extraordinary interventions in the financial system, and I want 
to know the key details of that weekend. I hope we can drill 
into those questions.
    Mr. Gruenberg. Sure.
    Chairman McHenry. With that, I will recognize the ranking 
member, Ms. Waters, for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. Chair 
Gruenberg, we know that SVB banked nearly half of all U.S. 
venture-backed startups, potentially tens of thousands of 
companies, which clearly posed a concentration risk to the 
bank. While most of the bank's depositors were small and mid-
sized businesses, they also had large customers, too, with the 
top 10 accounts holding more than $13 billion in combined 
deposits.
    Chair Gruenberg, and Vice Chair Barr, I am concerned that 
depositors' decisions to run or stay were not necessarily made 
on their own, but by the strong encouragement of their venture 
capital backers who sit on the boards and hold equity in their 
companies. Were a handful of large venture capital depositors 
able to influence the withdrawal of $42 billion all at once 
through their control over their portfolio companies?
    Mr. Gruenberg. Congresswoman, I think that is something we 
will need to look at in terms of the post-failure review of 
these institutions. I couldn't tell you today with certainty 
what occurred there. I know both the Fed, in regard to SVB, and 
the FDIC, in regard to Signature, are going to do a careful 
review of the events that occurred.
    Ms. Waters. Thank you very much, and I agree with you. I 
think we really need to know the role that venture capitalists 
played in this bank. Going further, Vice Chair Barr, you said 
yesterday that SVB received a 3 for its management rating, 
which is considered deficient, but was considered sufficiently-
capitalized given the bank's unique customer base, an extremely 
large share of uninsured deposits, and an underwater asset 
portfolio. Liquidity management was also a key issue. The 
liquidity rating for a bank should account for interest rate 
risk and the bank's asset liability management. What was the 
bank's rating on liquidity?
    Mr. Michael Barr. Thank you, Representative Waters. My 
understanding is in the summer of 2022, although the composite 
rating was a 3, which is not well-managed, the liquidity rating 
was a 2, which would have been satisfactory. And one of the 
things we are looking at in the review is how that synced up 
with the supervisory matters requiring attention and matters 
requiring immediate attention with respect to liquidity that 
had previously been issued. So, we are looking at whether those 
standards were sufficiently stringent, whether the firm should 
have been downgraded further, and whether further supervisory 
steps should have been taken.
    Ms. Waters. Whose responsibility was it to understand the 
deficient rating and to do something?
    Mr. Michael Barr. The Federal Reserve is responsible for 
supervising this institution.
    Ms. Waters. Did the Federal Reserve fail on that?
    Mr. Michael Barr. I think that anytime you have a bank 
failure like this, bank management clearly failed, supervisors 
failed, and our regulatory system failed, so we are looking at 
all of that.
    Ms. Waters. Thank you. Vice Chair Barr, you said yesterday 
that SVB received a 3 for its management rating. And you just 
responded in a way that says, yes, that is true, and perhaps 
something should have been done, and you are going to look 
further at that. Are you perhaps suggesting legislation to deal 
with that?
    Mr. Michael Barr. We are focusing in our review on our own 
supervision, ways that we could have done better as supervisors 
at the Federal Reserve, and ways that our own regulatory 
structure might have played a role with respect to the failure 
of this firm. So, we are looking inward. It is a self-
assessment, a prudent thing, I think, for us to do. It is what 
we tell banks to do. It is sort of the first thing you have to 
do to understand risk within your own institution, and that is 
why we are doing it.
    Ms. Waters. Vice Chair Barr, I wonder what it would take to 
receive a 3, 4, or 5 from a Federal examiner? I know the idea 
is to keep exam ratings confidential in order to prevent bank 
runs, but doing so also prevents this committee from 
understanding how well the Fed and other regulators are doing 
in rating banks. In the same way the stress testing results are 
public, are there ways we can make the supervisory process more 
transparent to promote discipline and accountability?
    Mr. Michael Barr. Thank you, Representative Waters. I think 
one of the things we are trying to do here today is to provide 
that accountability, and we will do that in our report, which 
we will do on May 1st. It will include confidential supervisory 
information. We normally do not provide that information, but 
given the fact that this bank failed and triggered a systemic 
risk exception, we are including that information, including 
exam reports.
    Ms. Waters. Thank you very much. This is a very important 
issue.
    Chair Gruenberg, Silicon Valley Bank was purchased over the 
weekend by First Citizens Bank & Trust Company. As you know, I 
wrote to you on March 18th about the former SVB's community 
benefits plan, which was intended to provide $11 billion in 
small businesses, housing, and community development support to 
communities both in my home State of California and in 
Massachusetts. I understand that $2 billion in affordable 
housing and other projects may be lost or delayed in California 
because of the failure. Will Citizens Bank & Trust continue 
implementation of the former bank's community benefits plan?
    Mr. Gruenberg. The agreement between the community 
organizations and Silicon Valley in regard to the community 
benefits agreement was an agreement between those two parties. 
First Citizens will now be taking over Silicon Valley. There 
will be an opportunity for the community organizations to 
engage with First Citizens. I know First Citizens has a 
community benefits agreement with community organizations where 
it is currently doing business, so there will be an opportunity 
for the groups in California to engage with First Citizens. And 
I would note that First Citizens is also subject to supervision 
under the Community Reinvestment Act (CRA), and so we will be 
able to evaluate the degree to which First Citizens is serving 
its communities pursuant to the CRA.
    Chairman McHenry. The gentlelady's time has expired. I will 
now recognize the Vice Chair of the committee, Mr. Hill of 
Arkansas, for 5 minutes.
    Mr. Hill. I thank the chairman and the ranking member for 
this prompt hearing after these weeks of tumult, and I thank 
the panelists for being here as well. Mr. Barr, when were you 
nominated for your job?
    Mr. Michael Barr. I apologize. I don't have the date in my 
head. It was in the spring of last year.
    Mr. Hill. And do you know when you were confirmed for your 
job?
    Mr. Michael Barr. Yes, I took my post up in July of last 
year, July 2022.
    Mr. Hill. July of 2022. Between January 20, 2021, and July 
of 2022, who was in charge as Vice Chair for Supervision at the 
Federal Reserve?
    Mr. Michael Barr. There was no Vice Chair for Supervision 
during that time period.
    Mr. Hill. When that happens, what is the Fed's process for 
delegating that authority to another member of the Board of 
Governors or a staffer, or how does that work?
    Mr. Michael Barr. I apologize. I don't know the technical 
answer to that question. We will have to get back to you with a 
written response--
    Mr. Hill. Yes, if you could get back to me, because what we 
are saying to my colleagues here is that from the turn of 
Administration, we did not have a Vice Chair for Supervision 
from January 2021 until July of 2022. And that is precisely the 
timeframe, colleagues, when this bank's business strategy went 
awry and was under this supervisory concern by the San 
Francisco Fed. So, I just want to have that on the record. And 
when I look at the results of this bank in the Uniform Bank 
Performance Report (UBPR), the call report data, and looking at 
your good testimony about the timeline that you have disclosed, 
it appears to me that we have a lack of supervisory urgency 
here.
    You outlined that the trends in 2021 are what triggered 
concern by the Federal Reserve examiners, and, I assume, the 
State of California. We haven't heard from the State of 
California. We would like to, but there was an exam in the 
summer of 2021. It took until the 4th quarter of 2021 to tell 
the bank, ``We have some specific serious concerns.'' You met 
with the board then--not you, but the supervisors--and then the 
downgrades didn't come, and those tough visits didn't come 
until the summer of 2022. So really, there were 12 months of 
discussion between the Board and the State of California and 
the San Francisco Fed. That doesn't sound like a very urgent 
supervisory process. Do you consider it urgent to take a full 
12 months in that process?
    Mr. Michael Barr. Mr. Hill, I think you raise an absolutely 
essential question. It is one of the things we are going to be 
asking in our review. Obviously, these events occurred before I 
arrived at the Board. I am going back and looking at what steps 
were taken and not taken. I think it is a completely fair 
question. Could the supervisors or should the supervisors 
really have been much more aggressive in the way that they 
responded to the risks that they saw and they were noting? We 
are going to look carefully at that. I think it is--
    Mr. Hill. Yes. I was just shocked with the business plan 
way out of line with peer. You have matters requiring 
attention, which is a very low level, the lowest level 
editorial comment by a bank regulator. There was no proposal 
for a Board resolution that I saw in your note. So, I look 
forward to the results of your comments.
    On this issue of Dodd-Frank versus S. 2155, in my reading 
of bank law, those things are almost not important compared to 
12 U.S.C. 1818 on cease and desist where the FDIC, the primary 
bank regulator, can do whatever they want to a bank that is not 
operating in a safe and sound manner. Isn't that right, Mr. 
Barr?
    Mr. Michael Barr. The bank regulators have substantial 
discretion to use those authorities when banks are operating in 
an unsafe and unsound manner. I agree with that.
    Mr. Hill. And I thought Senator Crapo's comment yesterday 
was very, very important, that in the rule of construction, 
that final bit of information in S. 2155, the bipartisan, 
bicameral bill signed by President Trump, it says, ``Nothing in 
this bill shall be construed to limit the supervisory 
authorities for safety and soundness in any way.'' Isn't that 
what that rule of construction says?
    Mr. Michael Barr. Yes, I agree with that. I think we have 
substantial authority under existing law to regulate firms and 
supervise firms in a way that is appropriate for their risk and 
size and complexity.
    Mr. Hill. Thank you very much.
    Chairman Gruenberg, talking about the resolution process, 
are you open to a full investigation not only of the deposit 
insurance and not only of the supervisory process, but also to 
look carefully at the resolution process itself?
    Mr. Gruenberg. Yes, Congressman.
    Mr. Hill. And are you going to conduct that yourself, or 
would you work with us on that?
    Mr. Gruenberg. We would certainly be prepared to undertake 
that review and be transparent with you in regard to it.
    Mr. Hill. Something I want to see considered, and I argued 
this back in 2008 as a private citizen and a banker, is in the 
resolution process, to consider non-bank buyers for these 
assets. Do you agree that is important, and we should consider 
that?
    Mr. Gruenberg. Yes, it is Congressman.
    Mr. Hill. Thank you. I yield back.
    Chairman McHenry. The Chair now recognizes Ms. Velazquez of 
New York for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman. Mr. Barr, the 
rescue of depositors in Silicon Valley Bank demonstrates that 
regulators think banks like Silicon Valley pose a systemic risk 
to the system just like Global Systemically Important Banks (G-
SIBs) do. Mr. Barr, don't you think Category III and IV banks 
should face the same rules as the megabanks?
    Mr. Michael Barr. Thank you very much for that question. We 
are looking at capital and liquidity standards for all large 
banks, including firms at $100 billion and above. I still think 
a tiering approach makes some sense. It doesn't have to be the 
same rules for all banks, but we do need stronger rules for 
firms of this size. Stronger rules on capital and liquidity, I 
think, are going to be really important.
    Ms. Velazquez. Mr. Barr, in my view, the decision to insure 
all depositors was a necessary and correct step. However, I am 
frustrated that time and time again, we fail to regulate them 
like one, and as a result, we find ourselves in situations like 
the one that we are currently in. Without proper regulations 
that account for the systemic risk profile of a bank, we are 
incentivizing bankers to search for yield and inviting moral 
hazard.
    Mr. Barr, the sudden and immediate collapse of Silicon 
Valley Bank demonstrates the vulnerability of banks and the 
broader system to interest rate rises. Yet under our current 
capital rules, most banks are not required to recognize this 
risk, only G-SIBs. Will the Fed rewrite this rule to require 
all banks to account for interest rate risk?
    Mr. Michael Barr. You raise an absolutely essential point, 
and one that we are looking at very carefully. We anticipate 
engaging in a notice-and-comment rulemaking process on capital 
rules with appropriate transitions, and that is one of the 
areas that I think would be important for us to consider in 
that rulemaking process.
    Ms. Velazquez. Do you think that the rules passed under S. 
2155 and written by the Trump Administration need to be 
rewritten?
    Mr. Michael Barr. As part of our review, we are going to 
look at not only our supervisory issues, but also at the 
regulatory structure that the Federal Reserve put in place in 
2019, and see whether the size thresholds we used, the standard 
we decided to put in place--all of that is on the table. We are 
reviewing that. We are going to come back and provide an 
assessment of that on May 1st.
    Ms. Velazquez. Thank you. And, Mr. Barr, the Fed has been 
raising interest rates more rapidly than it has in decades in 
an effort to lower inflation. It appears that many banks were 
unprepared for this. Can you explain how the Fed's bank 
supervision staff coordinates with its monetary policy-focused 
staff to ensure that banks are properly prepared for well-
telegraphed shifts in monetary policy? Does the Fed see 
regulation and supervision as separate from monetary policy?
    Mr. Michael Barr. The whole of the Federal Reserve staff 
communicate very well together. As you noted, the monetary 
policy decisions were very well-telegraphed. The decisions were 
essential to meet our congressional mandate of price stability 
and maximum employment, and we need to make sure that we 
continue to pursue that. We have separate tools that we use, of 
course, and as I said in other contexts, interest rate risk 
management is a core bread-and-butter issue in banking. It is 
not an esoteric issue, an exotic issue, or a complicated issue. 
It is a straightforward issue, and the bank management failed 
to do that here.
    Ms. Velazquez. Thank you. During his news conference last 
week, Chairman Powell said that the Federal Open Market 
Committee (FOMC) considered a pause in the interest rate 
increases in light of the recent banking failures but, 
ultimately, unanimously approved the decision to raise rates 
due to intermediate data on inflation and the strength of the 
labor market. How will the Fed balance its supervisory role 
with its monetary policy role as it considers future interest 
rate increases?
    Mr. Michael Barr. We really have all of the tools that we 
need on the macroprudential and microprudential side to assess 
financial stability and bank safety issues. And as I said, the 
banking system overall is sound and resilient, and deposits are 
safe. On the monetary policy side, we are going to be looking 
at incoming data, we are going to be looking at changing 
financial conditions, and we will make a judgement on a meeting 
by meeting basis about that decision.
    Ms. Velazquez. Thank you. Mr. Chairman, I yield back.
    Chairman McHenry. I will now recognize Mr. Sessions for 5 
minutes.
    Mr. Sessions. Mr. Chairman, thank you very much, and thank 
you to the witnesses for being here today. I think you see that 
this committee will work together, has questions, and would 
wish to hold you accountable. But I must confess to you after 
hearing the questions that have taken place, I have heard none 
of you three accept real responsibility for your role in this 
endeavor. I have heard that you were aware of it the week of, I 
have heard that the notice was given of oversight back in 2021, 
that a frailty was noticed. I have heard you say that we used 
all of our tools. I have heard you say things like the FDIC 
will use all of its authorities, but I have not heard any of 
you three talk about a systemic failure, or letting the bosses 
know what is happening. I have heard you say, well, this got 
staffed and that got staffed and staff did this.
    I think this is a wake-up call to all three of you. I hope 
it is a wake-up call to your organizations, that evidently, 
they could see these bread-and-butter failures back in 2021, 
but evidently, nothing realistic ever occurred to avoid what 
seemingly anybody who is a professional banker could see. I 
have seen excessive regulatory oversight by this Administration 
across-the-board. I have seen a lot of what I would call 
inattention by decision-makers.
    So, I would specifically tell you that we will drill down 
on the need to know more about the recommendation for systemic 
exception that was invoked, in other words, that was invoked by 
presumptively the people at this table. And yet, it took all 
this time to filter up before you were even aware. Failure 
occurred, was occurring, and then you were given notice. So, I 
would hope myself that there would be some inward thinking 
about your actual roles. Instead of staffing everything and 
waiting for it to bubble up to you, there should be hooks in 
place.
    I spent 16 years in the private sector, ran a large 
organization, over 700 employees. I had more than a fiduciary 
responsibility. I had a managerial responsibility to report up 
the things that we saw to a very large organization, and I 
believe, by and large, those people welcomed my feedback and 
set ourself up for that. So, take the remaining minute and 50 
seconds and give me some inward thinking because I heard no one 
say we were part of the problem. We need to look at us being 
part of the problem, and we need to be a part of the solution, 
because as was noted, this will be paid by all banks across the 
country of the FDIC. Please, Mr. Barr?
    Mr. Michael Barr. Thank you very much, Mr. Sessions. I 
agree with you. I think we need to take a good, hard look 
inside at the Federal Reserve, at our supervision, at our 
regulation. I think we need to be humble about that, and I 
think we are going to be unflinching in our review about--
    Mr. Sessions. Does that include your role?
    Mr. Michael Barr. Absolutely. And I am here today to be 
accountable to you for that purpose.
    Mr. Sessions. Accountable is one thing, but coming back and 
actually admitting that you were part of the systemic failure 
is an entirely different process. People say, well, we will 
hold accountability, but actually, it is banks that are across 
the country that play by these rules and offer this money are 
the backstop. And while I don't want to argue against that, I 
do want to say I believe there is lots of room to say someone 
should have caught this as early as and done something back in 
early 2002. Chairman?
    Mr. Gruenberg. Congressman, I really don't mean to shirk 
responsibility here. I think we share responsibility. I think 
bank management had responsibility. I think we as the 
regulators of the institution had responsibility. I think we 
are going to conduct reviews to get the facts as to what 
occurred and a measure of internal as well as external 
accountability. My own sense here in terms of the supervision 
of these institutions, from my perspective, is that both 
agencies, and I would include ourselves, were aware that there 
were issues at these institutions and trying to address them 
through the supervisory process. It is also my judgment, and we 
are going to conduct a review to get all the facts here.
    Chairman McHenry. The gentleman can answer the rest for the 
record.
    With that, I will now recognize Mr. Sherman of California 
for 5 minutes.
    Mr. Sherman. Due to Dodd-Frank, our banking system is 
strong. Our regulators avoided a crisis by quick action this 
month, but the solution was not free. Some $22 billion of 
special assessments will be imposed on banks that will lead to 
lower rates on certificates of deposit, perhaps a quarter 
percent, perhaps an eighth of a percent, and our entire economy 
has been hurt. It has been rattled by what happened this month. 
Our bank regulatory system has some real flaws. It is an 
undemocratic system in which the Financial Accounting Standards 
Board (FASB) writes the accounting rules and doesn't even claim 
to be part of a democratic government. In the Federal Reserve 
Boards, and the regional banks, it is not one person, one vote, 
it is one bank, one vote. The bankers vote on who is on the 
regional board, and the bankers of my State elected the CEO of 
Silicon Valley Bank.
    Banks get to pick their regulators, State or Federal, 
holding company or no holding company, Fed or OCC. They can use 
regulatory arbitrage, and every regulatory agency knows that if 
it gets a reputation of being too tough, the banks can flee and 
go to one of their regulatory competitors. Our accounting 
system for banks is absolutely perverse. If you make a Main 
Street loan, you are penalized under the Current Expected 
Credit Losses (CECL) system, and you will always list that loan 
on your balance sheet as being worth less than you paid for the 
note.
    If you instead go to Wall Street and buy long-term bonds, 
you are rewarded. If the bond goes up in value, you can sell it 
or classify it as available for sale, and recognize a profit, 
and justify a bonus. If the bond goes down in value, you can 
hide it by listing it as held for maturity and listed at the 
original purchase price on your balance sheet, even though you 
know it is worth 20 percent or 30 percent less.
    The crypto billionaires fanned the flames because they 
understood that if they can besmirch our banking and dollar 
system, crypto goes up and they have made tens of billions of 
dollars. Silicon Valley Bank could have saved itself in 2022 by 
hedging its risk or selling its long-term bonds, but they knew 
that would cut profits and bonuses, so they decided to take the 
risk, and here we are. And of course, our clawback provisions 
are inadequate.
    There are $600 billion worth of unrecognized losses on the 
balance sheets of American banks. That needs to be juxtaposed 
with the $2.2 trillion of capital American banks have. So, we 
are overstating the capital of our banking system by perhaps a 
quarter.
    Mr. Barr, I watched your Senate testimony in which you 
basically said it was bank mismanagement for them to ignore the 
good advice your people gave them. It is also misregulation to 
let banks ignore that advice. You are not running a consulting 
operation. You are running a regulatory operation which can 
force banks to follow that advice.
    Interest rates go up, and interest rates go down. Certainly 
the Fed, in auditing banks, ought to know that, especially when 
this is not an 100-year event. Interest rates go up, interest 
rates go down, 2023 has its peculiarities. But it is 
particularly ironic that it is the Fed that is raising the 
interest rates, and then the Fed that is not examining banks to 
see if they can survive if interest rates go up. The concern we 
all have is, are there other banks that could go under because 
they invest in long-term bonds that aren't worth as much as 
they paid for them?
    So, I will ask Mr. Gruenberg, and perhaps, Mr. Michael 
Barr. Are there any banks out there, and roughly how many, that 
have capital of under 5 percent if you subtract from their 
stated capital, their unhedged, unrealized losses on long-term 
debt?
    Mr. Gruenberg. Congressman, that is a fair question and a 
factual question. If I may, let us get back to you on that. We 
will get the numbers and share them with you very quickly.
    Mr. Sherman. And please don't give me the names.
    Mr. Barr, do you have any other answer?
    Mr. Michael Barr. No, sir.
    Mr. Sherman. Mr. Gruenberg, I know that you are going to be 
giving us a report about possibly expanding FDIC insurance this 
spring. I look forward to it, and I hope that you would 
consider $3 million of coverage, but only of non-interest-
bearing accounts, because when a bank is used as a utility for 
a checking account, we need that coverage. If people are making 
investments, we ought to be able to be more careful. And I 
yield back.
    Chairman McHenry. The gentleman's time has expired. We will 
now go to the gentleman from Missouri, Mr. Luetkemeyer, who is 
also the Chair of our Subcommittee on National Security, 
Illicit Finance, and International Financial Institutions, for 
5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. Vice Chair Barr, 
for more than a year now, financial news has focused on the Fed 
raising rates. There isn't a person in the financial services 
sector of the country who hasn't heard about it on a seemingly 
everyday basis since the beginning of 2022. It has been the 
fastest rate increase in the country's history, which I believe 
is probably too fast. Chairman Powell has made his intentions 
very clear: No bank should have been caught off guard by rate 
increases. In fact, the Federal Reserve is in the same position 
themselves.
    Chairman Powell was here a couple of weeks ago, and 
acknowledged that his bond holdings and the interest rates 
situation that they have is actually losing money as a result 
of this. So, it is even more surprising that $100-billion banks 
are not considering effective rate increases. In fact, 
according to your testimony, the Fed staff hasn't presented to 
the Board of Governors with its impacts on rising rates until 
February of 2023, this last month. So are you telling me that 
every time the Fed raises rates or drops rates, there is no 
economic analysis done on the impact on our economy?
    Mr. Michael Barr. Mr. Luetkemeyer, I was referencing that 
particular meeting because the staff--
    Mr. Luetkemeyer. No, that is not my question. My question 
is, does the Fed, before it raises rates or lowers rates, have 
an economic study done by its economists? They have a team of 
economists there. Do you have an economic analysis done of the 
impact of that?
    Mr. Michael Barr. Yes, we evaluate all of the economic 
conditions--
    Mr. Luetkemeyer. You get a report from your economists. Did 
the Fed--
    Mr. Michael Barr. --and financial conditions when making 
any interest rate--
    Mr. Luetkemeyer. Does the Fed Board get a report from their 
economists saying what the impact of their rates will be on the 
economy? Yes or no?
    Mr. Michael Barr. Yes, we get staff forecasts that forecast 
the expected impact on the economy of rate decisions.
    Mr. Luetkemeyer. Okay. Why did you make a specific mention 
of this in your February report then? Why did you specify that 
the rate impact--
    Mr. Michael Barr. That is what I was trying to explain 
earlier. I mentioned that because the report specifically 
called out Silicon Valley Bank. We regularly discuss interest 
rate problems.
    Mr. Luetkemeyer. Okay.
    Mr. Michael Barr. Interest rate risk is an important part 
of supervision and a bread-and-butter issue.
    Mr. Luetkemeyer. Okay. A bank this size, normally you will 
have an examiner or two or a team that goes in on a daily 
basis. Was there an examiner or team of examiners in Silicon 
Valley Bank on a daily basis?
    Mr. Michael Barr. The team consisted of about 20 full-time 
equivalent staff at the San Francisco Federal Reserve Bank.
    Mr. Luetkemeyer. They were not in Silicon Valley then?
    Mr. Michael Barr. I don't know precisely the extent of 
their in-person meetings versus their remote analytic work.
    Mr. Luetkemeyer. Okay. That is another problem that we have 
to talk about, having all this work offsite, when they need to 
be onsite, to be able to have access to the daily data. But as 
a result of this, I will follow up with some of the questions 
that have been asked before, but ask them in a little bit 
different way.
    You knew that we had an interest rate risk problem and a 
liquidity problem. You acknowledged it all the way through from 
2021. It has been established this morning. You have examiners 
in the bank who are watching it on a daily basis, and you know 
that you have had some reports that say we need to take some 
action. Why was no action requested or not forced on the bank?
    Mr. Michael Barr. There was action requested of the bank in 
the matters requiring immediate attention.
    Mr. Luetkemeyer. Why were they not enforced?
    Mr. Michael Barr. I think that is a question for our 
review. I don't yet know the answer. Could the staff have 
escalated more? Should they have escalated more? What were the 
interactions with the bank? That is all part of the supervisory 
record that will be in the May 1st report.
    Mr. Luetkemeyer. That begs the question then, Mr. Barr, if 
you think you need more rules and you are not even enforcing 
the existing ones, why do you need more rules? I don't think we 
need to look at more rules until we figure out which rules are 
not being enforced, what messages were not being delivered to 
the bank to be able to do your job. At that point, then, we can 
take a look and see if we need to do something else, but for 
you to make the statement that we need more rules and 
regulations, how about enforcing the existing ones first?
    Mr. Michael Barr. We are going to be looking, as I said, at 
our own supervision under the existing framework, ways in which 
existing rules--
    Mr. Luetkemeyer. Okay. I have one more quick question for 
you here. This situation points out a very unique situation 
because of the new social media of the world of instantaneously 
being able to do some things. I have grave concerns because 
within less than a 2-day period, $42 billion rolled off the 
books here, basically as a result of a Tweet, a little 
informational thing. Mr. Barr, it opens up the possibility that 
whenever you have a bunch of specifically-distressed banks, 
there could be a short sell on some of these things that could 
be out there. We need to be talking about that. Are you 
thinking about that at all yet?
    Mr. Michael Barr. Yes, I think you are raising absolutely 
important and critical questions about the role of social 
media, the role of networks, depositors with each other, and 
the potential risk.
    Mr. Luetkemeyer. You are working on a real-time payment 
system. This is going to be--
    Chairman McHenry. The gentleman's time--
    Mr. Luetkemeyer. --ripe for a problem like this with 
Twitter if we don't fix it beforehand.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Chairman McHenry. You can answer it for the record.
    We will now go to Mr. Scott of Georgia for 5 minutes.
    Mr. Scott. Thank you very much. Vice Chair Barr, we know 
that this was basically the fault of the management, but what 
we want to know is, where did the Fed go wrong? Where did the 
Fed go wrong, and specifically, did the Fed miss red flags or 
ignore warning signs that were brought to you by your staff 
months or even years before the collapse?
    Mr. Michael Barr. Thank you very much for the question. We 
do have in the supervisory record staff reaching out to the 
bank highlighting these problems. As you noted in the first 
instance, it is bank management's responsibility to fix those 
problems. They didn't do so.
    Mr. Scott. Vice Chair Barr, is it true that the San 
Francisco Fed, which supervised Silicon Valley Bank, sent 
multiple warnings to the bank's management about the risks it 
was taking, including its substantial holdings of Treasuries 
and other bonds that were steadily losing money as the interest 
rates rose?
    Mr. Michael Barr. Yes, the supervisor pointed out to the 
banks that they were exposed to interest rate risk and 
liquidity risks, and that they didn't have the risk management 
in place to address those. The bank failed to fix those 
problems.
    Mr. Scott. And how often did Fed staff share with the Board 
of Governors that rising interest rates were threatening the 
finances of some banks, particularly the risk-taking at Silicon 
Valley Bank?
    Mr. Michael Barr. My understanding is that the particular 
issue with Silicon Valley Bank did not rise to the level of the 
Board of Governors until mid-February of this year.
    Mr. Scott. Why do you think that the full extent of the 
bank's vulnerability did not become apparent until it was too 
late, especially when the FDIC data was showing that SVB was 
doubling in size in 2020 and 2021, doubling in size within 12 
months. Was that not a red flag?
    Mr. Michael Barr. I think that one of the things we are 
looking at is that the way the Federal Reserve's regulations 
set up the structure for approach to supervision, treated firms 
in the $50 billion to $100 billion range with lower levels of 
requirements and had a phase-in period for firms that got above 
the $100-billion line. That meant that their transition into 
those higher standards took a long time. So by the time the 
group was actually looked at in an intense way by the group in 
the large and foreign banking organizations team, a lot of that 
growth and a lot of that activity had happened. So in a sense, 
it was very late in the process, and that is one of the things 
we are looking at in our review.
    Mr. Scott. Good. And I want you to know that I appreciate 
your recent announcement that there will be a formal review 
into whether the Fed failed. It is good to admit failure. That 
is the first step in correcting the problem. And that a review 
of whether the Fed failed to properly oversee Silicon Valley 
Bank will take place, and more importantly, it will be shared 
with us in the public. Is that true?
    Mr. Michael Barr. Yes, that is absolutely right. We thought 
that it is really important as a first principle of risk 
management for us to do our own self-assessment. We have a team 
of people working on that self-assessment who are not involved 
in the supervision of Silicon Valley Bank. We are going to make 
all of those findings and recommendations public on May 1st. 
And let me also say that we welcome other outside reviews as 
this body is doing today, and others will as well.
    Mr. Scott. Thank you very much, Vice Chair Barr.
    Chairman McHenry. The gentleman from Michigan, Mr. 
Huizenga, who is also the Chair of our Oversight and 
Investigations Subcommittee, is now recognized.
    Mr. Huizenga. Thank you, Mr. Chairman. I am going to 
quickly move ahead here. A loss in confidence in the banking 
system is a loss of confidence in regulators, in many of our 
minds. And regulators seem to have had the tools at their 
disposal to prevent these failures from happening, but they 
seem to have missed that. We are going to be exploring that. As 
Chair of the Oversight and Investigations Subcommittee, I find 
it necessary to reiterate how important congressional oversight 
is, and that it is a constitutional authority that we have and, 
frankly, an obligation that we have to maintain the well-being 
of our system of government.
    Mr. Barr, you just said that it was appropriate for 
outsiders to do their independent reviews. That is what we are 
trying to do here today. You were authorized on March 13th to 
do your report, correct? Who authorized that?
    Mr. Michael Barr. Chair Powell and I made--
    Mr. Huizenga. Okay. That is all I need to know. Chair 
Powell authorized you?
    Mr. Michael Barr. Chair Powell and I jointly made the 
decision.
    Mr. Huizenga. Okay.
    Mr. Michael Barr. We made a proceeding with this.
    Mr. Huizenga. Great. Is it your understanding as well that 
under Dodd-Frank, anytime Section 13(3) is invoked and utilized 
that the GAO is also supposed to do a report?
    Mr. Michael Barr. I am not familiar with that precise 
provision, but it makes sense to me that GAO should do a 
review.
    Mr. Huizenga. Okay. And do you know when GAO is going to be 
starting their report or investigation?
    Mr. Michael Barr. I respect the independence of the GAO and 
suggest that--
    Mr. Huizenga. Okay. Great. On page 2 of your testimony, you 
said that the May report will include confidential supervisory 
information (CSI). Will you be providing that CSI to the GAO?
    Mr. Michael Barr. Yes, consistent with normal practice.
    Mr. Huizenga. Okay. Great. We might have to unpack that a 
little bit. Will you also commit to me, and to this committee, 
and to the chairman that you will provide this committee with 
all of the confidential supervisory information needed to 
appropriately assess on our end what happened?
    Mr. Michael Barr. Yes, the same information in the May 1st 
report will be available.
    Mr. Huizenga. No, no, not in the report. If you are giving 
that supervisory information for the GAO to do their review, 
not before you review it yourself and decide what is 
appropriate and not appropriate. I thought you just said that 
you would be providing GAO with all of that data and 
information that you will be using to make your report. Is that 
correct?
    Mr. Michael Barr. We will make the information that we are 
using for the report available to you and to the GAO.
    Mr. Huizenga. Okay. So, we have your commitment that you 
are going to be providing us with all of that raw, confidential 
supervisory information so that we can do our job?
    Mr. Michael Barr. The same information that we would use 
for the GAO and for the public report.
    Mr. Huizenga. I am not looking for the report, though. I 
want to make sure we have the information. I am trying to make 
sure that our semantics aren't getting--
    Mr. Michael Barr. I am just trying to be careful. We follow 
our rules.
    Mr. Huizenga. Okay. I will accept the answer that you are 
going to give us the exact same information in a timely fashion 
that you are using for your report, fair?
    Mr. Michael Barr. Yes.
    Mr. Huizenga. Okay. Mr. Gruenberg, I want to touch on the 
FDIC's commitment to look at what was going on there. The same 
question to you, will you commit to providing the committee 
with all related confidential supervisory information that is 
needed for us to assess what is going on?
    Mr. Gruenberg. Yes, Congressman. One, I think you have the 
authority to compel that information. We will be responsive to 
you.
    Mr. Huizenga. Okay. ``Timely manner,'' is the key phrase 
here. Between myself and Chairman McHenry, we have a number of 
requests to all of you.
    Ms. Liang, I want to touch on this to obtain the 
information. FSOC was convened on March 10th, March 12th, and 
March 24th. Has FSOC met since March 24th?
    Ms. Liang. They have not met since March 24th.
    Mr. Huizenga. They have not. Okay. It was reported that 
Secretary Yellen convened these officials via video conference. 
Is that correct?
    Ms. Liang. Yes, I believe there were two--
    Mr. Huizenga. And you were part of that?
    Ms. Liang. --FSOC meetings.
    Mr. Huizenga. Okay. And you were part of that?
    Ms. Liang. I was part of the second one. I was not part of 
the first one.
    Mr. Huizenga. You were not part of the 10th? Okay.
    Ms. Liang. I was not. That was the evening, I believe, we 
announced. I was not part of the March 12th meeting.
    Mr. Huizenga. Okay. Were minutes taken at those meetings?
    Ms. Liang. By normal process, minutes would have been 
taken.
    Mr. Huizenga. And will we have access to those minutes?
    Ms. Liang. Yes, they are released, according to--
    Mr. Huizenga. Before they are released, because we only 
have minutes from December 22nd. There is nothing that has been 
released publicly since December 22nd.
    Ms. Liang. That is correct. I believe the process is that 
minutes are released following the next formally-scheduled FSOC 
meeting.
    Mr. Huizenga. Only if formally scheduled.
    Ms. Liang. We can come back to you on that, on when they 
will be released.
    Mr. Huizenga. So, we have to wait until the next formally-
scheduled time to get those minutes?
    Ms. Liang. I understand--
    Chairman McHenry. The gentleman's time has expired.
    Ms. Liang. --that is the process, but we can--
    Mr. Huizenga. We will be following up in writing. Thank 
you.
    Ms. Liang. Yes.
    Chairman McHenry. We will expect a written response for 
that, Under Secretary Liang.
    The Chair now recognizes Mr. Lynch of Massachusetts for 5 
minutes.
    Mr. Lynch. Thank you, Mr. Chairman, and thank you, Ranking 
Member Waters, for holding this hearing.
    I want to follow up on Ranking Member Waters' line of 
questioning. Prior to its collapse, Silicon Valley Bank was a 
major lender and investor in low- and moderate-income housing 
in Massachusetts, in my district, in large part because it 
acquired the Boston Private Bank & Trust Company back in 2021. 
And that includes not only deposits, but construction 
financing, permanent financing, mortgage lending for low- and 
moderate-income home buyers, equity investments, and direct 
purchase of tax-exempt bonds for affordable housing 
development.
    Right now, I have 18 affordable housing developments in my 
district, and on the outskirts of my district, currently under 
construction in Massachusetts, and they depend on the 
fulfillment of outstanding debt and equity commitments that 
were made by Silicon Valley Bank. And this is the back of the 
envelope, I am sure there are more, but I have 754 homes, 
including 702 affordable homes for residents with low incomes, 
and 118 homes for residents with extremely low incomes, as well 
as workforce housing.
    Here's the thing: While the vast majority of high-net-worth 
investors and depositors at Silicon Valley Bank have been held 
harmless, they have been rescued. The First Citizens assumption 
agreement is completely silent on the status of these low-
income victims, and that is a problem that flies in the face of 
your mission and mine.
    I appreciate all three of you. You worked quickly once you 
saw the problem, and I find great fault with the reckless 
management on the part of Silicon Valley Bank in that they 
concentrated so much risk and there was an absence of 
meaningful risk management. But we have a problem, and while 
the bank crisis might be over, it is not over in my district 
with all of these families, all of these low-income families 
who are struggling. I have Cities like Brockton, Massachusetts, 
we have a great mayor there, who is doing a wonderful job, and 
they are really going in the right direction, as well as Boston 
and Quincy and others, but we need help. We need to resolve 
this.
    Mr. Gruenberg, I need a commitment from you, sir, that you 
will come to Brockton, in my district, and we need to work this 
through so that we provide the kind of protection for low-
income families, a lot of them families of color, many of whom 
are first-generation immigrants, and they need help. And I 
think you and I need to be there, and I will get my mayors 
together and these 18 affordable housing development managers, 
and we will try to get this done. But can I get your 
commitment? Any thoughts on that?
    Mr. Gruenberg. Yes, Congressman, I would be glad to do 
that, and follow up with you. As First Citizens takes over, it 
is in a position to continue to serve the customers of the 
former institution, and work with you in regard to the 
community issues you just described.
    Mr. Lynch. That is great. I am very happy to hear that. 
There is something new and different though in this collapse. 
There was a concentration of risk on the part of Silicon Valley 
Bank. They catered to early-stage startups, which have a high 
rate of failure in the first place. They are very skittish, so 
those aren't core deposits that are going to stay through any 
period of unsettled economy. And then, on top of that, you have 
panic that is driven by social media. In many cases, you had 
venture capitalist firms telling their clients at that bank to 
get the heck out.
    And the speed at which this happened was a matter of hours. 
Again, I commend you on the speed at which you acted, but is 
there something more that we need to be doing now because of 
the velocity of money, people can move their money out like 
that, and are we equipped? The FDIC has a long and strong 
history, but is something new and different needed to protect 
us from that phenomenon?
    Mr. Gruenberg. Congressman, I think that is an important 
question to ask. I think we are dealing with a different 
environment and the point you raise in terms of how quickly 
money can move out, what the technology enables now that 
exceeds what has occurred in the past, is a new risk factor 
that we have to think about.
    Chairman McHenry. I would ask the panel to respond to the 
gentleman in written form about that very, very important 
subject.
    The Chair now recognizes Mrs. Wagner of Missouri for 5 
minutes.
    Mrs. Wagner. Thank you, Mr. Chairman. Vice Chair Barr, we 
are going to go very quickly here, so I would like some 
succinct, brief answers, if you could.
    Vice Chair Barr, referring specifically to Federal Reserve 
supervisors, do you know how many citations, specifically the 
matters requiring attention, (MRAs) and matters requiring 
immediate attention (MRIAs) that were issued to Silicon Valley 
Bank regarding its management of liquidity risk Do you know how 
many?
    Mr. Michael Barr. In November 2021, there were six MRAs and 
MRIAs on liquidity. In the fall of 2022, there was an 
additional MRA on interest rate risk modeling. I think I 
inadvertently misidentified it yesterday as an MRIA, but it is 
an MRA.
    Mrs. Wagner. That is fine. I don't need to go through all 
of them. We have six, maybe seven of these citations that were 
given. Yesterday, you were asked about an MRA that was issued 
in the fall of 2022. You stated that the MRA was issued, 
``based on the inaccuracies of their interest rate risk 
modeling. Essentially, the risk model was not aligned with 
reality.'' Is that your quote?
    Mr. Michael Barr. Yes.
    Mrs. Wagner. Did the supervisors provide the bank a 
timeline to remediate this misalignment, since changing an 
interest rate risk assessment model seems to be something that 
could be done very quickly?
    Mr. Michael Barr. Yes, my understanding is that there were 
time limits associated with each of these MRAs and MRIAs, but I 
don't have the information to be precise at the time.
    Mrs. Wagner. Really? Okay. Well, clearly, those alerts were 
ignored at the bank. Why didn't the Fed consider escalating any 
of these issues into a cease-and-desist order or other formal 
enforcement action against the bank to require senior 
management and the board of directors to remediate these 
serious deficiencies?
    Mr. Michael Barr. I think you raise a fair point, and we 
will be looking into that.
    Mrs. Wagner. I certainly hope so. Vice Chair Barr, in your 
testimony you stated, ``The failure of SVB illustrates the need 
to move forward with our work to improve the resilience of the 
banking system. For example, it is critical that we propose and 
implement the Basel III Endgame reforms, which will better 
reflect trading and operational risks in our measure of a 
bank's capital requirements needs.'' Sir, I strongly disagree. 
These reforms will result in additional costs to consumers, to 
businesses, and to investors. I am going to go quickly here. 
Was trading risk the reason SVB had almost 94 percent of its 
deposits uninsured?
    Mr. Michael Barr. No.
    Mrs. Wagner. Was trading risk the reason SVB did not have a 
risk officer for nearly 9 months last year?
    Mr. Michael Barr. I do not believe that was the focus of 
why there was not a credit risk officer.
    Mrs. Wagner. So no, trading risk was not the reason. Was 
trading risk the reason SVB had 51 percent of its deposits in 
the tech industry? Yes or no?
    Mr. Michael Barr. Not to my knowledge.
    Mrs. Wagner. I fail to see how SVB illustrates the need to 
implement Basel III Endgame reforms, particularly as it relates 
to trading risks. Can you show how trading risks directly 
resulted in SVB failure, or, sir, are you just looking for any 
reason, correlated or not, to justify increasing capital 
requirements for banks?
    Mr. Michael Barr. I think it is really quite important that 
we strengthen capital and liquidity requirements in the system. 
It is something I have been working on since arriving at the 
board in July. And I think that the work that we are going to 
do, that we will propose to notice-and-comment rulemaking, will 
make the financial system safer and sounder and reduce risks 
that firms, such as SVB, in the--
    Mrs. Wagner. You stated yesterday that our banks are well-
capitalized, did you not?
    Mr. Michael Barr. Yes. I have been consistent in saying 
both that the system is strong and that we also need to think 
about stronger capital rules. And I think that is appropriate 
given the risks--
    Mrs. Wagner. We are going to have a hearty give and take on 
this. I want to say this in closing: Despite U.S. regulators 
having clear knowledge of insufficient risk management, it 
seems that the examiners and your supervisors were asleep at 
the wheel while signs that Silicon Valley Bank was heading 
towards a collapse were staring them right in the face for 
many, many months.
    Vice Chair Barr, I look forward to the release of your 
review of the supervision and regulations of Silicon Valley 
Bank so that we can dig in some more on May 1st, and I hope 
that it provides more clarity to the events leading up to these 
bank failures. I thank you, and I yield back the balance of my 
time, Mr. Chairman.
    Chairman McHenry. The Chair now recognizes Mr. Green of 
Texas for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. And I thank the ranking 
member, and I thank the witnesses for appearing. Witnesses, you 
have all made the case for mismanagement at Silicon Valley 
Bank. If you disagree with that statement, please extend a hand 
into the air.
    [Hands raised.]
    Mr. Green. Let the record reflect that all witnesses agree 
that mismanagement was occurring. I have before me a news 
article from what is perceived by many to be a reliable source, 
CNBC. The style of the article is--that would be the title--
``Silicon Valley Bank Employees Received Bonuses Hours Before 
Government Takeover.'' Hours before government takeover, 
bonuses. It is also alleged by other sources that these bonuses 
could exceed $100,000.
    Mr. Gruenberg, is it true that hours before the takeover of 
the bank, before it was seized, that bonuses were accorded to 
employees?
    Mr. Gruenberg. Congressman, since we weren't the 
supervisor, I would not have that direct information. I am sure 
we can get it for you or the Federal Reserve could provide it.
    Mr. Green. I welcome the intelligence from the Federal 
Reserve.
    Mr. Gruenberg. But if I could just make an additional 
point, the FDIC is under a legal obligation, after the failure 
of Silicon Valley, to conduct an investigation of the conduct 
of the board and the management of the institution. And if 
misconduct occurred, we do have the authority to impose civil 
penalties, including civil monetary penalties and restitution, 
and to bar individuals from the business of banking.
    Mr. Green. Thank you.
    Mr. Gruenberg. So, we do have some significant authorities 
and responsibilities.
    Mr. Green. Vice Chair Barr?
    Mr. Michael Barr. Thank you very much, Representative 
Green. The Board also has the authority--
    Mr. Green. Without the authority, right now, just tell me, 
were there bonuses given out hours before the bank was seized?
    Mr. Michael Barr. I have seen reporting of that, but I am 
still trying to chase down the facts. Our Enforcement team has 
the ability to go after actions against individuals.
    Mr. Green. So you are saying you do not know, but you have 
heard that this is the case?
    Mr. Michael Barr. Yes. I do not have the supervisory record 
of that to know, but I have seen reporting of that, and we are 
looking into it.
    Mr. Green. Okay. For the moment, let us just assume that 
bank X hands out bonuses. Management has failed to do its job. 
Do you have the inherent or accorded or statutory power to claw 
back those bonuses?
    Mr. Michael Barr. We have the ability to pursue actions for 
the individuals who violated the law.
    Mr. Green. May I kindly ask about clawback of bonuses? Can 
you claw back those bonuses?
    Mr. Michael Barr. Under our authority, if there are 
violations of the law or unsafe or unsound practices or any 
breach of fiduciary duty, we can get restitution, we can get 
civil money penalties, and we can have--
    Mr. Green. So, should I assume that your answer is no, you 
do not have the authority to claw back those bonuses?
    Mr. Michael Barr. We do not have generalized clawback 
authority.
    Mr. Green. You do not. Okay. I see a hand raised. Mr. 
Gruenberg, please?
    Mr. Gruenberg. Just to try to respond directly to the 
question, the FDIC does not have explicit clawback authority 
under the Federal Deposit Insurance Act. We have that authority 
under the Dodd-Frank Act in regard to failures under Title II, 
but we do not have that under the Federal Deposit Insurance 
Act. So, we are considering additional authorities that 
Congress might provide. That might be something worth 
considering.
    Mr. Green. Thank you, Mr. Gruenberg, because that is 
exactly where I am going. We live in a world where it is not 
enough for things to be right. They must also look right, and 
it just does not look right that hours before the bank is 
seized, bonuses are accorded to employees. And some of these 
bonuses totaled more than $100,000.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Green. Thank you.
    Chairman McHenry. We will now recognize the gentleman from 
Kentucky, Mr. Andy Barr, who is also the Chair of our 
Subcommittee on Financial Institutions and Monetary Policy.
    Mr. Barr of Kentucky. Thank you, Chairman McHenry, and 
Ranking Member Waters, for holding this important hearing. Vice 
Chairman Barr, true or false, Silicon Valley Bank experienced 
rapid asset growth in a short period of time?
    Mr. Michael Barr. Yes, that is correct.
    Mr. Barr of Kentucky. Silicon Valley's rapid growth was 
fueled by an extremely high concentration of deposits from a 
single sector?
    Mr. Michael Barr. Yes, that is correct.
    Mr. Barr of Kentucky. Silicon Valley Bank became overly 
dependent on an extremely high percentage of uninsured 
deposits?
    Mr. Michael Barr. Yes, that is correct.
    Mr. Barr of Kentucky. Silicon Valley Bank failed to hedge 
the risk of holding long-duration securities in a rising 
interest rate environment?
    Mr. Michael Barr. My understanding is at one point they had 
hedges and those were not in place at the time they failed.
    Mr. Barr of Kentucky. And that was apparent to the Fed?
    Mr. Michael Barr. Yes, it was apparent to the Federal 
Reserve.
    Mr. Barr of Kentucky. Silicon Valley Bank had no chief risk 
officer for 8 months before its collapse?
    Mr. Michael Barr. Yes, that is correct.
    Mr. Barr of Kentucky. Was the San Francisco Fed unaware of 
any of these basic facts in the months leading up to its 
failure on March 9th?
    Mr. Michael Barr. Not to my knowledge.
    Mr. Barr of Kentucky. So, nothing in the existing 
regulatory framework concealed these basic facts from the San 
Francisco Fed, which had the responsibility of supervising this 
bank?
    Mr. Michael Barr. The regulatory structure does not conceal 
facts. It may have an effect on how supervisors act with 
respect to those facts.
    Mr. Barr of Kentucky. True or false, Silicon Valley Bank 
was subject to enhanced prudential standards under Dodd-Frank, 
as amended by the 2018 Bipartisan Regulatory Relief Law.
    Mr. Michael Barr. The Federal Reserve supervisory structure 
did not apply most enhanced prudential standards to the firm. 
It did have some enhanced prudential standards. Once it became 
subject to those standards after it passed the rolling average 
at the $100-billion level.
    Mr. Barr of Kentucky. But before it passed that $200-
billion threshold, when it passed the $100-billion threshold, 
it was under 2155, the Bipartisan Regulatory Relief Law, under 
Section 401 (a)(1)(c) of that law. The Fed could have applied 
enhanced prudential standards to Silicon Valley Bank, isn't 
that correct?
    Mr. Michael Barr. Under the 2019 rules that the Federal 
Reserve put in place, most enhanced prudential standards did 
not apply to the firm.
    Mr. Barr of Kentucky. Wait a minute. I don't know about 
that, because under Section 401(a)(1)(C) of that law, the Fed, 
by order or rule, could apply enhanced prudential standards to 
banks, not above $200 billion, but above $100 billion in assets 
on a one-off basis?
    Mr. Michael Barr. Yes, the legislation provided the Federal 
Reserve with ample discretion. The way that discretion was 
implemented in 2019 was with a rule and that rule provided--
    Mr. Barr of Kentucky. Reclaiming my time Vice Chair Barr, 
by order, the Fed could have applied enhanced prudential 
standards before the bank reached the size it did by February 
of 2023. My point is, it does not seem appropriate to change 
the tailoring rules for all banks to account for a lapse in 
supervision by the Fed and the inability of the Fed to deploy 
enhanced prudential standards to firms when it is currently 
able to do so under existing law.
    And, Vice Chair Barr, as you and I have discussed and as we 
agree, we need to preserve the diversity of the financial 
ecosystem here. The Fed had all of the existing tools it needed 
to supervise this bank and apply those enhanced prudential 
standards. I think pushing a one-size-fits-all or reimposing a 
one-size-fits-all regulatory regime on community and regional 
banks, especially regional banks under distress right now, 
would result in fewer of those institutions, more 
consolidation, and less competition for too-big-to-fail banks.
    Chair Gruenberg, the vast majority of community banks in my 
district are well-managed, and they actually understand how to 
manage interest rate risk in a rising interest rate 
environment. And since the failure of Silicon Valley Bank, 
those Kentucky banks and their customers have been asking me 
why they should have to pay an assessment for your rescue of 
Silicon Valley Bank with 100 percent guarantee of deposits of 
largely wealthy, sophisticated depositors at Silicon Valley 
Bank, some of whom apparently cared more about the bank's 
commitment to environmental sustainability than their 
capability to be good stewards of their deposits. I think this 
is a legitimate question.
    And I also think it is a good question whether invoking the 
systemic risk exception to the least cost resolution mandate 
under the Act was, in fact, the least cost solution. After all, 
your decision to cover all of the uninsured deposits cost the 
Deposit Insurance Fund an estimated $20 billion. Will you 
commit to using your authority under 12 U.S.C. 1817 to 
establish separate risk-based assessment systems for large and 
small members of the Deposit Insurance Fund so that these well-
managed banks do not have to bail out Silicon Valley Bank?
    Mr. Gruenberg. I'm certainly willing to consider that, 
Congressman. And as I indicated, we are going to be preparing a 
comprehensive review of the deposit insurance system, so we 
will come back to you and I will happy to engage with you.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Barr of Kentucky. Thank you. I yield back.
    Chairman McHenry. The Chair now recognizes Mr. Himes of 
Connecticut for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman. It is interesting to me 
to listen to my friends on the other side of the aisle who 
ordinarily spend all of their time trying to defund, destroy, 
and denigrate your organizations, now hold you entirely 
responsible for where we find ourselves today, despite 
activities within the bank that I think we all agree, and, Mr. 
Barr, you have said were on the verge of outrageous.
    So, I would like to begin by thanking all of you and your 
organizations for the intense and sleepless actions you took 
beginning on March 9th. I do not know if you acted perfectly, 
and you do not know if you acted perfectly, but we all know 
that today, the financial system appears to be stabilized. And 
we certainly know that Congress is not lighting itself on fire 
crafting a massive publicly-funded bailout as it was in the 
fall of 2008.
    I hope that we have dispensed with the absurdity that it 
was Silicon Valley's woke activities that drove this failure. 
And while I do not necessarily agree, Mr. Barr, with your 
predecessor's statement blaming the Bipartisan 2018 Reform Law; 
it is so nonsensical, it is not even wrong. The truth is that 
Silicon Valley Bank was crawling with supervisors and 
regulators who had been raising the alarm for a long time.
    And that is what is interesting to me about this whole 
episode. It was not a surprise. It was not a surprise to the 
regulators and supervisors who had been raising those alarms 
for years. It should not have been a surprise to the management 
team who had been the target of those alarms.
    By the way, just as a side note, it was a surprise to the 
Wall Street research analysts who were paid very good money to 
evaluate Silicon Valley Bank: 24 Wall Street analysts cover 
Silicon Valley Bank, 11 had buy ratings on it, 11 had hold 
ratings on it, and only one analyst rated it a sell. More 
seriously, the credit rating agency, S&P Global, rated Silicon 
Valley investment grade right up until March 10th when it 
announced that it expected a bankruptcy. There is an 
uncomfortable echo of 2008.
    By the way, Mr. Chairman, I would like to insert for the 
record, with unanimous consent, a remarkable article by 
Professor Rajgopal of the Columbia Business School, which 
elaborates many of these points that I am making.
    Chairman McHenry. Without objection, it is so ordered.
    Mr. Himes. The facts have been put out there pretty 
comprehensively. In 2021, 2 years ago, the Fed review resulted 
in the finding of serious weaknesses, the issuance of six 
matters requiring attention, and one matter requiring immediate 
attention. In July of 2022, the full supervision review rated 
the bank, deficient. That was 7 to 8 months before March's 
meltdown. In early 2023, there was a horizontal review. Again, 
the word, ``deficient,'' and by the way, that is complicated 
for most people to understand.
    Here is something that is not complicated for people to 
understand. As far as I can tell, Silicon Valley Bank had 
precisely one individual who was a banker on their board, Mr. 
Thomas King. The risk committee of this bank, which tripled in 
size in 2 years, had not one banker. There was no one on the 
risk committee with any significant banking experience.
    So Mr. Barr, I am going to put you in an uncomfortable 
position and say, clearly what we have here is a gap of time 
and a failure of action between the deficiency rating in July 
of 2022 and the meltdown in March. That is a long period of 
time. I am going to ask you for ideas, not necessarily good 
ideas. I understand that you are going to be uncomfortable 
about making recommendations. But clearly, we need to tighten 
up the process by which good things happen after a finding of 
deficiency. So, should that be left in your regulator's 
discretion, or should we act in such a way as to make actions 
mandatory subsequent to a deficiency rating?
    Mr. Michael Barr. It is a great question you raise and one 
that, I think, is appropriate for reviewing both by you and by 
us. I think that we need to put in place risk mitigants and 
incentives that are much stronger, and faster in the 
supervisory process. That is one of the things that we will be 
looking at in the review. But I do think that in instances like 
this where it is such a fundamental issue, we need to have risk 
mitigants in place that are ordered by the supervisors quickly.
    Mr. Himes. I am just going to make this observation as I 
run out of time. As we all saw, one of the problems here and 
one of the new things here were the chat rooms and the speed by 
which deposits could be withdrawn, and billions of dollars went 
out the door because of these devices. So, I am not convinced 
that giving humans who operate in human time additional 
authority is going to do the trick here. I think we need to 
think about automatic mechanisms, and that may require 
statutory change, automatic mechanisms that when a finding of 
deficiency or other adverse observations have been made, kick 
in automatically, perhaps after some cure period. But this was 
a meltdown that happened at the speed of light, and humans with 
discretion are not going to solve it in the future.
    Chairman McHenry. The gentleman's time has expired. The 
gentleman from Texas, Mr. Williams, is now recognized for 5 
minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman. I am going 
to repeat a little bit of what you have heard today, but when I 
talk to community banks in my district--and full disclosure, I 
am a car dealer, and I talk to them a lot and owe them a lot of 
money--one of their top worries right now is being left to foot 
the bill for the failures of Silicon Valley Bank and Signature 
Bank. Community banks, which most of us live by, should not be 
liable to pay for the rescue of larger banks that gambled and 
made a risky bet. Community banks are relied upon by Main 
Street America to be a lifeline and provide crucial banking 
services to small businesses. These smaller banks, which we all 
need to have, are some of the most-trusted institutions in the 
financial industry.
    Mr. Gruenberg, you talked about it before, but could you 
elaborate on if smaller community banks in Texas, where I am 
from, will be left responsible for bailing out the failed banks 
in California and New York?
    Mr. Gruenberg. Thank you, Congressman. I am keenly 
sensitive to the concern. Let me just say that under the law, 
the FDIC is required to impose a special assessment on the 
banking industry to recover any cost to the Deposit Insurance 
Fund from covering these uninsured deposits. And we have to do 
that by a notice-and-comment public rulemaking, which we are 
going to do in May. And just to be clear, the law gives the 
FDIC the authority to consider the types of entities that 
benefit from any action taken or assistance provided so that 
the FDIC does have discretion. And let me just say without 
forecasting how our Board is going to vote, we are going to be 
keenly sensitive to the impact on community banks.
    Mr. Williams of Texas. Take a look at it, because we all 
know that what they will do is pass the cost on to someone like 
me. The Federal Reserve was supposed to be the primary 
supervisor over Silicon Valley Bank, but from all we have seen 
and heard today, they failed to do their job, and it has been 
reported that Silicon Valley Bank's risk practices were on the 
Federal Reserve's radar. We have talked about that for over a 
year. In 2022 alone, Fed supervisors issued three findings on 
SVB's ineffective board oversight, weakness in their risk 
management, and flaws with the bank's internal audit function. 
So, it should raise major concerns that the Federal Reserve, 
which is tasked with regulating and overseeing banks, knew 
about Silicon Valley's risky practices for more than a year and 
failed to take any corrective action.
    Mr. Barr, what actions, if any, did the Federal Reserve 
take, and you talked a little bit about this after issuing 
those risk findings, and how did the Federal Reserve become so 
complacent? It is on a supervisory role and missed these 
warning signs, and I think that is what people across America 
really want to know.
    Mr. Michael Barr. Thank you very much for the question. My 
understanding is that the supervisors identified the issues. 
They brought them to management's attention, but the response 
clearly was not an effective response. Bank managers failed to 
manage the firm in an appropriate way. They did not manage 
their interest rate risk and their liquidity risk well, even 
though it was pointed out by the regulators. And I do think it 
calls for a heightened need for more-aggressive supervisory 
action to take care of these problems.
    Mr. Williams of Texas. But you all missed it, too.
    Mr. Michael Barr. I'm sorry?
    Mr. Williams of Texas. You missed it, too.
    Mr. Michael Barr. The supervisory staff were aware of the 
underlying issues. I think all of us were caught incredibly 
off-guard by the massive bank run that occurred when it did on 
March 9th and 10th, the scale and speed of that $42 billion 
going out the door Thursday afternoon, and it was expected by 
the bank that $100 billion more would go out the next day. That 
is just an extraordinary scale and speed of a run unlike 
anything I had ever seen before.
    Mr. Williams of Texas. Okay. Out of all of the banking 
supervisors, I would expect the Federal Reserve, and most of us 
would, to be the most aware of the impacts that increased rate 
hikes would have on the value of security for banks. However, 
the Fed has stress tests, which we talked about, which are 
conducted to determine how large domestic banks would perform 
under hypothetical and stable economic scenarios, currently do 
not test for the problems that caused Silicon Valley Bank to 
fail. SVB failed because of inflation, rapid increase in 
interest rates, and loss of value of government bonds. So even 
if SVB had been subject to testing, it would not have led to 
the changes that could have prevented their failure, because 
the Federal Reserve is asking the wrong questions and not 
running the scenarios that ultimately led to SVB's downfall.
    Quickly, Mr. Barr, how can the American people trust the 
Federal Reserve if you are not testing for all scenarios? How 
was the Federal Reserve so far off? That is a question that 
everyone asks.
    Mr. Michael Barr. I think that the Federal Reserve should 
use multiple scenarios. That is one of the reasons why I 
proposed that this year's test include a rising interest rate 
environment for the trading book. I think multiple scenarios 
makes a ton of sense and should be done.
    Mr. Williams of Texas. You know that saying, they can get 
it right 100 times. You have to get it right once, so you get 
one crack at it. Thank you very much.
    Chairman McHenry. The gentleman's time has expired. I will 
now recognize the gentleman from Illinois, Mr. Foster, who is 
also the ranking member of our Subcommittee on Digital Assets, 
Financial Technology and Inclusion, for 5 minutes.
    Mr. Foster. Thank you. As you know, 12 years ago, during 
Dodd-Frank, a number of us put a lot of effort into 
specifically authorizing U.S. bank regulators to put contingent 
capital requirements into the capital stack of large banks. 
These were conservatively thought of as sort of privately-
funded insurance policies that large banks are forced to carry, 
that pay out if a bank gets into trouble and automatically 
injects capital into a struggling, but not-yet-failed bank. For 
the last 12 years, U.S. bank regulators have completely ignored 
this authorization from Congress, which I have complained about 
in numerous hearings. But in the last 12 years, European bank 
regulators and others have used contingent capital 
successfully.
    I believe that we have a lot to learn about two side-by-
side bank failures: Silicon Valley Bank, a large bank by some 
measure, but with total assets less than 1 percent of U.S. GDP; 
and Credit Suisse, with total assets greater than 100 percent 
of Swiss GDP, too-big-to-fail by any metric. A couple of 
weekends back, the U.S. banking regulators tried to find 
someone to buy SVB, but they failed. The result was potential 
systemic risk and emergency intervention by regulators, which 
risked abandonment of a lot of market discipline and market 
chaos, and the Deposit Insurance Fund and eventually banks and 
their customers must take the hit. But when Swiss regulators 
tried to find a partner to buy out Credit Suisse, they 
succeeded.
    And at this point, it seems likely that the Swiss taxpayer 
will be off the hook for this giant bank's failure. The 
difference was contingent capital, because when Credit Suisse 
got into serious trouble, their contingent capital triggered 
and injected $17 billion of equity into Credit Suisse. This was 
absolutely essential to finding a buyer for Credit Suisse 
since, as you know, Credit Suisse was bought for about $3 
billion, but only after the $17 billion of capital injection by 
their contingent capital instruments.
    So, the Swiss contingent capital succeeded at its two 
design objectives: first, to prevent contagion; and second, to 
keep the Swiss taxpayer off the hook for the failure of a truly 
giant bank. Now, if Silicon Valley Bank had been forced to 
carry an appropriate amount of contingent capital, then capital 
would have been automatically injected, probably by Friday at 
the latest. And it is very likely that a buyer could have been 
found over the weekend as well, and we would not be having this 
hearing today.
    In fact, it is possible that they would not have gotten in 
trouble in the first place since Silicon Valley Bank would have 
had to answer not only to the regulators, but to the bond 
markets for their risky practices. When they went through their 
gigantic growth spurt, they would have had to issue a lot of 
contingent capital instruments. And I am pretty confident that 
one of the wizards in the bond market would have said, ``This 
is interesting. This bank has very flighty deposits and 
essentially no risk management in place. Maybe we should charge 
a pretty big risk premium,'' and the markets might have 
detected that.
    My question is, Vice Chair Barr, as part of your holistic 
review of bank capital requirements, will you commit to finally 
seriously considering contingent capital requirements in the 
capital stacks of large banks?
    Mr. Michael Barr. Thank you very much for your question, 
and I very much appreciate it. Both the Fed and the FDIC have 
had conversations over the years on this very question of 
contingent capital instruments, and we have issued an Advance 
Notice of Proposed Rulemaking (ANPRM) of a different type of 
contingent instrument, an ongoing concern capital instrument 
that would be required for large banks. But I think it does 
make sense to consider alternative options, and I would be 
happy to continue the conversations with you about that.
    Mr. Foster. Okay. And I would specifically appreciate it if 
your analysis included a counter-factual analysis of how much 
better off we would have been if regulators had listened to 
Congress and included contingent capital requirements into the 
capital stacks of these banks, because I think there is a lot 
to be learned from just the counterfactual analysis.
    I would like to just close out by finishing up a little bit 
with questions about the nonresponsiveness of SVB management to 
the early warnings they got. Is there leverage that we can 
provide you? An obvious one is to say all of these matters 
requiring immediate attention and so on are private. For 
example, if they had to become public after 60 days if they 
were not resolved, would that have lit a fire under the 
management? Are there other things? For example, you could say 
any management that had an ongoing appending MRIA, matters 
requiring immediate attention, we simply put all the bonuses in 
escrow. That would almost certainly get their attention.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Foster. So if you could include these sort of ideas, I 
would appreciate it.
    Chairman McHenry. The gentleman's time has expired. Please 
submit your responses for the record, Mr. Barr.
    The Chair now recognizes Mr. Emmer of Minnesota for 5 
minutes.
    Mr. Emmer. Thank you, Chairman McHenry. Thanks for holding 
this important hearing today. The collapse of three regional 
banks over the course of 2 weeks is directly related to failed 
Democrat policies. Record inflation as a result of reckless 
government spending led to historic interest rates the banks 
were not ready to manage. It appears financial regulators were 
not appropriately communicating financial risks of the high-
rate economy with banks in their supervisory capacity. And this 
Administration's political attack, quite frankly, from the 
highest levels of our government on the digital asset industry, 
which, by the way, had nothing to do with causing the runs, 
sparked fear, leading to bank runs--it is Silvergate, Silicon 
Valley Bank, and apparently Signature--bringing these core 
issues plaguing our economy and the broader banking sector to 
the surface.
    Let us not be fooled. Providing financial services to legal 
businesses in the U.S. should not be risky, but this past month 
has proven that the mismanagement of our monetary policy has 
apparently made it risky to put dollars in a bank.
    Mr. Gruenberg, will the FDIC sell off Signature's deposits 
from digital asset businesses? Yes or no?
    Mr. Gruenberg. We are returning those deposits to the 
depositors, Congressman.
    Mr. Emmer. Okay. Does the FDIC plan to sell the 
intellectual property for Signet?
    Mr. Gruenberg. I believe that has already been sold out of 
the bridge institution, Congressman.
    Mr. Emmer. Okay. We would like to see that information. 
Will you commit that a bank that buys Signet will be able to 
use it to facilitate 24/7 access to the banking system for 
digital asset companies?
    Mr. Gruenberg. I am happy to look into that. I don't know 
who the buyer was, but I would be glad to look into it and 
follow up with you.
    Mr. Emmer. You are not going to block the buyer from doing 
24/7 banking for digital asset companies. Is that correct?
    Mr. Gruenberg. If that is the nature of the acquisition, 
yes.
    Mr. Emmer. And will you commit that the bank that buys 
Signet, or the bank that did, will be able to onboard new 
digital asset customers?
    Mr. Gruenberg. Again, I would like to look into the 
transaction, but I would be glad to follow up with you in 
regard to it.
    Mr. Emmer. When the FDIC sold off Silicon Valley Bank's 
deposits to First Citizens, did that include deposits from any 
digital asset firms or VCs in the digital asset space?
    Mr. Gruenberg. I believe all of the deposits from the 
failed Silicon Valley Bank were transferred to First Citizens 
in that.
    Mr. Emmer. Including the digital?
    Mr. Gruenberg. All of them. Yes.
    Mr. Emmer. Were all of SVB's deposits from digital asset 
businesses, again, transferred to Citizens? Is that what you 
are saying?
    Mr. Gruenberg. Yes. My understanding was Citizens assumed 
all the deposits of the--
    Mr. Emmer. Has the FDIC ever communicated implicitly or 
explicitly, sir, to any banks that their supervision will be 
more onerous in any way if they take on new or maintain 
existing digital asset clients?
    Mr. Gruenberg. No.
    Mr. Emmer. Thank you. The FDIC estimates that resolving 
Signature Bank is going to lead to a $2.5-billion loss to the 
Deposit Insurance Fund, and resolving Silicon Valley Bank will 
lead to a $20-billion loss to the Deposit Insurance Fund. When 
the FDIC sold Signature, it had the effect of closing Signet, 
which is an innovative payment system that facilitated 24/7 
access to banking services, frankly, a private-sector 
innovation that apparently will be rivaled by the Fed now. 
Signet is intellectual property that has significant value, so 
I do want to see that sale.
    Chairman Gruenberg, when managing the resolution of any 
failed bank, the FDIC is statutorily required to do so using 
the least-costly resolution option, thereby minimizing losses 
to the Deposit Insurance Fund, which is replenished by the 
banks through fees that are indirectly passed on to everyday 
Americans with bank accounts. I am concerned that the FDIC has 
deviated from its statutory requirement to minimize costs here 
and, instead, has opted to pursue a lazy and destructive 
regulatory campaign to, in fact, oust digital asset 
opportunities from the United States. No bank is designed to 
survive manufactured bank runs. And in analyzing what caused 
this fiasco in the first place, many signs point right back to 
you and the FDIC, this Administration, and certain reckless 
Democrat Senators.
    I want to thank you again for coming today, and I would 
appreciate a response to my March 15th letter, because to me, 
it is still clear that we have a lot of questions that need 
answers. And with that, Mr. Chairman, I yield back.
    Chairman McHenry. The gentleman yields back. The ranking 
member of our National Security, Illicit Finance, and 
International Financial Institutions Subcommittee, Mrs. Beatty, 
is now recognized for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and thank you, 
Ranking Member Waters. Mr. Gruenberg, we know that both SVB and 
Signature had very high proportions of uninsured deposits, 
somewhere between 90 and 95 percent. Can you share with us or 
explain to us what the typical ratio is for your average bank 
and how this factor played into the bank run that we witnessed 
on March 9th?
    Mr. Gruenberg. Thank you, Congresswoman. It is an important 
question. I think it's fair to say these two institutions were 
outliers in terms of their exceptional concentration of 
uninsured deposits, both around 90 percent. In the regional 
bank space, between $100 billion, and $500 or $600 billion--I 
think it is generally in the 40-percent category. So, these two 
institutions were outliers, and it was a significant part of 
the liquidity risk on their balance sheet.
    Mrs. Beatty. And would you say that this half a portion of 
uninsured deposits left the bank more susceptible to this run?
    Mr. Gruenberg. Yes.
    Mrs. Beatty. Let me also have a follow-up question to you. 
We have heard many ideas proposed about modifying the $250,000. 
And we know in, I think it was 2008 with the Emergency Economic 
Stabilization Act, we went from $100,000 to $250,000. For 
example, what about temporarily insuring all deposits, 
increasing the limit to $500,000 or a million, insuring all 
deposits for small and mid-sized firms or limiting it for the 
largest financial institutions? What are your thoughts on some 
of these proposals?
    Mr. Gruenberg. As you understand, Congresswoman, the 
coverage for deposit insurance is statutorily set at $250,000 
per account, so to adjust it would require legislative change. 
And as I indicated earlier, the FDIC is undertaking a 
comprehensive review of our deposit insurance system, and we 
will come back with a report that we will release publicly 
outlining policy considerations for--
    Mrs. Beatty. Is this one of them? And you can weigh in 
also, Mr. Barr, or Ms. Liang. You are experts. You are 
testifying here on your opinion. I understand that it is 
statutory and requires it to come back here, and certainly, as 
you know, we have changed many things over the years in rooms 
like this. So to the public, I don't want you to think that 
this may be far-fetched. We had large banks when we had too-
big-to-fail, and we are certainly more than $50 billion now as 
we hit legislative ways to change it. What are your thoughts on 
increasing that? That is one of the number-one things I am 
getting from my constituents. In 2008, it was $100,000. We made 
the change then through an Emergency Act. What now?
    Ms. Liang. Congresswoman, the FDIC, as Chairman Gruenberg 
mentioned, is doing a review of the deposit--
    Mrs. Beatty. Would you support an increase?
    Ms. Liang. I would support a study and proposals for reform 
if needed. The rise in uninsured deposits--it has been 
increasing over the years.
    Mrs. Beatty. Okay. Mr. Barr? Only because my time is 
running out, and the next question is going to be for you.
    Mr. Michael Barr. We would be happy to work with you on 
thinking through that. I think taking a step back, the 
important thing is that our banking system is sound and 
resilient.
    Mrs. Beatty. Okay.
    Mr. Michael Barr. The actions the regulators took 
demonstrate that deposits are safe, and we would love to 
continue the conversation with you.
    Mrs. Beatty. Okay. I am glad you said, ``sound and 
resilient.'' In your opening testimony, you said the same 
thing, that you thought banking was sound. You also used words 
like, ``strengthening the public confidence,'' or paraphrasing 
it. I am from Ohio, and the public pension funds nationwide, as 
you know, lost millions of dollars that were invested in SVB 
and Signature. In my home State of Ohio, the State Teachers 
Retirement System took the biggest hit, with some $27 million 
that was invested in SVB, representing I know maybe only 3 or 4 
percent of the fund's total portfolio. But I am concerned about 
reports that the CEO of SVB unloaded millions of stocks in the 
days and weeks leading to the collapse. I know that we are 
expecting a report on the Fed's investigation of SVB in May. 
But is there anything you can share today regarding the bank's 
executive management?
    Mr. Michael Barr. [Inaudible.]
    Mrs. Beatty. Okay. Thank you, and thank you, Mr. Chairman.
    Chairman McHenry. Thank you. We ask the panel to respond in 
writing to Mrs. Beatty.
    We will now recognize the gentleman from Oklahoma, Mr. 
Lucas, for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman, for holding this 
important hearing. And, Chairman Gruenberg, I would like to 
discuss--and I know my colleague, Congressman Williams, who is 
also the Chair of the House Small Business Committee, has 
focused on this a little bit--the special assessment fee that 
will be used to cover the losses from the uninsured deposits. 
You have explained the proposed rulemaking for the special 
assessment will occur in May of this year. And while you are 
thinking about that, be thinking about a discussion of the 
flexibility the FDIC has during the rulemaking to ensure that 
our small community banks don't disproportionately carry the 
burden.
    Being one of the older members of this committee, I have 
been around long enough to have observed firsthand several 
banking crises. In 1982, I was getting ready for my final 
semester at Oklahoma State when an institution in Oklahoma City 
called Penn Square Bank went down, and took Continental 
Illinois of Chicago down with it, a bank from, what, the 1840s 
or 1850s. They took Seattle-First National Bank down with them 
too.
    Now, FDIC and the regulators responded in the appropriate 
fashion and addressed that, but it was a combination of a 
collapse in the oil and gas industry and in production 
agriculture. And the chain reaction in my great State was the 
slaughter of community banks, a slaughter. There was no quarter 
given to those folks. They were locked up, chopped up, sold 
out. The legislature met in the middle of the night to 
authorize not just one town, one physical location, one charter 
banking, but we went to branch banking because it was all 
falling down on us.
    The people whom I represent were brand-new, young banking 
men and women 40 years ago, when they saw how community banks 
were handled in my State. They weren't Penn Square, they 
weren't Continental Illinois; they were Seafirst. They are now 
my most-senior bankers 40 years later, and they are looking at 
this situation and they are saying to me, we have been the 
least problematic of any sector in the financial services 
industry for decades to the regulators and the FDIC, but yet, 
in every crisis since then, we have been kind of the orphans. 
And this time, they are saying, we were wiped out as an 
industry 40 years ago, but now we are going to get a special 
assessment to pay for the mistakes of the most-sophisticated 
institutions, the biggest institutions.
    Can you tell me how it is possible, when this special 
assessment fee process is completed, that my community bankers 
aren't going to wind up disproportionately paying for the 
mistakes and the folderol of the biggest institutions in the 
country, or should they just be prepared to be the scapegoat 
one more time?
    Mr. Gruenberg. That's a critically-important question, 
Congressman, and we are keenly sensitive to it. We have 
discretion under the law. We have to act pursuant to a notice-
and-comment rulemaking. Anything we put out will be subject to 
public comment. We have discretion, as I indicated earlier, and 
will repeat, we will be keenly sensitive to the impact on 
communities. I do not want to front-run my Board. We are going 
to have to do a notice-and-comment rulemaking, but I hear you 
and I'm keenly sensitive to the point you raised.
    Mr. Lucas. I would just offer, once again, the observation, 
the perspective of my community bankers is, if you are big 
enough, we have now given you an emphatic protection. It 
appears with what we have done in the last few months, if you 
are in that intermediate range, we are going to protect you. 
But if you are the little bankers, the little guys and ladies 
out there meeting the day-to-day capital needs, you are going 
to be the one to pick up the bill. And I kind of appreciate 
their point, having lived through 40 years of these experiences 
in my great State.
    Shifting to another question, as has been discussed today, 
Treasury approved the systemic risk designation on March 12th, 
upon the recommendation of the Federal Reserve and the FDIC. I 
want to discuss for a little bit the process leading up to 
this. I think it is important that we have a clearer picture of 
how the regulators made this designation, not just in theory, 
but in practice.
    Vice Chair Barr, could you provide insight into which 
regulator acted first in proposing that uninsured deposits be 
protected? These are the kinds of questions I am getting back 
home. And while you are thinking about that, were there 
discussions between the FDIC and the Fed prior to the 
respective board meetings?
    I see my time has expired. But I am happy to follow up with 
you--
    Chairman McHenry. You can go ahead and answer--
    Mr. Lucas. I bet somebody is looking at the time--
    Chairman McHenry. --right now, that is interesting, plus we 
are close to getting a little break here.
    Mr. Michael Barr. I am happy to do so.
    Mr. Lucas. Please. Thank you.
    Mr. Michael Barr. We were in conversations, all three 
agencies, over the course of that weekend trying to think 
through what the potential ramifications might be in the 
financial system. It was a very difficult judgment to make and 
involves, of course, information we are getting from around the 
system hearing from community bank--
    Chairman McHenry. We ask the gentleman to provide a 
timeline of those conversations between the two agencies and 
the two principals of the FDIC in writing for the record.
    The gentleman's time has expired. We will now go to Mr. 
Vargas of California for 5 minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman, and Ranking 
Member Waters. I guess I am looking at this a little bit 
differently, and that is, we could have been here today looking 
at the collapse of hundreds of banks. We could have been here 
today trying to figure out how to stop the contagion, but 
instead, we are here looking at significant banks with 
significant problems. I think that is important, but I think 
what is more important is that everyone work together. We 
certainly have our ideological differences, and they are 
significant. I heard right away that it was President Biden's 
fault, from several Members, and I could easily say, no, it was 
President Trump's fault. But the truth of the matter is that we 
are out of our ideological silos and trying to figure out 
practical solutions.
    I want to thank the Chair. I think the Chair worked very, 
very hard on this. And I think that he probably was a little 
uncomfortable with his ideologues on his side maybe, but I 
think he did a fabulous job, and I want to thank him publicly. 
I think the ranking member did the same. I think they worked 
very, very closely together to try to figure out what we can do 
as a legislature to make sure that there is not contagion. I 
want to thank all of you who have acted very honorably, nobly, 
as you should have, to try to figure out what is the solution 
here, and, again, I appreciate that deeply. Again, we could be 
here talking about a disaster, an unmitigated disaster. I was 
worried about that. I worry about these things, and we are not. 
Instead, we are looking at these important issues. So now that 
we are, I got that off my chest.
    I do want to ask you, Mr. Barr, you were quoted quite 
extensively for saying that--and let me get it correct here; I 
don't want to put words in your mouth--``SVB's failure is a 
textbook case of mismanagement.'' Was that a correct quote?
    Mr. Michael Barr. Yes.
    Mr. Vargas. Then, the natural question is, to begin, why 
wasn't that a textbook case of enforcement?
    Mr. Michael Barr. I think that is a good question, one we 
are exploring very much. The supervisors looking at the bank 
identified the problems with the bank, and the question is, did 
they identify them with enough level of urgency? Did they 
escalate appropriately? And I think that is an incredibly fair 
question that we are looking at carefully. I expect that we are 
going to find that we need to have more of an emphasis on 
supervisors using the tools they have more promptly and putting 
mitigants in place more promptly when they see problems at 
banks that they are supervising.
    Mr. Vargas. Yes. In fact, they had a number of MRAs, and 
MRIAs, I guess, and it didn't seem like you did anything other 
than write a letter. It didn't seem like there was any 
enforcement. Where was the stick?
    Mr. Michael Barr. Yes, sir. I think that is exactly the 
right question. Normally in the supervisory process, when a 
supervisor issues an MRA or an MRIA, the bank promptly takes 
care of those matters. In this case, obviously, it did not take 
care of them in such a way that it prevented its sudden 
failure--
    Mr. Vargas. It seems like they blew you off. It seems like 
they blew you guys off, and you didn't do anything. That is 
what it seems like from reading all of this information, I can 
tell you. Maybe I am wrong, but that is what it sounds like.
    Mr. Michael Barr. Yes, I think that, again, we are looking 
at the whole supervisory record. I share your concern very 
much. I think it is something we are going to have to explore 
both in terms of the way the bank responded and the bank's 
responsibility for its failure, but also, should regulators 
have used tools to escalate more promptly and quickly? I think 
that is a completely fair question.
    Mr. Vargas. Okay. Chairman Gruenberg, in your hearing 
before the Senate Banking Committee, you testified that the 
collapses of SVB and Signature Bank demonstrate the 
implications that banks with assets over $100 billion can have 
financial stability issues. I think that is what you stated. 
Additionally, you stated that the prudential regulation of 
these institutions merits serious attention, particularly for 
capital liquidity and interest rates hikes. Can you please 
elaborate more about what prudential regulations need to be 
reviewed? What steps can we take to mitigate the potential for 
similar bank failures?
    Mr. Gruenberg. Thank you, Congressman. I think we should 
start with supervision and how we supervise liquidity risk. And 
two big things in this episode were liquidity risk from 
concentration of uninsured deposits and the accumulation of 
unrealized losses on the balance sheets of our institutions, 
both of which could have fundamental management of interest 
rate risk, which is--
    Mr. Vargas. But I am talking about the size of the bank. I 
think that is significant.
    Mr. Gruenberg. No, and I think it applies to all 
institutions. I think in the past, we have looked at these 
regional banks and smaller regional banks, and in terms of 
their prudential regulation have treated them somewhat more 
lightly than the larger institutions.
    Mr. Vargas. My time has expired.
    Mr. Gruenberg. In light of this episode, we need to take a 
close look at that.
    Mr. Vargas. Thank you. I yield back.
    Mr. Gruenberg. That was the point I was trying to make.
    Chairman McHenry. After the windup that Mr. Vargas gave, I 
just want to give him, like, 10 more minutes, so thank you.
    With that, we will now recognize Mr. Loudermilk of Georgia 
for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. And thank you all 
for being here. I know you have been spending a good bit of 
time on Capitol Hill, but we appreciate you being here. One of 
the concerns that I have received from a lot of my smaller 
institutions, smaller banks, is with the extension of insuring 
deposits across the board. They felt vulnerable in that larger 
institutions may decide to pull deposits that they have in the 
smaller institutions because then they would be covered.
    Under Secretary Liang, I wanted to get a little clarity on 
what seem like conflicting accounts from Secretary Yellen 
regarding deposit insurance. On Tuesday, March 21st, the 
Secretary suggested deposits would be insured. She said, ``If 
smaller institutions suffered deposit runs, that posed the risk 
of contagion.''
    Then, during her testimony to the Senate Finance Committee 
the very next day, the Secretary said she was not considering, 
``blanket insurance or guarantees of deposits,'' but then a day 
later, she said that Treasury, ``would be prepared to take 
additional actions to protect depositors, if warranted.'' Could 
you clarify the Department of the Treasury's position regarding 
deposit insurance?
    Ms. Liang. Yes. Thank you, Congressman. As Secretary Yellen 
has said, we have used tools to prevent contagion in the 
banking system and have reflected our commitment to ensure that 
all deposits are safe. That means we would use the tools again, 
if needed, to ensure that Americans' deposits are safe.
    Mr. Loudermilk. So your answer is, yes, you would include 
smaller institutions, smaller banks, community banks, or am I a 
little confused?
    Ms. Liang. If conditions warranted that smaller 
institutions could pose a risk of contagion to the broader 
system, we would absolutely use the tool.
    Mr. Loudermilk. I guess the question would be, what is that 
condition? If it starts with one community bank, then that 
would be a trigger, or do you have more of a definition of what 
would be the condition?
    Ms. Liang. I think it is very difficult to just make 
decisions on the hypothetical. But in this environment that we 
made the systemic risk determinations based on unanimous 
approvals from the FDIC and the Fed, we determined that the 
risk of contagion in the banking system was very high.
    Mr. Loudermilk. So with that, and the action of extending 
it to larger institutions, regional banks, and then smaller 
institutions, do you have any concerns that regulators may be 
creating moral hazard across the entire banking system?
    Ms. Liang. I think we are concerned with addressing the 
current situation that we are facing. We think the system has 
stabilized. We have information and evidence that deposits have 
stabilized. We will need to address reforms going forward to 
address concerns about moral hazard.
    Mr. Loudermilk. Okay. And I agree with you. I think that we 
are stable at this point, but as we have seen already, things 
can turn around in a 24-hour period, right? And I am one of 
those to whom, from raising three young children, and now with 
five grandchildren, consequences matter in future behavior, and 
we can't ignore that going forward.
    Last question: Why did the Secretary's position appear to 
change regarding extending insurance to smaller institutions? 
Why did she change her position between the 21st and the 23rd? 
Were there internal discussions going on between the Secretary 
and the President or other prudential regulators that caused 
the shift?
    Ms. Liang. I am not aware of any conversations.
    Mr. Loudermilk. Okay. I appreciate that. Mr. Chairman, no 
further questions at this time, and I yield back.
    Chairman McHenry. Mr. Casten of Illinois is now recognized 
for 5 minutes. And after his 5 minutes, we will give the panel 
a 5-minute break to stretch your legs, then we will come back 
and we will finish with questioning. My expectation is that we 
will be able to get through this final segment. But I do think 
it is humane to actually give the panel this bit of a break, 
and, frankly, I need one as well. So, Mr. Casten, for 5 
minutes.
    Mr. Casten. I would like to thank the chairman for putting 
me on the inhumane end of that transaction. Vice Chair Barr, I 
am trying to understand the calendar, and I have just four or 
five questions for you, and I want to walk through the calendar 
as I understand it. If you disagree with anything I have in the 
calendar, let me know, but otherwise, I will just try to run 
through quickly to get to the questions.
    In January 2019, SVB was notified by the Fed of deficient 
risk management. A year later, they were notified that their 
risk management was not up to large bank standards. About 2 
years after that, April 2022 to 2023, SVB no longer had a risk 
officer, and in their 2023 proxy statements, they say that they 
have doubled the number of risk meetings from 9 to 18. Given 
the prior concerns from the Fed, did the Fed participate in or 
otherwise have visibility into any of those risk meetings at 
SVB in that window?
    Mr. Michael Barr. The calendar you described, some of them 
in the future, I think that we might need to look at the 
calendar reconciliation together or maybe I misheard--
    Mr. Casten. No, no, I am just going up to January of this 
year, was the last date. From April of 2022 to January of 2023, 
there was no risk officer but a doubled frequency. Did the Fed 
participate in any of those risk meetings within SVB during 
that 9-month period?
    Mr. Michael Barr. I don't yet have the full supervisory 
record, so I am not able to answer the question, but we will 
have that information in the May 1st report.
    Mr. Casten. Okay. Do you know if they were at any time 
cited for violating Section 165 of Dodd-Frank, which requires 
banks over $50 billion to have a risk officer for the 9-month 
period when they did not?
    Mr. Michael Barr. The deficiency downgrade that occurred in 
the summer of 2022 focused on a wide range of risk management 
practices at the firm and found them to be deficient.
    Mr. Casten. Okay. Moving back to the calendar, Q3 of 2022, 
their 10-Q showed that their held-to-security bonds were $15.9 
billion, undervalued relative to mark-to-market, and they had 
$15.8 billion in equity at the time. Three months later, their 
10-K for the year showed a slight improvement. They only had a 
$15.1-billion overvaluation of their bonds and $16.3 billion in 
equity. Was it perceived by the Fed or by management that they 
were in an improved risk situation at the end of 2023 than they 
were 3 months earlier?
    Mr. Michael Barr. I don't know the answer to the question 
with respect to how the management of the firm were viewing the 
situation. The supervisors were telling the firm at that time 
that basically their risk models were divorced from reality, 
that the model suggested they would earn more money, when they 
were actually losing more money.
    Mr. Casten. Okay. I am glad to hear that, because now I 
want to move to 2023 and sort of what happened up to March 8th. 
On January 26, 2023, about 3 weeks after they finally got a 
risk officer back, CEO Becker announced that he was going to 
execute $3.6 million in stock sales. On February 22nd, he 
executed those sales. On March 8, 2023, they announced a sale 
of all of their available-to-sell equity portfolio to Goldman, 
the same day the $1.8-billion loss of a security sale was 
disclosed, apparently also to Goldman. Heads, Goldman wins. 
Tails, Goldman wins. And of course, the next day a $42 billion 
withdrawal.
    Do you have any visibility of when was the security sale 
and/or the equity sale to Goldman process initiated? In other 
words, when was it announced? When internally was the company 
initiating the process to secure additional cash from those two 
Goldman processes?
    Mr. Michael Barr. I do not know the answer to that 
question.
    Mr. Casten. I would imagine you probably also don't know 
whether the January 26th sale was cleared with a risk officer 
who had been on board for 3 weeks when the January 26th 
announcement was made?
    Mr. Michael Barr. I don't yet have full visibility into 
that transaction. I hope that we will be able to get as much 
detail as we can as part of our review.
    Mr. Casten. Okay. If I am Mr. Becker, I am obviously in a 
lot of trouble. You have a deposit base that is extremely well-
heeled and very sophisticated. Was there any outreach to the 
depositors during this period to ask them either to provide 
equity infusions to the bank or other forms of capital prior to 
the run on the bank?
    Mr. Michael Barr. I do not know.
    Mr. Casten. Last question: In the exchange with Mr. Scott, 
you had indicated--and I think I got this right--that the Board 
of Governors' concerns about SVB were really heightened in mid-
February?
    Mr. Michael Barr. What I said is that the staff presented 
to the Federal Reserve Board of Governors in mid-February on 
interest rate risk generally, and one of the firms they 
highlighted as having interest rate risk was Silicon Valley 
Bank. And the staff indicated that they were doing a further 
horizontal review and would come back with further results of 
that review.
    Mr. Casten. Okay. Was it your position that the trigger for 
the heightened security was simply interest rate movement, or 
was there anything else about this calendar that triggered that 
heightened concern?
    Mr. Michael Barr. I didn't describe it as heightened 
concern. Basically, the staff were presenting on interest rate 
broadly, and the firm they singled out as having interest rate 
risk was Silicon Valley Bank. And they discussed the horizontal 
review they were doing and the fact they would come back with 
further information after horizontal review.
    Mr. Casten. Okay. Thank you. I yield back.
    Chairman McHenry. Okay. We will now stand in recess. The 
committee stands in recess for 5 minutes.
    [Brief recess.]
    Mr. Steil. [presiding]. The committee will come to order.
    The Chair now recognizes Mr. Rose for 5 minutes.
    Mr. Rose. Thank you. Before I get into my questions, Chair 
Gruenberg, I would like to say that as you consider any new 
special assessment on banks to replenish the Deposit Insurance 
Fund, that you use your special exemptive authority in 
implementing that assessment to ensure that Tennessee bankers 
and, frankly, bankers in a number of other States across the 
country are not paying for the mistakes of California and New 
York bankers serving wealthy real estate moguls and tech-
related venture capitalists. Tennessee bankers understand how 
to manage risks and should not be punished for the mistakes of 
those in our coastal banks.
    Now, I would like to jump right into my questions as time 
is limited. Chair Gruenberg, the value of First Citizens Bank 
is up over 50 percent over just the last 5 days and is still 
rising. Shareholders have benefited by $3 billion by last 
calculation. Chair Gruenberg, why did the FDIC cap its 
potential gain on First Citizens stock at $500 million?
    Mr. Gruenberg. I think it was a negotiation, Congressman, 
and that is what we were able to work out.
    Mr. Rose. Why not allow the Federal Government to recoup 
more of its losses and share in this outsized gain at First 
Citizens?
    Mr. Gruenberg. I wouldn't argue with that, but we had a 
negotiation with the acquiring institution, and that is what 
came out of it.
    Mr. Rose. Okay. Do you think you had good negotiators at 
the table?
    Mr. Gruenberg. Maybe we could have been better. I don't 
know.
    Mr. Rose. Okay. And, Chair Gruenberg, did you receive any 
pressure from the White House or other elected officials not to 
allow for consolidation of large or mid-sized banks with 
Silicon Valley Bank as part of the review process of potential 
bidders?
    Mr. Gruenberg. No, Congressman.
    Mr. Rose. Okay. Vice Chair Barr, as you know, as committee 
members, we have been undergoing a series of briefings with 
regulators both at the State and Federal level on these bank 
failures. Earlier this week, I learned that the California 
banking regulators were conducting their examinations of SVB 
remotely. Vice Chair Barr, can you tell us whether or not the 
Fed was also conducting its examinations remotely or onsite and 
in person?
    Mr. Michael Barr. My understanding is that there is a mix 
of activities. I don't know how much was onsite. A lot of 
activity occurs remotely doing analytical work and so on, but I 
don't have a precise answer to that question.
    Mr. Rose. I hope you will provide that answer to us. As a 
former bank board member, I know there is nothing that strikes 
fear in the heart of a banker more than an onsite review, maybe 
for good reason, and it's perhaps more effective. I would like 
to personally know the answer to that question as you conduct 
your review.
    You said earlier, and I think reaffirmed your quote that 
this was a textbook case of mismanagement. I hope that you will 
conduct a thorough review to decide whether the oversight by 
the Fed examiners was being done in the way that it should and 
that the escalation of that up through your process was 
appropriate and that you will take appropriate actions. It 
seems to me, and I will just say again, based on my personal 
firsthand experience, that you have the tools you need, and the 
question is, were they being used effectively? And I hope that 
in the days ahead, and the weeks ahead, we get to the answer to 
that question.
    Under Secretary Liang, earlier my colleague, Mr. 
Loudermilk, was questioning you about some of the comments of 
Secretary Yellen. And I guess I am still a little bit confused, 
because I think what I am hearing both from the Secretary and 
maybe from you is that if it is a systemically important bank 
that is failing, there is going to be perhaps a more strident 
effort to make sure that no one loses. But if it is a less 
significant bank, like maybe the one that I was director at, 
that perhaps the concern won't be as high. Can you clear that 
up for me? Am I mishearing what you and the Secretary are 
saying?
    Ms. Liang. Yes, Congressman. The point that we have been 
making is that we would use the systemic risk exception or our 
end tools to prevent contagion in the broader system if a bank 
were to fail, and that could be a bank of different sizes. And 
it would be designed to keep all American depositors safe.
    Mr. Rose. You understand, no doubt, the confusion that 
these statements leave some of us with. And I just wonder, do 
you have confidence in Secretary Yellen at this stage?
    Ms. Liang. Absolutely.
    Mr. Rose. And as I think about what I heard earlier today 
from Representative Green--I know this is not a quote of my 
mother, but it is a quote I have heard often, ``It doesn't just 
have to be right, it has to look right.'' And so, as I leave 
you, gentlemen and ladies, this afternoon, I would just say the 
American people are watching, and I think right now, we have 
grave concerns about whether the regulatory process looks 
right. I hope you take that to heart as you conduct the review 
of what you are doing.
    My personal conviction is that you don't need new tools; 
you need better craftsmen using those tools to accomplish the 
purposes that you have, and so I commend that to you. Again, as 
a former bank board member, I feel that if Silicon Valley Bank 
had had the supervision that I feel like our bank got, we 
wouldn't be here today talking about this. Thank you, and I 
yield back.
    Mr. Steil. The gentleman yields back. The gentleman from 
New Jersey, Mr. Gottheimer, is now recognized for 5 minutes.
    Mr. Gottheimer. Thank you, Mr. Chairman, and Ranking Member 
Waters. The conditions at Silicon Valley Bank in the months 
leading up to its failure set the stage for a classic run on 
the bank. What was not typical of the situation, though, was 
the speed and intensity of the run, as we have talked about. 
Depositors driven by panic on social media platforms, and armed 
with online banking tools capable of rapidly moving large sums 
of money, withdrew nearly $42 billion in deposits within 24 
hours on the 9th of March.
    Under Secretary Liang, do you think social media and online 
banking tools have the potential to increase the intensity of 
future runs? And if so, what do you think the appropriate 
response from Treasury, Congress, and the regulators should be?
    Ms. Liang. Congressman, I do agree that the runs that 
occurred at Silicon Valley were unprecedented in speed and 
size, aided by social media and technology. Those are new risks 
that challenge the banking system and the financial system and 
we will definitely need to be considering and working with 
Congress on those issues.
    Mr. Gottheimer. So, you are working on that?
    Ms. Liang. Yes, we have been working on how to think about 
the payment system, how to think about fintech and digital 
assets. And this has now also been become apparent--
    Mr. Gottheimer. Thanks. I would like to work with you on 
that if that is okay. I will follow up. Thank you. Some Members 
of Congress are using the failures of Silicon Valley's bank 
management and bank supervisors to criticize the bipartisan 
2018 amendment to Dodd-Frank that ended the one-size-fits-all 
approach to bank regulation. Before Dodd-Frank, we had a system 
of too-big-to-fail. We don't want a system, in my opinion, 
where banks are too-small-to-succeed.
    Those who say Congress eliminated annual stress tests and 
other prudential safeguards need to read the bill again. The 
bill tasked the Federal Reserve with correcting rules for banks 
like SVB with more than $100 billion in assets. And Section 104 
of the 2018 amendments to Dodd-Frank says clearly, ``The Board 
of Governors may by order a rule apply any prudential standards 
established under the section to any bank holding company with 
assets equal to or greater than $100 billion if the Board of 
Governors determines the prudential standard is appropriate to 
mitigate risks in the banking system and promote safety and 
soundness.''
    The Federal Reserve could and should have applied annual 
stress tests to banks like SVB, but it chose not to. While 
stress tests are an important component, it is clear that the 
existing Fed supervisory tools are equally, if not more 
important. During a Senate Finance Committee hearing earlier 
this month, Treasury Secretary Yellen was asked about 
supervisory stress tests, and her response was, ``Supervisory 
stress tests focus on capital and not on liquidity. In these 
bank failures, liquidity played an important role.'' When 
Secretary Yellen was asked whether stress tests would expose 
management failures of banks, she replied, ``That is the 
purpose of supervision,'' concluding that supervision is 
critical.
    Vice Chair Barr, do you agree with the comments made by 
Secretary Yellen that supervision is critical to identifying 
the failures of bank management? And clearly, there was a huge 
hole in Fed supervision of SVB. Can you talk about that a 
little bit, please?
    Mr. Michael Barr. I think supervision and regulation both 
play an important role in overseeing bank management. 
Obviously, in the first instance and in the last instance, it 
is bank management that is responsible for running the bank, 
and in this case, it did so in a way that caused its failure. 
We are taking a careful look at the role of supervision and 
regulation, and not forcing managers to do a better job in 
running their own bank.
    Mr. Gottheimer. Just digging into that a little bit more, 
The Wall Street Journal reported that the Fed had concerns 
about the risk management practices at SVB as early as 2019. 
You admitted in your testimony that the Fed knew that there 
were issues at SVB for years and only started more in-depth 
review in February 2023, which I worry was too little, too 
late. When exactly does the Fed give the supervisory review 
some more muscle and step in to prevent a disaster, and can you 
talk a little bit more about what happened here and what you 
are trying to learn? Thanks.
    Mr. Michael Barr. Thank you. That's a great series of 
questions. The Federal Reserve System is based on a tailored 
approach, where firms between $50 billion and $100 billion are 
really part of the regional banking organization group, and 
firms with $100 billion and above are in the large and foreign 
banking organization group. And even within that, there are 
distinctions between firms at $100 to $250 and $250 and above. 
And I think part of the problem is that framework, which really 
focuses on asset size, is not sensitive to the kinds of 
problems we saw here with respect to rapid growth in a 
concentrated business model. That is one of the reasons why 
earlier this year, I announced that we were going to have a 
novel supervision group that really focuses on these kinds of 
issues.
    Mr. Gottheimer. So to that point, you said yesterday before 
the Senate that the Federal Reserve has broad authority to 
apply additional prudential standards to banks with more than 
$100 billion in assets, like Silicon Valley Bank. Is this a 
situation where the Fed needs different authorities, or has the 
Fed simply chosen not to use the authorities given by Congress? 
Where should you be jumping in?
    Mr. Michael Barr. We are going to look at our own 
framework, our own supervision, and our own regulation. I think 
that self-assessment is really critical part of risk 
management. As I mentioned earlier, we have a team of staff 
working on it who are not responsible for supervising SVB. We 
are going to look at our own structure and suggest reforms.
    Mr. Gottheimer. Thank you. I yield back.
    Mr. Steil. The gentleman yields back. The gentleman from 
South Carolina, Mr. Norman, is now recognized.
    Mr. Norman. I thank each of you for testifying today. Let 
me ask a very simple question. We had a $209-billion bank in 
assets have a total meltdown from March 8th through March 26th, 
18 days. You had a bank that basically, from all outward 
appearances, was strong to the taxpayers, and to the investors, 
and over those 18 days, it had a meltdown. Now, the warning 
signs that have been mentioned at this hearing, like the six 
citations, like the absence of a chief risk officer for 8 
months, like the deficient government controls; the signals 
were there for a bank that was in trouble. When the chairman 
started it off, I didn't see a sense of urgency from any of you 
all on things to do other than, ``We contacted staff,'' or, 
``We contacted the immediate supervisors.''
    When I was a director of a bank, if one of these citations 
had been issued, somebody's head would roll. We would be having 
a conference call. Give me some assurance that I am wrong, or, 
I guess, give me some assurance of what specific actions you 
would take if this is duplicated, because you had $20 million 
lost in the Insurance Fund, and the calls I am fielding in my 
office are from the smaller banks. And a lot of people are 
denying that the taxpayers are going to take the hit. The 
taxpayers are going to take the hit at the end of the day, 
because they are the ones who make the profit for the banks to 
pay the fees to the FDIC. What does it take to get your 
attention and to put a sense of urgency to situations like 
this?
    Mr. Michael Barr. I think it is an incredibly urgent 
situation. Obviously, when we learned of the immediate distress 
of the firm, we stepped in and took decisive action to make 
sure every American's deposits are safe. And we put in place a 
liquidity measure to make sure that banks all across the 
country would have the liquidity they need, in case any 
institution were to--
    Mr. Norman. You are talking about over the weekend? Well, 
you found out on Thursday. And you are saying that over the 
weekend, you took these steps. I am asking, did you not get 
these warning signals ahead of time?
    Mr. Michael Barr. Sir, the bank supervisory staff certainly 
issued those warnings to the bank. The question we are looking 
in the review is why those were not escalated in a more rapid 
way. I agree with you. We want banks to be paying attention to 
supervisors. And at almost every bank in the country, as you 
just described, if you get a letter like this, you get a series 
of problems like this. They had many, many problems. I am 
focusing on liquidity, and management, and interest rate risk, 
but they had many other problems, too. When you have a bank 
like that not responding, that is a real problem.
    Mr. Norman. In your role as regulators, what would you do 
differently, each of you?
    Mr. Michael Barr. I think I would start with making sure 
that we escalate things faster and intervene more promptly with 
respect to mitigation, but as I said, we have just started this 
review. I am going to get a staff review back, and I want to 
really hear their expert judgment without any preconceptions 
about what they are going to find.
    Mr. Norman. Did they jump to conclusions on having this as 
a systemic risk?
    Mr. Michael Barr. Pardon me?
    Mr. Norman. Was it the right decision for the President to 
issue this, or I guess, the Board that voted on it to deem this 
a systemic risk?
    Mr. Michael Barr. I think it was the correct judgment, sir. 
It was a very difficult judgment, I know, for everyone. But a 
unanimous Federal Reserve Board, a unanimous board of the FDIC, 
and the Treasury Secretary agreed after consulting with the 
President. I think it was the right thing to do for the 
country. I think it saved a lot of small businesses, 
households, community banks, and regional banks from a kind of 
contagion that really could have been quite destabilizing. And 
we are now in a situation where I can say the banking system is 
sound and resilient. I think that was really the right thing to 
do.
    Mr. Norman. I sure hope so. This has rattled the markets. I 
was in the commercial real estate business, and banks that are 
loaning to commercial ventures are shook right now, 
particularly on the concentrations of credit on where they put 
their money, and particularly for that family who has put their 
life savings in an account that they thought was insured. I get 
asked questions on the $250,000 insured limit.
    Mr. Gruenberg. Let me respond, if I may, Congressman. It 
seems to me the decision to guarantee the deposits of these two 
institutions really raises that question up. As I indicated in 
my testimony, the FDIC is going to undertake a comprehensive 
review of our deposit insurance system. Certainly, one of the 
things we will look at and identify different options for 
consideration is the scope of coverage and whether we should 
increase coverage overall or for particular--
    Mr. Norman. I am running out of time. I would like to see 
those reports, if you could furnish that, and ask, if a rerun 
of what happened to these two banks happens again, what 
decisive role you all would take that you may have not taken 
earlier?
    I yield back.
    Mr. Gruenberg. Congressman, the report will be out by May 
1st.
    Mr. Steil. The gentleman yields back. The gentlewoman from 
Massachusetts, Ms. Pressley, is now recognized.
    Ms. Pressley. Thank you, Chairman McHenry, Ranking Member 
Waters, and all of our witnesses for joining us for this 
critical hearing. I know it has been a long morning, but that 
being said, I truly hope that this is the first and not the 
last hearing that we are going to have on these recent bank 
failures. When SVB collapsed, my office received urgent phone 
calls, texts, and letters from throughout our district, from 
our constituents who were genuinely shocked and afraid for 
their future, affordable housing residents unsure about the 
status of mortgages, tech companies not able to pay their 
employees, and small businesses worried that they had lost most 
of their money.
    Now, while I am glad we did avoid the worst possible 
scenario, Congress should consider the SVB collapse a wake-up 
call and take action. After the 2008 financial crisis, Congress 
stepped up to enact Dodd-Frank, a comprehensive package of 
regulations, in order to prevent big failures and systemic 
risks that hurt the economy.
    However, in 2018, the Republican Majority in Congress 
passed the deregulation bill that stripped away crucial 
requirements and got rid of enhanced prudential standards. 
Donald Trump and Republicans, including some of my colleagues 
sitting in this very room, celebrated signing this dangerous 
piece of legislation. The 2018 deregulation law specifically 
made it easy for SVB and Signature Bank to engage in risky 
management practices with little to no oversight. And we must 
rightfully assign some of the responsibility for this bank 
turmoil to deregulation efforts.
    Vice Chair Barr, when Congress passed the deregulation bill 
in 2018, which was lobbied for by banks like SVB, is it fair to 
say that it reduced supervision requirements by the Fed for 
small and mid-sized banks?
    Mr. Michael Barr. The overall effect of the law was for the 
smallest banks, to reduce regulatory burden for banks within 
the $50 billion to $100 billion in range, to limit the Federal 
Reserve discretion with respect to those institutions. But for 
institutions over $100 billion, the Federal Reserve retained 
discretion to do something different. It chose, in 2019, to put 
in place a set of rules that I think had the effect overall of 
reducing supervision and regulation of such firms.
    Ms. Pressley. Right, so it definitely did. The deregulation 
bill relaxed requirements for stress tests and resolution 
plans. The dangerous and irresponsible nature of this 
deregulation bill was completely predictable. In no way was 
this turmoil inevitable. Then-Federal Reserve Governor Brainard 
opposed it, as well as both of you, Vice Chair Barr and Chair 
Gruenberg, and yet here we are. In the aftermath of the 
collapse of SVB and Signature Bank, it is clear that the 
Republican deregulation bill shares the blame alongside 
Treasury, the Federal Reserve, and the FDIC due to the lapses 
in supervision and oversight.
    Chairman Gruenberg, for folks who are concerned about the 
future of small and medium-sized banks in this country, what 
assurances can you give them?
    Mr. Gruenberg. Congresswoman, as a general matter, our 
small and medium-sized banks remain in good condition, 
including their liquidity, and I think the actions we took 
helped to stabilize the system. As I indicated, any expense by 
the Deposit Insurance Fund to cover uninsured depositors will 
be imposed through a special assessment on the industry. And we 
have discretion to tailor that assessment to the institutions 
that most-directly benefited, so we are going to try to be 
thoughtful in this process.
    Ms. Pressley. Thank you. And I am requesting that each of 
your agencies provide my office and this committee by May 1st a 
list of recommended regulations that need to be enacted to 
strengthen the banking industry and to prevent future failures. 
The story of SVB's collapse is the story of a Republican 
Administration in cahoots with the banking industry to weaken 
our financial regulations, but it is also a story of 
regulators' failure to do their number-one job: regulate banks. 
And since I am accused of this often, I think I will close with 
a wokeism: The American public are tired of the super-wealthy 
pocketing bonuses and leaving working-class folks hiding in the 
back for their fiscal mismanagement. They are even more tired 
of Congress allowing them to do it. It is time to regulate. 
Thank you, and I yield back.
    Mr. Steil. The gentlewoman yields back. The gentleman from 
Ohio, Mr. Davidson, is recognized.
    Mr. Davidson. I thank the chairman. And I thank our 
witnesses. I appreciate your endurance here today and 
yesterday. And as I listened to my colleague ask questions, I 
know my constituents are tired of seeing Washington, D.C., 
Congress in particular, socialize risk and watch profits be 
privatized. They are also tired of people who don't listen.
    Mr. Barr, when I was listening to what you said yesterday 
and today, S. 2155 isn't the reason that these banks failed. 
These banks were over $100 billion in assets, and therefore, it 
is just a red herring. Isn't that accurate?
    Mr. Michael Barr. What I would say is that the Federal 
Reserve's rules, issued in the wake of the legislation that was 
issued in 2019, did have the effect of lowering supervisory and 
regulatory standards for firms, but the Federal Reserve retains 
the discretion to have different rules. And one of the things 
that I think would be my job going forward is to put in place 
rules that are appropriate for that size of institution. We 
have the discretion to do that.
    Mr. Davidson. Yes, thank you. And so obviously, it wasn't 
the regulation per se that failed, it was the regulator that 
failed, and I want to understand the context in which that 
occurred. Over the past year-and-a-half, we have seen a 
substantial increase in the Federal funds rate. During that 
span, are you aware if the Fed or other prudential regulators 
had conversations, not specific to Silicon Valley Bank, about 
the inevitable interest rate risks that presents?
    Mr. Michael Barr. Yes, that is a core topic in supervision. 
Supervisors were very focused on interest rate risks. It was an 
important part of what we highlighted in our fall supervision 
report. Beginning last year, examiners were given extra 
training on interest rate risk. So, it is just a bread-and-
butter supervisory issue. It is not some esoteric problem.
    Mr. Davidson. In that sense, did Silicon Valley Bank's 
failure surprise you?
    Mr. Michael Barr. Its failure did surprise me. Its risk-
taking was excessive. But even then, I don't think anybody 
anticipated that they would have a devastating bank run that 
basically wiped out $42 billion on Thursday afternoon, with 
another $100 billion expected the next day. That would be 85 
percent of its deposit base in a 24-hour period. That was 
shocking.
    Mr. Davidson. Yes. We are anxious to understand all of the 
factors which drove that run on that particular bank, but we 
are also curious when you stated yesterday to Senator Kennedy 
that stress testing does not examine institutional risks 
precipitating from interest rate risk. And when we were on the 
conference call with Treasury, with the Fed, with the FDIC, and 
with House and Senate Republicans and Democrats, I asked the 
question of whether there is some complex model that the stress 
test involves. You said, ``if macroeconomic conditions and 
whatever kick in.'' Well, I submit that the hold-to-maturity 
spread has to be considered, not just the available-for-sale 
risk, because of the need for liquidity. Is that something that 
you are focused on as you conduct your review?
    Mr. Michael Barr. Yes, I think you are absolutely right 
that we need to look at both sides of the balance sheet. We 
need to look at the liability structure and the asset 
structure. And the whole point is to assess whether, under 
certain conditions, you can have more stress in the liability 
side that forces you to sell on the asset side. Those are 
interrelated.
    Mr. Davidson. Mr. Gruenberg, do you share that concern 
about how we are looking at systemic risk?
    Mr. Gruenberg. Yes, I do Congressman.
    Mr. Davidson. Yes. I would love to go into everything that 
I could on this. But Mr. Barr, on March 9th, you gave a speech 
that touched on stablecoins and brought up specific risks 
associated with stablecoins. In that speech, you stated, ``This 
mismatch in value and liquidity is a recipe for a classic bank 
run. Stablecoin issuers are not supervised by the Fed and lack 
capital and liquidity as a backstop. The banks we regulate, in 
contrast, are well protected from bank runs through a robust 
array of supervisory requirements.'' Would you revise those 
comments if you could?
    Mr. Michael Barr. It demonstrates the need for humility in 
thinking about how financial risk happens in the system. That 
has been a theme of basically all of my academic work on 
systemic risk, that we need humility, and that is why you need 
really strict capital and liquidity rules because of exactly 
the kind of circumstance we just saw.
    Mr. Davidson. Yes. Thank you for that. I will note, 
obviously, stablecoins are backed by assets and are properly 
regulated in many States, including the State of New York. The 
last thing I would say is we have this pressure to socialize 
more of the market. There are credit unions that are completely 
privately-insured, many in my district and others, and I think 
we should look to that market for private credit risk 
insurance. I yield back.
    Mr. Steil. The gentleman yields back. The gentlewoman from 
Michigan, Ms. Tlaib, is now recognized.
    Ms. Tlaib. Thank you so much, and thank you all for being 
here. Vice Chair Barr, Silicon Valley Bank, which I feel like 
no one is focusing more on them as the bad actor here in the 
mismanagement and the inappropriate actions--you kept saying 
over and over again that they weren't responding. We should 
have done something when we knew they weren't responding. What 
could have been done?
    Mr. Michael Barr. It is an excellent point. I agree with 
you. You start with a basic problem that the bank manager has 
mismanaged the bank--
    Ms. Tlaib. Did they hide something from us? They hid all 
this from us. Do you believe they hid this intentionally from 
the Fed?
    Mr. Michael Barr. I don't have access yet to the full 
supervisory record to really answer your question.
    Ms. Tlaib. Yes. Will you let us know, because I really do 
think they misled and probably lied, and made some 
inappropriate and fraudulent, probably, actions for which I 
hope that we will hold them accountable.
    Mr. Michael Barr. We will definitely be looking into that. 
And we retain enforcement authority to go after people at the 
bank who violated the law, or who breached their fiduciary 
duty, or who engaged in unsafe and unsound practices, and we 
will hold them accountable to the fullest extent.
    Ms. Tlaib. Yes, and let us not negotiate with bad actors 
like that. We think this is the time to really hold them 
accountable, honestly. This is how we set a precedent. But 
going back to you Vice Chair Barr, bonuses were paid out when? 
When was the last bonus paid out before they--
    Mr. Michael Barr. As I said, I am still getting access to 
the--
    Ms. Tlaib. But we know it was a couple of hours before, 
correct?
    Mr. Michael Barr. I have heard news reports about that, but 
I want to make sure that I get full--
    Ms. Tlaib. So, you don't even know when the bonuses were 
paid out? You don't have that information for this committee 
right now?
    Mr. Michael Barr. I do not have that information right now.
    Ms. Tlaib. Was it the day of?
    Mr. Michael Barr. I would like to respond to you fully and 
accurately, and I want to be careful to do that properly. I 
have heard news reports about the timing, but I don't have the 
full--
    Ms. Tlaib. Why does the news know, but we don't?
    Mr. Michael Barr. Pardon me?
    Ms. Tlaib. Why do the media and the news know, but we 
don't? How do you not know this before our Financial Services 
Committee, because this is important?
    Mr. Michael Barr. I share your outrage about it. I just 
want to make sure we get to the facts.
    Ms. Tlaib. Do you even know how much the bonuses were?
    Mr. Michael Barr. As I said, I think you are hitting at 
exactly the right issues. We are going to use our enforcement 
authority to the fullest extent possible.
    Ms. Tlaib. Everyone is saying, oh, we are going to go ahead 
and introduce some clawback legislation, let's see, but 
Chairman Gruenberg, I asked Fed Chair Powell, about this. 
Section 956, it has been, what, 12, 13 years? When are we going 
to have a rulemaking on that? This is about excessive pay. This 
is something that Congress already considered. So, why has it 
been over a decade and we don't have a rulemaking? In 2016, 
there was a proposal. It wasn't great, but it was a really 
great start. It would have been instrumental here.
    Mr. Gruenberg. No, I am familiar with the rulemaking, 
Congresswoman. I was strongly supportive of it. We didn't 
complete it in time.
    Ms. Tlaib. Why not?
    Mr. Gruenberg. I think there was a change of 
Administration, and that may have had something to do with it. 
There is every reason to come back to it now and complete that 
rulemaking, and I think--
    Ms. Tlaib. If you had it today, what could you have done in 
this instance, because I am tired of being asked to pass things 
when I feel like we already did. But it has been over 12 years, 
and we don't actually have something, again, that we could have 
used as a tool.
    Mr. Gruenberg. I just answered. It would have given us 
explicit clawback authority on compensation. As I pointed out 
earlier, we do have, in fact, a legal obligation, the FDIC, to 
investigate the board and management of failed institutions and 
hold them accountable for any misconduct that might have 
occurred.
    Ms. Tlaib. Yes, public advocates really believe this could 
have maybe been prevented, primarily because you all know that 
there were some inappropriate decisions made up so they could 
do the bonus and the payouts. It is clear as day, and I don't 
know why my colleagues are not even talking about that. They 
are talking about you all not getting things. Well, they didn't 
respond. How come nobody is mad at the bank for not responding?
    Mr. Gruenberg. All I can tell you is we have initiated the 
investigations to get the facts to take action, assuming the 
facts support the allegations.
    Ms. Tlaib. Chairman Gruenberg, please, for the American 
people, we need a rulemaking decision on Section 956. You know 
how critically important this is.
    Mr. Gruenberg. I understand.
    Ms. Tlaib. I read somewhere this is the 563rd bank to fail 
since 2001. There are going to be more, and I know you all 
don't want to talk about it, but there will be, because they 
will mislead us. They will lie. They will do anything for the 
bailouts. Even the risk manager person, what did she give 
herself? What was it? This is a crazy amount of money she 
walked out with; it is crazy. And then Gregory Becker, the CEO, 
on February 27th sold $3 million worth of stock, netting $2.2 
million, and he knew this was going to be where we land. And we 
are not angry about that. We are angry because you all didn't 
notice. What about the fact that they don't respond to 
inquiries and things?
    Mr. Steil. The gentlewoman's time has expired. The 
gentleman from Pennsylvania, Mr. Meuser, is now recognized.
    Mr. Meuser. Thank you, Mr. Chairman. We know that the 
receivership for SVB occurred on Friday, March 9th. On Sunday 
morning, Secretary Yellen stated on national television that 
the American banking system was really safe and well-
capitalized. On Sunday night, Secretary Yellen approved the 
FDIC to protect all depositors at SVB, and certainly implied 
that all bank deposits beyond the $250,000 would also be 
secured.
    My first question to Vice Chair Barr is, what data over 
that time period drove you to go beyond the SVB and Signature, 
which was made aware, I guess, on Sunday? And did you think 
that if you were to protect an idiosyncratic bank such as SVB, 
you would need to protect all? What data drove you to imply 
that all bank deposits would be secured?
    Mr. Michael Barr. The decisions that we made that weekend 
were obviously in a very compressed period of time. They 
involved not only gathering information about what is going on 
in the economy, but also the exercise of judgment. It was our 
judgment collectively on the Federal Reserve Board, and an 
unanimous decision of the FDIC and the Treasury Secretary, that 
we needed to do that to protect contagion from infecting 
healthy banks in the system, community banks, and regional 
banks around the country. It was a judgment call, based on the 
information we had at the time. I think it was the correct 
decision.
    Mr. Meuser. I don't want to prolong it. So, there was 
actual data from other banks that they could be in jeopardy 
from a systemic problem?
    Mr. Michael Barr. We were learning. I'm sorry. I didn't 
mean to cut you off.
    Mr. Meuser. It being a systemic problem as opposed to a 
unique problem.
    Mr. Michael Barr. As you said, it is a human judgment, but 
the information we were getting from other regional banks 
suggested pressure that was building.
    Mr. Meuser. It may have been the right call. I am just 
wondering what data drove Secretary Yellen to go from, hey, 
everything is okay, to 8 hours later, no, we are going to 
protect all deposits. But I am going to move on.
    Chair Gruenberg, it was stated as well that all bank 
deposits were being secured, at no cost to taxpayers. I 
understand the FDIC fund is going to pay for it, as you stated, 
per law, but will FDIC rates go up on community and regional 
banks, and aren't banks taxpayers, too?
    Mr. Gruenberg. They certainly are, Congressman. As I have 
explained previously, just to be clear, the action covered 
uninsured depositors at those two institutions. The FDIC is 
required by law that any loss to the Deposit Insurance Fund as 
a result of those uninsured deposits has to be paid for by a 
special assessment on the banking industry. And we have 
authority under the law to consider the types of entities that 
benefit from any action taken or assistance, so we have 
discretion in designing the implementation of the assessment. 
As I indicated previously, we are keenly sensitive to the 
potential impact on community banks.
    Mr. Meuser. Good, because they are very concerned, as you 
know, community and regional banks, that they will pay for the 
bad actions of a few, and I am glad you are very much aware of 
that.
    Vice Chair Barr, excessive spending by Congress, QE, the 
Fed doubling its balance sheet from $4 trillion to $9 
trillion--no surprise to you--followed by the quantitative 
tightening, many banks holding excessive Treasuries were highly 
devalued and devastated in the case of SVB. On November 21, 
2022, there was a report that the Fed was aware of the balance 
sheet issues of SVB. It was the 16th-largest bank in the 
country and 57 percent of its portfolio was in Treasuries being 
devalued. Why wasn't there more enforcement taking place?
    Mr. Michael Barr. I think it is an excellent question. We 
were aware and focused at the supervisory level of interest 
rate risk in the firm and liquidity risk to the firm. I don't 
think anybody expected a devastating bank run of the kind I 
described before, with 85 percent of deposits fleeing or 
expected to flee in a 24-hour period.
    Mr. Meuser. The 16th-largest bank. You can see why people 
find that unacceptable from an enforcement standpoint. Lastly--
I only have 10 seconds--there is a high concentration of 
commercial real estate loans out there owned by small banks. I 
will follow up with you on that one in writing.
    I yield back, Mr. Chairman.
    Mr. Steil. The gentleman yields back. The gentleman from 
New York, Mr. Torres, is now recognized.
    Mr. Torres. Thank you. When interest rates rise, long-term 
securities become less valuable, but deposits become more 
valuable. If you have a stable deposit base, the gains from the 
deposits can offset the losses from long-term securities. But 
if you have an unstable deposit base, like Silicon Valley Bank, 
there is no built-in offset. Silicon Valley Bank had an 
uniquely-uninsured, unstable deposit base that made it 
singularly susceptible to a bank run in the age of social 
media.
    Vice Chair Barr, should a bank with an unstable, uninsured 
deposit base like SVB be subject to a higher standard of 
regulation than a bank with a stable insured deposit base?
    Mr. Michael Barr. Representative Torres, I couldn't have 
said it better myself. I think you describe the situation 
exactly correctly. And the unique--
    Mr. Torres. Flattery will win you no points, but it's true.
    Mr. Michael Barr. It is just the truth. I wish I had said 
it that way. But no, I think there are unique risks to this 
kind of heavy uninsured deposit base. And for most banks in the 
country, as you described, they handle their interest rate risk 
properly. They have stable deposits.
    Mr. Torres. But you agree that the rigor of regulation 
should depend not only on size, but on deposit stability, yes?
    Mr. Michael Barr. I do.
    Mr. Torres. Regarding commercial real estate, the rapid 
rise of work-from-home during COVID has driven down office 
property values, and the rapid rise of interest rates has 
driven up financing cost, creating a perfect storm. Office 
buildings with declining property values are set to be 
refinanced at far higher interest rates. There is reportedly 
$2.5 trillion in commercial real estate debt coming due over 
the next 5 years, a substantial share of which is office debt.
    Chair Gruenberg, to what extent do you worry about the 
office loan portfolio representing a ticking time bomb in the 
banking system?
    Mr. Gruenberg. It presents a risk. It is one the FDIC has 
talked about and identified publicly.
    Mr. Torres. And Signature was the largest commercial real 
estate lender in New York City. How much of Signature's 
commercial real estate portfolio consists of office real 
estate?
    Mr. Gruenberg. That is a good question. It is a substantial 
portion of--
    Mr. Torres. Can you give me an answer in writing?
    Mr. Gruenberg. I can get that for you.
    Mr. Torres. More important to me locally, residential real 
estate--Signature Bridge Bank has a housing portfolio of 3,000 
properties consisting of 80,000 units in New York City. The 
portfolio includes 479 properties consisting of 19,000 units in 
the Bronx, where I serve as a Congressman.
    I have two questions for the FDIC, Chair Gruenberg. As you 
go through the process of seeking a buyer for Signature's 
residential real estate debt, to what extent will you seek the 
input of New York State and New York City housing officials, 
who have an obvious stake in preserving the affordability of 
these properties and units? And to what extent will you 
prioritize affordable housing preservation in your selection of 
a purchaser?
    Mr. Gruenberg. Thank you, Congressman. Just to be clear, we 
have sold Signature to New York Community Bank--
    Mr. Torres. You sold everything but the real estate 
portfolio, as I understand it. That has been publicly reported.
    Mr. Gruenberg. I take your point. No, we will be glad to 
work with you and other local officials in New York in regard 
to the disposition.
    Mr. Torres. I appreciate that commitment.
    Mr. Gruenberg. Sure.
    Mr. Torres. I am not advocating the following course of 
action, but I want to provide you with a hypothetical. The 
banking system is reportedly sitting on more than $600 billion 
in unrealized losses from securities, and those losses will 
only rise with rising interest rates. Since the problem with 
these assets is one of asset duration rather than asset 
quality, should the Federal Reserve consider purchasing these 
securities? Unlike a bank, which needs liquidity to honor 
obligations to depositors, the Federal Reserve has the ability 
to hold these assets to a maturity without realizing those 
unrealized losses. Wouldn't that solve the problem?
    Mr. Michael Barr. You raise an excellent point. Under 
existing law, we cannot do asset purchases. But what we do do 
is provide ample liquidity to the financial system on the basis 
of those assets--
    Mr. Torres. Even with the emergency liquidity, the losses 
remain on the balance sheet. Those losses are arguably 
undercutting public confidence in the banking system, and, as 
you know, banking is as much about psychology as it is about 
finance. Why not just remove the losses?
    Mr. Michael Barr. I would go back to the first point you 
made in your earlier question, which is that for most banks, 
they are managing this well. They are doing fine. They have 
stable deposits, and they don't need to sell the assets they 
have on their balance sheet. Those assets can stay there and be 
held to maturity. If institutions need liquidity, they can get 
access to that from the discount window. And the program we 
established, the Bank Term Funding Program, gives longer-term 
stability at par for those very assets.
    Mr. Torres. I want to squeeze in one more question. Did the 
bank supervisor at the San Francisco Fed have the supervisory 
authority to prevent Silicon Valley Bank from investing in 
unhedged long-term securities? Did you have that authority? 
Like, is the problem a lack of authority or a failure to 
exercise the authority you had?
    Mr. Michael Barr. The bank examiners cited them for not 
behaving properly with respect to--
    Mr. Torres. But did they have the authority to prevent it?
    Mr. Steil. The gentleman's time has expired. The witness 
can answer in writing for the record.
    The gentleman from South Carolina, Mr. Timmons, is now 
recognized for 5 minutes.
    Mr. Timmons. Thanks, Mr. Chairman. It seems that Washington 
continues to create crisis after crisis and then come in to 
bail out the crisis. If you go back to 2008, it was the 
policies coming out of Washington that everyone was entitled to 
own a home, and it didn't matter what their credit score was, 
or whether they were able to pay it back; it was a human right. 
And fast forward a few years, the compounding impact of that 
resulted in the 2008 financial crisis.
    What did we learn from that? I would argue nothing. The 
government came in, bailed everybody out, bailed out the big 
banks, caused chaos in the smaller banks, and picked winners 
and losers. And that is the theme I am going to be hitting on, 
picking winners and losers, because the free market capitalism 
is supposed to have consequences. And when the government 
continues to bail out bad decisions and pick winners and 
losers, it severely impacts the free market and it undermines 
our ability to compete in the global economy.
    In 2008, we understand the policies coming out of 
Washington caused the crisis. We had two votes. The first vote 
failed on TARP. The second vote passed. It was very painful. I 
was not here. But at the end of the day, it solved the short-
term problem, but we didn't learn anything. We did learn one 
thing, actually. It was that the TARP wasn't fun. So in 2008, 
we gave extraordinary power to the Executive Branch to avoid a 
future TARP vote, and this is the first time that you all used 
that authority.
    Let's fast forward to 2023. A number of policies coming out 
of Washington, particularly the emphasis on ESG and on DEI, and 
that, compounded with the spending of trillions and trillions 
of dollars that caused inflation, which resulted in higher 
interest rates, destabilized SVB and Signature. So, we didn't 
really learn anything, in a way, because the Executive Branch 
used the 2010 authorities to, again, pick winners and losers, 
so there are no consequences for risk-taking. There are no 
consequences for poor decisions, and we keep talking about what 
caused this.
    Really, it is the San Francisco Fed's misplaced priorities. 
Last fall, when every other Fed was sending out notifications 
regarding interest rates and inflation and the future stressors 
of the banking system, they were still sending out DEI and ESG 
updates. So that, combined with the SVB and Signature 
mismanagement, and the inflation we created, caused this 
problem. And we have, again, not learned anything, and have 
bailed out poor decision-making.
    I guess I want to start with Under Secretary Liang. Is this 
a problem? We invoked the systemic risk exception and covered 
both insured and uninsured depositors. Is it not creating more 
systemic risk in the overall system, because capitalism is no 
longer a thing? The government is backstopping everything. Is 
that a concern?
    Ms. Liang. Congressman, I understand your question and your 
concern. In this case, the systemic risks exception was taken. 
All depositors were covered. Shareholders and debt holders were 
not. They lost their investment. Those who took the risks lost 
their investments in this case.
    I do think in this situation, the actions were taken to 
prevent contagion spreading to other banks. It was to help save 
banks, small and other regionals, who were losing their 
deposits to either the largest banks or to outside the banking 
system. I do think this requires that we will need to be 
assessing and looking for reforms.
    Mr. Timmons. But the lack of consequences, the government 
continuing to pick winners and losers, my biggest thing is the 
justification. Treasury and the White House both said that 
there are no taxpayer dollars. And what about the people who 
are going to miss payroll? Neither one of those were 
necessarily true because it is taxpayer dollars, because the 
increased premiums from the FDIC are going to be passed down to 
Americans all over the country. And they are taxpayers, so 
those are their dollars. It is not coming out of the general 
fund, but it is semantics.
    And as it relates to payroll, only $22-plus billion is 
going to be at issue, so there were opportunities to make them 
whole. I just really think that: one, delegating to the 
Executive Branch the ability to bail out banks is dangerous; 
and two, bailing out these banks in this manner has caused more 
problems than was possibly worth it. And with that, Mr. 
Chairman, I yield back.
    Mr. Steil. The gentleman yields back. The gentlewoman from 
Texas, Ms. Garcia, is now recognized.
    Ms. Garcia. Thank you, Mr. Chairman, and thank you to the 
ranking member for bringing us together for this really 
important hearing. And I wanted to start with just a quick 
question to the three of you, because I have been troubled by 
the use of the word, ``crisis.'' I know I shared with the 
ranking member the other day that I never saw this as a crisis. 
Perhaps it was a boo-boo, maybe a major boo-boo, but not a 
crisis. I don't personally think that two bank failures equals 
a crisis. I just want to quickly ask each one of you for just a 
yes-or-no answer. Do you think this is a crisis, Mr. Barr?
    Mr. Michael Barr. As I said at the outset, I think our 
system is sound and resilient.
    Ms. Garcia. Is it a crisis, sir? Yes or no?
    Mr. Michael Barr. I think that it was an appropriate use of 
the systemic risk exception to prevent a crisis.
    Ms. Garcia. Is it a crisis? Yes or no?
    Mr. Michael Barr. As I said, I think that where we are now, 
the banking system is sound and resilient. There was a risk 
that if we did not invoke the systemic risk exception it could 
have led--
    Ms. Garcia. Would you have used the word, ``crisis,'' is 
the question?
    Mr. Michael Barr. I have not used that word.
    Ms. Garcia. Okay. Chairman Gruenberg?
    Mr. Gruenberg. I think we were at risk of crisis, and I 
think the actions that we took have stabilized the system.
    Ms. Garcia. Ms. Liang?
    Ms. Liang. I agree with that. The actions we took 
stabilized the system.
    Ms. Garcia. I think you are right. And I guess that we 
should focus on the swift action over a weekend, no less, and 
how we were able to avert a crisis, and how we were able to 
prevent contagion, and how we were able to, frankly, not just 
save those banks, but potentially other banks as well.
    And I know that recently, as the ranking member mentioned, 
there has been some notion that it is the woke policies that 
have done this. And I know that some extreme MAGA Republicans, 
like Florida Governor, Ron DeSantis, have even suggested that 
it was the ESG policies, frankly, with zero evidence, but yet 
they continue with some of this rhetoric.
    Vice Chair Barr, yes or no again, do you believe that ESG 
investing played any role in the failure of Silicon Valley 
Bank?
    Mr. Michael Barr. No.
    Ms. Garcia. Mr. Gruenberg?
    Mr. Gruenberg. No.
    Ms. Garcia. Ms. Liang?
    Ms. Liang. I do not have the information that the 
supervisors have, but my strong preference would be, no.
    Ms. Garcia. Right. As I said, there has been no evidence, 
and thank you for reaffirming that. As you will recall, the 
claim that ESG investing caused the failure of Silicon Valley 
Bank is really strongly reminiscent of the claim back in 2008 
that the financial crisis then was because of the Community 
Reinvestment Act obligation, so it's very similar. The 
Financial Crisis Inquiry Commission examined this claim and 
rejected it, as did researchers within the Federal Reserve.
    Vice Chair Barr, would you remind us what researchers at 
the Fed have concluded about attempts to blame the housing and 
foreclosure crisis on historically-disadvantaged communities of 
color?
    Mr. Michael Barr. The research shows that there is no basis 
for the conclusion that low-income or moderate-income 
households were responsible for causing the financial crisis.
    Ms. Garcia. Okay. Do you think that the communities of 
color, the disadvantaged communities, and particularly people 
in my district, which is 77-percent Latino, should be concerned 
that these bank failures and some of the remedies that are 
being put in place may cause a lack of capital and the lack of 
opportunities to be able to buy homes? Will it impact mortgage 
rates?
    Mr. Michael Barr. I think the steps that we took together 
to stabilize the economy and provide public confidence in the 
banking system are of assistance to low- and moderate-income 
households and to all Americans around the country.
    Ms. Garcia. But do you think there will be some negative 
impact on interest rates and the ability to borrow to purchase 
homes?
    Mr. Michael Barr. My estimate is that the banks' reactions 
to the current economic circumstances are likely to lead to a 
reduction in credit availability overall. That is something 
that we are watching very carefully at the Federal Reserve.
    Ms. Garcia. Right. And Ms. Liang, I had a question for you 
about crypto. I know that there is an additional bank that is 
going through some process of voluntary liquidation. What role 
did crypto play in all this?
    Ms. Liang. I don't believe crypto played a direct role in 
either of the failures.
    Ms. Garcia. Was there an indirect role?
    Ms. Liang. I know that Signature had activities involved in 
digital assets, but I don't believe that is the main--
    Mr. Steil. The gentlewoman's time has expired.
    Ms. Garcia. Mr. Chairman, I will follow up in writing with 
the three panel members on this issue.
    Thank you. I yield back.
    Mr. Steil. The gentleman from New York, Mr. Garbarino, is 
recognized for 5 minutes.
    Mr. Garbarino. Thank you, Mr. Chairman. Chairman Gruenberg, 
I want to talk a little bit about Signature Bank. Can you 
describe the condition of Signature Bank at the time of its 
receivership, and what evidence you had that showed Signature 
was also facing a liquidity crunch on March 10th? And what was 
Signature's available funding at the time the New York State 
Department of Financial Services closed the bank and placed it 
in FDIC receivership?
    Mr. Gruenberg. Congressman, we can get you the specific 
data. But the fact is that on Friday night, that bank had real 
difficulty in meeting its obligations at the end of the day, 
and barely met them by the 5:30 closing time. And I think both 
New York State and the FDIC, who jointly had responsibility, 
did not think that the bank could open and make it through the 
day on Monday. I think that was the determination, and that is 
why New York State, on Sunday, decided to close the 
institution.
    Mr. Garbarino. Okay. And you can get me the specific 
numbers?
    Mr. Gruenberg. Yes, we can.
    Mr. Garbarino. Thank you very much.
    I want to follow up on something that my colleague, Tom 
Emmer, asked before. When New York Community Bancorp (NYCB) 
assumed Signature's deposits and some of its loans, it 
refrained from including roughly $4 billion of deposits related 
to Signature's digital assets banking business. As a result, 
Signature's real-time payments network remained under the 
FDIC's receivership. It was reported early yesterday evening 
that the FDIC sent a notice to depositors whose deposits were 
not included in NYCB's bid, informing them that any accounts 
not closed by April 5th will be automatically shut and 
depositors will receive a check in the mail. Can you walk me 
through the FDIC's reasoning for this decision?
    Mr. Gruenberg. Yes, Congressman. The winning bid for 
Signature by NYCB's subsidiary, Flagstar, was for all of the 
deposits, except the winning bid chose not to bid on the 
digital assets, and there were about $4 billion of those. And 
we provided those depositors a couple of weeks to determine 
what they might want to do, and we sent them a notice that we 
will return their deposits to them by early next week, I 
believe.
    Mr. Garbarino. In your response to Mr. Tom Emmer, you 
mentioned that Signet was included in the sale of Signature 
Bank, while the deposits were not. So, you are still currently 
looking for a buyer?
    Mr. Gruenberg. Just to clarify my earlier response, the 
digital deposits are being returned to their deposit holders. 
It is my understanding that Signet was not acquired and 
remained in the receivership and is in the process now of being 
marketed.
    Mr. Garbarino. So, Signet is still under FDIC receivership?
    Mr. Gruenberg. Yes, it is in the process.
    Mr. Garbarino. Okay. Thank you very much.
    Chairman Gruenberg, I also want to bring this up. In the 
Senate Banking Committee hearing yesterday, there was an 
exchange between Senator Van Hollen and Vice Chair Barr on 
guidance issued in 2018 and codified in 2021 when Randy Quarles 
was Vice Chair of Supervision of the Federal Reserve Board of 
Governors. This has become a target of some, even though this 
initiative doesn't limit any action an agency can take; it 
simply clarifies which actions will be accomplished through 
regulatory measures, and which through supervisory measures.
    You stayed silent during the entire exchange, but I 
recently read an op-ed in The Wall Street Journal written by 
Randy Quarles, which has said that both you and Lael Brainard 
voted for this guidance. Is that true? Did you vote for this 
guidance?
    Mr. Gruenberg. Yes, we did, Congressman.
    Mr. Garbarino. Thank you very much.
    Vice Chairman Barr, as we look back at the events of the 
past couple of weeks, there have been a number of similarities 
identified between Silicon Valley Bank (SVB) and Signature 
Bank, the first of which is a high concentration of deposits 
well above the FDIC insurance limit, with a report showing 90 
percent for Signature Bank, and 87 percent for SVB, and the 
second being the lack of diversity in both banks' deposits. The 
news has discussed the potential impacts of these similarities. 
However, I would like to explore how the Federal Reserve and 
the FDIC view deposit diversification as it pertains to 
determining the soundness of financial institutions?
    Mr. Michael Barr. Sorry. I couldn't hear the last four 
words of your sentence.
    Mr. Garbarino. I am out of time, so I will submit this 
question in writing for you to respond for the record. Thank 
you so much.
    Mr. Steil. The gentleman yields back. The gentlewoman from 
Georgia, Ms. Williams, is recognized for 5 minutes.
    Ms. Williams of Georgia. Thank you, Mr. Chairman. I want to 
start by making it clear that the failures of the Silicon 
Valley Bank and Signature Bank were not just about wealthy 
people, as some of the narrative that we have heard in 
conversation. There is a significant chance of a disastrous 
impact on hardworking people who are trying to make payroll, 
and it is important that this detail doesn't get lost in the 
shuffle.
    The weekend that SVB failed, I woke up to text messages 
from constituents asking what the government was going to do, 
what kind of intervention there would be, because they had 
money in this bank. Atlanta is a booming area for tech 
startups, so the impact was felt very much by my constituents. 
They wanted to know if they would be able to access their funds 
on Monday morning. Black-owned businesses were worried about 
paying their employees, and entrepreneurs who are creating 
wealth in marginalized communities were concerned about 
covering basic business expenses. These businesses are closing 
the racial wealth gap, of which, unfortunately, my home 
district of Atlanta leads the nation, and the banking system 
has to work for them.
    Mr. Gruenberg, in the aftermath of SVB's failure, there has 
been substantial debate about raising the $250,000 deposit 
insurance gap to minimize any potential payroll disruptions and 
economic pain that may follow when the next thing fails, which 
my constituents are so concerned about. There is reportedly 
bipartisan legislation in the works to temporarily raise the 
cap. If the cap is raised or eliminated to help protect 
depositors, we will need to take measures to reduce the risk of 
moral hazard. One proposed measure is the continuance of risk 
price deposit insurance premiums. Mr. Gruenberg, as we consider 
different deposit insurance reforms, should we seek to maintain 
risk price deposit insurance?
    Mr. Gruenberg. I think we do want to maintain risk-based 
deposit insurance, but I do think if you change one part of the 
system, it impacts another part of the system. As I indicated 
earlier, the FDIC is undertaking a comprehensive review of the 
deposit insurance system in light of this episode, and we will 
release a report by May 1st, also laying out policy 
considerations for changes to the system that we hope will 
inform the discussion around this.
    Ms. Williams of Georgia. So beyond the report and moving 
forward, what steps can the FDIC take when making decisions 
about deposit insurance assessments to make banks think twice 
about various financial stability threats that 
disproportionately impact marginalized communities?
    Mr. Gruenberg. We have the authority now to do risk-based 
pricing. And I think it is fair to say that in light of this 
experience, we need to think hard about liquidity risk and 
concentrations of uninsured deposits, and how that is evaluated 
in terms of deposit insurance assessments. But I also think it 
is an appropriate moment to take a look at how our system 
works, in light this episode, and consider what other changes 
might be prudent.
    Ms. Williams of Georgia. Thank you. And we all know that 
part of maintaining a healthy banking system is confidence, 
specifically consumer confidence that their money is safe in 
the banks that they have chosen. People of color have a harder 
time getting affordable loans from the largest banks, and thus 
turn to the community banks, Minority Depository Institutions 
(MDIs) , and the like. And when there is fear in the financial 
sector of an economic downturn, minority-owned banks and 
community financial institutions are hit hard as customers 
transfer their funds to what they think are safer and larger 
banks.
    Vice Chair Barr, what can Congress do to strengthen and 
support community and minority-owned banks in situations like 
we just experienced?
    Mr. Michael Barr. Thank you very much, Representative 
Williams. I agree with you that having a wide diversity of 
kinds of institutions in our country is really critical, 
including community banks and regional banks, Minority 
Depository Institutions, and Community Development Financial 
Institutions (CDFIs). All of these institutions, I think, are 
really important for economic vibrancy and inclusion in our 
society. We would be happy to work with you on ways that we can 
continue to support those institutions going forward.
    Ms. Williams of Georgia. I would be happy to work with you, 
and we will definitely follow up.
    Mr. Gruenberg, I would love to hear from you what kind of 
deposit insurance reforms would help support Minority 
Depository Institutions and other community banks?
    Mr. Gruenberg. It is an interesting question. We are in the 
process of finalizing a major revision of the Community 
Reinvestment Act. And in the proposed rulemaking, there were 
specific provisions to encourage banks to work with and support 
Minority Depository Institutions (MDIs) and Community 
Development Financial Institutions (CDFIs). So, I think that is 
actually an important vehicle and opportunity to strengthen our 
MDIs and CDFIs which serve low- and moderate-income (LMI ) 
communities. And we should give some thought in our review 
whether deposit insurance may play into this as well.
    Ms. Williams of Georgia. I have many more questions, but we 
are going to work together on this. And my time has expired. 
Thank you, Mr. Chairman. I yield back.
    Mr. Steil. The gentlewoman yields back. The Chair now 
recognizes himself for 5 minutes. Vice Chair Barr, did you 
originally believe that inflation was temporary and transitory? 
Yes or no?
    Mr. Michael Barr. I was not on the Federal Reserve Board at 
that time.
    Mr. Steil. Did you believe it was temporary and transitory 
or you had no opinion?
    Mr. Michael Barr. I would say at that time, I did not have 
an informed opinion.
    Mr. Steil. You did not have an informed opinion if it was 
temporary and transitory. The Federal Reserve continued to call 
inflation temporary and transitory until Q4 of 2021. The Biden 
Administration continued to call inflation temporary and 
transitory. I apologize. The Federal Reserve Q4 of 2021, Biden 
Administration, Q1 of 2022, following the Russian invasion of 
Ukraine. That is when they stopped calling it temporary and 
transitory. Would the challenges that we saw with SVB have 
taken place if inflation truly was temporary and transitory? 
Yes or no?
    Mr. Michael Barr. The problems that came about from SVB are 
from classic interest rate risk management.
    Mr. Steil. So if inflation was temporary and transitory, I 
will make the assumption for myself that interest rates would 
not have gone up. If interest rates didn't go up in the manner 
and hold in the way that they are, SVB would not have occurred, 
the breakdown of the bank?
    Mr. Michael Barr. Sir, banks have an obligation to manage 
interest rates, whether they are going up or going down. It is 
just classic good banking, and it wasn't done here.
    Mr. Steil. Okay. Let me dive in then. Yesterday, in 
response to a question from Senator Rounds, following the 
matter requiring immediate attention (MRIA), you noted that 
there was a challenge in the model that it, ``was not at all 
aligned with reality.'' Was that a challenge in modeling in 
particular interest rates, or what part of reality was it not 
connected with?
    Mr. Michael Barr. Let me also say, as I mentioned earlier 
today, I called that an MRIA yesterday, but I meant an MRA. It 
was just a staff mistake.
    Mr. Steil. Understood.
    Mr. Michael Barr. But it is an MRA on interest rate risk. 
And basically, what I meant is that their model showed that 
they would earn more money as rates were going up, and they 
were losing more money.
    Mr. Steil. So, interest rate was at the core of how it was 
disconnected from reality?
    Mr. Michael Barr. Yes, it was about interest rate.
    Mr. Steil. That is fair. So, here is my chance. As I look 
at the ability to prevent all of this, the Federal Reserve 
would have had to admit that they were wrong, that inflation 
was not temporary and transitory. I think that is in the core 
of our conversation here. And Congress, I think, continues to 
do an abysmal job with the Administration to bring inflation 
under control.
    Let me switch gears if I can, pretty substantively here, 
Vice Chair Barr. I have in front of me the H.4.1 from the 
Federal Reserve, and, in particular, looking at the loans that 
the Federal Reserve has made to depository institutions. There 
has been a significant shift in particulars related to other 
credit extensions. Other credit extensions, it is noted that 
the Fed is taking collateral from the FDIC. That account, March 
9th, $0; March 16th, 1 week later, $57.6 billion; March 23rd, 1 
week after that, $178.6 billion. The Federal Reserve is taking 
collateral from the FDIC and loaning the FDIC money. Under what 
statutory authority is the Federal Reserve engaged in that?
    Mr. Michael Barr. Sir, the Federal Reserve is lending 
through the discount window to the bridge institutions that 
were established by the FDIC. They are lending to banks. There 
is a provision in the statute which clearly contemplates that.
    Mr. Steil. You are noting that when I read Footnote 7, that 
would not have fallen under the line of either primary credit 
or secondary credit?
    Mr. Michael Barr. For the purposes of enhancing 
transparency to the public, that line was broken out so that 
everybody could see exactly what it was.
    Mr. Steil. Okay. That is helpful.
    If I can shift to you, Chair Gruenberg, as we look at this 
dramatic increase, is there a reason that you used this 
facility rather than: one, selling assets; or two, tapping your 
line of credit at the Treasury, which I believe is to the tune 
of $100 billion?
    Mr. Gruenberg. We certainly have sold assets to meet our 
liquidity needs. And these bridge institutions are nationally-
chartered banks eligible to borrow from the Fed and utilize 
that in order to manage the liquidity situation.
    Mr. Steil. But is there a reason that you are not either: 
one, utilizing in a more-substantive way the credit line 
available from the Treasury; or two, selling assets? And the 
reason I ask this is, so that maybe I can be more specific, 
does the FDIC have the same risk that we are seeing in other 
banks with unrealized losses, and is that why you are tapping 
this facility rather than selling assets?
    Mr. Gruenberg. No, Congressman, we are selling assets to 
meet the obligations of the failed institution, and we are also 
managing the liquidity. And these bridge banks have the 
authority and ability to access the Fed resources.
    Mr. Steil. So, you are both selling assets and borrowing 
from the Fed to the tune of $178 billion at the same time?
    Mr. Gruenberg. For these institutions to meet immediate 
liquidity demands, which we will eventually get back to now.
    Mr. Steil. And did the Treasury at any time discourage you 
from taking a loan from the line of credit from the Treasury 
for purposes of addressing the debt ceiling limit?
    Mr. Gruenberg. I think there were discussions in regard to 
that, but I think the principal purpose here, frankly, was 
liquidity management, and also to be able to preserve liquidity 
in our deposit insurance fund.
    Mr. Steil. I appreciate your time here today. I yield back. 
I will now recognize the gentleman from North Carolina, Mr. 
Nickel, for 5 minutes.
    Mr. Nickel. Thank you, Mr. Chairman, and thank you to our 
witnesses for being here with us today. People in my district 
are already living paycheck to paycheck, and they are worried 
about making ends meet. They are already dealing with the 
rising costs of everyday goods and services, and the last thing 
they need to worry about right now is their bank or their 
employers' banks failing. That is why I am working to provide 
transparency and accountability to this process. Where were the 
regulators? I want to know what the bank executives were doing 
in the months, weeks, and days leading up to this failure. My 
constituents deserve to know that we are going to hold bank 
executives accountable and ensure that this doesn't happen 
again.
    These bank failures rattled our financial system. Working 
families in my district need a stable economy they can rely on. 
They can't afford more uncertainty when it comes to their next 
paycheck. And right now, the looming debate over the debt 
ceiling crisis has the ability to rattle our economy even 
further.
    Vice Chair Barr, in just a few months, the United States 
Congress needs to raise the debt ceiling. If the U.S. defaulted 
on the debt, would it be really bad for our economy? Would it 
be really, really bad for our economy, or would it be really, 
really, really bad for our economy?
    Mr. Michael Barr. The basic answer to that question is that 
the Congress needs to increase the debt ceiling. There are no 
other options around that. In the absence of an increase in the 
debt ceiling, it could cause enormous dislocation to our 
economy.
    Mr. Nickel. So, one really? Two reallys? Three reallys?
    Mr. Michael Barr. I wouldn't characterize it--I think that 
it is the right thing to do. I think Congress needs to do that 
and really leave anything else about the debt ceiling up to 
discussions between the Administration and Congress. Just to 
say from an economic perspective, it would be quite 
unfortunate.
    Mr. Nickel. Thank you. Vice Chair Barr, this was the 
second-largest banking failure in U.S. history, with $42 
billion pulled in a day. Who was asleep at the wheel?
    Mr. Michael Barr. I think in the first instance, as I have 
said, the bank management is responsible for running the bank. 
They failed in basic measures of interest rate risk and 
liquidity risk. They had very many outstanding matters 
requiring attention, and matters requiring immediate attention. 
They were deficient in governance and controls. They were rated 
a 3 overall with respect to the firm, which means they are not 
well-managed. And at the end of the day, it is the job of the 
bank and their board of directors to run themselves the way 
they should. We, of course, are looking internally at our own 
supervision and our regulation, and looking at ways that we 
could have forced the firm to do more faster, or raise 
standards so that if the firm got into trouble, they had more 
capital and liquidity.
    Mr. Nickel. I certainly hope there is some accountability.
    Chair Gruenberg, moving to you now, First Citizens Bank, 
which is located in my congressional district, North Carolina's 
13th District, was the successful bidder for Silicon Valley 
Bank. They have a proven track record in this space and are 
already instilling greater confidence in our banking system. 
Can you tell us about the evaluation process for the bids that 
were submitted, and what made First Citizens the most-
attractive bidder?
    Mr. Gruenberg. Two reasons I would say, Congressman: one, 
financially, it was the strongest bid for the FDIC; and two, it 
was a bid for all of the deposits of the institution and all of 
the loans of the institution so that it provided operational 
certainty as well. So from both a financial standpoint and an 
operational standpoint, it was really the strongest bid we 
received.
    Mr. Nickel. And it took a while. Why wasn't Silicon Valley 
Bank purchased sooner? I think that certainly would have 
created more stability in this situation.
    Mr. Gruenberg. If we could have sold it that first weekend, 
that would have been desirable. The fact is, Silicon Valley was 
a pretty large institution, $200 billion in assets, and pretty 
complicated in terms of its business activity. So for a 
potential acquiring institution to do the due diligence over a 
weekend and reach a conclusion and make up was, frankly, not 
practical. And so, we set up a bridge institution for both of 
the failed banks, and were able, in a pretty orderly way, to 
set up bidding processes for each.
    And, in fact, for Silicon Valley, we had considerable 
interest and got a couple of requests for additional time for 
interested parties to do due diligence. So, we extended the bid 
date a couple of times to give people time, and we ended up 
getting, I think, 27 bids from 18 different sources. And it 
ended up being a pretty constructive process.
    Mr. Nickel. Thank you very much. I yield back.
    Chairman McHenry. The gentlewoman from California, Mrs. 
Kim, is recognized for 5 minutes.
    Mrs. Kim. Thank you, Mr. Chairman. Let us examine what we 
are discussing here. At the time of its failure, Silicon Valley 
Bank was the 16th-largest bank in the United States, with 
assets more than tripling from $71 billion in 2019, to over 
$200 billion at the end of 2022. Obviously, we all know banks 
have a responsibility to manage their operation well. 
Unfortunately, with our economy facing inflation not seen in 
decades, and increasing interest rates, supervisory missteps at 
the Federal and State level failed to correct and mitigate 
SVB's rapid growth in its balance sheet and management risks.
    Mr. Barr, yesterday, you mentioned that you first heard 
about SVB's interest risk and liquidity management issues back 
in February of this year. So I want to ask you, who decided to 
put SVB under the horizontal review process? Considering there 
are at least 6 warnings going back toward 2021, and given SVB's 
risk profile, how did you conclude that the firm did not merit 
actions beyond the horizontal review process?
    Mr. Michael Barr. Thank you, Representative Kim. I think 
that is one of the things we are trying to figure out in the 
review. The supervisors on the ground saw the risks that you 
described, saw the interest rate risk and saw the liability 
risk. They required the firm to make changes. The firm didn't 
make those changes in time. The concern of supervisors grew. 
You can see that from the fall of 2021 to the deficiency rating 
in 2022 and then further action that year. But you are 
absolutely right that at the end of the day, the bank failed, 
and so you need to look at--
    Mrs. Kim. Reclaiming my time, it seems to me that you could 
have considered downgrading ratings or considering enforcement 
actions. And to me, it seems that supervisors kicked the can 
down the road and didn't consider the full consequences of 
their inaction.
    But I want to ask the next question. In February, the Fed 
reported in its January Senior Loan Officer Opinion Survey that 
it was seeing tighter credit conditions, so it seems to me that 
SVB's failure will only serve to exacerbate the tighter credit 
conditions. I am worried that entrepreneurs will soon find it 
more difficult to get a loan or credit to expand their 
businesses and hire workers due to tighter credit conditions.
    So Mr. Barr, I want to ask you, how will you consider 
tighter credit conditions as part of your holistic capital 
review and Basel III Endgame reforms?
    Mr. Michael Barr. We are looking to review our capital 
requirements not for the current situation, but for the long 
term. Any capital requirements that we consider would go 
through notice-and-comment rulemaking and have a transition 
period, so they would not apply to the current economic 
circumstances that we are in now. We are thinking about the 
long-term effects. We are, of course, paying attention to 
tightening credit conditions as part of our monetary policy 
decisions. This factors into our forecasts for the economy and, 
therefore, into our interest rate decisions.
    Mrs. Kim. I am asking you to please pause and keep the 
current market volatility and uncertainty in mind as you do 
that.
    Mr. Gruenberg, let me ask you a question. Yesterday, you 
stated that you received two private bids to purchase SVB. This 
is after the FDIC was appointed as a receiver, and you said one 
was invalid because it did not get the approval of the Board, 
and the second one indicated it was more expensive than 
liquidation. And in your prepared statement, you mentioned that 
the cost to the Deposit Insurance Fund of resolving SVB will be 
about $20 billion. Can you tell us why the FDIC Board decided 
to deny the first bid, and did you see the second bid as more 
expensive than the $20 billion incurred by the insurance fund?
    Mr. Gruenberg. I think the point is that neither bid was 
less-expensive than liquidation, so liquidation would have been 
a less-costly alternative than either acquisition at that 
point. And, frankly, the limited bids and the quality of the 
bids we received was a function of the very-compressed 
timeframe, because we just taken over the institution Friday 
morning, and this was Sunday afternoon. And we thought it was 
in the interest of the Deposit Insurance Fund to place the 
institution into a bridge so that we could manage it for a 
brief period of time and then organize an open bidding process 
so that interested parties would have a fair opportunity to bid 
on the institution. That is ultimately what happened, and if it 
would be helpful, I would be glad to respond more fully in 
writing.
    Chairman McHenry. That would be fantastic.
    Mrs. Kim. Thank you.
    Chairman McHenry. And with that, we will recognize Ms. 
Pettersen of Colorado for 5 minutes.
    Ms. Pettersen. Thank you, Mr. Chairman. I am the last on 
the list, I believe. I always am, so I just want to thank you 
all for being here today.
    Chairman McHenry. We are Members of Congress. We don't rate 
it that way. We can restart your time. I am sorry to interrupt. 
I apologize.
    Ms. Pettersen. Thank you, Mr. Chairman, and I really 
appreciate this incredibly-important discussion. There are 
numerous areas that need to be examined to better understand 
the failure of Silicon Valley Bank and Signature Bank. But 
first, I want to thank you, and the boards of the FDIC and the 
Federal Reserve, and the Treasury Secretary, for your 
leadership in ultimately bringing the resolution needed to 
stabilize the banking system and protect depositors.
    I had text messages, and emails, and phone calls from 
constituents and from people across Colorado who were 
absolutely terrified that they were going to lose everything 
and that they were going to be unable to make payroll. So while 
the response took some time, and I think it did foster a lot of 
misinformation being spread, ultimately, thank you so much for 
doing what was necessary to protect our economy.
    But we are, of course, here today because we want to make 
sure that we are learning from what could have been done better 
and evaluating what we need to do in changing times. And I 
think that one of the most-challenging issues that each of us 
face in this committee and for all of you is how we adjust our 
regulations and responses in a time when information spreads 
like wildfire, and, in this case, created a panic across our 
system and threatened our entire economy. Previously, a bank 
run would take days. In 2008, Washington Mutual saw over $16 
billion in withdrawals over 10 days. With SVB, the bank run 
happened in a matter of hours, with a record $42 billion being 
withdrawn in a single day. And while SVB clearly wasn't 
managing their risks, and was not listening to the warnings 
from the FDIC, I don't think any bank could have survived a run 
like this.
    And so, Mr. Gruenberg, knowing that this panic occurred 
through social media, in response to the suggestion that not 
all depositors would be protected when the FDIC took over SVB, 
what lessons can regulators take from this to improve their 
public communication when a future bank fails, knowing how 
quickly depositors can immediately move their money in this new 
technological age? I know you are going to take time, and we 
will hear a lot more about this in the future. What do you 
think is needed to expedite the responses necessary to mitigate 
something like this from happening again?
    Mr. Gruenberg. To prevent it from happening again really 
raises all of those supervisory and regulatory issues we have 
been talking about this morning. I do think in regard to 
deposit insurance, we should do more and perhaps a better job 
of explaining to the public how deposit insurance works, what 
is covered, what is not covered, and what are the options 
available to people when they open a bank account. And I think 
that would also be one of the reasons to undertake this overall 
review of the deposit insurance system, to see what changes 
might be considered that would be helpful to the public.
    Ms. Pettersen. Great, thank you for that. And last, Vice 
Chair Barr, in just a couple of weeks we have seen these two 
bank failures. We have seen efforts to prop up First Republic 
Bank, and we have also seen issues with Credit Suisse and the 
Deutsche Bank in Germany. I am still getting questions from 
people in my district who are concerned. So, what message do 
you have for them, for our constituents and small businesses, 
to reassure them that our financial system is stable and that 
their money is secure?
    Mr. Michael Barr. I think that is an excellent point. I 
know when many of you talk to banks in your own districts, they 
are telling you the same thing, which is that the banks are 
sound and resilient. I think if you look at the actions we took 
a couple of weeks ago, those actions demonstrate that we are 
committed to ensuring that all deposits are safe. We are 
prepared to use those tools for any size institution as needed, 
if appropriate, to keep the system safe and sound. So, the 
basic message is that the banking system is sound and 
resilient.
    Ms. Pettersen. Great. Thank you. I really appreciate it, 
and I yield back, and congratulations since I am the last one.
    Chairman McHenry. The gentlelady yields back. The last one 
on the Democratic side.
    Ms. Waters. We have two.
    Chairman McHenry. I'm sorry. I will now recognize the 
gentleman from Florida, Mr. Donalds, for 5 minutes.
    Mr. Donalds. Thank you, Mr. Chairman. Panelists, I know it 
has already been an interesting day. Thanks for being here.
    Vice Chair Barr, it says here you were confirmed on July 
19, 2022. So you came in kind of in the middle, according to 
your own testimony, of when the San Francisco Fed was having 
examiner issues at SVB. Is that fair?
    Mr. Michael Barr. The examiner report with respect to the 
whole firm as a whole was done in July 2022, and that is when I 
arrived.
    Mr. Donalds. Okay. According to your testimony, you say 
here at the end of 2021, supervisors at the San Francisco Fed 
found deficiencies with bank liquidity risk, resulting in 6 
supervisory findings in May of 2022. There were three 
additional findings associated with ineffective border 
management, et cetera. In October 2022, supervisors met with 
the bank's senior management to express concerns about the 
interest rate profile. On February 23, 2023, your staff alerted 
you to these issues, and then we know the rest of the story. Is 
it your assessment that there are serious supervisory issues at 
the San Francisco Fed?
    Mr. Michael Barr. We are doing the review of that now, and 
I don't want to prejudge the outcome of it. There were clearly 
supervisory--
    Mr. Donalds. Mr. Barr, I am not going to ask you to 
prejudge. I am going to prejudge, as an American citizen, and 
as a Member of Congress. Didn't you think it is unnecessary, it 
is a rational judgment, that with all the supervisory findings 
that existed for the last 2 years, this still resulted in 
finding that there are supervisory issues at the San Francisco 
Fed?
    Mr. Michael Barr. Sorry. That was your question?
    Mr. Donalds. Yes. Do you think it is a good assumption to 
make?
    Mr. Michael Barr. I don't want to assume. I want to go look 
at the facts. We are going to look at the facts in this review. 
I think that, overall, at the Federal Reserve, without pointing 
any figures in any direction, there were significant 
supervisory failings. I said at the outset of the hearing that 
if you have a bank like this that is failing, there are serious 
management issues, there are supervisory failings, there are 
regulatory failings, and we are committed to looking at all of 
it.
    Mr. Donalds. Okay. That is fair.
    Mr. Chairman, I ask unanimous consent to put into the 
record a Wall Street Journal article dated November 11, 2022, 
``Rising Interest Rate Hikes Hit Bank Bond Holdings.''
    Chairman McHenry. Without objection, is is so ordered.
    Mr. Donalds. In this article, there is actually a comment 
by Thomas Hoenig, former President of the Federal Reserve Bank 
of Kansas City, and former Vice Chair of the FDIC, and he says 
if they go high enough, you can actually be losing money on 
those assets. He was speaking about banks generally but not 
specific banks. This is highlighting that his concern as 
somebody who was, in part, in your shoes and Mr. Gruenberg 
shoes, was concerned about rising interest rates on bank 
portfolios writ large. Do you agree with that statement?
    Mr. Michael Barr. Yes, I think interest rate risks, again, 
is a core risk. We look at it across the system and banks are 
supervised for that, and it is absolutely essential they manage 
that risk.
    Mr. Donalds. Mr. Barr, let me ask you a question. Do you 
think that this committee should be talking to San Francisco 
Fed President Mary Daly? Do you think that she would have some 
input on these issues that happened in Silicon Valley Bank?
    Mr. Michael Barr. I think the committee's decisions about 
witnesses is far outside my expertise.
    Mr. Donalds. Let me ask you this question, because we have 
been talking a lot about concerns from a supervisory 
perspective. You have a speech dated March 9, 2023, at the 
Peterson Institute for International Economics here in D.C.--
March 9th is an interesting day; that is the day that SVB blew 
up. And in your speech, you say, ``The banks we regulate, in 
contrast to stablecoins and crypto markets, are well-protected 
from bank runs through a robust array of supervisory 
requirements.'' Do you still stand by that statement?
    Mr. Michael Barr. As I said earlier in the hearing, I think 
that it demonstrates the need for humility about our ability to 
understand the causes and consequences of financial difficulty. 
So of course, that statement, in this context, has turned out 
to be incorrect.
    Mr. Donalds. Okay. That is fair.
    Mr. Chairman, for the record, I also have another article I 
want to submit, ``The U.S. Needs a New Bank Supervisory 
System,'' written by Peter Wallison, who is at the American 
Enterprise Institute.
    Chairman McHenry. Without objection, it is so ordered.
    Mr. Donalds. And in part, it talks about some of the 
shortcomings of the current supervisory system. In short, I 
will say this in the final 22 seconds of my testimony.
    For the last 14 years in Congress, we viewed Dodd-Frank as 
the holy grail for safe and sound banking. And if we are going 
to be honest with ourselves, what has been the holy grail for, 
``safe and sound banking,'' is cheap or free money for balance 
sheets to look good. But when rates rise, not all balance 
sheets look good, and that is not just banking. That is in a 
lot of places. So, maybe we should take a look at our 
supervisory system overall. I yield back.
    Chairman McHenry. The gentleman's time has expired. The 
gentleman from Nevada, Mr. Horsford, is now recognized for 5 
minutes.
    Mr. Horsford. Thank you to the chairman and the ranking 
member, and to the regulators for appearing before the 
committee. I want to start by saying the work that was done to 
address the Silicon Valley and Signature Bank collapses and 
ensure the health and resiliency of the U.S. banking system is 
vital. And I want to commend those who were involved in the 
swift action and the decisive steps that were taken to protect 
businesses' payroll, particularly small businesses and their 
employees whom we heard from at that time. Now, while 
depositors were protected, shareholders and bondholders need to 
bear the costs for any potential mismanagement, and I am 
eagerly awaiting the full examination of these bank reviews and 
the upcoming reports that you will be providing.
    While the collapses of Silicon Valley Bank and Signature 
Bank may have occurred due to unique and isolated factors, the 
panic that their failures caused quickly became a private 
sector-wide issue. And I am glad to say that the original 
crisis of competence was subsided, and cooler heads did 
prevail. I fear that the consequences will continue to 
materialize as we go on. For example, consolidation of deposits 
within the largest systemically-important banks will only 
continue if the sense of risk within the financial system 
persists.
    Uninsured depositors are leaving our mid-sized banks 
because they feel that their money is safer elsewhere, even as 
these banks showed continued strength and sound financial 
footing. Deposit insurance is crucial for many of my 
constituents to get a sense of peace of mind, and we cannot 
have the perception of a two-tiered banking system in this 
country where only the largest banks are protected.
    Chairman Gruenberg, as we look to increase competence in 
the banking system with a particular focus on small and medium 
banks, how would an increase in the FDIC insurance limit 
prevent further consolidation of deposits at the largest banks?
    Mr. Gruenberg. Congressman, I think that question is raised 
by this episode. The decision to guarantee the uninsured 
deposits of these two institutions really has implications for 
the entire deposit insurance system and we need to consider it. 
And I would like to do it comprehensively, looking at all of 
the aspects of our deposit insurance regime, and then come back 
by May 1st with a report that the FDIC will put out, which will 
also provide some policy options for consideration.
    Mr. Horsford. Okay. One other area that I am concerned 
about is that I have already heard that multiple development 
projects, particularly housing projects in my district, are 
struggling to get financing due to a pull-back of credit from 
community banks. While I understand the need to review capital 
requirements, I think you would agree, Vice Chair Barr, that no 
bank can meet $40 billion-plus in depositor demands from 
capital alone.
    So, Vice Chair Barr, I would really urge you to consider 
the effects of increased capital requirements on the lending of 
healthy community banks. However, I do believe that action must 
be taken. Would you be able to discuss any additional 
strategies the Fed would be able to pursue to address the 
problems that we have seen at Silicon Valley and Signature 
Banks without reducing credit industry-wide?
    Mr. Michael Barr. Thank you very much. First of all, the 
capital review that we are doing does not apply to community 
banks. We are not intending to increase capital requirements on 
community banks. My understanding from looking at the community 
banking system is that it is well-capitalized and stable and is 
serving its communities. We are looking at larger institutions. 
If we do that, we are going to do it through a notice-and-
comment rulemaking process that takes a good bit of time in 
their transition rules. So, we are not talking about capital 
rules that in any way that would apply now. We are talking 
about how to make sure that the capital and liquidity rules in 
the future are appropriate.
    Mr. Horsford. Okay. And then finally, there were reports 
that after Silicon Valley went into receivership, they 
literally advertised that they are FDIC-guaranteed as a way to 
attract depositors. Is that true, and if so, what has been 
done? They cannot now benefit from the policy after we help 
save them.
    Mr. Michael Barr. That is a fair question, Congressman. We 
placed Silicon Valley into a bridge institution. There may have 
been some communications of the kind you describe. When we 
heard about it, we put an end to it.
    Mr. Horsford. Thank you. And thank you, Mr. Chairman. I 
yield back.
    Chairman McHenry. The gentleman from Nebraska, Mr. Flood, 
is now recognized for 5 minutes.
    Mr. Flood. Thank you, Mr. Chairman. Vice Chair Barr, you 
have disclosed that Silicon Valley Bank's composite CAMELS 
rating was a 3 out of 5. In response to Ranking Member Waters' 
question earlier, you disclosed that their liquidity rating was 
a much stronger, 2 out of 5. Furthermore, you testified that 
the Federal Reserve examiners cited Silicon Valley Bank seven 
separate times, and you testified that examiners were aware of 
Silicon Valley Bank's interest rate risk last year. Why wasn't 
that risk reflected in Silicon Valley bank's liquidity rating?
    Mr. Michael Barr. I think that is an excellent point. One 
of the things we are looking at in the review is, given the 
extent of difficulties, the problems the firm was having, how 
did the regulators come up with this particular, the supervisor 
come up with this particular approach? Its composite rating was 
not well-managed, and its holding company rating was deficient. 
That is also not well-managed, but it has a 2 for liquidity, 
and a, ``conditionally meets expectations,'' for liquidity. And 
we are trying to understand how that is consistent with the 
other material.
    I mentioned earlier, too, that I am highlighting the 
liquidity and governance and interest rate risk findings. But 
there were many other findings at the firm that had not been 
addressed at the time they failed. And so the question is, why 
wasn't that escalated and why wasn't further action taken? I 
think it is a legitimate and fair question.
    Mr. Flood. Was that composite score, that composite CAMELS 
rating ever downgraded in 2021 following the examiners' 
citations?
    Mr. Michael Barr. I don't know the answer to what happened 
in 2021. The 2022 rating was the first time the firm had a 
composite rating for all of its activities as it entered the 
large and foreign banking organization group.
    Mr. Flood. Vice Chair Barr, was Silicon Valley Bank's 
liquidity rating ever downgraded following the examiners' 
citations in 2022, or is it the same issue you just described 
with the large bank status, their liquidity rating?
    Mr. Michael Barr. The overall rating for the firm, of which 
this would be a part, was done that summer. There was a process 
after that of looking at both liquidity risk and interest rate 
risk. And my understanding is that as part of the horizontal 
review that was being conducted at the beginning of 2023, the 
examiners were looking at what was the appropriate level.
    Mr. Flood. Okay. Every quarter, the FDIC releases its 
quarterly banking profile. This profile includes a public 
disclosure of the total assets of FDIC-insured institutions 
that are deemed, ``problem banks.'' In December of 2022, the 
FDIC's problem bank list included total assets of only $47.5 
billion. Although the banks and the FDIC's problem list are not 
public, given the size of Silicon Valley Bank, it is reasonable 
for me to conclude that Silicon Valley Bank was not on the 
FDIC's problem bank list released just 3 months before its 
collapse.
    Chairman Gruenberg, given the several supervisory findings, 
identifying various issues with Silicon Valley Bank's practices 
since 2021, including the issuance of matters requiring 
immediate attention from those supervisors, were those findings 
communicated to the FDIC?
    Mr. Gruenberg. I can tell you, Congressman, that the 
criteria to get on the problem bank list is to be rated a 4 or 
5 on the CAMELS rating scale of 1 to 5. And at that time, 
Silicon Valley was not rated a 4 or 5, so we wouldn't have been 
in a position to put it on the problem bank list.
    Mr. Flood. Vice Chairman Barr, why wasn't this information 
shared for the purposes of the FDIC's problem bank list?
    Mr. Michael Barr. As Chairman Gruenberg just indicated, the 
FDIC makes an independent judgment with respect to its list 
based on the ratings of the firm, and the firm was not rated 
lower than a 3.
    Mr. Flood. Chairman Gruenberg, has Silicon Valley Bank ever 
previously been on the FDIC's list of problem banks?
    Mr. Gruenberg. The reason I hesitate is we put the 
aggregate assets of the institutions on the problem list. We do 
not indicate the individual institutions--
    Mr. Flood. You can't do that?
    Mr. Gruenberg. And now, I take your point--
    Mr. Flood. And this is a question from Congress.
    Mr. Gruenberg. Yes, I believe I can get back to you, and 
answer your question, if I may follow up for the record. We 
will be glad to do that. I just want to check. But yes, the 
answer is, we will get back to you with an answer.
    Mr. Flood. The answer is, yes?
    Mr. Gruenberg. We will come back with an answer for you, if 
that is okay.
    Mr. Flood. Okay. Thank you for your testimony. I still 
think there are lots of questions regarding what happened here, 
especially with Silicon Valley Bank, but I appreciate your 
time. And I yield back.
    Chairman McHenry. The gentleman from New York, Mr. Meeks, 
is recognized for 5 minutes.
    Mr. Meeks. Thank you, Mr. Chairman. And let me thank all of 
you for your responsibilities and the duties and what you have 
done. It's funny when you have been here for a while, a lot of 
folks are here talking about how Dodd-Frank shouldn't be the 
holy grail. But if you were here in 2008, when there was no 
Dodd-Frank, that was a crisis. That was something. This is 
nothing. For some of my colleagues who are here now, who were 
not here then, we are a long way away from where we were in 
2008, and the banking system is much stronger now than it was 
in 2008. I say, thank God that we had Dodd-Frank at that 
particular time, so I want to thank you for that.
    But as a result, let me just ask maybe, Vice Chair Barr, as 
part of your internal review, you have indicated that you plan 
to evaluate whether the application of more-stringent standards 
would have prompted SVB to better manage risks. So as part of 
that, do you expect to look into whether more-frequent stress 
testing for a bank of SVB's size would be appropriate?
    Mr. Michael Barr. Yes, Representative Meeks, we will look 
at stress tests. We will look at really all of the enhanced 
prudential standards, liquidity standards, capital standards, 
stress testing. All of that will be part of our review with 
respect to SVB, and it will help inform broader questions we 
have been working on since I arrived in July about what the 
capital framework for the system should look like.
    Mr. Meeks. Now, stress test results for our largest banks, 
those that are above $250 billion, are available to the public. 
Is that correct?
    Mr. Michael Barr. Yes, stress testing results are available 
annually to the public.
    Mr. Meeks. And I understand that because of SVB's rapid 
growth, and the timing of when the bank crossed the $100-
billion asset threshold, SVB would not have been subject to 
stress testing until 2024. But when a bank with about $100 
billion in assets size is subject to stress testing, who has 
access to those results? Would, for example, an individual or 
small-business client of the bank be able to see those results?
    Mr. Michael Barr. Under the current framework, you 
correctly describe that the Federal Reserve's rules established 
in 2019 would provide that SVB would be subject for the first 
time to stress testing in 2024. There is currently, under that 
structure that was put in place in 2019, no stress testing for 
firms below the $100-billion level. And that is part of the 
framework.
    Mr. Meeks. Could you expound a little bit more on how 
helpful it might be for the positive, for example, to get to 
see those results, especially depositors who are uninsured, 
that have uninsured deposits?
    Mr. Michael Barr. Stress testing results for the firms that 
are in stress testing are published annually. For firms that 
are below that level in the current framework, they are not 
required for that kind of stress test. They do internal 
liquidity stress test as a normal part of their requirements on 
a quarterly basis. That is an internal proprietary action by 
them, subject to supervisory review. In the case of SVB, they 
conducted their liquidity stress test, but the supervisors 
found that the stress tests essentially were not stressful 
enough; they were not realistic.
    Mr. Meeks. But I believe there is an issue that customers 
and investors who bank with institutions that are large enough 
to trigger a systemic risk exemption do not have the 
transparency into the risk management and scenario plan that 
their banks may have on the way. But in the limited time I 
have, let me just follow up on a couple of questions that some 
other people had asked. I am thinking about small banks and 
community banks which are very important, and talking about 
depository insurance. And I know someone is talking about that.
    Now, to me, not a lot of people, especially in the 
community banks, have $250,000 in the bank. But in trying to 
help strengthen those banks, what I would like to see is some 
of the small businesses may have more than $250,000 in the 
bank, and they have to pay employees, and I would like them to 
be given them some business. Do you think that when you look at 
depository insurance, there should be a difference between 
small businesses and personal, as far as that is concerned, 
going forward?
    Mr. Gruenberg. Congressman, that is a good question, and it 
is one of the things we will be looking at in the report that 
we are going to submit on May 1st, and laying out some policy 
considerations to take into account here.
    Mr. Meeks. Thank you. I am out of time, so I yield back.
    Chairman McHenry. Another gentleman from New York, Mr. 
Lawler, is now recognized.
    Mr. Lawler. Thank you, Mr. Chairman.
    Chairman Gruenberg, just a follow-up on that line of 
questioning. Yes or no, should the FDIC insurance limit be 
raised?
    Mr. Gruenberg. Let us do the work on this, and then come 
back to you with the report.
    Mr. Lawler. In the 2008 collapse, we raised it from 
$100,000 to $250,000. We made it permanent in 2010. It has not 
been raised since then. Do you think it should be raised?
    Mr. Gruenberg. I don't know the answer to that question 
right now, Congressman.
    Mr. Lawler. Okay. Did the Fed, the FDIC and the Treasury 
have the tools needed to deal with this crisis when you were 
made aware of the situation with SVB? Do you all believe, yes 
or no, that you had the tools needed to deal with this?
    Mr. Michael Barr. Yes, we have the tools we need.
    Mr. Lawler. Yes?
    Mr. Gruenberg. I agree. Yes.
    Mr. Lawler. Yes?
    Ms. Liang. I agree. We had the tools to prevent--
    Mr. Lawler. Okay. Did the Fed, the FDIC and the Treasury 
have the tools needed to prevent it? Yes or no?
    Mr. Michael Barr. I think that is a very difficult question 
to answer. I do not have a yes-or-no answer for it. I think we 
can do better at supervision and regulation. But whether we 
could have prevented the collapse in 24 hours of this 
institution, I don't know the answer to that.
    Mr. Gruenberg. I agree with Vice Chair Barr's point, but 
from a supervisory basis, I think there was an opportunity.
    Ms. Liang. I'm sorry, Congressman. Can you repeat your 
question?
    Mr. Lawler. Yes or no, do you think that Treasury had the 
tools needed to prevent this from happening?
    Ms. Liang. The Treasury had the tools to use the systemic 
risks exception.
    Mr. Lawler. And used it?
    Ms. Liang. And recommendations to prevent a crisis.
    Mr. Lawler. So, the FDIC and the Treasury do believe it, 
but the Fed is not sure yet. In that case, do you think the 
Federal Reserve failed here in its role?
    Mr. Michael Barr. I think fundamentally, as I have said, it 
is the responsibility of the bank management to run the bank. 
The bank managers failed in basic risk management.
    Mr. Lawler. Right. But you provided, the Federal Reserve 
and the San Francisco Fed provided guidance, provided notices 
and failed to follow up on that, correct?
    Mr. Michael Barr. I would say that there was follow-up; the 
question is whether the follow-up was stringent enough. And 
that is part of the review we are doing.
    Mr. Lawler. But, ``stringent enough,'' really means that 
the individual people may or may not have done the job that 
they were supposed to do, correct, because if you give the 
notice and you reach out, isn't it incumbent on the individual 
supervisors to actually follow up and make sure that the bank 
is doing what it needs to do?
    Mr. Michael Barr. It is incumbent on the bank to take the 
actions that the supervisors are directing them to take. And it 
is incumbent on the supervisors to check on that.
    Mr. Lawler. And the supervisors failed to check on that?
    Mr. Michael Barr. No, I didn't say that. What I said is 
that it is incumbent on the supervisors to do that. I think it 
is a legitimate--
    Mr. Lawler. Did they do that?
    Mr. Michael Barr. I think it is a legitimate and fair 
question to ask whether they were stringent enough, whether 
they used enough tools to force the bank manager do what was 
obviously right.
    Mr. Lawler. With respect, that is semantics. Did they do 
the job they were supposed to do? Did they follow up?
    Mr. Michael Barr. The reason I am having difficulty 
answering the question is I believe they did follow up, but the 
bank managers did not perform on the job, and that is why we 
are--
    Mr. Lawler. Okay. Were the California and New York 
regulators equipped with the appropriate tools to handle this, 
or should these banks, specifically SVB, given its size, been 
federally-chartered instead of State-chartered?
    Mr. Michael Barr. I think that our country benefits from 
having a wide diversity of kinds and sizes of institutions and 
the diversity of chartering authorities that we have. So, I am 
not recommending that we change that.
    Mr. Lawler. Okay. When did any of you first speak with 
Superintendent Harris regarding Signature Bank? Just dates, 
please.
    Mr. Gruenberg. I would want to check the record on that, if 
I may. I will get back to you. I just want to be sure we are 
accurate.
    Mr. Lawler. Okay. Do either of you know when you first 
spoke to Superintendent Harris?
    Mr. Michael Barr. I do not. Signature Bank is a New York 
State-regulated institution, but I don't know when I first had 
a conversation about it.
    Mr. Lawler. Okay.
    Chairman Gruenberg, when was the decision made to close 
Signature Bank, and what criteria were used to determine 
whether or not Signature Bank met the systemic risks exception?
    Mr. Gruenberg. Those are two questions, Congressman. The 
decision to close the bank is the authority for the State, and 
the State made that decision on Sunday. What was the question 
in regard to the systemic risk exception?
    Mr. Lawler. What criteria was used to determine that?
    Mr. Gruenberg. I think we had before us the failure of two 
institutions, both Silicon Valley and Signature, and we also 
had before us evidence of significant liquidity stress in other 
institutions. And we had data in terms of deposit outflows, and 
I think that was basically the data on which we relied.
    Chairman McHenry. If the Chair will submit that data for 
the record and answer this, would you be willing to do that, 
the data related to systemic risk designation?
    Mr. Gruenberg. Yes, of course.
    Mr. Lawler. Okay. Thank you.
    Chairman McHenry. Or systemic risk event.
    We will now go to the gentleman from Iowa, Mr. Nunn, for 5 
minutes.
    Mr. Nunn. Thank you, Mr. Chairman. And to the witnesses, 
thank you for being here today. If you would, just with a show 
of hands, do you believe, as most Americans do, as I have said, 
and as the President has said, that taxpayers should not be on 
the hook for that? Would you agree with that statement?
    Mr. Michael Barr. Yes.
    Mr. Nunn. Further, would you agree with the statement that 
we should have diversity within our banking system?
    Mr. Michael Barr. Yes, I agree.
    Mr. Nunn. Specifically, then, would you support our 
regional banks, our small local banks, and recognize the undue 
burden that they potentially are going to be saddled with as a 
result of an FDI assessment because of these two banks?
    Mr. Gruenberg. As you may know, Congressman, I responded to 
that issue and the answer is the FDIC has authority under the 
law to consider who benefits from the assistance provided and 
we will take that into account with particular attention and 
sensitivity to the impact on community banks.
    Mr. Nunn. I appreciate that, Mr. Gruenberg.
    I want to specifically talk to Mr. Barr about the diversity 
in banks. When you do your holistic capital review of banks 
under $10 billion, what would that look like?
    Mr. Michael Barr. We are not anticipating in any way 
raising capital requirements with respect to community banks. 
It is not part of my holistic review.
    Mr. Nunn. Good. I am glad to hear that. Second, I will 
highlight here, $22 billion. As we say in Iowa, that is a lot 
of money, and, in fact, it is 20 percent of the entire FDICs 
fund for this. In order to make that up, special assessments 
will inevitably have to be part of this. Do you see that being 
passed along to the top banks primarily, or how will you 
calibrate that?
    Mr. Gruenberg. Congressman, it is relevant to my response 
before, that we are required by law to pay for any cost to the 
Deposit Insurance Fund caused by the coverage of the uninsured 
deposits through a special assessment. We have to do that by 
public notice and rulemaking, and we have authority under the 
law to consider the types of entities that benefit from any 
action taken or assistance provided.
    Mr. Nunn. I understand that, but I just want to highlight 
the difference here. We had two banks that had 90 percent of 
their depositors uninsured at any level. Most banks across 
America have 47 percent, but in my State of Iowa, in Des Moines 
alone, it is 70 percent. Am I wrong? It is 70 percent. These 
are farmers who are looking to plant this spring, who know that 
they have a good deposit there. It is small businesses that are 
supported by this. What they don't need is ultimately, to our 
original question, an increase in their cost of living, and in 
their cost of doing business by a special assessment that 
disproportionately punishes those who are at the medium and 
small size. Are you committed to making sure that is a priority 
for you?
    Mr. Gruenberg. Yes.
    Mr. Nunn. Excellent. Last question. I want to be brief 
here. Silicon Valley Bank did not have a chief risk officer, 
Mr. Barr, for how many months?
    Mr. Michael Barr. I believe was approximately 8 months.
    Mr. Nunn. So, almost a year. During that time, they did 
have four members who served on something called the Governance 
and Corporate Responsibility Committee. And these four members 
were actually on their risk committee, but as I understand it, 
they had no actual experience in managing material risks. Were 
these individuals focused on the wrong thing, and was there no 
true risk management being taken at Silicon Valley Bank in the 
lead-up to the failure?
    Mr. Michael Barr. I can't speak to the particular 
individuals. I can say that the supervisors told the board of 
directors and the bank that the board oversight with respect to 
risk management was deficient. That was one of the findings 
that was made in the summer of 2022.
    Mr. Nunn. So, did beginner risk management of interest rate 
risk and liquidity risks cause this bank to fail, SVB 
specifically?
    Mr. Michael Barr. Yes. Ultimately, they mismanaged their 
interest rate and their liquidity risk. And their very large 
percentage of uninsured depositors had a massive and unexpected 
run. As I said, $42 billion on a Thursday, and they expected 
another $100 billion on Friday, and that was just a devastating 
run for the institution.
    Mr. Nunn. I would like to ask this question then, and I 
hope that San Francisco Fed President Mary Daly has the 
opportunity, Mr. Chairman, to testify in person before this 
committee. But as you are overseeing this, why did she tell the 
regional Fed to work on cataloging climate risks, even going so 
far as to assemble a team to study how these risks are likely 
to impact the Fed's future reserve mandates? And I will state 
here that one of SVB's memos from their supervisory credit 
group claims they have been working closely with the Fed to 
inform its agenda priorities, namely fiscal risk to banks from 
climate change. Were the regulators focused on the wrong risk 
posed by this Administration? Yes or no?
    Mr. Michael Barr. The supervisors were focused overall in 
the system on interest rate risk, credit risk, and 
cybersecurity risk, traditional risks in the banking system. 
There are some supervisors who are focused on climate change.
    Mr. Nunn. But there was no risk officer to look at the 
actual dramatic over-interest they had at this.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Nunn. Thank you, Mr. Chairman. I will submit the rest 
of my questions in writing. And I yield back.
    Chairman McHenry. The gentlewoman from Texas, Ms. De La 
Cruz, is now recognized for 5 minutes.
    Ms. De La Cruz. Thank you, Mr. Chairman, and thank you, 
witnesses, for being here today. What we have learned in the 
wake of the first run on a major U.S. bank since the Great 
Recession, is that the management team of Silicon Valley Bank 
took, quite frankly, foolish actions that no informed financial 
institution should ever take, by taking on deposits from their 
customers, which are short term in definition, and buying long-
term bonds when interest rates were low. Now, that was before 
President Biden's inflation crisis. They chose to become 
vulnerable. When inflation skyrocketed after enacting the 
Democrats' partisan $2-trillion American Rescue Plan, the Fed 
was late to determine that inflation wasn't transitory, forcing 
a decision to spike interest rates, creating risk in the 
banking system.
    Now, if we backtrack for a second and look at what the 
Federal Reserve was focusing on when they were hiking interest 
rates, it wasn't the risks associated with those actions. 
Instead, it was research papers on climate risks and social 
issues, and you just acknowledged a second ago that some were 
focused on climate change.
    My question is to you, Mr. Barr. I realize you didn't come 
into your role until July 2022, but isn't it correct that when 
you did, you quickly announced your holistic view of Fed 
regulations and your own Fed special scenario analysis for 
weather and climate risks?
    Mr. Michael Barr. Those are a few different items. I 
announced that I was doing a holistic capital review, which was 
looking at capital in the system, whether it was at appropriate 
levels. We have been conducting that really since July. There 
is a separate thing, which is that in the beginning of this 
year, we piloted for the Global Systemically Important Banks 
(G-SIBs), a pilot climate scenario analysis, to evaluate how 
they were addressing climate risk in the system. That is 
separate from basically what most supervisors are doing most of 
the time--which is highlighted in our November 2022 supervision 
report--which is looking at interest rate risk, credit risk, 
liquidity risk and--
    Ms. De La Cruz. We could both agree that interest rate risk 
and liquidity risk are within your job scope. But is climate 
risk really something that you should be focused on when we saw 
all of the red flags on this bank? Now, correct me if I am 
wrong, but isn't the role of the Vice Chair of Supervision to 
focus on bank supervision and regulation? Yes or no?
    Mr. Michael Barr. Yes, that is, in fact, what I am focused 
on.
    Ms. De La Cruz. So if that is the case, were you distracted 
from the mission of your role, which, again, is supervision and 
regulation, and instead focused on climate?
    Mr. Michael Barr. No, I would respectfully disagree with 
that. The way that we are looking at climate risk is about the 
risks that climate change might pose to the financial system 
and to individual banks. It is a very narrow role focused on 
financial risks, not climate policy more generally. And I 
think, as I was saying, before, we need to be humble about 
regulators' ability or banks' ability to understand all the 
risks in front of us. It is prudent to look at long-term risks 
as well as really obvious and central risks right in front of 
us, like interest rate risk and liquidity risks.
    Ms. De La Cruz. I would say that what we saw with Silicon 
Valley was obvious risk. It looks like the mismanagement was 
flagged. There were fair warning signs. And while I appreciate 
that you were able to focus some attention on the actual 
supervision part of the bank regulation, we see a gap here. And 
I think that we would like you to focus on your job as the Vice 
Chair of Supervision in the wake of SVB's collapse, and I feel 
like this was a little too late when you all finally stepped in 
to look at it. So, thank you. With that, Mr. Chairman, I yield 
back.
    Chairman McHenry. We will now recognize the gentlewoman 
from Indiana, Mrs. Houchin.
    Mrs. Houchin. Thank you, Mr. Chairman. We are here today to 
really determine who knew what, and when, and who did what, and 
when. Is this a failure of Silicon Valley Bank? Is it a factor 
of lack of adequate oversight or lack of regulation? I am happy 
to hear many of you say today that it was largely a factor of 
lack of oversight. We have heard discussion today about the 
Financial Stability Oversight Council (FSOC).
    Vice Chair Barr, what is the purpose of FSOC?
    Mr. Michael Barr. I'm sorry. The question is, what is the 
purpose of FSOC?
    Mrs. Houchin. What is the purpose? What is the mission of 
FSOC?
    Mr. Michael Barr. The FSOC is an entity that brings 
together regulators from around the financial system, market 
regulators and bank regulators, to look at risks in the system 
and to try and coordinate across those agencies.
    Mrs. Houchin. Right. It was created by Dodd-Frank in 2010 
to provide, according to FSOC's website, comprehensive 
monitoring of the stability of our nation's financial system. 
It is chaired by the Secretary of the Treasury, and it includes 
the Fed, the OCC, the CFPB, the FDIC, and the CFTC. In fact, 
all of our witnesses today take part in those meetings, do you 
not? Yes or no?
    Mr. Michael Barr. Yes. Each of the three of us participate 
in FSOC as member agencies.
    Mrs. Houchin. And is the function of FSOC also to identify 
risks to the financial stability of the United States? Mr. 
Barr, yes or no?
    Mr. Michael Barr. Yes, that is among its functions.
    Mrs. Houchin. Following an Executive Order by President 
Biden in May of 2021, entitled, ``Climate-related Financial 
Risk,'' FSOC now also evaluates climate-related financial risk. 
Is that right, Mr. Barr?
    Mr. Michael Barr. That predates my time, and we are not in 
charge of running the FSOC. So, I don't know the sequence of 
events, but that is the case.
    Mrs. Houchin. But I assume that it is now part of FSOC's 
charge to monitor and evaluate for systemic risk also?
    Mr. Michael Barr. I'm sorry. I couldn't hear the last 
sentence.
    Mrs. Houchin. I assume it is also part of FSOC's charge to 
monitor and evaluate for systemic risk?
    Mr. Michael Barr. Yes. As I indicated previously, a core 
function of FSOC is to look at risks across the financial 
system.
    Mrs. Houchin. In a quick review of the FSOC meeting minutes 
dated December 16, 2022, five pages were devoted to, ``climate-
related financial risk.''
    Mr. Barr, many of those comments came from you. I couldn't 
find any pages devoted to market and news reports of the 
apparent looming problem with Silicon Valley Bank and Signature 
Bank. In fact, in December of 2022, Silicon Valley Bank was 
listed on the S&P Global marketplace as the top U.S. bank by 
proportion of uninsured deposits, at nearly 94 percent. Only 4 
other banks were estimated to be above 80 percent, including 
Signature Bank, but none of that was mentioned in your December 
16th meeting. Are those factors not important to comprehensive 
monitoring of the stability of our nation's financial system, 
Mr. Barr?
    Mr. Michael Barr. I was asked at the meeting you are 
describing to discuss one risk to the financial system, and 
that was with respect to climate risk.
    Mrs. Houchin. Let me just ask that question one more time. 
Are those factors not important to the comprehensive monitoring 
of the stability of our nation's financial system? The debt 
ratio, the uninsured ratio, is that not important?
    Mr. Michael Barr. The standard factors we think about in 
banking, among those factors are interest rate risk and 
liquidity risk, those are core issues that we do in the bread-
and-butter supervision every day.
    Mrs. Houchin. So, do you not consider the uninsured ratio 
as one of the factors of systemic risk?
    Mr. Michael Barr. We look with respect to microprudential 
supervision of individual firms, we are looking at their 
liquidity risk. And one element of their liquidity risk is the 
extent to which they rely on uninsured deposits. That includes 
uninsured deposits from financial entities, uninsured deposits 
from operating businesses, and then, their insured deposit 
base. So, it is a core part of what we think about when we 
think about liquidity risks.
    Mrs. Houchin. But none of that was discussed in the 
December meeting relative to Signature Bank or Silicon Valley 
Bank or any system gap?
    Mr. Michael Barr. As I said, the specific request to me in 
that meeting was to talk about this issue. We obviously talk 
about broader issues all the time.
    Mrs. Houchin. Any other issues, yes, I get that. Under 
Secretary Liang, earlier, Chairman Huizenga was asking about 
the minutes taken at the meetings for FSOC. You said the 
meeting minutes are published after the next meeting. However, 
it seems there is more detailed information than what is shared 
publicly, and that the closed executive session meeting minutes 
are not shared at all. Will you commit to providing this 
committee with unredacted minutes from every FSOC meeting since 
the March 10th meeting, including closed executive sessions?
    Ms. Liang. Congresswoman, I am aware of two FSOC meetings 
since these events, March 12th and March 24th.
    Mrs. Houchin. Will you commit to providing the meeting 
minutes for the executive sessions?
    Ms. Liang. They were executive sessions, and we do produce 
minutes, so we will release them.
    Mrs. Houchin. Thank you. I yield back.
    Chairman McHenry. We will now go to our final two 
questioners. And the penultimate questioner, Mr. Ogles of 
Tennessee, is now recognized for 5 minutes.
    Mr. Ogles. Good afternoon, and thank you all for being 
here. I know it has been a long day. I will try to be brief, 
because I know you all have to be exhausted.
    Mr. Barr, when you look at increasing interest rates, 
especially in a rapid environment, you know that is going to 
create risks when it comes to deposit structure for these or 
really any bank, but certainly as it pertains to small and mid-
sized banks.
    Mr. Michael Barr. As interest rates change, whether they go 
up or down, they create risks for banks and the expectation is 
that banks manage those risks, and most banks in the country do 
manage those risks quite effectively.
    Mr. Ogles. Now, the regulatory regime that is in place, do 
they give specific guidance as it pertains to those risks in a 
rapidly-changing environment?
    Mr. Michael Barr. We do have standard guidelines that are 
issued to banks about how they conduct their internal liquidity 
stress tests. Those tests are designed or supposed to be 
designed to stress-test stressful environments with significant 
increases and decreases in interest rates. So, they are not 
directionally-guided; they are supposed to test both up and 
down.
    Mr. Ogles. As far as some of the guidance that was given 
specifically to SVB, I think my colleague from across the aisle 
said that they blew you guys off. What types of guidance or 
alerts were given to SVB?
    Mr. Michael Barr. Silicon Valley Bank was required to 
conduct internal liquidity stress tests on a quarterly basis, 
once it reached a certain size. It conducted those tests and 
the guidance back from the supervisors was that the tests were 
inadequate.
    Mr. Ogles. So, understanding that you have a bank that grew 
rapidly in a very short period of time, and there was even a 
Wall Street Journal article dating back to November 11, 2022, 
singling out SVB's potential risks to the banking system, so 
clearly, it was on people's radar. I think you stated earlier 
that you need further regulatory action from this body to give 
you more teeth, if you will, as you move forward. Did you ever 
request a hearing on SVB from this committee of jurisdiction, 
understanding that there was potential risk in the market?
    Mr. Michael Barr. Representative, I haven't asked this body 
for additional authority. I said we were conducting a review of 
our existing authority to see where we could have done better 
on supervision and regulation.
    Mr. Ogles. When I think about this situation, and I think 
about my district, which, although it includes part of 
Nashville, it is predominantly suburban and rural, what is 
going to end up happening is my small banks, my community banks 
are going to end up bailing out a couple of banks that are too-
big-to-fail. I am curious, Mr. Gruenberg, if my banks receive 
an assessment from the FDIC, and they decide to blow you guys 
off, is there going to be some sort of regulatory action? Are 
you going to send them a bill? Are you going to enforce that 
assessment?
    Mr. Gruenberg. Congressman, this has come up previously, 
and we are required by law, to the extent there are losses to 
the Deposit Insurance Fund as a result of the coverage of 
uninsured deposits, to impose a special assessment on the 
banking industry. And we are required to do that through a 
notice-and-comment rulemaking process.
    Mr. Ogles. Right.
    Mr. Gruenberg. And as I indicated, we also have authority--
    Mr. Ogles. I guess the heart of the question, though, is, 
would you go to the bank and say, we want our money? Yes or no?
    Mr. Gruenberg. The answer is, if they were subject to the 
assessment, the answer would be, yes. We do have authority to 
consider the types of entities that benefit from any action 
taken or assistance provided.
    Mr. Ogles. The thing that is important here, though, is I 
have to go back to my district and tell my banks they are not 
going to get screwed over in this process. And what I have 
heard today is a bunch of tap dancing, and no assurances to my 
district and my banks that they are not going to have to bail 
out, basically, the failures of the regulatory bodies that were 
empowered to do a job. And if you found yourself unable to do 
that job, you could have come to the committee of jurisdiction 
and asked for support, but I find no evidence that you did so.
    Mr. Chairman, I yield back.
    Chairman McHenry. The gentleman yields back. We will now go 
to the final questioner, the gentleman from Wisconsin, Mr. 
Fitzgerald, for 5 minutes.
    Mr. Fitzgerald. Thank you, Mr. Chairman. Yes, I have heard 
the same question asked 100 different ways over 2 days. The 
thing that I am concerned about is, it seems like shutting down 
a bank is messy. And I am not sure if we are nimble enough or 
if the Fed or the FDIC is nimble enough, that if we have 
multiple institutions that are all failing at the same time, as 
to whether or not we could address this, because there seems 
like a 3-day period in which everybody was kind of making 
arbitrary, I will say, arbitrary decisions, not necessarily 
guided by any specifics. And if there is a table of specifics 
on what is the red flare that says, this bank is in trouble, we 
need to act quickly. I am not convinced, after 2 days of 
testimony, that it actually happened that way.
    I would ask either one of you to first comment on, can you 
instill more confidence that, in fact, we do know what we are 
doing, and we can react quickly? And if it is multiple banks, 
that we know we are going to be in a good place. And then, I 
have one more question after that.
    Mr. Gruenberg. I can say in regard to Signature, that they 
basically ran out of money to meet their obligations, and that 
was the reason the bank failed. As I indicated earlier, they 
barely met their obligations at the end of the business day on 
that Friday. And it was clear to the State regulator, New York 
State, as well as to us that they could not open on Monday and 
get to the end of the day based on the liquidity they had, and 
that was the reason the bank was closed by the State. And 
Chairman Barr speaks to Silicon Valley Bank, but it was a 
pretty straightforward decision and a traditional one.
    Mr. Michael Barr. Similarly, Silicon Valley Bank basically 
was unable to meet its obligations in the ordinary course of 
business. They suffered a devastating run, a $42-billion run on 
Thursday. On Friday, they expected to face around $100 billion. 
And they did not have the collateral sufficient to support 
discount window letting, and so they were not able to meet 
their obligations and they were closed.
    Mr. Fitzgerald. And then the last question or comment, Ms. 
Liang, when were you informed, first of all, that there was a 
possibility of Silicon Valley Bank defaulting, and was the 
President made aware of that? How much conversation was 
happening within the White House, and were there conversations 
with specific depositors or those that had an interest, like 
Governor Gavin Newsom in California? And now, I learned that 
the State makes a decision on actually shutting down the bank, 
what were those conversations like, and could you characterize 
them for me?
    Ms. Liang. So Treasury learned, or I learned, I can speak 
for myself here, of the issues at Silicon Valley, either 
Wednesday evening or Thursday, after it issued its statement, 
its earnings report, saying that it had a loss and was going to 
raise capital. We heard certainly Thursday night of concerns at 
the institution because of the very, very rapid deposit 
withdrawals.
    And then on Friday morning, we learned the California State 
regulator had closed it, and the FDIC was appointed receiver. 
That was our situation. Over the day of Friday and Saturday, we 
heard from many, many people, institutions, and businesses, 
wondering how they could access their deposits, and if they 
could make payroll. And so, we were gathering information and 
consulting regularly with the Federal Reserve and the FDIC.
    Mr. Fitzgerald. Did you speak to California Governor Newsom 
at any point?
    Ms. Liang. I did not.
    Mr. Fitzgerald. Did anybody at the White House talk to 
Governor Newsom?
    Ms. Liang. I do not know.
    Mr. Fitzgerald. Okay. Thank you. I yield back.
    Chairman McHenry. The gentleman yields back. With prior 
agreement between the ranking member and the Chair, I will now 
recognize the ranking member for such time as she may consume, 
and then I will close.
    Ms. Waters. Thank you very much, Mr. Chairman. Chairman 
McHenry, I thank you for working with me on holding this 
bipartisan hearing, and I look forward to additional hearings 
on these bank failures. Importantly, we need to hear directly 
from the CEOs of SVB and Signature Bank. I also want to thank 
our witnesses and their staffs for the countless hours they 
have spent since the failure of SVB and Signature Bank. The 
economy is stronger today because of your decisive actions. I 
look forward to hearing from you again when you have completed 
your review of the bank failures, and I expect those reviews 
will consider the various matters raised by myself and 
committee members here today.
    In listening to the concerns of members on both sides of 
the aisle, I must say, I am heartened at how much agreement 
there was. I heard Republicans argue for our bank regulators to 
be more-aggressive in their bank supervision, to do more onsite 
exams, escalate penalties more quickly, apply enhanced 
prudential regulations for all banks over $100 billion, expand 
deposit insurance, and protect community banks from bearing the 
burden of these bank failures. I and my Democratic colleagues 
couldn't agree more, and so I look forward to working with 
Chair McHenry on legislative reforms to effectuate those 
reforms quickly.
    Again, I thank the witnesses for being here today and doing 
everything that you could possibly do to respond to the 
questions and the concerns that you were presented with today. 
Thank you. I yield back.
    Chairman McHenry. I want to thank the ranking member, and I 
want to thank the ranking member on our joint call for this 
hearing. The agreement that we had was to pursue this to find 
out the facts, and I think that is the way the committee 
comported itself today. I won't speak ill of the Senate, but 
you had a hearing there yesterday, and today was just a 
different hearing here. That was the expectation that the 
ranking member and I both had, and I think it met those 
expectations.
    The bottom line for you as the panel is that there is 
bipartisan frustration with many of your answers. There is a 
question of accountability and the appearance of a lack of 
accountability. I hope you hear this clearly, not as a partisan 
act, but as a sincere concern. I think, furthermore, there is a 
lack of transparency in the decision-making by those of you 
sitting on this panel to answer for your decisions in that week 
and that first weekend.
    And while I think we are able to start painting a picture 
of what happened, there is still much that we need to 
understand, specifically timelines of what you knew, when, and 
how you responded. I think those are very important things for 
you three on this panel to answer fully for in the name of 
transparency, but, frankly, in the name of building confidence.
    There are still questions that somehow after 3 weeks, many 
of you have answered here that, ``You are going to check with 
staff,'' or, ``You are not sure.'' This was not a, ``gotcha,'' 
hearing. This was not a surprise thing. We expect a little more 
detail than what you provided in many of your answers, 
specifically the timeline, the data used, and the evidence for 
your decision-making.
    We needed leadership in that key moment of that week, and 
we want to understand the decision-making. We put you in these 
very powerful positions, all Senate-confirmed, in our 
government. We want you to be capable of achieving good 
outcomes for the American people and the American economy. We 
want you to be competent in carrying that out and that is why 
we have oversight. And over 5 hours in, you have certainly 
submitted yourselves to oversight. We will have written 
questions for the record. We ask that you respond in a timely 
manner.
    But the final point I will make is, at a time where there 
may be a bit of a political divide in America, I don't think 
you heard that here today. By and large, in this hearing, from 
both sides of the aisle, you heard our sincere concerns. And we 
know here on Capitol Hill that our work is not done, and we 
will have oversight of this, independent of your actions and 
your coordinated efforts on oversight with these reports.
    I would like to thank Vice Chair Barr, Chairman Gruenberg, 
and Under Secretary Liang. Thank you for being here today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.