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

                          OVERSIGHT OF SILICON VALLEY
                            BANK AND SIGNATURE BANK:
                            GAO'S PRELIMINARY REVIEW

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

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE ON OVERSIGHT
                               AND INVESTIGATIONS

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 11, 2023

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 118-21

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    52-933 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
                  Subcommittee on Oversight and Investigations

                       BILL HUIZENGA, Michigan, Chairman

    PETE SESSIONS, Texas                 AL GREEN, Texas, Ranking Member
    ANN WAGNER, Missouri                 STEVEN HORSFORD, Nevada
    ALEXANDER X. MOONEY, West Virginia   RASHIDA TLAIB, Michigan
    JOHN ROSE, Tennessee                 SYLVIA GARCIA, Texas
    DAN MEUSER, Pennsylvania             NIKEMA WILLIAMS, Georgia
    ANDY OGLES, Tennessee

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        May 11, 2023.................................................     1
    Appendix:
        May 11, 2023.................................................    29

                                   WITNESSES
                             Thursday, May 11, 2023

    Clements, Michael E., Director, Financial Markets and Community
      Investment, Government Accountability Office (GAO).............     4

                                    APPENDIX

    Prepared statements:
        Clements, Michael E..........................................    30

                  Additional Material Submitted for the Record

    Barr, Hon. Andy:
        Written responses to questions for the record submitted to
          Michael E. Clements........................................    41
    Mooney, Hon. Alexander X.:
        Written responses to questions for the record submitted to
          Michael E. Clements........................................    42

                          OVERSIGHT OF SILICON VALLEY
                            BANK AND SIGNATURE BANK:
                            GAO'S PRELIMINARY REVIEW

                                  ----------

                             Thursday, May 11, 2023

                 U.S. House of Representatives,
                              Subcommittee on Oversight
                                    and Investigations,
                                Committee on Financial Services
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 10 a.m., in
    room 2220, Rayburn House Office Building, Hon. Bill Huizenga
    [chairman of the subcommittee] presiding.
        Members present: Representatives Huizenga, Sessions,
    Wagner, Rose, Meuser, Ogles; Green, Horsford, Tlaib, Garcia,
    and Williams of Georgia.
        Ex officio present: Representative Waters.
        Also present: Representative Barr.
        Chairman Huizenga. Good morning. The Subcommittee on
    Oversight and Investigations will come to order.
        Without objection, the Chair is authorized to declare a
    recess of the subcommittee at any time.
        Today's hearing is entitled, ``Oversight of Silicon Valley
    Bank and Signature Bank: GAO's Preliminary Review.''
        I now recognize myself for 5 minutes for an opening
    statement.
        Congressional oversight is a Constitutional authority used
    to maintain the well-being of our system of government. This
    lesson of oversight was something that I learned from someone
    who is considered the, ``lion of the House,'' John Dingell. He
    was still in Congress when I first came here, and he taught me
    a couple of things. The first, he called, ``the tyranny of the
    vote.'' It did not matter whom you were with, what you were
    doing, what was happening, or where you were, when they rang
    the bells, we had to go to the House Floor to vote.
        The second was our Constitutional standing, our obligation,
    frankly, of oversight of the Administration, and he was an
    expert at that. It did not matter what the party label was, he
    always fought for the standing of Congress. The Government
    Accountability Office (GAO), is an investigative arm of
    Congress. They provide fact-based, non-partisan information
    that can be used to improve government and save taxpayers
    billions of dollars. Committee Republicans and Democrats should
    support robust oversight of our financial regulators, aiming to
    seek transparency and demanding that accountability.
        Unfortunately, as you will hear in today's testimony,
    regulators in Washington are attempting to paint a bit of a
    different picture. But the facts are clear: The collapses of
    SVB and Signature Bank were the result of risky business
    strategies, no doubt, and years of failed supervisory action.
    In fact, some of the concerns identified in GAO's April report
    are not new. In 2013, in a report entitled, ``Financial
    Institutions: Causes and Consequences of Recent Bank
    Failures,'' the GAO highlighted that aggressive growth
    strategies, using non-traditional, riskier funding, similar to
    those of SVB and Signature, were key factors in bank failures.
    These uninsured, unstable deposits accounted for much of SVB's
    and Signature Bank's total assets, which the FDIC noted in
    2019, ``could pose risks to regional banks.'' SVB was also
    affected by rising interest rates, which was fueled by reckless
    spending in the Federal Reserve, that was too late to react.
        In 2015, a GAO report on bank failures concluded that the
    regulatory process was not always effective or timely in
    correcting the underlying problems before these banks failed.
    In the years prior to their collapse, the Federal Reserve and
    the FDIC identified management risks at both banks, yet allowed
    those risks to go unfixed. The failure of Federal regulators to
    mitigate or escalate management concerns proved costly.
        The GAO's report examines Treasury's use of the Systemic
    Risk Exception (SRE), and the establishment of the Bank Term
    Funding Program (BTFP). Particularly, the use of the SRE is a
    powerful emergency tool, and that has not been without
    criticism. As part of our investigation into the government's
    response to these bank failures, the subcommittee hopes to
    better understand how the Federal Reserve and the FDIC
    concluded that recommending use of the SRE was a last resort.
        Again, the GAO reported that the use of the Systemic Risk
    Exception, ``may weaken market participants' incentives to
    properly manage risk.''
        While the Treasury Secretary has warned the public not to
    assume these actions create a guarantee of deposits, it is
    hard, frankly, to think otherwise. Ultimately, losses to the
    Deposit Insurance Fund (DIF) will be passed down to hardworking
    Americans.
        Frankly, any loss of confidence in our banking system is a
    loss of confidence in our regulators. Regulators had the tools
    at their disposal to prevent these bank failures from
    happening, and they missed it, period. And instead of
    concentrating on the basics, the things that they did not get
    right, some of my friends on the other side of the aisle want
    to give our regulators even more complicated rules. As the
    Biden Administration and the Federal Reserve attempt to shift
    the narrative, the GAO's report provides no evidence that the
    failure of either SVB or Signature Bank was the result of
    relaxed regulations.
        I believe it is necessary to reiterate how important it is
    that this committee receives the information that has been
    requested, and the information we will be requesting, moving
    forward. The American people deserve answers. We should not
    allow history to be rewritten. And I welcome the FDIC and the
    Federal Reserve to appear at future subcommittee hearings to
    further answer our questions.
        I am committed to making sure this subcommittee does not
    just draw conclusions but bases its findings on evidence. That
    is what oversight is, and as the chairman, that is my
    commitment to our members.
        So, I look forward to hearing from Director Clements, and I
    yield back the balance of my time.
        And with that, the Chair now recognizes the ranking member
    of the subcommittee, the gentleman from Texas, Mr. Green, for 5
    minutes.
        Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, I commend
    the prompt response of President Biden, Full Committee Ranking
    Member Waters, and Federal regulators to the failures of
    Silicon Valley Bank and Signature Bank. This collective
    judicious response, led by President Biden, prevented extensive
    contagion, protected depositors, and preserved the integrity of
    our banking system, among many other things. The rapid collapse
    of these banks revealed how quickly bank runs can occur in our
    increasingly-connected world.
        Although fingers will be pointed at technology, President
    Biden, and regulators as factors in the failure of Silicon
    Valley Bank and Signature Bank, they were not--N-O-T--the root
    cause of the banks' failures.
        The focus of today's hearing should be the mismanagement of
    these banks by their executives in the years leading up to the
    collapse, in tandem with the Trump-era deregulation that
    enabled this mismanagement to fester.
        Both Silicon Valley Bank and Signature Bank experienced
    outsized growth between 2018 and 2022. Signature Bank grew from
    approximately $47 billion in total assets in 2018, to $110
    billion in 2022. Silicon Valley Bank increased from $56 billion
    to $209 billion over that same period of time. Mr. Chairman,
    some things bear repeating: Silicon Valley Bank increased from
    $56 billion to $209 billion over that same period of time.
        This outsized growth in assets was fueled by more than 70-
    percent uninsured deposits at both banks, far higher than the
    median of 32 percent for comparable banks. The executives at
    both banks knew, or should have known, that their risk
    management practices had to be strengthened appropriately as
    they grew exponentially.
        Adding insult to injury, Mr. Chairman, Silicon Valley Bank
    irresponsibly operated without a chief risk officer from April
    until December of 2022.
        Is it a coincidence, I ask, that these banks grew rapidly
    beginning in 2018, and failed to adequately manage their risk
    around the same time that former President Trump signed S.
    2155, his Bank Deregulation Bill, into law? S. 2155 diminished
    regulatory standards on these mid-sized banks, resulting in
    much less enforcement security.
        Friends, blaming President Biden and regulators will not
    reinstate stronger regulations on mid-sized banks or promulgate
    needed legislation to enable lawful clawback of ill-gotten
    mismanagement executive compensation. Only legislation can do
    that.
        I want to thank you for the time, and I would like to ask
    Full Committee Ranking Member Waters if she desires any time?
        Ms. Waters. Thank you very much, Mr. Green.
        Mr. Green. I yield to the ranking member.
        Chairman Huizenga. The gentleman yields to Ranking Member
    Waters.
        Ms. Waters. I thank the GAO for the preliminary review it
    issued at my and Chairman McHenry's request on the failure of
    Silicon Valley and Signature Banks. The GAO has clearly
    described how the FDIC and the Fed repeatedly informed these
    banks, as early as 2018, about deficiencies in their liquidity
    and risk management. But instead of taking action, these banks
    ignored the warnings. Let me be clear: Regulators need to be
    more aggressive, something I have long been demanding with
    regard to repeated abuses at Wells Fargo. However, it was the
    responsibility of the banks, first and foremost, to swiftly and
    thoroughly correct the deficiencies that were flagged by
    regulators.
        We now need to hold banks and their executives accountable,
    reverse Trump-era deregulation, enhance supervision of banks,
    and reform deposit insurance.
        Thank you, and I yield back.
        Chairman Huizenga. Thank you.
        Today, we welcome the testimony of Mr. Michael Clements.
    Mr. Clements is the Director of GAO's Financial Markets and
    Community Investment Team. He leads GAO's work in overseeing
    the financial markets and the regulators. Mr. Clements led the
    team responsible for preparing the interim report issued by the
    GAO 2 weeks ago, on the March 2023 bank failures.
        Since 1999, Mr. Clements has contributed to GAO's mission
    of supporting Congressional oversight efforts over the
    regulation of the financial banking regulators, and previously,
    the broadband communications and telecommunications industries
    as well.
        We thank you for taking the time to be here today, sir. You
    will be recognized for 5 minutes to give an oral presentation
    of your testimony, and without objection, your written
    statement will be made a part of our permanent record.
        And you are now recognized for 5 minutes.

     STATEMENT OF MICHAEL E. CLEMENTS, DIRECTOR, FINANCIAL MARKETS
      AND COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE
                                 (GAO)

        Mr. Clements. Good morning, Chairman Huizenga, Ranking
    Member Green, Full Committee Ranking Member Waters, and members
    of the subcommittee. I am pleased to be here today to discuss
    GAO's preliminary work on the March 2023 bank failures, as
    reflected in our April 28th report to the committee.
        As you know, at the time of their failure, Silicon Valley
    Bank, or SVB, and Signature Bank were the 16th- and 29th-
    largest banks, respectively, in the country. Their failures
    could impose a $22-billion cost on the Deposit Insurance Fund.
    And while not part of our work, First Republic's recent failure
    could impose another $13-billion cost on the Deposit Insurance
    Fund.
        For today's hearing, I will focus on: one, bank-specific
    factors that contributed to the failures; and two, supervisory
    actions that regulators took leading up to the failures.
        First, the bank failures. We found that risky business
    strategies and weak liquidity and risk management contributed
    to the failures at SVB and Signature Bank. SVB and Signature
    both experienced rapid growth, far exceeding a group of 19 peer
    banks. For example, SVB's assets more than tripled in the 3
    years prior to its failure.
        SVB and Signature also relied heavily on uninsured
    deposits, which are prone to run risks. For example, Signature
    funded 82 percent of assets with uninsured deposits.
        SVB and Signature also exhibited weak liquidity and risk
    management controls. When confronted with external pressures,
    rising interest rates for SVB, and weakening digital asset
    markets for Signature, the risky business strategies and weak
    management contributed to the banks' failures.
        Second, the regulators' supervisory actions. We found that
    the regulators identified problems at SVB and Signature Bank,
    but the regulators did not escalate supervisory actions in time
    to mitigate the risks. Federal Reserve staff who examined SVB,
    and FDIC staff who examined Signature, identified problems at
    the banks. For example, between 2018 and 2022, the Federal
    Reserve issued 10 Matters Requiring Attention (MRAs) to SVB for
    liquidity and risk management problems. Likewise, the FDIC
    issued Matters Requiring Board Attention (MRBAs) and other
    supervisory recommendations to Signature for similar problems.
    However, we found that the Federal Reserve and the FDIC did not
    adequately escalate their supervisory actions.
        The Federal Reserve was generally positive in ratings of
    SVB from 2018 through June of 2022, rating SVB's overall
    condition as, ``satisfactory.'' When SVB moved from the Federal
    Reserve's Regional Banking Organization, examiners began
    downgrades. Yet, despite the consistent liquidity and serious
    management problems, the Federal Reserve did not issue an
    enforcement action before the banks failed.
        Likewise, FDIC's ratings of Signature Bank found its
    overall condition was, ``satisfactory,'' from 2018 through
    2021. FDIC staff told us they were considering escalating
    supervisory actions in 2022, including taking enforcement
    actions. However, despite Signature's repeated failures to
    remediate the liquidity and management problems, the FDIC only
    issued enforcement action the day before the bank failed.
        GAO has reported similar findings in the past. In 2015, we
    reported that although regulators often identified risky
    practices, the regulators' process was not always effective or
    timely in correcting the underlying problems at banks.
        Chairman Huizenga. Mr. Clements, I am so sorry. We have
    just gotten notice that they are having a difficult time
    hearing you through the audio, and this is being televised, so
    if you could just pull the microphone a little closer. We can
    hear you fine in the hearing room, but apparently not through
    the television. So, just pick up where you are at; that is
    helpful. Thank you. Sorry about that.
        Mr. Clements. In 2011, following the financial crisis, we
    recommended that regulators consider adding non-capital
    triggers to the prompt corrective action framework to help give
    more advance notice of deteriorating conditions. And in 1991,
    following the savings and loan crisis, we found that regulators
    did not always use the most-forceful actions available to them
    to correct unsafe and unsound practices. We continue to believe
    taking early action would give regulators and banks more time
    to address deteriorating conditions.
        Chairman Huizenga, Ranking Member Green, and members of the
    subcommittee, this completes my prepared statement. I would be
    happy to respond to any questions you may have.
        [The prepared statement of Director Clements can be found
    on page 30 of the appendix.]
        Chairman Huizenga. Thank you, Mr. Clements. We appreciate
    that. We will now turn to Member questions, and the Chair
    recognizes himself for 5 minutes for questioning.
        Again, Mr. Clements, thank you for testifying before our
    subcommittee today. The work you and your team have done to
    complete the preliminary report so quickly is much appreciated.
    Your report is the only impartial review, frankly, conducted on
    these bank failures, in my estimation, and I would like to
    start by setting the stage a little bit, starting with how the
    preliminary review was conducted. I understand that you
    conducted interviews with staff from the Federal Reserve, the
    FDIC, and Treasury.
        Can you talk to us about how those witnesses were
    identified for you to interview? Did you do that on your own or
    how did that work?
        Mr. Clements. We had one meeting with each of those
    entities. Our standard practice is to send our list of
    questions over to the agencies and then the agencies will
    identify staff who are best-positioned to answer those
    questions. In follow-up work, which we do tend to complete with
    this, we will be more specific in asking for particular
    individuals with whom to speak.
        In the case of the Federal Reserve, we met with Board staff
    in the Supervision and Regulation Division and also with staff
    from the Federal Reserve Bank of San Francisco.
        Chairman Huizenga. Did you feel like you had full access to
    Agency staff? Were you able to do follow-up with those folks as
    they were getting back with some of these answers? You said you
    had passed those questions along, and they self-identified who
    would be best to answer them. Were you able to interview those
    folks and do some follow-up?
        Mr. Clements. At this point, we just had the one meeting
    with the three agencies. Again, moving forward, we will have
    further meetings with them.
        Chairman Huizenga. Okay. So, were those meetings in person?
        Mr. Clements. They were not. They were virtual.
        Chairman Huizenga. They were virtual, okay. And then, do
    you know if, in the interviews that you conducted, there were
    multiple people on at the same time, or was it with one
    individual at a time?
        Mr. Clements. These were hour-long meetings with the entire
    staff that the agencies had identified for us.
        Chairman Huizenga. Okay. So it was kind of a whirlwind, you
    had everybody on the screen doing this Zoom?
        Mr. Clements. It is what we refer to as an, ``entrance
    conference.''
        Chairman Huizenga. I'm sorry--a what conference?
        Mr. Clements. An entrance conference. It is our
    preliminary, initial meeting with the agencies to go over what
    our work is going to be and some preliminary questions that we
    have for them.
        Chairman Huizenga. So in other words, you were planning on
    doing follow-up?
        Mr. Clements. We do plan additional work once we move
    beyond getting the April 28th report out.
        Chairman Huizenga. This preliminary report, okay. And did
    you feel like the regulators provided you with access to all of
    the documents and the material facts that you had requested in
    a timely manner? What was the turnaround time from when these
    requests were sent in, to when you were actually doing these
    Zoom interviews?
        Mr. Clements. The Agencies were responsive in getting us
    the desired information. We had requested a variety of
    supervisory information--scoping memos, schedules, records of
    exams, supervisory letters. We received all of those, I would
    say, within probably 3 or 4 days. I know the Fed staff was
    working over the weekend to get us that information. So, we
    actually did appreciate the timeliness for this engagement. I
    think they recognized the importance of this work.
        Chairman Huizenga. I am glad to hear they were responsive
    to somebody in this, because we have a number of letters that
    have been out that are lacking that response, frankly.
        Now, I would like to pivot and ask about something specific
    in your report, or rather something that was maybe not in your
    report. GAO is in a position to provide sort of an unique
    historical perspective on bank failures with other economic
    events from the past, because you have done some of these
    reports in the past, correct, on previous challenges?
        Mr. Clements. That is correct. We go back to 1991, or I
    think 1989 might have been our first work, looking at the
    savings and loan community.
        Chairman Huizenga. Savings and loan failures, then. In
    contrast to the GAO report, the report issued by the Federal
    Reserve partially blames the failure of Fed examiners to
    escalate SVB's liquidity and interest rate risk concerns
    quickly on, ``a shift in culture and expectations that changed
    how supervision was executed.''
        From what you saw, was a culture shift referenced in any
    discussions that you had with the Fed staff, or in any of the
    documents that you reviewed over the course of compiling your
    initial report?
        Mr. Clements. I have no basis to say whether there was a
    culture shift one way or the other. Again, we had the single
    meeting with the Fed. The issue of culture was not brought up.
    In fairness, we did not ask it, but they did not bring it up
    either.
        Chairman Huizenga. Okay. But it features prominently in
    their report that there was this culture shift. It seems a
    little odd to me that they would not have brought that up in
    your investigation.
        To your knowledge, was a culture shift mentioned in any
    past GAO work on similar bank supervision issues in 1991 or
    2011 or 2015 or 2019, when you have done some of these other
    reports?
        Mr. Clements. I am not aware of there being a culture
    change. We have previously reported that, in general, examiners
    in the past have taken a cooperative and formal approach with
    agencies, and that has been as early as 1991.
        Chairman Huizenga. Okay. My time has expired. We are going
    to be sending you some additional written questions from me as
    well, regarding the FDIC and trying to make sure that we
    understand the process for both SVB and Signature Bank.
        I now recognize the ranking member of the full Financial
    Services Committee, Ms. Waters, for 5 minutes.
        Ms. Waters. Thank you very much. Mr. Clements, when I
    served as Chair of the Financial Services Committee, I
    investigated the egregious pattern of consumer abuse at Wells
    Fargo and found that regulators failed to use escalating
    enforcement actions to correct the bank's bad behavior, even as
    new and similar abuses emerged. I have legislation that would
    require the bank regulators to impose limits on bank growth,
    divestment, and other penalties for noncompliance. That is why
    I am pleased to hear that regulators like the Consumer
    Financial Protection Bureau (CFPB) and the Office of the
    Comptroller of the Currency (OCC) are beginning to focus on
    ways to ensure that repeat offenders correct their bad
    behavior.
        According to the GAO report, the Federal Reserve and the
    FDIC had been advising Silicon Valley Bank and Signature Bank
    about the weaknesses in their risk management and liquidity
    programs in multiple examinations since 2018.
        Mr. Clements, from your review, did the banks receive
    adequate explanation and information from the regulators to
    know that they had problems, what those problems were, and what
    was needed to fix them?
        Mr. Clements. We certainly saw numerous instances of
    Matters Requiring Attention (MRAs), Matters Requiring Board
    Attention (MRBAs), and Matters Requiring Immediate Attention
    (MRIAs), that laid out issues, and we focused on the liquidity
    and risk management because that was sort of the approximate
    causes of the failures. We did not go on the various other
    consumer angles as well.
        But we have, in the past, reported that the communication,
    the clarity of some of the supervisory letters could be
    clearer. We issued a report in 2019 on those issues. The
    agencies have taken steps to address the lack of clarity that
    they do provide to these banks, and their supervisory letters
    are records of this examination.
        Ms. Waters. So Mr. Clements, if the banks had adequate
    information on what the problems were and how to fix them for 5
    years, what were the reasons they offered for not being able to
    correct problems in that time period?
        Mr. Clements. We, in our past work, have seen a couple of
    issues. In some instances, the bank would disagree with the
    finding, and in fact, in the case of Signature Bank, I think
    there were a few instances where it did not agree with the
    supervisors' thoughts on where there were problems.
        In other instances, the bank simply is unable to fix the
    problems, and we certainly saw, in the case of SVB, it agreed
    with the findings, but it was simply taking them a longer time
    than needed to get the problems fixed, and obviously, in the
    interim, the bank failed.
        Ms. Waters. Could you explain a little bit further the
    excuse that the banks were unable to fix the problem, for
    example?
        Mr. Clements. In a number of instances, the bank would
    agree with the problem being cited, but it would simply say it
    was going to take a while to fix the underlying problem. And,
    in fact, in the case of SVB and the San Francisco Fed, they
    agreed that it was going to take a while to fix the problem.
    Unfortunately, the problem got large enough where the bank
    failed before the problem could get resolved.
        Ms. Waters. Let me just raise a question with you that I
    really need to understand further, on the balance sheet. Did
    the balance sheet reflect liquidity, and do they have the
    responsibility to report the securities that they have and the
    value and whether the value has changed? Someone told me that
    for the regionals, it is just a footnote. Can you explain that?
        Mr. Clements. A bank of the size of both SVB and Signature
    is required to mark securities that are considered available
    for sale, mark those to the market value. Any changes in that
    value is an account called, ``other comprehensive income,''
    where it would be recorded. So, it is being recorded. If the
    securities are held not for sale, then those securities are not
    marked for the market.
        Ms. Waters. Have there been recommendations about how the
    balance sheet should reflect the value of those securities?
        Mr. Clements. I am not aware of any. In our past work, we
    have recommended or reported that it is important to have an
    accurate accounting of the firms, that the bank's financial
    condition be able to have a good sense of its vulnerabilities.
        Ms. Waters. Thank you very much. I yield back.
        Chairman Huizenga. The gentlelady's time has expired.
        The gentleman from Texas, Mr. Sessions, is recognized for 5
    minutes.
        Mr. Sessions. Mr. Chairman, thank you very much. Mr.
    Clements, I would like to continue down the line that the
    ranking member was coming down, and I have the report in front
    of me here and it provides me--and I am sure, other people
    here--a lot of intrinsic information. But it talks about how
    the amount of outstanding shares of advances under the program
    on April 19, 2023, was approximately $74 billion in outstanding
    advances.
        Does that mean that they put all this excessive money that
    they had into a longer-term something that would generate money
    to them, perhaps interest? Is that what you are referring to,
    outstanding advances under the program? It is at the bottom of
    page, I think the first page that I have here says, ``As of
    April 19, 2023, outstanding advances under the program were
    approximately $74 billion.'' Can you describe that to me?
        Mr. Clements. Sure. That is the Federal Reserve's Bank Term
    Funding Program. At the point when SVB and Signature were
    failing, the Treasury made the systemic risk determination,
    which essentially allowed the coverage of uninsured and insured
    deposits at the two banks. The Federal Reserve also set up this
    Term Funding Program. The purpose of the program is to allow
    banks that perhaps would be experiencing liquidity problems to
    borrow money from the Fed, the collateral being the securities
    that they are holding, which would be Treasuries and mortgage-
    backed agency securities.
        Mr. Sessions. I am going to keep going here. Maybe, I will
    catch up with myself at some point. But they took an excessive
    amount of money. What did they do with those uninsured risks
    that are being discussed here? Where were they holding that
    money? Were they loaning it back out? Was it unavailable at the
    time that someone would need the money to be available when
    they wrote checks? What did they do with all of this money that
    came in?
        Mr. Clements. I think there are two separate issues. There
    is this issue of the Federal program and the $79 billion, which
    it s lending to existing non-failed banks just to help them
    cover their liquidity.
        Mr. Sessions. Whose money was that?
        Mr. Clements. This is the Fed's money.
        Mr. Sessions. The Fed's money. But what about all of this
    money that SVB brought in? What did they do with that large
    amount of money that was called an, ``uninsured risk?''
        Mr. Clements. Correct. In the period of 2018 through mid-
    2020, SVB grew rapidly, and it grew rapidly through uninsured
    deposits, principally from venture capital-backed firms.
        Mr. Sessions. Right.
        Mr. Clements. It used those funds to purchase what, in
    theory, would be safe securities--
        Mr. Sessions. Long-term Treasuries?
        Mr. Clements. --Treasuries, mortgage-backed securities,
    agency securities.
        Mr. Sessions. And then, they marked those that they were
    going to, over the long run, be getting back money. And they
    got pulled out early to where there was an unrealized--
        Mr. Clements. Correct. So, they held those securities.
    Unfortunately, they had invested in longer-term securities, had
    not hedged the securities, and when the interest rates started
    going up, the value of those securities dropped. About the same
    time, the venture capital tech industry started pulling their
    deposits because they were no longer getting a bunch of
    funding.
        Mr. Sessions. They maybe pulled them out--
        Mr. Clements. The deposit base started falling. The bank
    eventually needed to start selling those securities, and it was
    selling them at a loss. At some point, depositors and other
    investors got spooked.
        Mr. Sessions. But what it would have expected to have
    received.
        Mr. Clements. Correct.
        Mr. Sessions. Are you saying they lost money, or did not
    realize what they thought they were going to get and so they
    booked it as a loss?
        Mr. Clements. They lost money, because the value of the
    securities had dropped as the interest rates--
        Mr. Sessions. They lost money.
        Mr. Clements. Yes.
        Mr. Sessions. Okay. I am clear. This is what I thought
    coming into this, but I did not understand that most of this--
    am I at my time, Mr. Chairman?
        Chairman Huizenga. Yes. You can complete your thought.
        Mr. Sessions. My point is--
        Chairman Huizenga. We will have a light gavel today.
        Mr. Sessions. Thank you, because I think the ranking member
    will want to get to this. Who was that held by? Treasury? Most
    of these assets?
        Mr. Clements. The securities were held by the bank, by SVB.
        Mr. Sessions. Right.
        Mr. Clements. So again, it took in money in deposits and
    invested that money in long-dated Treasuries and other
    securities. When the deposits started falling because the tech
    firms needed the money for payroll and whatever, the bank
    needed to sell the securities, and sold them at a loss.
        Mr. Sessions. I got it. That is what I thought happened
    too, but you connected it for me. Mr. Chairman, thank you very
    much.
        Chairman Huizenga. Thank you, and we will be mindful of the
    time on both sides.
        Mr. Horsford, you are recognized for 5 minutes.
        Mr. Horsford. Thank you, Mr. Chairman, and thank you to the
    ranking member of the Subcommittee and the ranking member of
    the Full Committee. And thank you to Director Clements for
    taking the time to discuss this important report, and for the
    GAO's nonpartisan work, which is crucial to our ability to know
    what occurred during the rapid collapse of Silicon Valley and
    Signature Banks, and now others that have followed.
        And while this may be only a preliminary report, the
    insights provided point to serious deficiencies with both
    supervisory practices as well as management's reaction to
    glaring issues. Actually, it would be more fitting to describe
    it as management's inaction to the warning signs that were
    flashing when it came to even the most rudimentary risk
    management.
        And I really want to point out that reality right now, in
    this moment, dealing with the default on America, that my
    colleagues on the other side are failing to acknowledge, and
    their role in basic rudimentary risk management against an
    economic collapse that none of us can even imagine.
        According to the White House, in the event of a default
    because of our colleagues on the other side's unwillingness to
    raise the debt limit, ``a crisis characterized by spiking
    interest rates and plunging equity prices, including home
    equity, would be ignited. Short-term funding markets, which are
    vital for the liquidity backing long-term mortgages would
    likely shut down completely. There would be a rapid and
    complete tightening of credit at regional and community banks,
    which would no longer be able to accurately price their
    Treasury bills or use them as high-quality collateral. Since
    these banks do the bulk of mortgage lending, the mortgage rates
    would go through the roof.''
        That is the management decision of the House of
    Representatives in this moment. We are standing here as the
    board of directors for the people of America, whose mortgages,
    whose car loans, and whose financing ability is being
    jeopardized because of Kevin McCarthy and the default on
    America proposal that is holding America ransom in paying its
    bills.
        Mrs. Wagner. --to the Chair.
        Mr. Horsford. Excuse me. I have the floor.
        Mrs. Wagner. I have a parliamentary inquiry.
        Chairman Huizenga. There is a parliamentary inquiry, which
    is appropriate.
        Mrs. Wagner. The gentleman needs to make his remarks to the
    Chair, not to individuals.
        Mr. Horsford. That has nothing to do with this--
        Chairman Huizenga. Just a moment. The Chair did not hear a
    reference to another Member.
        Mr. Horsford. I reclaim my time.
        Chairman Huizenga. Just a moment.
        Mr. Horsford. I reclaim my time.
        Chairman Huizenga. Just a moment. There was not a reference
    to another Member. It was not that. He was talking about the
    Speaker, so the Chair does not see the problem.
        Mrs. Wagner. By name.
        Chairman Huizenga. By name. Correct. So it is noted, and
    the gentleman may continue.
        Mr. Horsford. Clearly, I have hit a nerve, because this is
    about the American people and their finances, which are being
    held hostage because of a ransom note that is being offered by
    Kevin McCarthy and the default on America proposal that they
    have made, rather than our obligation to raise the debt limit
    and to pay the bills that have already been incurred by the
    prior Administration and prior Congresses.
        So, I think that while we do our job in examining Silicon
    Valley Bank and Signature Bank and First Republic Bank, we
    should actually do our job as Congress and avoid this major
    catastrophe that is weeks away, and we know it. We have a
    responsibility as Congress to manage risk, and we are failing
    to do our job.
        Now, let me make it clear: Republicans are failing to do
    their job. So, I am asking that we use the time of our
    committees to focus on the crisis that is right in front of us.
    And if my constituents--small businesses, people who have
    mortgages, families who are worried about meeting their
    obligations--are going to be impacted by higher interest rates
    because of Congress' inability to do its job, then we should be
    discussing that at this time.
        Mr. Clements, you primarily focus on the failure of
    regulators to adequately escalate their supervisory concerns,
    and we certainly have some work to do bolstering supervisory
    escalation. However, I found the sections in the report focused
    on management's unwillingness to address repeated shortcomings
    just as alarming. For example, if Silicon Valley Bank's board,
    which I would say is the Congress right now, is unwilling or
    unable to, as you say, ``provide effective oversight of
    implementation of the risk management framework,'' then what is
    the use of the framework in the first place?
        You go on to say that the behavior of these executives and
    board members was irresponsible at best, as they let multiple
    supervisory letters fall on deaf ears, as we are hearing
    economists tell us today. Specifically for Silicon Valley, I am
    particularly--the other side went for more than a minute the
    last time. I am just using--
        Chairman Huizenga. The Chair is very aware of the timing. I
    am giving you a tap of wrapping it up.
        Mr. Horsford. If the Federal Reserve is correct in their
    report statement that Silicon Valley Bank's management was
    focused on the short-run impact of profits, in this report it
    is mentioned that Silicon Valley Bank did take steps to revise
    its incentive compensation programs, but evidently--
        Chairman Huizenga. The gentleman will suspend.
        Mr. Horsford. --they failed to do so.
        Chairman Huizenga. The gentleman will suspend. If we are
    going to play that game, we will play that game.
        The gentlelady from--
        Mr. Horsford. The only game being played is by the other
    side failing to do its job.
        Chairman Huizenga. The gentleman is not--
        Mrs. Wagner. Order--
        Mr. Horsford. I do not mind being out of order.
        Chairman Huizenga. The gentleman will suspend. The Chair
    will not accept this behavior. I let a line of questioning go
    for an answer that was along the lines of the ranking member's.
    I then allowed you to have a full minute, which was not what my
    colleague from Texas got. So, I expect that we are going to
    behave like adults at this table--just a moment--as you are
    demanding that Congress act. So, lead by example, everybody.
        Ms. Waters. Parliamentary inquiry.
        Chairman Huizenga. Yes, ma'am.
        Ms. Waters. Parliamentary inquiry. Are you going to afford
    to every member of the committee an additional minute?
        Chairman Huizenga. No, I will not. We will be adhering to
    the exact 5 minutes from now on. It has been even on both
    sides.
        Ms. Waters. Chair--
        Chairman Huizenga. Everyone is--
        Ms. Waters. I would caution you not to imply that--
        Chairman Huizenga. The ranking member is--
        Ms. Waters. --Members are not acting like adults. I do not
    think that is a credible statement.
        Chairman Huizenga. The ranking member will suspend. That
    comment was to all sides, and everybody watching, as we are on
    television. Let us present to the American people that we can
    actually act like adults at this table, everyone.
        Ms. Waters. I think we are, and we do not need you to
    admonish us.
        Chairman Huizenga. Thank you for your commentary.
        Ms. Waters. And thank you.
        Chairman Huizenga. And with that, the gentlelady from
    Missouri, Mrs. Wagner, is recognized for 5 minutes.
        Mrs. Wagner. Thank you. Thank you, Mr. Chairman. And I
    would remind my good friend from Nevada, Mr. Horsford, that the
    only body in Congress or the Administration that has passed a
    debt ceiling are the Republicans in the United States House of
    Representatives weeks ago. We have waited over 100 days to hear
    from the White House regarding the very important issue of the
    debt limit, and reining in out-of-control spending, which,
    frankly, has driven inflation, which drove interest rates, that
    drove us to some of the banking volatility that we are
    currently seeing right now.
        So, I would remind us all once again that it is the
    Republican House that passed a debt ceiling. Thank you very
    much.
        Mr. Clements, I want to thank you for appearing before us
    today, and certainly for GAO's very quick work in preparing
    this thorough and independent report on the March 2023 bank
    failures.
        Over the past 2 months, this committee has gathered more
    information about the management failures within these banks
    and the blatant lack of urgency for many years by Federal
    regulators to act more forcefully in preventing these failures.
    I am committed to investigating and holding accountable those
    who were asleep at the wheel, once again, and allowed these
    preventable failures to occur.
        Mr. Clements, on page 23 of your report you note that the
    Federal Reserve Bank of San Francisco did not recommend the
    issuance of a single enforcement action against SVB, despite
    the bank's serious liquidity and management issues. On March
    29th, Vice Chair Barr stated that there were seven supervisory
    determinations raised, but we have now come to learn that since
    2018, there were actually 15 related liquidity and risk
    management issues.
        After 15 MRAs and MRIAs had been issued, did you agree that
    escalating supervisory actions should have happened sooner,
    sir?
        Mr. Clements. Yes.
        Mrs. Wagner. Thank you. What is the GAO's perspective when
    it comes to this slow-to-act pattern we are seeing from Federal
    regulators?
        Mr. Clements. Again, this has been a pattern going back to
    1991. Following the financial crisis in 2011 we had similar
    findings. We have, in the past, recommended trigger mechanisms.
    For example, if a particular measure is hit or if there are
    multiple instances of not resolving a problem, that would force
    an escalation.
        Mrs. Wagner. And enforcement must happen, after so many
    citations having been given out year after year after year
    after year. Mr. Clements, in your work, did the GAO see a
    notable shift in how SVB was supervised, particularly as it
    rapidly grew in size from a bank of approximately $71 billion
    in assets in 2019, to over $200 billion in 2022? What were
    those differences?
        Mr. Clements. There was a shift. Under $100 billion, SVB
    was overseen by the Regional Banking Organization at the Fed.
    Once it passed over that threshold, it moved to the Large and
    Foreign Banking Organization. At that point, the number of
    examiners expanded rapidly; I think it got up to around 20
    examiners looking at the bank, doing very targeted samples--
        Mrs. Wagner. But these liquidity and risk management
    citations that were issued went all the way back to 2018, sir.
        Mr. Clements. That is correct.
        Mrs. Wagner. Okay. In the report, the Fed cited the
    pandemic as one of the factors explaining why the agency failed
    to properly supervise SVB. Yet, according to the Fed's November
    2020 Supervision and Regulation Report, ``Reduced examination
    activity only lasted for 3 months, from late March to mid-June,
    with the greatest reduction occurring at the smallest banks.''
    Do you think the 3-month pause was a significant contributor to
    the Fed's challenges in escalating SVB's known supervisory
    issues?
        Mr. Clements. I think the pause is separable from the
    decision to escalate. There were a number of warning signs
    along the way. Clearly there was the combination of the
    pandemic and their switch between regulatory divisions causing
    that.
        Mrs. Wagner. Three months only, and mainly the smallest
    banks.
        I have a couple more questions, Mr. Clements, but I am
    going to adhere to the clock and decorum, and I will yield back
    the rest of my time, Mr. Chairman, and I thank you.
        Chairman Huizenga. The gentlelady yields back. The
    gentlewoman from Georgia, Ms. Williams, is recognized for 5
    minutes.
        Ms. Williams of Georgia. Thank you, Mr. Chairman.
        In our Full Committee hearing on the failures of Silicon
    Valley Bank and Signature Bank on March 29th, I reminded
    everyone listening of the regular, hard-working people who are
    impacted by these failures. I want to continue to center on
    these same people that these failures of SVB, Signature Bank,
    and now First Republic bank have affected.
        As the Congresswoman for Atlanta, the City with the largest
    racial wealth gap in the country, I am focused on how we can
    prevent future bank failures that disproportionately impact
    marginalized communities. We have regulators--the OCC, the Fed,
    and the FDIC--to monitor banks' behavior and practices and
    ensure repeat offenders correct their bad behavior. Regulators
    repeatedly warned SVB and Signature Bank about their weak risk
    management and liquidity issues.
        In fact, regulators identified numerous Matters Requiring
    Attention and Matters Requiring Immediate Attention regarding
    the liquidity and risk management of SVB and Signature Bank.
    These warnings were not sufficiently acted upon, and as a
    result, many small business owners, including Black
    entrepreneurs from Atlanta, were faced with the possibility of
    not being able to make payroll. If entrepreneurs of color
    cannot trust that the bank regulators are taking serious action
    to ensure that their banks are safe, then how are they supposed
    to build their businesses and create wealth in communities like
    Atlanta?
        Mr. Clements, how can regulators ensure that Matters
    Requiring Attention and Matters Requiring Immediate Attention
    are appropriately addressed by banks?
        Mr. Clements. Yes, I think that goes back to our prior
    recommendations to have some type of trigger mechanism. The
    regulators currently operate on a more-informal basis, trying
    to get a collaborative solution. It was our recommendation in
    1991, and then again in 2011, to have some type of trigger
    mechanism so that if the problem is serious enough or if there
    are multiple instances where the problem is not getting
    resolved, it would automatically require enforcement action.
        Ms. Williams of Georgia. How does that impact the
    escalation framework? How can regulators improve their
    escalation framework for regional banks?
        Mr. Clements. Again, I think it takes some of the
    discretion away from the regulator by requiring particular
    enforcement action if a particular trigger has been met.
        Ms. Williams of Georgia. And how could those improvements
    be applied or adapted and then applied to larger banks,
    especially the banks considered too-big-to-fail?
        Mr. Clements. In our work, I think we would apply those
    standards throughout, having a trigger, again, if particular
    conditions are met that would require either an informal or a
    formal enforcement action, or other escalations of supervisory
    actions.
        Ms. Williams of Georgia. GAO's preliminary review states
    that in the years prior to 2023, the Federal Reserve and the
    FDIC identified what turned out to be key drivers of bank
    failures--liquidity and management risk. However, according to
    GAO, neither regulators' actions resulted in the banks'
    management sufficiently mitigating the risks that contributed
    to the banks' failures.
        Mr. Clements, based on the GAO's review, can we determine
    whom is at fault here? I see three potential options, and I
    would like your thoughts on which is the most accurate
    portrayal of fault. Was it the inability of the banks to
    mitigate risk due to the failure of regulatory agency officials
    to adopt examiner recommendations for corrective actions? Was
    it the banks' failure to effectively institute the corrective
    actions directed by the agencies? Or was it the banks' failure
    to effectively institute the corrective actions directed by the
    agencies, combined with the agencies' failure to take strong
    action the when banks' responses were insufficient?
        Mr. Clements. At the end of the day, it is the bank's
    responsibility to manage the organization in a safe and sound
    manner. At the same time, we would expect that if a supervisor
    is seeing problems, and they are repetitive, that more forceful
    action would be taken.
        Ms. Williams of Georgia. As we sit here less than 2 weeks
    after the failure of the First Republic Bank, and 2 months
    after the failures of SVB and Signature Bank, the second-,
    third-, and fourth-largest bank failures in the country's
    history, I am concerned about the possibility of yet another
    bank failure that would impact my constituents, one that could
    have even more disastrous effects.
        I would like you to speak to what Congress should take away
    from the GAO preliminary report.
        Mr. Clements. Again, at the end of the day, it is a bank's
    responsibility to manage the organization. However, we think
    that if there are repeated problems or serious problems, the
    regulators need to take more forceful and early action before
    the problems become too large to get resolved. In fact, when we
    were talking with the San Francisco Fed officials and they
    described illiquidity at SVB, and they said it was going to
    take a while for SVB to fix the problem because it was so big,
    the natural question you ask yourself is, why did it become so
    big?
        Ms. Williams of Georgia. Mr. Clements, my time has expired,
    but I have many more questions that I would like to submit to
    you in writing for the hearing record.
        Chairman Huizenga. The gentlelady is allowed to do so.
        With that, the gentleman from Tennessee, the Vice Chair of
    this subcommittee, Mr. Rose, is recognized for 5 minutes.
        Mr. Rose. Thank you, Chairman Huizenga, and Ranking Member
    Green, for holding this hearing on what is obviously an
    important topic. I want to dive right in.
        Director Clements, in response to a question from Chairman
    Huizenga earlier, you mentioned that there were multiple people
    in the interviews between the GAO, the FDIC, and Fed staff.
    Director Clements, were staff conferring with counsel during
    these interviews?
        Mr. Clements. Traditionally, the agencies would have their
    General Counsel's office there.
        Mr. Rose. So, they were conferring during these particular
    interviews?
        Mr. Clements. The staff spoke freely to us, but it is
    fairly common for somebody from the legal division to be
    present at these meetings.
        Mr. Rose. Okay. Thank you.
        Mr. Clements. Not simply these meetings, but in general.
        Mr. Rose. First Citizens Bank's stock has nearly doubled
    since acquiring Silicon Valley Bank, but the FDIC capped its
    potential gain on First Citizens stock at $500 million, which
    to me seems like the FDIC got a raw deal for us. My concern is
    that sweetheart deals like this actually encourage acquiring
    banks to wait until the FDIC takes over a bank before making a
    bid, because they can get a better deal once they are in
    conservatorship. Why buy the cow when the milk is free, so to
    speak.
        So Director Clements, did GAO review the terms of the
    offers that were submitted to the FDIC?
        Mr. Clements. We did not have time to get to that level of
    detail. I do know that in the request from the committee, there
    is interest in those topics.
        Mr. Rose. Going forward, would you commit to reviewing that
    issue, these issues of offers that are considered but not
    accepted?
        Mr. Clements. I think, and again, we are working with the
    staff, to sequence with the committee staff, to sequence our
    range of work, so that is certainly something we can consider.
        Mr. Rose. Okay. The FDIC and the Federal Reserve staff told
    the GAO that as SVB and Signature Bank failed, they conducted
    analyses and worked closely together, including exchanging
    drafts of the recommendations to invoke the Systemic Risk
    Exception (SRE) for the two banks. Do you have any insight into
    how many drafts of the recommendations there were to invoke the
    Systemic Risk Exception?
        Mr. Clements. I do not. We saw the final letters that were
    sent, along with some preliminary analysis that the agencies
    had conducted.
        Mr. Rose. The GAO report notes that Treasury staff
    consulted regularly with the FDIC and the Federal Reserve and
    concurred with the basis of their recommendations to invoke the
    Systemic Risk Exception. Could you please provide some
    specifics on what this consultation actually looked like?
        Mr. Clements. I do not have the specific details on that.
    They certainly told us that there were conversations between
    the three agencies over that weekend, as each were doing their
    own analyses.
        Mr. Rose. Thank you. The GAO report notes that you will be
    moving forward with more work on this issue as we move
    throughout the year. As I am sure you are aware, in the United
    States we have a Financial Stability Oversight Council (FSOC),
    which is charged, by statute, with identifying risks to the
    financial stability of the United States, promoting market
    discipline, and responding to emerging threats to the stability
    of the U.S. financial system. It seems to me the FSOC was
    asleep at the switch here and was instead busy studying the
    weather when they should have been concerned with interest rate
    risks.
        So Director Clements, would the GAO commit to conducting a
    review of FSOC's actions during these bank failures?
        Mr. Clements. We actually currently have ongoing work
    looking at FSOC. I am aware that in its most recent annual
    report, it did have a recommendation pertaining to interest
    rate risk, but you may know that the recommendations that FSOC
    makes are non-binding.
        Mr. Rose. I hope you do continue to look at that. Some have
    argued that Signature Bank's involvement with digital assets
    customers somehow contributed to its subsequent failure. There
    also appear to be competing views from the FDIC and the New
    York State Department of Financial Services in their recent
    reports about the role digital assets played in Signature's
    failure.
        Did GAO review whether Signature Bank's customer base
    contributed to its failure?
        Mr. Clements. We looked at the supervisory letters and
    records of examinations. We certainly saw instances where there
    were large deposits from the digital assets space. But again,
    it was simply holding the deposits in operating accounts for
    those entities. Following some of the turmoil in 2022, in
    particular FTX, some of those deposits did start falling off.
        Chairman Huizenga. The gentleman's time has expired.
        Mr. Rose. I hope you will dig into that issue. Thank you,
    and I yield back.
        Chairman Huizenga. The gentleman's time has expired. The
    gentlewoman from Michigan, Ms. Tlaib, is recognized for 5
    minutes.
        Ms. Tlaib. Thank you so much, Mr. Chairman. And thank you,
    Director Clements, for this report to kind of really dig deeper
    into this. I get a lot of questions regarding the lack of
    transparency of fully understanding this.
        Did you look at the timeline of some of the compensation
    and payouts and things like that, which led up to the failure?
        Mr. Clements. We have not gotten to that. We do know that,
    again--
        Ms. Tlaib. Is that something you would look into?
        Mr. Clements. It is one of the requests that is in the
    letter that we received from Chairman McHenry and Ranking
    Member Waters.
        Ms. Tlaib. That would be wonderful. One of the things that
    my good colleague was talking about is regarding regulators,
    and you said it is not binding. When was the first time the
    regulators said, ``Something is going on, could you call us
    back?'' What year was that?
        Mr. Clements. The first instance that FSOC brought up the
    interest rate risk was its most-recent annual report, which
    would have come out early this year.
        Ms. Tlaib. So, they sent a letter, they tell them whatever.
    Can they go arrest them? Can they fine then? What can they do
    to make them respond?
        Mr. Clements. The recommendations in the annual report are
    nonbinding. They can also do what are called Section 120
    recommendations, but again, those are also nonbinding.
        Ms. Tlaib. So when you do look at the timeline, because I
    do not know if you can answer this question, why did the banks
    take on the risks and ignore repeated warnings? Why? Why ignore
    the Federal Government and their warnings?
        Mr. Clements. I do not have a good answer to that.
        Ms. Tlaib. I think bankers know how to manage risks. They
    are not stupid. I just think they are greedy, and senior
    employees promoted unsound practices and ignored risks because
    they stood to benefit from it. Look at the timeline, Director,
    when you do this next follow-up report. SVB offered some of the
    most-generous compensation packages around. Look at it. Compare
    it to other banks.
        In 2022, CEO Greg Becker's salary was roughly $1 million,
    but he enjoyed over $5 million in stock awards last year and $2
    million in stock options. Becker also earned over $6 million
    since 2020, from an incentive compensation plan on SVB's net
    income, even when the warnings were coming in.
        This helps explain to me why, during 2022, SVB terminated
    close to $15 million in interest rate swaps that hedge against
    the impact of rising rates. The same bank started in 2023
    almost completely unhedged because, for senior employees,
    higher net income meant higher compensation. Correct?
        Mr. Clements. I am not familiar with their arrangements.
    Again, that would be something we could look at.
        Ms. Tlaib. The timeline is critically important, because
    you can see how it led up, but they still got benefits. They
    still won, even though, again, this is impacting now other
    banks, and really people, the payroll, small businesses, and so
    forth.
        Last year, Signature Bank CEO Joe DePaolo received over $8
    million in total compensation. Mr. Clements, do you think that
    compensation incentives contributed to the poor risk management
    by the banks?
        Mr. Clements. I do not have a basis to answer that at this
    point.
        Ms. Tlaib. I know you can't. I just really love to ask that
    question.
        I think in the report, one of the things in the Dodd-Frank
    Act, and it is something that our committee has been
    wonderfully educating me on, but Section 956--it has been,
    what, 12 years, and they have not implemented it. Can you, in
    your role, Director, look at the impact of not implementing
    Section 956 of the Dodd-Frank Act?
        Mr. Clements. We can certainly take a look at that.
        Ms. Tlaib. Yes, this is really important, because we need
    teeth. We need enforcement. We need to be able to claw back. We
    need to be able to, again, hold them accountable, because they
    are just not going to respond. There is nothing we can do. They
    are just going to ignore us so they can set it up so they can
    benefit from it over and over again.
        One of the things that I think the American people do fully
    understand is, we, as a role of oversight, is that we can call
    it out and basically expose the greed. But unless we give the
    authority and kind of the force and the binding force for our
    regulators to do something about it when folks do not respond,
    other banks are going to do the same; they are just not going
    to respond to us. They are just going to continue doing this
    kind of really crooked, very criminal-like, actually, set up so
    they can benefit and get more compensation. They sold the stock
    when they knew it was--they knew and they never informed us. To
    pick up the phone, and tell us, ``Hey, sorry. Tomorrow, we are
    closing shop.'' Why isn't anybody more mad at the banks? They
    have literally just ignored the American people when they
    ignored the regulators.
        Thank you. I yield back.
        Chairman Huizenga. The gentlelady's time has expired. The
    gentleman from Pennsylvania, Mr. Meuser, is recognized for 5
    minutes.
        Mr. Meuser. Thank you, Mr. Chairman. Mr. Clements, you are
    the Director of GAO's Financial Markets and Community
    Investment team. I want to just ask you first a couple of quick
    questions. In 2021 and 2022, this Congress overspent by over $5
    trillion, with policies that caused huge spikes in energy,
    causing high levels of inflation, and in turn, we got much
    higher interest rate escalation, rattling the economy, and
    crushing pension funds and disposable income.
        Do you think the American people trust Congress with a
    blank check, moving forward, particularly when it is the
    American people who have to pay the bills?
        Mr. Clements. I do not think I am qualified, honestly, to
    answer and to direct that question.
        Mr. Meuser. Okay. Thank you. According to a report, the SVB
    was downgraded on June 30, 2022, by the Federal Reserve Bank of
    San Francisco, due to concerns about its liquidity risk
    management, from a May 22nd review. Your report states that the
    Federal Reserve Board's team was still working on how to
    address this issue when SVB failed in March of 2023.
        Is it not true that the regulators have discretion for
    oversight on such banks, regardless of the S. 2155-set
    thresholds, if there are red flags--they have all kinds of
    discretion?
        Mr. Clements. The regulators have options to do supervisory
    letters, recommendations, information, and formal enforcement
    actions, including civil monetary penalties.
        Mr. Meuser. Okay. So, blaming it on S. 2155 would head us
    down the wrong direction and we would never actually solve the
    problem or uncover where the problems occurred?
        Mr. Clements. The agencies have plenty of authorities now.
    We do know that the committee has asked us to look at the
    enhanced prudential standards, so I do not want to prejudge
    where we might come in on that.
        Mr. Meuser. Thank you. GAO also points out in its report
    that the San Francisco Fed gave SVB a 7-month extension to
    address a November 2021 deficiency. A key finding from the
    report was that the regulators did not escalate supervisory
    actions to mitigate key risks associated with the bank failure.
    Specifically, you state that the San Francisco Fed lacked
    urgency, the San Francisco Fed did not recommend the issuance
    of a single enforcement action despite the bank's serious
    liquidity and management issues before the bank's failure. Why
    do you think that is?
        Mr. Clements. Again, this has been a repetitive problem
    going back to the 1990s and the early 2000s, and now the
    regulators, in general, favor an informal, cooperative process.
    It also is a little challenging if a bank is profitable, has
    adequate capital, to then suggest to the bank that it needs to
    stop behaviors that the regulator thinks are potentially risky.
    So, there are a variety of issues that could affect it. Again,
    I think we looked at this environment and saw numerous
    instances where escalation probably was warranted.
        Mr. Meuser. But your report does say the supervisory teams
    blamed tailoring reform under S. 2155 for these failures. We
    know that the Fed and the FDIC have discretion regardless of
    those thresholds, as mentioned earlier, to address,
    investigate, and perceive potential or discovered problems. Why
    didn't they, and why would they blame it on something that
    really did not stand in the way in the first place?
        Mr. Clements. Again, I think it is the standard, what we
    have seen in the past, which is a hesitancy to take more-
    aggressive actions.
        Mr. Meuser. Okay. Let me ask you this: In general, do you
    think community banks are much better managed than these
    outliers that have failed?
        Mr. Clements. I do not think I have any basis to talk about
    the distinction between the banks. We can go back to the 1990s,
    and a number of the smaller banks failed.
        Mr. Meuser. No, I am talking about now, and I believe they
    are, based upon my research and knowledge and discussions and
    financial discussions with community banks. You do not feel
    that the community banks would be better managed than these
    banks that have failed, SVB, First Republic, and Signature?
        Mr. Clements. In the case of these two banks, they are
    obviously better managed than the two that failed.
        Mr. Meuser. Okay. What about regional banks? Do you think
    they are managed better?
        Mr. Clements. We have not done any work for me to be able
    to opine on their management.
        Mr. Meuser. Okay. Well, state of affairs then. These banks
    have been rattled by all of this, this bailout that occurred
    with SVB, and now community banks are concerned that they may
    bear the brunt in higher FDIC fees, and that is unnerving some
    of their depositors. Do you think that is undue, unnecessary?
    What are your thoughts?
        Chairman Huizenga. The gentleman's time has expired.
        Mr. Meuser. I yield back, Mr. Chairman. Thank you.
        Chairman Huizenga. And Mr. Clements, you will be able to
    answer that question in writing.
        With that, the gentlewoman from Texas, Ms. Garcia, is
    recognized for 5 minutes.
        Ms. Garcia. Thank you, Mr. Chairman, and thank you, Mr.
    Clements, for being here with us today. I wanted to also lay
    out a few facts before I begin, and the first one is that the
    President has lowered the deficit by $1.7 trillion--$1.7
    trillion--in his first 2 years in office. So, when we talk
    about the debt ceiling and we look at everything, we really
    need to get some facts out. This President has made it clear
    that defaulting on the debt is not an option. The statement
    made earlier that Republicans were the only ones who have
    passed anything is probably true, but what is not said is that
    it is not a clean debt ceiling raising. It comes with cuts,
    cuts that are so deep that they would impact Social Security,
    they would impact Medicaid, they would impact our veterans, our
    teachers, and it would create more job losses. That is the
    reason many of us cannot support that.
        There has always been a raise of the debt ceiling, hundreds
    of times. In fact, every year since World War II, it has been
    raised. Only because it is this President and this year do we
    see so many concerns about making cuts before or doing it
    together.
        We do not have any problem with making some cuts. They just
    should not be tied to the raising of the debt ceiling. It
    should be a debt ceiling that is clean, one that has been done
    so many times before, including for former, twice-impeached
    President Trump. Many of the people talking about this issue
    now did that last time, so where were they then, making some of
    these comments?
        Second, I am glad that we are having this hearing, but I
    wonder, Mr. Chairman, when we are going to really focus on the
    root causes of what caused some of these failures, and when we
    are going to look at comprehensive legislation and responsible
    governance? Because as I review some of these items, it appears
    to me that I agree with others who have already said it here at
    the table, that this was about governance, it was about
    management, it was about failing to minimize risks.
        And I was particularly drawn to the response that you gave
    the ranking member when she asked you about some of the reviews
    that are done by the examiners, and you said that you were told
    that, ``it would take a while to fix the problem.''
        Since when has taking a while to fix a problem been
    acceptable when someone does an audit? I was the City
    Controller of Houston, and I oversaw a $2.3-billion budget. We
    did audits. If somebody told us, ``Oh well, it is going to take
    us a while to fix the problem,'' the first thing we would say
    is, ``What is your timeline for getting it fixed?'' Did we see
    any of that, or did the examiners just kind of say, ``Oh, okay,
    fine. You all fix it?''
        Mr. Clements. That occurred in the 2022 timeframe. As I
    think we mentioned in the report, starting in August, the San
    Francisco Fed and the Federal Reserve itself--
        Ms. Garcia. But let's get to my question, sir. Were they
    given a timeline, something that told management to respond, to
    take corrective action, that we are going to be back? Were
    examiners back to make sure that they did what they promised to
    do, or was it just let go?
        Mr. Clements. In many instances, the supervisory letters
    did detail what needed to be done and the timeframes. But
    again, for some of these larger issues, it appeared that the
    dates were allowed to slip.
        Ms. Garcia. Things were allowed to slip. That is part of
    the root of the problem, is it not, if things were allowed to
    slip? Can you give us an example of what was so major that they
    could not do it immediately and take corrective action that
    would, ``take time to fix a problem?''
        Mr. Clements. A concern was principally about the liquidity
    and the governance of the liquidity and the liquidity controls
    at SVB.
        Ms. Garcia. So, they did not have investment review
    committees or an investment team that really looked at that?
        Mr. Clements. There were numerous failures in its internal
    liquidity stress testing, and the Fed was looking for solutions
    to those problems.
        Ms. Garcia. Right. And let me ask you, because there has
    been a lot of focus on the Federal examiners, what about the
    State examiners? What responsibility do they have in this whole
    scheme?
        Mr. Clements. There is a mix depending upon, that Signature
    and SVB are a little bit different because they are dealing
    with different States and how they managed those relationships.
    For the most part, the Federal regulators were the ones in
    charge.
        Chairman Huizenga. The gentlelady's time has expired.
        Ms. Garcia. Thank you. I yield back.
        Chairman Huizenga. The gentleman from Tennessee, Mr. Ogles,
    is recognized for 5 minutes.
        Mr. Ogles. Thank you, Mr. Chairman, and if I may, I would
    like to correct the record. I think my colleague had
    inadvertently mischaracterized some things that were taking
    place. As far as the debt ceiling goes, there is no intent to
    impact Social Security or Medicare, nor are we going to impact
    our veterans. In fact, if you go back to 2011, our current
    President, in his own words, stated that compromise was part of
    the process. In fact, he said it was the normal political order
    of things to do so. So Mr. Chairman, I did want to just set the
    record straight.
        I know we have talked a lot about this, and I do not want
    to beat a dead horse, and we do have the benefit of kind of
    after-action or the rear-view-mirror approach. But as you look
    at some of the high marks, the satisfactory marks that were
    given to SVB, you mentioned the hesitancy and the difficulty it
    is for the regulator to step in, if you will. But, in part,
    isn't that their job?
        Mr. Clements. It is the purpose of supervisory regulation
    to ensure that banks operate in a safe and sound manner.
        Mr. Ogles. As we look forward, and keep in mind that the
    small and mid-sized banks--there are roughly 4,700 doing it
    right, so we do not want to target an industry because of a few
    bad actors. But how do we fix the process and the culture that
    seems to have crept into the regulatory structures that is,
    quite frankly, preventing them from doing their job in a timely
    fashion?
        Mr. Clements. I think that is where we think triggers come
    into play, that if a particular measure exceeds a threshold or,
    in these cases, where there have been MRAs, MRIAs, MRBAs,
    multiple times, that triggers an action. The regulator would
    then be required to take action, rather than continuing to wait
    and trying to work through a problem.
        Mr. Ogles. And again, I am not going to ask you to second-
    guess the regulators in these specific instances, but when you
    look back, all the way going back to, for SVB, 2018, there were
    clear signals and signs that there was a problem. But yet,
    fast-forward 4 years later, and nothing was happening in a
    timely fashion.
        Again, if you were to lay out a roadmap of, how do we
    improve the process, what timelines might you map out for the
    regulators to say, here is a problem, yes, they are profitable,
    however, you have increased liquidity risk. Yes, you are
    profitable. However, you have this flight risk as you move
    forward. What would you see those triggers looking like?
        Mr. Clements. In the past, we have recommended that the
    regulators and industry work together to find out what would be
    the best practices to ensure that there is adequate action, but
    you do not want action for a bank that is healthy, and that the
    regulator thinks, well, perhaps the problem will occur, because
    then you end up imposing unnecessary costs and burdens on that
    institution. So, the regulators and industry working together
    to come up with adequate measures and benchmarks.
        Mr. Ogles. I have said it once, and I will say it again:
    Ronald Reagan said that the scariest phrase in the American
    language, and I will paraphrase it, is, ``I am from the
    government, and I am here to help.'' And I think as we move
    forward, we have to be cautious about reaching too far in this
    process. But I do look at the regulatory regimes in both
    California and New York and see a systemic failure on their
    part to take action. When you look at, again, the timeline of
    when the draft is taking place in the previous year, and 6
    months later, the draft is still being drafted, and meanwhile,
    SVB collapses, is that acceptable on the part of the regulators
    to take 6 months to draft a letter? I am no Shakespeare, but I
    can write a letter in a more-timely fashion than 6 months, even
    if I am having to research data points.
        Mr. Clements. I think we had the concern, and again, that
    is why we talked about a lack of urgency and timely action. In
    that case, obviously, going from August 2022, I guess the
    argument was they needed to collect additional information, but
    it did seem to us that there were enough instances of these
    MRIAs and MRAs finding those problems that they could have
    moved forward with more urgency.
        Mr. Ogles. In my last 30 seconds, is there anything in the
    regulatory regime that would have prevented the regulators from
    doing their job?
        Mr. Clements. The regulators have authority to make
    recommendations, and formal and informal enforcement actions,
    again, up to and including civil monetary penalties.
        Mr. Ogles. Yes, sir. Mr. Chairman, I yield back.
        Chairman Huizenga. The gentleman yields back. With that,
    the ranking member of the subcommittee, the gentleman from
    Texas, Mr. Green, is recognized for 5 minutes.
        Mr. Green. Thank you, Mr. Chairman. Mr. Director, you are
    not here to tell us that the banks are not responsible, are
    you?
        Mr. Clements. The bank management is responsible for
    operating the--
        Mr. Green. The bank management.
        Mr. Clements. --bank in a safe and sound manner.
        Mr. Green. Yes. And you are here to tell us that these bank
    managers mismanaged the banks' business. Is that a fair
    statement?
        Mr. Clements. The records we saw were numerous instances of
    at least liquidity and risk management problems that had been
    identified going back to 2018.
        Mr. Green. You have said that the regulators were calling
    things to their attention that you thought should have been
    dealt with, and you have indicated as much. Do you now say that
    the banks did not have the responsibility to make these changes
    themselves?
        Mr. Clements. The banks are responsible for resolving the
    problems that the supervisors identify, and that is the bank
    side. The supervisory concern is when nothing happens--
        Mr. Green. Excuse me. Let's talk about the bank side for
    just a moment, if you would please. You also have indicated
    that the agency has plenty of authority, and then you went on
    to say but you did not want to prejudge. You would like to have
    an opportunity to review. Is that a fair statement?
        Mr. Clements. Correct.
        Mr. Green. Excuse me, if I may, I just needed to know if
    that was a fair statement. Now knowing this, that it has plenty
    of authority, you are not saying that they have enough
    authority, are you? Because enough would mean that you would
    not have the time to review.
        Mr. Clements. The committee's request is for us to look at
    enhanced prudential standards and we can do that.
        Mr. Green. Are you saying that the regulators have enough
    authority and that nothing more should be done?
        Mr. Clements. I am not in the position right now to judge
    whether--I am saying they have authority.
        Mr. Green. They have authority. But you are not saying they
    have enough authority, are you?
        Mr. Clements. I think we would need to do additional work
    in that space.
        Mr. Green. To determine?
        Mr. Clements. Correct.
        Mr. Green. So today, you are not saying they have enough
    authority?
        Mr. Clements. We are saying they have authorities. We
    need--
        Mr. Green. But they do not have enough.
        Mr. Clements. --to conduct additional work.
        Mr. Green. You don't know that they have enough.
        Mr. Clements. I cannot, at this point, say that they have
    enough.
        Mr. Green. Okay, that is fair enough. You cannot, at this
    point, say that they have enough. And it is important for you
    to say this, Mr. Director, because the other side is making the
    case for enough authority. They are making the case for the
    status quo. They are making the case for banks to be able to do
    what Silicon Valley did. We are making the case for doing
    something that can have an impact on the people who have the
    responsibility to manage the depositors' money. They are not.
        Now, Mr. Director, is it true that the stress test can have
    an impact on the decisions that regulators make, once they
    review it? If it is an adverse conclusion, can it have an
    impact on their decisions?
        Mr. Clements. It is a factor in the supervision of
    organizations.
        Mr. Green. So it can have an impact on what they think, can
    it not? Are you shy about saying that an adverse stress test
    will have an impact on the decisions of regulators, Mr.
    Director?
        Mr. Clements. Supervisory tests are an important element.
        Mr. Green. I understand, but let's talk about the stress
    test.
        Mr. Clements. Yes.
        Mr. Green. Okay. Thank you.
        Mr. Clements. It is--
        Mr. Green. And because of changes, the stress test was
    scheduled for 2024 for Silicon Valley Bank.
        Let me use my last 48 seconds to say this. I want to
    commend all of the Members for their questions, but I want to
    commend especially the Members on this side, and those who
    decided to talk about the preeminent issue facing this
    Congress, which is, are we going to allow a default? I commend
    them for bringing it up. It is not unusual for us to bring up
    issues that relate to the business of the Congress but do not
    necessarily relate to the business of a given hearing. And I
    thank Mr. Horsford for what he did. He is upset because we may
    be facing a default, that may cause a collapse of our economy.
        I yield back.
        Chairman Huizenga. The gentleman's time has expired. In
    accordance with committee rules, we do allow non-subcommittee
    members to waive on for questioning, and we will be doing so
    with the gentleman from Kentucky, Mr. Barr, who is also the
    Chair of our Subcommittee on Financial Institutions and
    Monetary Policy. So with that, the gentleman from Kentucky has
    5 minutes.
        Mr. Barr. Mr. Chairman, thank you. Thanks for allowing me
    to waive on. I want to start off by thanking the GAO, Mr.
    Clements, and your team for putting out a timely, nonpartisan,
    apolitical report that is external to the self-assessments we
    have seen from the Fed and the FDIC, that do not give a
    complete narrative. I think it is vital that we have an
    unbiased, external report that helps inform the American public
    and the Congress. I also want to thank my good friends, Mr.
    Green and Mr. Horsford, for raising the important, preeminent
    issue facing the Congress, and that is raising the debt limit,
    and avoiding default. And I would just remind my colleagues
    that the only institution in government that has actually done
    that work of raising the debt limit is the Republican Majority
    in the Congress, and every single Democrat Member of the House
    of Representatives voted against raising the debt limit.
        To get to my questions, in your work in looking at the bank
    supervisors here, especially the San Francisco Fed, do you see
    any evidence of concern leading up to Silicon Valley Bank's
    failure, about the large concentration of uninsured deposits in
    a single sector?
        Mr. Clements. There was concern. We certainly saw concerns
    raised.
        Mr. Barr. So, there was evidence that they raised that
    concern?
        Mr. Clements. Correct.
        Mr. Barr. Okay. I believe the Fed report that I have
    reviewed, their self-assessment, they say in here that Silicon
    Valley Bank crossed the Regional Bank Organization portfolio to
    the Large Bank Organization portfolio within the Federal
    Reserve structure in February of 2021. Is that correct? That is
    what the Fed says.
        Mr. Clements. I do not have the specific dates.
        Mr. Barr. Well, that is what the Fed says. The Fed says
    that they crossed that supervisory threshold almost 2 years
    before the bank's failure.
        Mr. Clements. I think it was certainly the case in our
    report. I think we might say June, but it is somewhere in the
    2021 timeframe.
        Mr. Barr. The Fed says they crossed that threshold in
    February 2021. So, in other words, enhanced prudential
    standards applied to this institution, as a large institution,
    according to the Fed's own determination, 2 years before the
    bank failed. Is that correct?
        Mr. Clements. It would have been a Category 4 firm at that
    time.
        Mr. Barr. Right. And that is enhanced prudential standards,
    under Dodd-Frank, as amended by the bipartisan Regulatory
    Relief Law of 2018.
        Mr. Clements. Correct, at that point it is subject--
        Mr. Barr. As implemented by the Fed, that $100-billion
    threshold.
        Mr. Clements. Correct, and then there is tailoring above
    that level.
        Mr. Barr. Sure. But in this case, this bank, under Fed
    regulations implementing Dodd-Frank, as amended by the
    Regulatory Relief Law of 2018, enhanced prudential standards
    applied to this bank, categorized as a large financial
    institution, as of February 2021, 2 years before the bank
    failed.
        Mr. Clements. That is correct. In 2021, it got into that
    group and was subject to large foreign institutions.
        Mr. Barr. The Fed report also says that Board staff,
    meaning Federal Reserve Board staff, provided the San Francisco
    Fed team a waiver to delay the initial set of ratings under the
    Large Financial Institution (LFI) rating system by 6 months,
    until August 2022. In your investigation, do you have any
    insight or visibility as to why the board waived that
    requirement?
        Mr. Clements. That is additional work we will need to do.
        Mr. Barr. Yes, please look into that, because the
    regulators at the Fed are delaying implementation. The law does
    not say that they have to, but they, the supervisors, the bank
    examiners, are delaying implementation of the law that we
    passed, and that we amended in 2018, and that the Fed
    implemented. So look, it is on the supervisors.
        Let me just say this also. According to your report, in
    2020 the examiners at the Federal Reserve Bank of San Francisco
    found that SVB was not doing all required liquidity stress
    testing. Specifically, SVB did not provide liquidity risks for
    a period of 30 days or less, as they were required. But
    examiners continued to give SVB a satisfactory mark for
    liquidity and the highest CAMELS rating for liquidity from 2018
    to 2022.
        In your experience, would it be unusual for an examiner to
    give a bank a high liquidity rating despite some of the
    required testing not being done?
        Mr. Clements. I think that is the concern we had, the high
    ratings, especially for liquidity, and also for management.
        Mr. Barr. Yes. Also, your report describes informal non-
    public enforcement action that was taken by the Federal Reserve
    Board staff to address ineffective governance. However, as of
    March 2023, the memorandum of understanding (MOU) was still in
    the drafting process.
        Chairman Huizenga. The gentleman's time has expired.
        Mr. Barr. For the gentleman, for the record maybe, is it
    typical for an--
        Chairman Huizenga. The gentleman's time has expired.
        Mr. Barr. --informal enforcement action like this to take
    more than 6 months?
        Chairman Huizenga. The gentleman's time has expired.
        Mr. Barr. It has expired. I appreciate--
        Chairman Huizenga. And we will allow you to--
        Mr. Barr. --you--
        Chairman Huizenga. Excuse me, ranking member, I have it
    handled. The gentleman will suspend.
        The gentleman from Kentucky can submit his final thoughts
    and final question to the witness for a written response.
        The Chair notes that some Members may have additional
    questions for this witness, 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 this witness and to place his 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.
        And with that, this hearing is adjourned.
        [Whereupon, at 11:34 a.m., the hearing was adjourned.]

                                A P P E N D I X

                                  May 11, 2023

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                      [all]