[Senate Hearing 118-216]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 118-216


        RECENT BANK FAILURES AND THE FEDERAL REGULATORY RESPONSE

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                                   ON

  EXAMINING THE RECENT U.S. BANK FAILURES AND THE FEDERAL REGULATORS' 
                                RESPONSE
                               __________

                             MARCH 28, 2023
                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                Available at: https: //www.govinfo.gov /
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
54-561 PDF                WASHINGTON : 2024   


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                       SHERROD BROWN, Ohio, Chair

JACK REED, Rhode Island              TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey          MIKE CRAPO, Idaho
JON TESTER, Montana                  MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia             THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts      JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland           BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada       CYNTHIA LUMMIS, Wyoming
TINA SMITH, Minnesota                J.D. VANCE, Ohio
KYRSTEN SINEMA, Arizona              KATIE BOYD BRITT, Alabama
RAPHAEL G. WARNOCK, Georgia          KEVIN CRAMER, North Dakota
JOHN FETTERMAN, Pennsylvania         STEVE DAINES, Montana

                     Laura Swanson, Staff Director

               Lila Nieves-Lee, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                  Amber Beck, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                       Pat Lally, Assistant Clerk

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        TUESDAY, MARCH 28, 2023

                                                                   Page

Opening statement of Chair Brown.................................     1
        Prepared statement.......................................    48

Opening statements, comments, or prepared statements of:
    Senator Scott................................................     4
        Prepared statement.......................................    50

                               WITNESSES

Martin Gruenberg, Chairman, Federal Deposit Insurance Corporation     6
    Prepared statement...........................................    51
    Responses to written questions of:
        Chair Brown..............................................    66
        Senator Scott............................................    79
        Senator Reed.............................................    97
        Senator Menendez.........................................    98
        Senator Cortez Masto.....................................   100
        Senator Hagerty..........................................   103
Michael Barr, Vice Chairman for Supervision, Board of Governors 
  of the Federal Reserve System..................................     8
    Prepared statement...........................................    60
    Responses to written questions of:
        Chair Brown..............................................   104
        Senator Scott............................................   113
        Senator Reed.............................................   127
        Senator Menendez.........................................   129
        Senator Cortez Masto.....................................   130
        Senator Warnock..........................................   132
        Senator Fetterman........................................   136
        Senator Kennedy..........................................   138
        Senator Daines...........................................   140
Nellie Liang, Under Secretary for Domestic Finance, Department of 
  the Treasury...................................................     9
    Prepared statement...........................................    64
    Responses to written questions of:
        Chair Brown..............................................   144
        Senator Scott............................................   146
        Senator Reed.............................................   147
        Senator Cortez Masto.....................................   148

              Additional Material Supplied for the Record

Letter submitted by American Share Insurance.....................   149
Better Markets Banking Fact Sheet................................   151
Letter submitted by CUNA.........................................   174
Letter submitted by NAFCU........................................   176

                                 (iii)

 
        RECENT BANK FAILURES AND THE FEDERAL REGULATORY RESPONSE

                              ----------                              


                        TUESDAY, MARCH 28, 2023

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., in room 106, Dirksen Senate 
Office Building, Hon. Sherrod Brown, Chair of the Committee, 
presiding.

            OPENING STATEMENT OF CHAIR SHERROD BROWN

    Chair Brown. The Committee on Banking, Housing, and Urban 
Affairs will come to order.
    Thanks to the New Deal and the hard work of our regulators 
today, most bank failures, of course never a good thing, are 
generally not a big deal. But the quick collapses of Silicon 
Valley Bank and Signature Bank were no ordinary failures.
    In less than a day, Silicon Valley Bank customers pulled 
$42 billion out of the bank, fueled by venture capitalists and 
their social media accounts. They created the largest and 
fastest bank run in history. In the following days, Signature 
Bank lost $17.8 billion.
    Regulators--both Republicans and Democrats--came together 
to prevent the panic from spreading. They increased liquidity, 
promoted confidence in our banking system, and protected the 
deposits of customers and small businesses, not, notably, the 
investments of executives and shareholders.
    I spent that weekend on the phone with Ohio small 
businesses and banks and credit unions. Ohio small business 
owners simply wanted to make payroll. They did not want to see 
years of hard work go down the drain because of venture 
capitalists panicking on Twitter 2,000 miles away. One woman 
told me she was terrified she would not be able to pay her 
workers the next week, and I heard that story over and over.
    And Ohio banks and credit unions institutions--institutions 
that are sound and well-capitalized--did not want to see 
deposits flee their institutions for the biggest Wall Street 
banks.
    For anyone who lived through the Global Financial Crisis, 
it is impossible not to think of 2008.
    Once again, small businesses and workers feared they would 
pay the price for other people's bad decisions. And we are left 
with many questions--and justified anger--toward bank 
executives and boards, toward venture capitalists, toward 
Federal and State bank regulators, and toward policymakers.
    The scene of the crime does not start with the regulators 
before us. Instead, we must look inside the bank, at the bank 
CEOs, and at the Trump-era banking regulators, who made it 
their mission, again, to give Wall Street everything it wanted.
    Monday morning quarterbacking aimed only at the actions of 
regulators this month is as convenient as it is misplaced, 
coming from those who have never met a Wall Street wish list 
they did not want to grant.
    Many who are the first to scold the regulators for their 
failures offer ready ears whenever bank CEOs line up at their 
offices complaining about ``out-of-control bank examiners.''
    Remember some of those complaints at our hearing with Fed 
Chair Powell over the Fed merely reviewing capital, just 3 days 
before Silicon Valley Bank failed?
    How soon we choose to forget.
    When we ask who should have known how the risks were 
building in these banks, we should start at the source--with 
the executives.
    Silicon Valley Bank almost quadrupled in size over 3 years, 
and Signature Bank more than doubled in that time.
    The principles here are not complicated. Banks should be 
prudently managed and be mindful of the full scope of risks 
they face, and should diversify across companies and products.
    This Committee must consider how these banks exploded in 
size, in a way that was clearly unsustainable. Some 
explanations will focus on complicated-sounding concepts like 
balance sheet risk, moral hazard, stress tests, and liquidity 
ratios. Really though, it comes down to more basic concepts: 
hubris, entitlement, greed. And always, always, always with big 
paydays at the end, for the executives at the top.
    The CEOs' own pay was tied directly to the growth at SVB. 
At SVB, executive bonuses were pegged to return on equity. So 
they took more risk by buying assets with higher yields to make 
higher profits. When those investments started to lose money, 
they did not back down.
    It will not surprise anyone that Silicon Valley Bank went 
nearly a year without a Chief Risk Officer.
    Venture capitalists fueled the bank's growth by forcing the 
companies they invested in and advised to keep their money at 
Silicon Valley Bank. And then those same VCs turned around and 
sparked the bank run by telling the companies to pull their 
money out, creating more chaos and more panic.
    Signature Bank found itself in the middle of Sam Bankman-
Fried's crime spree at the crypto exchange FTX. The bank let 
him open multiple accounts and ignored red flag after red flag.
    It is all just a variation on the same theme, the same root 
cause of most of our economic problems: wealthy elites do 
anything to make a quick profit and pocket the rewards. And 
when their risky behavior leads to catastrophic failures, they 
turn to the Government asking for help, expecting workers and 
taxpayers to pay the price, and too often workers do.
    Even though no taxpayer money is being used to save these 
depositors, I understand why many Americans are angry--even 
disgusted--at how quickly the Government mobilized when a bunch 
of elites in California were demanding it. People have a pretty 
good sense of whose problems get taken more seriously than 
others in this town.
    Of course we have to prevent systemic threats to the 
economy. But corporate trade deals are a systemic threat to 
towns like I grew up in, in Mansfield, Ohio, and across the 
industrial Midwest. So it is a Wall Street business model that 
rewards short-term profits over investments in innovation and 
workers.
    And those threats are not only tolerated, they have been 
actively pushed by the same crowd that this month clamored for 
the Government to save them. Just as there are no atheists in 
foxholes, it appears that when there is a bank crash, there are 
no libertarians in Silicon Valley.
    I hope that from now on, those who have no problem with 
Government intervention to protect their own livelihoods will 
think a little bit harder about what their warped version of 
the free market has done to workers in Ohio.
    It may be tempting to look at all this and say, we do not 
need new rules. The real problem was these arrogant executives.
    But there will always be arrogant executives. That is 
exactly why we need strong rules, and public servants with the 
courage--with the courage and guts--to stand up to bank 
lobbyists and enforce those rules. The officials sitting before 
us today know that their predecessors rolled back protections, 
like capital and liquidity standards, stress tests, brokered 
deposit limits, and even basic supervision. They greenlighted 
these banks to grow and grow and grow, too big, too fast.
    There are important questions about deposit insurance we 
must consider--whether the current amount works for everyone, 
including small businesses whose real goal is make payroll.
    We expect bank executives to understand the basic 
principles of bank management and to know they cannot grow a 
bank by over-concentrating business in specialized areas and 
then pay themselves huge bonuses right up until things blow up. 
That is not being a trusted partner to your customers. It is 
taking advantage of them.
    These executives must answer for their banks' downfalls. I 
have called on the former CEOs of these failed banks to testify 
and I thank Ranking Member Scott for joining us in that effort.
    But they must also face real consequences for their 
actions. Right now, none of the executives who ran these banks 
into the ground are barred from taking other banking jobs, none 
have had their compensation clawed back, none have paid any 
fines.
    Some executives have decamped to Hawai`i. Others have 
already gone on to work for other banks. Some simply wandered 
off into the sunset.
    It will surprise no one in Ohio that these bank executives 
face less accountability than a cashier who miscounts the 
cashbox.
    That is why I will be introducing legislation to strengthen 
regulators' ability to impose fines and penalties, to clawback 
bonuses, and to ban executives who caused bank failures from 
working at another bank ever again.
    We also need to look at bank regulators' ability to not 
only identify risks and problems at banks, but to also be 
empowered to actually make the banks fix them. Today, my 
colleagues and I are asking GAO to follow up on a 2019 report 
where they highlighted communication failures, and the extent 
to which senior bank management fully addressed identified 
deficiencies.
    I am looking forward to hearing from our financial 
watchdogs today. We will be watching them to make sure they 
assess the damage, hold accountable those responsible, and fix 
what is broken.
    Last, I ask my colleagues to work together to make sure 
that our financial system is stronger after this crisis. 
Americans have watched the same pattern over and over. A crisis 
occurs, some of us push for reforms, and if we are lucky, we 
are able to seize the moment, and actually pass some.
    And then the bank lobbyists go to work, and they are so 
good at their jobs.
    Politicians spend the ensuing years rolling back reforms, 
right up until the next crisis. And that crisis happens 
because, you guessed it--we rolled back regulations, and this 
body enabling the regulators to roll them back even further.
    And we know who is the first to get help in any crisis. It 
is little wonder that workers in Ohio and around the country do 
not trust banks, and do not trust their own Government. It is 
time we proved them wrong--ignore corporate lobbyists, and put 
workers and their families first.
    Senator Scott.

                 STATEMENT OF SENATOR TIM SCOTT

    Senator Scott. Thank you, Mr. Chairman.
    Today, we are here to understand just how we found 
ourselves in the middle of the second- and third-largest bank 
failures in United States history. Though our questions are 
nowhere near answered, this is an important first step in 
providing transparency and accountability necessary to the 
American taxpayer.
    I would like to thank you, Mr. Chairman, for taking the 
time and working with me to try to bring the bank CEOs into 
this hearing. I think it is incredibly important that we hear 
from the folks specifically and uniquely responsible for the 
failure of these banks, the folks who managed them.
    By all accounts, this is a classic tale of negligence, and 
it started with the banks themselves. Without any question, 
that is where the buck stops. So it is imperative that we hear 
straight from the horse's mouth, so to speak, to find out why 
these banks were so poorly managed and so poorly managed the 
risks.
    Unfortunately, the bank executives are not the only 
managers we are missing.
    The Secretary of the Treasury and the Chairman of the 
Federal Reserve are also not here to testify. I do not mean to 
offend the witnesses that are here, but it is hard to believe 
the Biden administration seriously is concerned about the 
failure that we are seeing when they themselves are shielding 
the top official at the Department of Treasury, the same 
official that briefed the President and invoked the System Risk 
Exception.
    Nor do we have Chairman Powell here. Instead, we have the 
Vice Chair of Supervision here to use the Committee as a 
platform to talk about the wrongs under his supervision. As the 
Federal Reserve has already announced, he is conducting a 
review to assess any supervisory failures, which is an obvious, 
inherent conflict of interest and a classic case of the fox 
guarding the henhouse.
    The Fed should focus on its mission and not the climate 
arena. This is a waste of time, attention, and manpower, all 
things that could have gone into bank supervision.
    Banks, like any other business, must manage their risk and 
be good stewards for their customers. But unlike other 
businesses, banks are highly regulated. Sometimes banks even 
have their regulators sitting in their banks and continually 
monitoring their risks and activities, as is the case with 
Silicon Valley Bank.
    For the last 2\1/2\ weeks, the regulators have consistently 
described Silicon Valley as unique and highly 
``idiosyncratic,'' meaning the warning signs should have been 
flashing red and SVB should have stood out as what it was, 
absolutely a problem child. Clear as a bell were the warning 
signs.
    In fact, reports indicate that these warning signs were 
already flashing, and on March 19, the New York Times wrote 
that ``Silicon Valley Bank's risky practices were on the 
Federal Reserve's radar for more than a year . . .'' .
    Moreover, Silicon Valley suffered from extreme interest 
rate risk, due to investments in long-term securities that 
declined in value because of soaring inflation. Of all our 
supervisors, the Federal Reserve should have been keenly aware 
of the impact its interest rate hikes would have on the value 
of these securities, and it should have been actively working 
to ensure the banks it supervises were hedging their bets and 
covering their risk accordingly.
    But now we know, based off your testimony, Mr. Barr, that 
the Fed was aware. In fact, in 2021, your supervisors found 
deficiencies in the bank's liquidity and its management, 
resulting in six supervisory findings. Later, in 2022, 
supervisors then issued three findings related to ineffective 
board oversight, risk-management weaknesses, and the bank's 
internal audit function. What were the supervisors thinking?
    The law and the regulations are crystal clear. The Federal 
Reserve can take any supervisory or enforcement action it deems 
necessary to address unsafe and unsound practices.
    Recent reports confirm what we already know. Your 
priorities and your work with the San Francisco Federal Reserve 
Bank President, Mary Daly, centered on climate change, an issue 
wholly unrelated to the Federal Reserve's dual mandate and role 
as supervisor. Given SVB's social and climate agenda, one must 
ask if SVB's investments in climate caused the regulators to be 
a bit more permissive of its risks.
    If you cannot stay on mission and enforce the laws as they 
already are on the books, how can you ask Congress for more 
authority with a straight face?
    To that end, I hope to learn how the Federal Reserve could 
know about such risky practices for more than a year and fail 
to take definitive, corrective action. By all accounts, our 
regulators appear to have been asleep at the wheel.
    In addition, I also hope to learn more from the FDIC about 
the role in the receivership and sale of both SVB and Signature 
Bank, especially on the auction and bid process.
    I am very concerned that private sector offers appear to 
have been submitted, and yet were denied. If Silicon Valley 
Bank had been purchased before it failed, the panic and the 
shock to the market and to market confidence we have seen over 
the past 2\1/2\ weeks may have been avoided.
    If Silicon Valley had been purchased over the weekend of 
March 10, confidence in the marketplace may have sustained 
Signature Bank and prevented its failure.
    The FDIC's bid auction process has been a black hole for 
Congress and the American people, and we deserve answers.
    I know hindsight is 2020, but when you hear rumors that 
this process was delayed because the White House does not like 
mergers in any shape, form, or fashion, it makes you wonder 
what actually is going on. Sometimes, when it looks like a 
duck, quacks like a duck, it is just a duck.
    As I close on this opening statement, three things remain 
clear to me regarding SVB. First, the bank was rife with 
mismanagement. Second, there was a clear supervisory failure. 
Our regulators were simply asleep at the wheel. And finally, 
President Biden's reckless spending caused this 40-year high in 
inflation, and the country, as well as the bank, experienced 
tremendous loss.
    Chair Brown. Thank you, Ranking Member Scott. I will 
introduce the three witnesses today.
    Martin Gruenberg was sworn in as Chair of the Federal 
Deposit Insurance Corporation Board of Directors in January of 
2023. Michael Barr took office as Vice Chair of Supervision of 
the Board of Governors of the Federal Reserve in July of 2022, 
for a 4-year term. He serves also as a member, of course, of 
the Board of Governors. Nellie Liang has been the Under 
Secretary for Domestic Finance at the U.S. Department of 
Treasury since July 2021.
    Thanks to all of you for joining us, and Mr. Gruenberg, if 
you would begin. Thank you.

   STATEMENT OF MARTIN GRUENBERG, CHAIRMAN, FEDERAL DEPOSIT 
                     INSURANCE CORPORATION

    Mr. Gruenberg. Thank you, Mr. Chairman. Chairman Brown, 
Ranking Member Scott, and Members of the Committee, thank you 
for the opportunity to appear before you today to address the 
recent bank failures and the Federal regulatory response.
    On March 10th, just over 2 weeks ago, Silicon Valley Bank, 
or SVB, as it is known, with $209 billion in assets at year-end 
2022, was closed by the California Department of Financial 
Protection and Innovation, which appointed the FDIC as 
receiver. The failure of SVB, following the March 8th 
announcement by Silvergate Bank that it would voluntarily 
liquidate, signaled the possibility of a contagion effect on 
other banks.
    On Sunday, March 12th, just 2 days after the failure of 
SVB, another institution, Signature Bank of New York, with $110 
billion in assets at year-end 2022, was closed by the New York 
State Department of Financial Services, which also appointed 
the FDIC as receiver. With other institutions experiencing 
stress, serious concerns arose about a broader economic 
spillover from these failures.
    After careful analysis and deliberation, the Boards of the 
FDIC and the Federal Reserve voted unanimously to recommend, 
and the Treasury Secretary, in consultation with the President, 
determined that the FDIC could use emergency systemic risk 
authorities under the Federal Deposit Insurance Act to fully 
protect all depositors in winding down SVB and Signature Bank.
    It is worth noting that these two institutions were allowed 
to fail. Shareholders lost their investment. Unsecured 
creditors took losses. The boards and the most senior 
executives were removed. The FDIC has authority to investigate 
and hold accountable the directors and officers of the banks 
for the losses they caused and for their misconduct in the 
management of the institutions. And the FDIC has already 
commenced these investigations.
    Further, any losses to the FDIC's Deposit Insurance Fund as 
a result of uninsured deposit insurance coverage will be repaid 
by a special assessment on banks as required by law.
    The FDIC has now completed the sale of both bridge banks to 
acquiring institutions--New York Community Bancorp's Flagstar 
Bank for Signature, and First Citizens for Silicon Valley 
Bridge Bank.
    My written testimony today describes the events leading up 
to the failures of SVB and Signature Bank and the facts and 
circumstances that prompted the decision to utilize the 
authority in the FDI Act to protect all depositors in those 
banks following these failures. It further describes the 
management and disposition of the bridge institutions that were 
established. It also discusses the FDIC's assessment of the 
current state of the U.S. financial system, which remains sound 
despite recent events. In addition, it shares some preliminary 
lessons learned as we look back on the immediate aftermath of 
this episode.
    In that regard, the FDIC will undertake a comprehensive 
review of the deposit insurance system and will release a 
report by May 1, that will include policy options for 
consideration relating to deposit insurance coverage levels, 
excess deposit insurance, and the implications for risk-based 
pricing and deposit insurance fund adequacy. In addition, the 
FDIC's Chief Risk Officer will undertake a review of the FDIC's 
supervision of Signature Bank and will also release a report by 
May 1. Further, the FDIC will issue, in May a proposed 
rulemaking for the special assessment for public comment.
    The two bank failures demonstrate the implications that 
banks with assets over $100 billion can have for financial 
stability. The prudential regulation of these institutions 
merits serious attention, particularly for capital, liquidity, 
and interest rate risk. Resolution plan requirements for these 
institutions also merit review, including a long-term debt 
requirement to facilitate orderly resolution.
    Recent efforts to stabilize the banking system and stem 
potential contagion from the failures of SVB and Signature Bank 
have ensured that depositors will continue to have access to 
their savings, that small businesses and other employers can 
continue to make payrolls, and that other banks--small, medium, 
and large--can continue to extend credit to borrowers and serve 
as a source of support. The FDIC continues to monitor 
developments and is prepared to use all of its authorities as 
needed.
    The FDIC is committed to working cooperatively with our 
counterparts at the other Federal regulators as well as with 
policymakers in the Congress to better understand what brought 
these institutions to failure and what measures can be taken to 
prevent similar failures in the future.
    That concludes my statement, and I would be glad to respond 
to questions.
    Chair Brown. Thank you, Mr. Gruenberg.
    Mr. Barr, you are recognized. Thank you.

STATEMENT OF MICHAEL BARR, VICE CHAIRMAN FOR SUPERVISION, BOARD 
           OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

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

    STATEMENT OF NELLIE LIANG, UNDER SECRETARY FOR DOMESTIC 
              FINANCE, DEPARTMENT OF THE TREASURY

    Ms. Liang. Thank you. Chairman Brown, Ranking Member Scott, 
and other Members of the Committee, thank you for inviting me 
to testify and for the opportunity to speak several times in 
recent days to share updates from Treasury regarding current 
events.
    The American economy relies on a healthy and diverse 
banking system, one that includes large, small, and mid-size 
banks and provides for the financial needs of families, 
businesses, and local communities.
    Nearly 3 weeks ago, problems emerged at two banks with the 
potential for immediate and significant impacts on the broader 
banking system and the economy. The situation demanded a swift 
response. In the days that followed, the Federal Government 
took decisive actions to strengthen public confidence in the 
U.S. banking system and to protect the American economy.
    On March 9th, depositors of Silicon Valley Bank withdrew 
$42 billion in deposits in a period of just a few hours. After 
concluding that significant deposit withdrawals would continue 
the next day, the California State regulator closed SVB and 
appointed the FDIC as receiver. Two days later, the New York 
regulator closed Signature Bank, which also had experienced a 
depositor run, and appointed the FDIC as receiver.
    Treasury worked to assess the effects of these failures on 
the broader banking system, consulting regularly with the 
Federal Reserve and FDIC. On Sunday evening, recognizing the 
urgency of reducing uncertainty for Monday morning, Treasury, 
the Federal Reserve, and the FDIC announced a number of actions 
to stem uninsured depositor runs and to prevent significant 
disruptions to households and businesses.
    First, the boards of the FDIC and the Federal Reserve 
recommended unanimously, and Secretary Yellen approved after 
consulting with the President, two actions that would enable 
the FDIC to complete its resolutions of the two banks in a 
manner that fully protects all of their depositors. These 
actions ensured that businesses could continue to make payroll 
and that families could access their funds. Depositors were 
protected by the Deposit Insurance Fund. Equity holders and 
bond holders were not protected.
    Second, the Federal Reserve created the Bank Term Funding 
Program, a new facility to provide term funding to all insured 
depository institutions eligible for primary credit at the 
discount window, based on their holdings of Treasury and 
Government agency securities. This program, along with the 
preexisting discount window, has helped banks meet depositor 
demands and bolstered liquidity in the banking system.
    This two-pronged, targeted approach was necessary to 
reassure depositors at all banks, and to protect the U.S. 
banking system and economy. These actions have helped to 
stabilize deposits throughout the country and provided 
depositors with confidence that their funds were safe.
    In addition to these actions, on March 16th, 11 banks 
deposited $30 billion into First Republic Bank. The actions of 
these large and mid-size banks represent a vote of confidence 
in the banking system and demonstrate the importance of banks 
of all sizes working to keep our economy strong. Moreover, on 
March 20th, the deposits and certain assets of Signature Bridge 
Bank were acquired from the FDIC, and on March 26th, the 
deposits and certain assets of Silicon Valley Bridge Bank were 
acquired from the FDIC.
    We continue to closely monitor developments across the 
banking and financial system, and to coordinate with Federal 
and State regulators. As Secretary Yellen has said, we have 
used important tools to act quickly to prevent contagion. And 
they are tools we would use again to ensure that Americans' 
deposits are safe.
    Looking forward, while we do not yet have all the details 
about the failures of the two banks, we know that the recent 
developments are very different from those of the Global 
Financial Crisis. Back then, many financial institutions came 
under stress because they held low credit-quality assets. This 
was not at all the catalyst for recent events. Our financial 
system is significantly stronger than it was 15 years ago. This 
is in large part due to the postcrisis reforms for stronger 
capital and liquidity.
    As you know, the Federal Reserve announced a review of the 
failure of SVB and the FDIC a review of Signature Bank. I fully 
support these reviews and look forward to learning more in 
order to inform any regulatory and supervisory responses. We 
must ensure that our bank regulatory policies and supervision 
are appropriate for the risks and challenges that banks face 
today.
    Thank you to the Committee for its leadership on these 
important issues and for inviting me here to testify. I look 
forward to your questions.
    Chair Brown. Thank you, Ms. Liang.
    Almost every Member of this Committee will be here today, 
on both sides of the aisle. Make your answers as brief and as 
quick as you possibly can. So thank you for that.
    In 2019, by votes of 4 to 1 and 5 to 1, now chair of the 
NEC, Lael Brainard, the only dissenter in every one of those 
votes, the Fed rolled back stronger rules and was responsible 
for supervising Silicon Bank. Vice Chair Barr, did the Fed drop 
the ball because it did not see the risk that was building?
    Mr. Barr. Thank you, Chairman Brown, for that question. 
Fundamentally, the bank failed because its management failed to 
appropriately address clear interest rate risk and clear 
liquidity risk. That interest rate risk and liquidity risk was 
cited, was highlighted by the supervisors of the firm beginning 
in November of 2021. The Federal Reserve Bank brought forward 
these problems to the bank, and they failed to address them in 
a timely way.
    That exposure led the firm to be highly vulnerable to a 
shock, and that shock came on the evening of Wednesday, March 
8th, when it very belatedly attempted to adjust its liquidity 
position and reported losses on its available-for-sale 
securities. The market reaction to that was quite negative, and 
that eventually, on Thursday, sparked a depositor run.
    Chair Brown. So some of their practices appear to have 
violated the basic principles of Banking 101, concentration 
risk, overreliance on uninsured deposits, inadequate liquidity, 
poor risk management--the list goes on. How poorly managed was 
this bank?
    Mr. Barr. Supervisors had rated the bank at a very low 
rating. Normally we would not be describing these matters, 
confidential matters, but given that the firm failed and 
triggered a systemic risk determination, I am prepared to talk 
about that confidential information. The firm was rated a 3 in 
the Campbell scale, which is ``not well-managed,'' and at the 
holding company level it was rated ``deficient,'' which is also 
clearly not well-managed.
    Chair Brown. Thank you.
    Chair Gruenberg, I heard from many small businesses over 
that weekend who had money in SVB and were worried about making 
payroll in Ohio, making payroll as a result of the failure. I 
heard from Ohio small banks and credit unions who were worried 
about deposits leaving their institutions. I know that I am not 
unique. Many of my colleagues from both sides of the aisle 
heard those same concerns in their State.
    Given the unprecedented scale of the bank run, what would 
have been the impact on small banks and small businesses across 
the Nation if you and other regulators had not taken action to 
protect depositors at SVB and Signature Bank?
    Mr. Gruenberg. Senator, that was our central concern. I 
think the evidence suggested, from the sequential failures of 
first Silicon Valley and then Signature, that there was a 
significant risk of contagion to other institutions, and in 
fact, over that weekend we were seeing serious stress at other 
institutions. And I think that and the potential knock-on 
effects of that contagion is really what led the Federal 
Reserve board and the FDIC board unanimously to recommend to 
the Treasury Secretary----
    Chair Brown. But you are saying the actions taken were the 
least bad option for small businesses and banks across the 
Nation. If you had not acted that way, you think there would 
have been a contagion.
    Mr. Gruenberg. I think there would have been a contagion, 
and I think we would be in a worse situation today with 
consequences for the actors in our economic system.
    Chair Brown. Meaning regulators, Republicans, and Democrats 
all across the board there was agreement on those actions.
    Mr. Gruenberg. Yes.
    Chair Brown. Under Secretary Liang, do you agree with that?
    Ms. Liang. Senator Brown, I do agree with that. I think the 
actions that were taken have been working to stabilize 
deposits. Had they not been taken, the runs by uninsured 
depositors from many small and regional-sized banks and mid-
sized banks would have intensified and caused serious problems 
for small banks' liquidity and their ability to support small 
businesses.
    Chair Brown. Thank you. And if you can answer this really 
briefly, because I do not want to go over my 5 minutes. Mr. 
Gruenberg, the FDIC announced the sale of SVB to First Citizens 
Bank and Trust from Senator Tillis' North Carolina. It was 
estimated to have cost the deposit insurance fund approximately 
$20 billion. How is that cost covered?
    Mr. Gruenberg. Oh, that is required by law, and I indicated 
in my opening statement the FDIC has to impose an assessment on 
the banking industry to cover the cost of coverage for any 
uninsured deposits. And I would note that the law provides the 
FDIC authority in implementing that assessment to consider the 
types of entities that benefit from any action or assistance 
provided. And as I also indicated in my statement, we expect to 
issue a notice of proposed rulemaking for public comment in 
May, to implement the assessment.
    Chair Brown. Thank you. I would point out in your testimony 
and your answer there were no tax dollars, nothing funded 
through the congressional appropriations process.
    Senator Scott.
    Senator Scott. Thank you, Mr. Chairman. What is the future 
of regional banking?
    Mr. Gruenberg. I think we have a strong set of regional 
banks in the United States. And as a general matter, their 
liquidities remained stable through this episode. And I think 
it was a good indication, frankly, that in the two failed 
institutions, in both of those cases the strongest bids we 
received to acquire those failed institutions were from two 
other regional banks that had the capability and strategic 
business interest to acquire them.
    So there are a lot of cautionary lessons to be learned from 
this, Senator. I completely agree with that. And we are going 
to need to carefully review this episode. But as a general 
proposition, I think the regional banks in the United States 
remain a source of strength for the system.
    Senator Scott. I walked in on the Chairman's comments about 
the actions that were taken the weekend of March 9th and how 
important it was and the importance of making sure we get 
credit for doing something that actually, I thought, could have 
been avoided, frankly. I thought it could have been avoided if 
we had someone in the private sector make the decision to buy 
the bank, buy the assets. Had that been done on Friday, March 
10th, I think we could have literally eliminated the fiasco 
that we saw over the weekend.
    Were there folks interested in buying Silicon Valley Bank 
on Friday?
    Mr. Gruenberg. Senator, just to be clear, before the bank 
failed, on an open institution basis?
    Senator Scott. After.
    Mr. Gruenberg. Oh, after the failure, on a closed basis.
    Senator Scott. Yes.
    Mr. Gruenberg. Oh, we had expressions of interest. 
Remember, this was a very rushed process, if I may say. The 
bank failed on Friday morning. The other institution failed 
over the weekend. We had to set up two bridge institutions to 
manage those failed banks.
    To your point, though, we had expressions of interest. We 
quickly set up a bidding process that we ran on Sunday. We 
received two bids. One was not valid because it had not been 
approved by the board of the bank, and the other, after we 
evaluated it, indicted that it was more expensive than a 
liquidation of the institution would have been to the FDIC. So, 
in effect, we did not have an acceptable bid, and it was really 
a determination that we made to try to set up two bridge 
institutions to manage for a short period of time these two 
failed banks, and then to organize a bidding process, an open 
bidding process, for both institutions, which we ultimately 
were able to implement successful. And so Signature Bank, 
previous weekend, two weekends ago, and then to sell SVB this 
past weekend.
    Senator Scott. Are you suggesting that the fact that the 
board had not approved the offer that was on the table was the 
primary reason why you turned down that offer?
    Mr. Gruenberg. It was one of the bids. As a matter, we are 
required, for a bank, to make a valid offer to the board of the 
bank.
    Senator Scott. Yes, to approve the offer. That was the 
primary reason why you did not----
    Mr. Gruenberg. For that bid. The other bid did not have 
that issue, but the other bid was more costly than liquidation 
would have been.
    Senator Scott. So you are suggesting that a private sector 
engagement would have increased the cost, not decreased the 
cost.
    Mr. Gruenberg. At that point, I think, in part because it 
takes a bit of time. This was a substantial institution. It 
takes some time for a bank to do appropriate due diligence, to 
evaluate the assets and liabilities, and to make an informed 
bid for the institution. And I think as a practical matter that 
was difficult to do given the compressed timeframe over that 
initial weekend. I think that is why we set up the bridge 
institutions, to try to put in place quickly an orderly bidding 
process where any interested party could submit a bid, have an 
opportunity to do due diligence in order to evaluate the 
institution, and to make an informed bid. I think we were 
ultimately able to do that for both of these failed 
institutions.
    Senator Scott. I will just say, with my remaining time, 
that I look forward to the second round of questions. But I 
will say, without question, that if we would have had a better 
private sector engagement with quicker action from the Feds, I 
think we could have avoided the concept that rushed us to a 
decision, which was a concern of contagion, in part. That could 
have been avoided if we had had a decision made on Friday, if 
there were private sector folks willing to make a decision. But 
we will have an opportunity, hopefully, on the second round.
    Chair Brown. Thank you.
    Senator Warner, from Virginia.
    Senator Warner. Thank you, Mr. Chairman, and thank you for 
having this hearing. It is good to see all of you.
    A couple of weeks ago, when we were in a Finance Committee 
hearing, I asked Secretary Yellen, that I thought it was very 
important that we try to get all the facts out about what 
happened here. I very much appreciate, Vice Chairman Barr, you 
taking on this unenviable task of sorting this out, because I 
had real questions. Was this a regulatory and bank management 
failure or was it, as some on my side of the aisle have 
indicated, was it a statutory failure? If it was a statutory 
failure and an additional test or activity was needed, I am all 
for putting it in place.
    But my operating premise at this point is if this had been 
not a $200 billion bank but a $5 billion bank that management's 
mistakes, not having a risk officer, other items, and failure 
of basic prudential regulation should have caught this. We had 
two chief regulators, a State regulator that at some point, Mr. 
Chairman, I hope we would get in front to where were they, and 
obviously the San Francisco Fed. So I am going to be very 
interested in making sure we get to the bottom of this.
    I think some of the things you have already pointed out, 
Vice Chair Barr, is that the bank's business, concentrating in 
one industry, an industry that I used to be part of, but the 
fact that there was such a high concentration of counterparty 
risk. My understanding, 10 depositors alone had about $13 
billion of deposits. Again, it seems to me interest rate 
mismanagement is Banking 101, and again, even at a $5 billion 
bank they should have been called out.
    I also think the speed--I have often cited the fact that 
the largest bank failure we have seen was WAMU back in the 
crisis. Sixteen billion dollars left that bank over a 10-day 
period. In this case, $42 billion, the equivalent of 25 cents 
on every deposit, went out in 6 hours. I am not sure at that 
point what regulatory structure could have prevented that. And 
at least from reports it seems to me that--and I say this as 
somebody who used to be in the VC industry--some of the very 
VCs who banked for a long time at SVB may have started this run 
and demanded all of their ancillary companies all go out at 
once.
    So Vice Chairman Barr, can you take us through, with a 
little more detail, starting Wednesday night through Friday 
afternoon, how this happened, how we got here, and what you 
have seen so far?
    Mr. Barr. Thank you very much, Senator. I will start where 
you did, which is this is a textbook case of bank 
mismanagement. The risks the bank faced, interest rate risk and 
liquidity risk, those are bread-and-butter banking issues. The 
firm was quite aware of those issues. They had been told by 
regulators investors were talking about problems with interest 
rate and liquidity risk publicly. And they did not take the 
action necessary. They were quite vulnerable to risk, to 
shocks, and they did not take the actions necessary to meet 
that.
    What happened on Wednesday night is they belatedly 
attempted to improve their liquidity position, and they did it 
in a way that spooked investors, that spooked depositors, that 
spooked the market. Nonetheless, on Thursday morning, things 
appeared calm, according to the bank's report to supervisors, 
but later Thursday afternoon deposit outflows started, and by 
Thursday evening, we learned that more than $42 billion, as you 
had indicated, had rushed out of the bank. That is an 
extraordinary pace and scale. Federal Reserve bank staff worked 
with the bank through the afternoon, evening, and overnight, to 
try and find enough collateral that the Federal Reserve could 
continue discount window lending against.
    On Friday morning it appeared that it might be possible to 
meet the outflow that was expected the day before, but that 
morning the bank let us know that they expected the outflow to 
be vastly larger, based on client requests and what was in the 
queue. A total of $100 billion was scheduled to go out the door 
that day. The bank did not have enough collateral to meet that, 
and therefore they were not able to actually meet their 
obligations to pay their depositors over the course of that 
day, and they were shut down.
    Chair Brown. Senator Crapo is recognized, from Idaho.
    Senator Crapo. Thank you very much, Mr. Chairman.
    In your testimony, Mr. Barr, you indicated that you were 
going to be, in one of the aspects of what you are working on 
you are going to be looking at whether more stringent standards 
are needed. And I want to follow up on Senator Warner's 
questions relating to this argument that has been put out 
there, I think as part of the blame-shifting game, and there is 
a lot of that going on right now, that it was a statutory 
failure.
    That brings us to the 2018 reforms, Senate bill 2155. And I 
just want to read to you a couple of sentences out of Senate 
bill 2155 with regard to the question of whether that 
legislation prohibited our Federal regulators, and particularly 
the Fed, from doing anything they needed to do with regard to 
applying the appropriate strict standards. And to start out 
with I will read--what Senate bill 2155 did was to stop a one-
size-fits-all system and mandate, by changing the word ``may'' 
to ``shall,'' mandate that the Federal Reserve tailor its 
regulations to the risk and so forth. I want to read the 
language.
    It mandates that the Federal Reserve ``differentiate as it 
tailors, differentiate among companies on an individual basis 
or by category, taking into consideration their capital 
structure, riskiness, complexity, financial activities, 
including financial activities of their subsidiaries, size, and 
any other risk-related factors that the board of Governors 
deems appropriate.''
    And then at the conclusion of the statute, that section of 
the statute, it makes it crystal clear--and this is the 
statutory language--``Nothing in Subsection A shall be 
construed to limit the authority of the board of Governors of 
the Federal Reserve system in prescribing prudential standards 
under this section, or any other law to tailor or differentiate 
among companies on an individual basis or by category, taking 
into consideration their capital structure, riskiness, 
complexity, financial activities, including financial 
activities of their subsidiaries, size, and any other risk-
related factors that the board of Governors deems 
appropriate.'' And I could go on with multiple times that that 
language was repeated.
    My question to you is, was there any statutory restriction 
faced by the Federal Board of Reserves as it issued its 
regulations on tailoring that would have prohibited them from 
applying the strictest standards they could to address the 
prudential needs of our banking system?
    Mr. Barr. Thank you, Senator Crapo. I agree with you there 
was substantial discretion under that act for the Federal 
Reserve to put in place tailoring rules that were different 
from the tailoring rules that it put in place in 2019. I think 
there is still, to this day, a substantial discretion in 
changing those by notice and comment rulemaking. That is one of 
the areas that we will be looking at in our review, whether 
there should be appropriate changes.
    There are some areas, particularly for smaller firms, firms 
between $50 and $100 billion, where the act is more 
prescriptive, but for the firms in the category that we are 
addressing today there is substantial discretion for the 
Federal Reserve to change those rules in a way that is 
supportive of safety and soundness and financial stability.
    Senator Crapo. Thank you, and I appreciate your answer. You 
said recently that the bank failed--referring to SVB--as the 
public began to focus on changes in values of securities in the 
bank's held-to-maturity account. That is correct, right?
    My question to you there is, did the standards on that risk 
that are used for supervision, were those changed at all in 
Senate bill 2155 in 2018?
    Mr. Barr. The standards for capital rules are determined by 
the bank agencies. The bank agencies made a decision for 
smaller categories of these large banks to not require the 
pass-through of AOCI into the capital structure. But that was a 
decision that is available to be altered by the discretion of 
the bank agencies.
    Senator Crapo. And it was not mandated by 2155.
    Mr. Barr. No, it was not mandated by 2155.
    Senator Crapo. Last question is under the current standards 
that are applied with regard to capital, was SVB adequately 
capitalized?
    Mr. Barr. Yes. Prior to its failure it was categorized 
under current capital rules as well capitalized.
    Senator Crapo. All right. Thank you very much.
    Chair Brown. Thank you, Senator Crapo.
    Senator Cortez Masto, from Nevada, is recognized.
    Senator Cortez Masto. Thank you, Mr. Chair. Thank you, all 
three of you, for being here.
    Vice Chairman Barr, let me start with you. You have talked 
about how the Federal Reserve is undergoing an investigation to 
determine whether the Federal Reserve actually failed in this 
instance. Is the Federal Reserve the appropriate body to 
conduct this investigation or should we have an independent 
investigation?
    Mr. Barr. Thank you, Senator. It is a terrific question. We 
describe what we are doing as a review. We are reviewing our 
own practices. I think it is an important part of risk 
management to do self-assessment. I think it would be 
irresponsible and imprudent of us not to do self-assessment. We 
are going to take that very seriously. We are going to be 
thorough, we are going to be transparent, and we are going to 
be far-reaching in that self-assessment.
    I also think it is appropriate for outsiders to have 
independent reviews, and we expect and welcome independent 
reviews of our actions.
    Senator Cortez Masto. And if you uncover, in your 
investigation, that the Federal Reserve failed here in some of 
its supervisory roles, will you make that public?
    Mr. Barr. Yes. We intend to make our report fully public on 
May 1st, and that will report will include--normally it is not 
our practice to include, but that report will include 
confidential supervisory information such as the exam reports.
    Senator Cortez Masto. And in the scope of your review you 
identify the scope of that review in your written testimony. Is 
there anything in addition that is not in your written 
testimony that you will be reviewing here, in that scope?
    Mr. Barr. Thank you, Senator. I have asked the staff to be 
far-reaching. So if they determine that an issue should be in 
scope, they have full discretion to put that issue in scope and 
to address it in the review. So there are no limitations on 
their ability to review how the Federal Reserve conducted its 
supervision and the regulatory oversight of the firm.
    Senator Cortez Masto. Thank you. And then one final thing 
because there has been a lot of discussion about the previous 
rollback of some of the regulation in votes in this body just 
recently. If you find that that change in the law impacted the 
Federal Reserve's ability to conduct the appropriate test, 
based on the tiering of the bank's assets, would you be 
forthcoming with that and say so?
    Mr. Barr. Yes. We intend to describe where we think 
supervisory and regulatory failings occurred. If changing those 
to make them what we think is the right standard would require 
an act of Congress, we will say so in that review.
    Senator Cortez Masto. And then Chairman Gruenberg, the same 
to you. You are conducting a scope of the FDIC. Are you 
comfortable that you can conduct that and be transparent and 
accountable, or should there be an independent body looking at 
this?
    Mr. Gruenberg. I think there is room for both. As Michael 
indicated, I think it is important for each of our agencies to 
look internally at our supervision of these institutions and 
draw lessons from it. In our case, we have asked our Chief Risk 
Officer, who is not directly involved in the supervision 
process and whose role is to evaluate risk at the FDIC, to 
undertake this internal review of our supervision of Signature 
Bank.
    Senator Cortez Masto. Thank you. And then there has been a 
lot of talk in the media about the executive salaries, about 
the executive bonuses, about the sale of stock. Let me ask the 
three of you. My first question is what authority do you have 
to claw back any of those bonuses or the executive pay, or even 
deal with the sale of the stock? And maybe, Mr. Gruenberg, let 
us start with you.
    Mr. Gruenberg. Thank you, Senator. You know, as I indicated 
in my opening statement, the FDIC, for every failed 
institution, is required to undertake an investigation of the 
conduct of the members of the board, the management of the 
institution, as well as professional service providers and 
other institution-affiliated parties. We have already begun 
that investigation, and we have significant authority under the 
law, depending on the findings of the investigation, to impose 
civil money penalties, restitution, and as well, bar 
individuals from the business of banking.
    So the authorities are substantial and we are going to 
pursue this as expeditiously as we can. We do not have, under 
the Federal Deposit Insurance Act, explicit authority for claw 
back of compensation. We can get to some of that with our other 
authorities. We have that specific authority under Title II of 
the Dodd-Frank Act. If you are looking for an additional 
authority, specific authority under the FDI Act for clawbacks, 
probably would have some value here.
    Senator Cortez Masto. Thank you. Mr. Barr.
    Mr. Barr. Thank you. The board does have authority to 
pursue actions against individuals who engaged in violations of 
the law, who engage in unsafe or unsound practices, who have 
engaged in breaches of fiduciary duty. We retain this authority 
even after a bank fails. And we stand ready to use this 
authority to the fullest extent, based on the facts and 
circumstances. And as with Chair Gruenberg, potential 
consequences include a prohibition from banking, civil money 
penalties, or the payment of restitution. We intend to use 
these authorities to the fullest extent we are able.
    Senator Cortez Masto. Thank you. Ms. Liang. And I know, 
with the Chairman's indulgence.
    Chair Brown. Briefly, Ms. Liang.
    Ms. Liang. Yes. I defer to the FDIC and the Federal Reserve 
on this.
    Senator Cortez Masto. Thank you. Thank you, Mr. Chairman.
    Chair Brown. That was brief. Thank you, Under Secretary.
    Senator Rounds, of South Dakota, is recognized.
    Senator Rounds. Thank you, Mr. Chairman. First of all, 
thank you to all of you for appearing before our Committee 
today.
    Vice Chair Barr, in your testimony you said that in 
November the Fed supervisors delivered a supervisory finding on 
interest rate risk management to Silicon Valley Bank. As you 
know, the communication of supervisory findings must be focused 
on significant matters that require attention. Matters 
Requiring Immediate Attention, or MRIAs, are matters of 
significant importance that the Fed believes need to be 
resolved right away, including matters that have the potential 
to pose significant risk to the safety and soundness of the 
banking organization.
    My question, Vice Chair Barr, was managing interest rate 
risk listed in the MRIA section of the supervisory finding 
issued to SVB, and if it was not, why not?
    Mr. Barr. Senator, we are still reconstructing the 
supervisory record. We have just started the review. But my 
understanding is that they were issued a Matter Requiring 
Immediate Attention based on the inaccuracy of their interest 
rate risk modeling. Essentially, the risk model was not at all 
aligned with reality.
    Senator Rounds. Pretty interesting statement, if it was not 
aligned with reality.
    I recognize that you are going to have a complete report, 
and I am not going to try to push you too far into this. But I 
am really curious. What is the timeframe that is expected for a 
response for an MRIA, one that requires immediate attention?
    Mr. Barr. Senator, there is not a fixed amount of time. It 
depends on the issue, the scope of the issue, the complexity of 
resolving the issue. So I do not have a way of giving you a 
firm baseline on the action, but they are expected to be a top 
priority for management to address. And particularly in the 
interest rate environment that we are in, and knowing that the 
firm had been cited previously for other problems with 
liquidity risk management and interest rate risk management, 
supervisors would expect that that would take a high priority 
attention by top management.
    The supervisors met with the CFO of the firm in the fall, 
in October of 2021, to convey the seriousness of the findings 
directly.
    Senator Rounds. During this time period, perhaps for as 
much as 6 months during that previous year, the bank was 
without a risk management officer. Is that correct?
    Mr. Barr. That is my understanding. I think it is terrible 
risk management, obviously, not to have a CRO at the firm. You 
need an effective CRO as part of risk management in the firm. 
And as I indicated previously, the supervisors had told the 
firm in the summer that they had deficiencies in governance and 
controls and the management level and at the board level, and 
that was related to their failure to appropriately manage risk.
    Senator Rounds. My understanding is that there was a period 
of time there in which they were without a CFO as well. Is that 
correct?
    Mr. Barr. I do not have the details of that but I am happy 
to get back to you.
    Senator Rounds. OK. And I recognize that there is a 
difference between a matter requiring immediate attention and a 
matter requiring attention. Can you kind of share with us the 
difference? I mean, there clearly is a defined difference 
between a matter of such importance that it requires immediate 
attention versus one where it requires attention. Can you talk 
a little bit about what the expectations are between the two?
    Mr. Barr. They both really signal that bank management 
should pay attention to what is in front of them. They are not 
issued lightly. A matter requiring immediate attention is, as 
its name suggested, telling managers that they should place a 
priority on fixing this issue over other issues. But the 
exercise of the line between the two is a matter of supervisory 
judgment.
    Senator Rounds. Just to follow up a little bit, recognizing 
once again that we will get a full report in the next couple of 
weeks, but it seems to me that when it turns into an MRIA there 
is an expectation that the board, or the executive officers, 
would respond fairly quickly. To your knowledge at this point 
was that expectation met?
    Mr. Barr. Well, I think the fundamental fact is, you know, 
the firm failed because of its interest rate risk and its 
liquidity risk, and that is, I think, evidence of the fact that 
they did not respond strongly enough and promptly enough.
    Senator Rounds. In other words, with the information that 
you had and that the regulators had, they were able to 
determine that there was a problem at the bank, and they 
directed that there be a response immediately, an immediate 
response, based upon the data that they were able to gather at 
that time. That is a reasonable assumption, is it not?
    Mr. Barr. I do not know what the timeframe set out in each 
of the individual orders were, so I am not able to answer your 
question with precision, and I want to be very careful to be 
able to do that----
    Senator Rounds. That is fair.
    Mr. Barr. ----and not go beyond the record.
    Senator Rounds. But we will receive that information when 
the full report comes out.
    Mr. Barr. Yes. On May 1st we will release the full report, 
and it will include the reports of examination, so people will 
be able to see what is in the record.
    Senator Rounds. Very good. Thank you. Thank you, Mr. 
Chairman.
    Chair Brown. Thank you, Senator Rounds.
    Senator Menendez, of New Jersey, is recognized.
    Senator Menendez. Thank you, Mr. Chairman.
    In 2018, Congress passed a bill which was signed into law 
by President Trump, that relaxed regulation for institutions 
like Silicon Valley Bank. That law, which I opposed, exempted 
those banks from enhanced prudential standards stress tests, 
raised the threshold at which a bank would be considered 
systemically important. But even as that law kept Silicon 
Valley Bank off the list of systemically important 
institutions, the Fed and the FDIC rightly cited systemic risk 
to justify their actions to prevent runs on other banks.
    So Mr. Barr and Mr. Gruenberg, each of you voted to invoke 
what is known as the, quote, ``systemic risk exception.'' With 
a simple yes or no, can you tell me that the situation at 
Silicon Valley Bank posed systemic risk?
    Mr. Barr. Thank you, Senator. I think it is an absolutely 
crucial question. The invocation of systemic risk exception 
required judgment as well as incoming data, and our best 
assessment, the assessment of a unanimous Federal Reserve 
board, and a unanimous board of the FDIC and the Treasury 
Secretary was that we were seeing signs of contagion in the 
banking system that threatened to put at risk depositors and 
banks across the country. And to make sure that banks could 
continue to lend in their communities, to make sure that 
depositors were safe, to make sure that businesses could pay 
payroll, we thought it was important to invoke that systemic 
risk determination----
    Senator Menendez. Because you felt that Silicon Valley Bank 
was a systemic risk at that point in time?
    Mr. Barr. The judgment was really broadly about the risk 
that the failures of these institutions and other stresses in 
the system were posing as a whole, as opposed to a particularly 
decision only about----
    Senator Menendez. But that sounds like a distinction 
without a difference. If any single bank's failure can cause 
contagion that threatens the system, then it seems that the 
bank should be considered systemically important. And so you 
all need to have an obligation to be clear with us, and with 
the American people, when you took extraordinary steps to 
protect uninsured depositors that could very well lead to 
increased fees charged to banks and ultimately to consumers.
    So I think we need to be clear about what is a systemic 
risk. And so I am looking for a more crystallized version of 
that. I was here in 2008. I do not want to live through it 
again.
    Do you agree with President Biden's statement 2 weeks ago 
that Congress should strengthen rules for banks to make it less 
likely that we will see another failure similar to that of 
Silicon Valley Bank?
    Mr. Barr. Thank you, Senator. I think it is important for 
us to strengthen capital and liquidity rules. We are working on 
strengthening them as part of our Basel III reforms and our 
holistic review of capital, and I think we need to move forward 
with that. And as both Chair Gruenberg and I suggested, with a 
long-term debt requirement that would provide an additional 
cushion in addition to capital for large institutions. That 
work will need to go through notice and comment rulemaking, 
there will be transition periods for it, but I think that is 
really important work for us to do, and I am committed to doing 
it.
    Senator Menendez. Well let me ask you, Mr. Barr. This 
morning I, along with Senator Rounds and other Members of this 
Committee, sent a letter to Chairman Powell asking him to 
explain whether the Fed applied enhanced supervision or 
prudential standards to Silicon Valley Bank or any similar-
sized bank using the Fed's existing authority.
    We have also learned from public reporting that Fed 
supervisors began flagging problems at the SVB as far back as 
2021. Now I understand we have a lot more to learn about the 
facts of what transpired, both with the bank with any 
management failures, but I expect that we are going to see that 
all factored in as part of a review.
    So as you begin that review, let me ask you, do you agree 
with Chairman Powell's statement last week that from what we 
know it is, quote, ``clear that we do need to strengthen 
supervision and regulation''?
    Mr. Barr. Yes, I absolutely agree with that.
    Senator Menendez. Thank you for that.
    Now last, I would love to know, Mr. Gruenberg, about, as we 
think about should we raise the Federal deposit insurance, what 
percentage of account holders does that account for, how much 
is private versus business, and what are the costs that are 
associated with it. So I will just put that out there for you 
to submit an answer to the record, because it will take more 
time than what I have.
    But the last point I want to make is, we have seen a flight 
from regional and community banks to, quote/unquote, ``too-big-
to-fail'' banks. And a concentration of deposits at a select 
few institutions also brings about its own risks to the 
financial system. At the end of the day, it seems that we are 
incentivizing entities to go to too-big-to-fail banks. It only 
makes it even more consequential in terms of too big to fail. 
Is that what we want to ultimately achieve in this process?
    Mr. Barr. Senator, I think that the goal of the actions 
that we took are to make sure that we have a thriving and 
diverse system of banking in the United States, including 
community banks and regional banks that are the lifeblood of 
many communities all across the country.
    Senator Menendez. Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Menendez.
    Senator Kennedy, of Louisiana, is recognized.
    Senator Kennedy. Thank you, Mr. Chairman. Thank you all for 
being here today.
    Chairman Barr, the Federal Reserve stress-tested 34 banks 
in 2022. Is that correct?
    Mr. Barr. Senator, I do not have the exact number in front 
of me, but that sounds correct.
    Senator Kennedy. Well, I have your report. It says 34. And 
the cutoff was $100 billion. Is that right?
    Mr. Barr. Yes.
    Senator Kennedy. OK. You did not stress-test Silicon Valley 
Bank, did you?
    Mr. Barr. No. Under the Federal Reserve board's rules that 
were put in place for transition into the stress testing, it 
takes a while for a firm to be considered above the threshold. 
They need to have a rolling four-quarter average----
    Senator Kennedy. Did you stress test Silicon Valley Bank in 
2022?
    Mr. Barr. No.
    Senator Kennedy. OK. Silicon Valley Bank had $100 billion, 
more than $100 billion in assets at the end of 2021, did it 
not?
    Mr. Barr. Senator, as I was explaining, the transition 
rules in place at the time require a rolling four-quarter 
average to be above that amount----
    Senator Kennedy. OK.
    Mr. Barr. ----and then if the firm happens to be in a year 
that is not the year that, since it is an every-other-year 
test, that a test is running, then it waits until the next 
year. So for Silicon Valley Bank that would have meant 2024 
would be its first stress test.
    Senator Kennedy. But the point is you did not test Silicon 
Valley Bank.
    Mr. Barr. We did not apply a stress test to Silicon Valley 
Bank. It was, of course, using its own stress test----
    Senator Kennedy. Did you have the authority to do it?
    Mr. Barr. Under our existing regulations, no. We would have 
to change our regulations to have that authority.
    Senator Kennedy. Under the Congress' amendment to Dodd-
Frank--Senator Crapo talked about it, 2155, Section 252.3--is 
it not a fact that we gave the Federal Reserve the authority to 
stress test Silicon Valley Bank?
    Mr. Barr. Under that legislation the Federal Reserve could 
have put in place a rule defining the word ``periodic''----
    Senator Kennedy. But you did not.
    Mr. Barr. ----in a different way than was done.
    Senator Kennedy. Right. But did not, did you?
    Mr. Barr. The Federal Reserve did not do that.
    Senator Kennedy. OK. If you had stress tested--well, let me 
put it this way. If you had stress tested Silicon Valley Bank 
in 2022, it would not have made any difference, would it?
    Mr. Barr. I do not know the answer to that question.
    Senator Kennedy. Well, you did not test for Silicon Valley 
Bank's problem. I have read your report. You stress-tested 
these 34 banks for falling GDP, spike in unemployment, and 
defaults on commercial real estate. Is that not correct?
    Mr. Barr. Yes. In a typical adverse scenario for banks, we 
are testing falling interest rates----
    Senator Kennedy. But that was not our problem in 2022.
    Mr. Barr. I completely agree with you.
    Senator Kennedy. That is not our problem today. The problem 
is inflation-high interest rate and loss value in Government 
bonds, is it not?
    Mr. Barr. I completely agree with you.
    Senator Kennedy. So you stress-tested in 2022 for the wrong 
thing.
    Mr. Barr. The stress test is not the primary way that the 
Federal Reserve or other regulators test for interest rate 
risk.
    Senator Kennedy. But you stress-tested for the wrong thing.
    Mr. Barr. As I said, Senator, I agree with you that it 
would be useful to test for hiring rising interest rates. That 
is why, in our alternative scenario, multiple scenario that we 
put in place for this year's stress test, we do that. These 
decisions were made before I arrived, but I agree with you that 
it would be better to do that.
    Senator Kennedy. But it is like somebody going in for a 
test for COVID and getting a test for cholera, is it not?
    Mr. Barr. I do not know enough about either of those tests 
to know.
    Senator Kennedy. Yeah. Well, they are different.
    So all this business about, well, the amendment to Dodd-
Frank kept them from stress-testing. The way I see it, you 
chose not to stress-test, and if you had stress-tested Silicon 
Valley Bank you would not have caught the problem.
    Mr. Barr. As I said, Senator, I agree with you that the 
statute requires periodic stress-testing. The Federal Reserve 
made a decision about how to implement that in 2019.
    Senator Kennedy. Right.
    Mr. Barr. That resulted in SVB not being tested until, plan 
to be tested until 2024. But as I said, the stress test 
requirements----
    Senator Kennedy. You knew from the--I am sorry to cut you 
off but the Chairman is going to cut me off in a second--but 
you knew, the Federal Reserve knew well in advance that Silicon 
Valley Bank had a problem with holding too much of its money in 
interest rate sensitive long Government bonds, did it not?
    Mr. Barr. I think the investing public and the Federal 
Reserve which cited it for interest rate risk problems knew 
that it had interest rate risk. But nobody anticipated the 
bank----
    Senator Kennedy. But the Federal Reserve did not do 
anything about it, did it?
    Mr. Barr. I am sorry. I could not hear you.
    Senator Kennedy. The Federal Reserve did not do anything 
about it, did it?
    Mr. Barr. I disagree with that, Senator, respectfully. The 
Federal Reserve did cite these problems to the bank and 
required them to take action. Bank management failed to act on 
those.
    Senator Kennedy. You did not follow up, did you?
    Chair Brown. The Senator's time has expired. I sit here and 
watch Mr. Barr reluctant to criticize some of the moves of his 
predecessors at the Federal Reserve. I will leave it at that.
    Senator Smith, from Minnesota, is recognized.
    Senator Smith. Thank you, Mr. Chair, and thanks to our 
folks for being here today. I really very much appreciate it.
    So I want to just start by reiterating what I know some of 
my colleagues have said, which was that as these two banks 
collapsed I heard you say very clearly, Vice Chair Barr, the 
Silicon Valley Bank in particular collapsed because of what 
looks like gross mismanagement, and failure to manage even the 
most basic of risks, liquidity and interest rate risks.
    The Biden administration and regulators took strong and 
decisive action to protect people and to keep our banking 
system safe and secure. And the reality is that that action 
that you took was necessary, but it was also extraordinary. 
Extraordinary actions were called for in the moment. And you, 
of course, do not want to have to use extraordinary actions. 
You want to be able to rely on banks to make good decisions and 
to protect their shareholders and to protect their depositors.
    But let me just clarify one thing before I want to follow 
up a little bit on Senator Kennedy's questions. The Fed, under 
the previous Vice Chair of Supervision, put into place rules 
that I think there is a question about whether those rules--I 
mean, I think even in the moment you were critical of those 
rules. Is that right?
    Mr. Barr. Yes, that is correct.
    Senator Smith. And so your review will take a look at what 
would have happened if those rules had not been in place, and 
then you can make decisions about what new rules need to be in 
place to protect from this kind of extraordinary situation that 
we saw with these two banks. Is that correct?
    Mr. Barr. Yes, that his correct, Senator.
    Senator Smith. So I think that is just important for us all 
to understand here, as we think about what has happened.
    The Silicon Valley Bank's failure was the result, it 
appears, of management failures at many levels, all coming 
together at the worst possible time, and I am particularly 
struck by the bank's failure to manage interest rate risk--you 
and I talked about this last week--which is basic bank 
management. It is not rocket science to manage interest rate 
risks.
    And, you know, interest rates were near zero for more than 
a decade, and a lot of business models, it appears, including 
Silicon Valley Bank's business model, was predicated on 
basically free money. And that obviously presents risk when 
that changes.
    So I am concerned, Vice Chair Barr, about other 
institutions, banks and nonbanks alike, how they are managing 
what must be similar interest rate risks. Could you just 
address that, and talk about how the Fed right now, and others, 
are monitoring that interest rate risk and what that tells you 
about what we need to do differently.
    Mr. Barr. Thank you, Senator. Let me just start with a 
basic point which the banking system is sound and resilient. 
Most banks are highly effective in managing interest rate risk 
and liquidity risk. It is the bread-and-butter kind of work of 
bank management.
    So we are monitoring the financial system, monitoring the 
banking system. We are looking at interest rate risk and 
liquidity risk across the banking system to assess that, where 
banks need to do better at interest rate risk and liquidity 
risk management, reporting that out. But I think the 
fundamental point is the banking system is sound and resilient.
    Senator Smith. I might have mentioned to you when we spoke 
that I had a chance to meet with a group of Minnesota bankers, 
including Minnesota has more community bankers, I think, per 
capita than any State in the country. And they were eager to 
point out to me that their business models are very different 
from the business models of highly risky enterprises like 
Silicon Valley Bank. So I appreciate you raising that. In fact, 
I have been getting texts from some of my bankers today, 
watching this hearing, and wanting to point out that 
difference.
    Mr. Barr, can you talk about the risks of interest rates, 
sort of this interest rate risk as it might affect nonbanking 
institutions as, for example, mortgage loan companies?
    Mr. Barr. Thank you. First let me just say, as you 
indicated, I hear from community bankers as well, and I know 
many other Senators have in your home States, the vibrancy and 
the health of that community banking sector, and we see that 
too.
    We are obviously looking at interest rate risk as it 
affects not only banks but also the nonbank sector. We look at, 
of course, nonbank mortgage servicers. We look at hedge funds. 
We are looking broadly across the financial landscape to see 
where those risks might arise and how those might propagate in 
other ways into the bank system. So we are highly attuned to 
that.
    But again, I think the basic point is that the banking 
system is sound and resilient, depositors are safe, and we 
have, through our actions, demonstrated that.
    Senator Smith. Thank you very much. Thank you, Mr. 
Chairman.
    Chair Brown. Thank you, Senator Smith.
    Senator Lummis, of Wyoming, is recognized.
    Senator Lummis. Thank you, Mr. Chairman, and thank you 
panel. I want to follow up a little bit on Senator Kennedy's 
line of questioning. As I read Statute 5365, Section C, Risks 
to Financial Stability, Safety, and Soundness, ``The board of 
Governors may order or rule''--excuse me--``the board of 
Governors may, by order or rule promulgated pursuant to Section 
553, apply any prudential standard established under this 
section to any bank holding company with consolidated assets 
equal to or greater than $100 billion.'' So that was Silicon 
Valley Bank.
    Then you have got Statute 2155, that when it was changed 
from ``may'' to ``shall'' made mandatory a new duty on the 
Federal Reserve to take into account higher-risk profiles 
presented by certain banks, and to strengthen supervision of 
those banks.
    So you look at Silicon Valley Bank. They had a number of 
activities with above average risk profiles--the concentration 
of deposits, the quantity of uninsured deposits, 94 percent 
uninsured deposits. Then you look at Federal Reserve authority 
under Regulation YY, to impose additional risk-based or 
leverage capital or liquidity requirements or other 
requirements the board deems necessary to carry out the 
purposes of Dodd-Frank.
    I look at all this and I think that among all these 
statutes and regulations the Fed had plenty of authority to 
prevent Silicon Valley Bank and the problems it encountered, 
and was aware pretty early on that there were unique problems 
there and that it was a very, very unique financial institution 
because of its risk profile, but did not do it.
    As I look at what authority you have been given, I cannot 
think of another additional rule or regulation or law that you 
needed. Tell me whether you agree with that or not.
    Mr. Barr. Senator, I agree that the Federal Reserve has 
substantial discretion to alter, through notice and comment 
rulemaking, the rules that were put in place in 2019 with 
respect to firms over $100 billion. There are some areas that 
the statute would provide some limitation to, but there is 
substantial discretion for the Federal Reserve to change its 
rules for firms in the $100 to $250 billion range.
    Senator Lummis. Change its rules. What would it have to do?
    Mr. Barr. We would have to go through a notice and comment 
rulemaking process.
    Senator Lummis. Oh, I do not mean the procedure for 
changing a rule. I mean, what changes would you make to the 
rule?
    Mr. Barr. Senator, we have not made a definitive conclusion 
on that. We are undertaking this review of SVB's failure in 
order to better assess whether it would be appropriate to 
change capital rules and liquidity rules of this size firm, for 
firms more generally. We are looking at that right now.
    Senator Lummis. Is fractional reserve banking overly risky 
in this age of online banking?
    Mr. Barr. Senator, let me just repeat what I said before, 
which is that overall the safety and soundness of the banking 
system is strong. Banks are safe and sound. Depositors should 
feel assured that their deposits are safe.
    Senator Lummis. Well, here is the problem, though. As I see 
it, the way that these banks have been managed, Wyoming's 
community banks may end up paying for this through higher 
assessments from the FDIC. Am I correct, Mr. Gruenberg?
    Mr. Gruenberg. As I indicated, Senator, in regard to these 
two institutions any cost of the deposit insurance fund from 
covering uninsured deposits is required by law to be recovered 
through an assessment on the banking industry.
    Senator Lummis. Exactly.
    Mr. Gruenberg. If I could make one additional point. The 
law does give the FDIC authority in implementing that 
assessment to consider the types of entities that benefit from 
any action taken or assistance provided.
    Senator Lummis. So are you saying that you are able to 
exempt Wyoming's community banks from paying for this?
    Mr. Gruenberg. I am suggesting we have some discretion 
there and we are going to consider that carefully.
    Senator Lummis. Will you exempt community banks from having 
to pay for this?
    Mr. Gruenberg. That is a judgment our board is going to 
have to make, and as I indicated, we anticipate going out for 
notice and comment public rulemaking in May to implement the 
assessment. And as I indicated, we have discretion here----
    Senator Lummis. Do you have to go through APA rulemaking to 
assess?
    Mr. Gruenberg. That is the law. That is a legal 
requirement.
    Senator Lummis. Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Lummis.
    Senator Warren, of Massachusetts, is recognized.
    Senator Warren. Thank you, Mr. Chairman.
    So we just experienced the second- and third-largest bank 
failures in American history. Executives at SVB and Signature 
took wild risks and must be held accountable for exploding 
their banks. And I will soon introduce a bipartisan bill to do 
exactly that. But let us be clear. These collapses also 
represent a massive failure in supervision over our Nation's 
banks.
    So coming out of the 2008 crisis, Congress put tough 
banking rules in place. Now big banks hated them, and their 
CEOs lobbied hard to weaken those rules. Ultimately, Congress 
signed off and then it got bad, really bad. Regulators burned 
down dozens of safeguards that were meant to stop banks from 
making risky bets.
    The three of you here today represent the U.S. Treasury, 
and two of our top banking regulators. I would like to know if 
you believe that we need to strengthen our banking rules going 
forward to ensure the safety of our financial system.
    Vice Chair Barr, let me start with you. Do you believe we 
should strengthen our financial rules going forward?
    Mr. Barr. Yes, I do, Senator.
    Senator Warren. Thank you. President Biden agrees with you 
as well. Two weeks ago he stated that we must, quote, 
``strengthen the rules for banks to make it less likely that 
this kind of bank failure would happen again.''
    Chairman Gruenberg, what about you? Do you agree with 
President Biden that we need to strengthen our banking rules?
    Mr. Gruenberg. I do agree, Senator.
    Senator Warren. Good. And now Under Secretary Liang, do you 
agree with the President on this?
    Ms. Liang. Senator, I agree that we do need to prevent 
these types of bank failures. And----
    Senator Warren. Well, I am asking you--of course we need to 
prevent them. But that is not by simply wishing it. It is by 
stronger regulation. Is that right?
    Ms. Liang. I agree, Senator.
    Senator Warren. OK. Good. Now we need better laws here in 
Congress but let us also talk about how we can strengthen the 
rules today even before Congress acts. Under current law, the 
Federal Reserve has the discretion to apply stronger prudential 
standards on banks with assets between $100 billion and $250 
billion, exactly the size of Silicon Valley Bank. That 
authority is not being used right now.
    Vice Chair Barr, as you use your authority to strengthen 
rules for the largest banks in this country will you be 
reaching banks with assets of at least $100 billion?
    Mr. Barr. Senator, we, of course, would need to go through 
a notice and comment rulemaking----
    Senator Warren. I understand.
    Mr. Barr. ----in this process. But I anticipate the need to 
strengthen capital and liquidity standards for firms over $100 
billion.
    Senator Warren. OK. So this is the area we are looking at. 
We are going to push down further in terms of the greater 
scrutiny.
    Chairman Gruenberg, let me turn to you. Once the Fed began 
torching rule after rule in 2018 for big banks, the FDIC, under 
your predecessor, joined in on the fun and also started 
weakening FDIC rules across the board--capital and liquidity 
requirements, stress tests, you name it. In fact, your 
predecessor explicitly told these banks that if FDIC bank 
examiners were asking too many questions that they should, 
quote, ``let us know,'' end quote. Now there is a banking 
regulator who makes it clear that she is there to serve the big 
banks instead of the American public.
    Chairman Gruenberg, will you commit to using your authority 
to undo the rollbacks that your predecessor initiated and to 
strengthen the rules and supervision for banks with greater 
than $100 billion in assets?
    Mr. Gruenberg. Senator, as I think you know I was a member 
of the board at that time----
    Senator Warren. I do.
    Mr. Gruenberg. ----and voted against those measures. And I 
certainly think it is appropriate for us to go back and review 
those actions in light of the recent episode and consider what 
changes should be made.
    Senator Warren. Well, I have to say review sounds a little 
wishy here. You did not think they were good rules to begin 
with.
    Mr. Gruenberg. My views have not changed, Senator.
    Senator Warren. All right. So you still think they were a 
bad idea?
    Mr. Gruenberg. I do.
    Senator Warren. Got it.
    You know, each of you at this table has authority that you 
could exercise right now to strengthen rules for big banks and 
to ensure that our banking system and our economy are safer. I 
urge you to use that authority and I urge my colleagues here in 
Congress to do our part to protect American families and small 
businesses from yet another banking crisis.
    Thank you. Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Warren.
    Senator Hagerty, from Tennessee, is recognized.
    Senator Hagerty. Thank you, Mr. Chairman. If you would 
allow me just a moment to speak to the tragedy that occurred at 
the Covenant School in Nashville, Tennessee, yesterday. A 
depraved person, a sick person executed a tragic act and it 
yielded a terrible result. And my entire community is mourning. 
We are mourning for the families, for the victims, for 
everybody concerned.
    I also want to acknowledge the bravery of the Nashville 
Police Department. They stepped into harm's way and within 14 
minutes brought the situation under control. Tremendous bravery 
at a time when it is called for, and I want to acknowledge 
their sacrifices.
    Now let us turn to the matter at hand, and I know that 
politics in Washington always seizes upon any crisis as an 
opportunity to achieve whatever regulatory or legislative 
opportunity or goal that may be in front of them. But I would 
like to talk about managerial execution here. Specifically, I 
would like to start with you, Chairman Gruenberg. I would like 
to talk through a series of events that followed SVB's failure 
2 weeks ago.
    As you know Silicon Valley Bank was taken into receivership 
on a Friday morning. That gave the FDIC 3 days to find a buyer 
before markets opened on Sunday night. You had tremendous 
resources at your disposal, 18 years on the FDIC board 
yourself, detailed resolution plans, over 5,000 employees, and 
interest from a number of banks to bid, including at least one 
formal offer as I understand it.
    Instead of successfully executing this process, however, 
the FDIC used the systemic risk exemption to guarantee all 
deposits at SVB, creating tremendous uncertainty across our 
economy. And now, 2 weeks later, the FDIC has announced the 
sale of less than half the failed bank's assets at a loss of 
$16.5 billion.
    So my first question, in the joint statement released on 
March 12th you said, quote, ``No losses associated with the 
resolution of Silicon Valley Bank will be borne by the 
taxpayer.'' Is that still your position?
    Mr. Gruenberg. Senator, yes. As you know----
    Senator Hagerty. Well, the problem is, with two partial 
sales completed and over $22 billion in losses already accrued, 
that position just does not square with reality. These losses 
are borne by the Deposit Insurance Fund. That fund is going to 
be replenished by banks across the Nation that had nothing to 
do with the mismanagement at Silicon Valley Bank or the failure 
of supervision here. In fact, that is going to be addressed by 
a special assessment to those banks. And as we all know, these 
banks will have to pass these costs along. Last time I checked, 
those costs get passed along to the consumer. Those consumers 
are American taxpayers.
    Chairman Gruenberg, invoking the systemic risk exemption is 
a last resort emergency option to the typical methods of 
resolution, and it begs the question of why you had to invoke 
that extraordinary exception. Just this past Sunday's 
announcement of a new purchaser of part of SVB, not only were 
serious losses incurred but the FDIC entered into a loss-
sharing agreement with the acquiring bank and a $70 billion 
line of credit was extended to the purchaser. That is a pretty 
sweet deal. This makes me wonder what prevented the FDIC from 
coming to a deal like this 2 weeks prior.
    You told Ranking Member Scott that you received bids for 
SVB over the weekend following its collapse, but that they were 
insufficient. What was your counteroffer, and did you engage 
with the board of the bank that did not approve this to get 
them to step up and approve it?
    Mr. Gruenberg. We received one offer that was, frankly, 
more expensive than the cost of liquidation. It did not appear 
to be a viable offer at that moment.
    Senator Hagerty. Was there a counteroffer to that?
    Mr. Gruenberg. I would have to check with our staff in 
terms of how much of a back-and-forth occurred.
    Senator Hagerty. Let us talk about the bidding process 
itself. Were certain banks dissuaded by you or anyone else 
associated with this from bidding on SVB, either before or 
after the bank was taken into receivership?
    Mr. Gruenberg. No, Senator.
    Senator Hagerty. Throughout the course of that weekend I 
was inundated with phone calls, telling me that legitimate 
bidders were being waved off of the process. It is one thing to 
reject a bid if it is bad, but if ideology had anything to do 
with this, this entire Committee is going to be deeply 
concerned about that.
    I look forward to the GAO's report on this because the 
result of this failure places the banking sector in a state of 
disarray that we have never seen before. In spite of all the 
preparation and tools at your disposal, the FDIC failed to do 
its job. There was obviously enough demand to orchestrate a 
sale. What it looks like to the American people is that you 
simply did not feel the incentive to execute and leaned on the 
systemic risk exemption to buy time, and in doing so have 
placed the entire U.S. banking sector into uncharted waters. I 
do not see any apparent improvement in outcome, and this is a 
disgrace. I look forward to the GAO review, and I hope that we 
get to the bottom of this.
    Vice Chair Barr, very quickly I would like to come to you. 
In response to the 2008 financial crisis, the size and scope of 
the regulatory regime was dramatically expanded by Congress. 
Regulators like yourselves were given powers, not to mention 
hundreds of academics at your disposal, with the sole job of 
monitoring and addressing risk to the financial system. All of 
this was in hopes of identifying and preventing bank failures 
that pose systemic risk.
    And in spite of all these tools, we find ourselves in a 
situation today that is unprecedented. It is pretty clear that 
Silicon Valley Bank was woefully mismanaged. Their management 
team, which did not have a Chief Risk Officer for 8 months last 
year, yet created and maintained a Chief Diversity, Equity, and 
Inclusion Officer, allowed their bank to accumulate truly 
shocking levels of risk.
    And while this was occurring, the San Francisco Fed was 
focused on researching left-wing policies that they had 
absolutely no expertise in, ignoring one of the most basic 
risks in banking--interest rate risks. Perhaps most damning of 
all, until the day of their failure SVB's CEO sat on the board 
of the San Francisco Fed.
    So Mr. Barr, in your review of what went wrong in your 
supervision, will you consider the level of managerial 
distraction that was evident at the San Francisco Fed?
    Mr. Barr. Senator, the staff have free rein to examine any 
issue that might have addressed supervision. I think the core 
issues are the ones I suggested at the outset, and they are 
really basic--interest rate risk mismanagement by the bank, 
liquidity risk mismanagement by the bank. The examiners at the 
San Francisco Federal Reserve Bank called those issues out to 
the board, called them out to the bank, and those actions were 
not acted upon in a timely way. So, in a way, the issue is 
pretty straightforward.
    Senator Hagerty. I hope you will dig into the urgency, the 
sense of urgency that was brought to bear on this, and the 
sense of pressure, and if every tool at their disposal was 
used, because they certainly were doing other things well 
beyond their remit.
    Thank you. Thank you, Mr. Chairman.
    Senator Tester [presiding]. Absolutely. Thank you for your 
questions. I am going to ask the questions now, if I might.
    In 2008, I voted against the bailouts of the big banks 
because I do not support taxpayer bailouts. We do need to 
protect American consumers and small business folks. We need to 
hold bank executives accountable when they screw up. And if the 
regulators were asleep at the wheel we need to hold them 
accountable.
    Look, a correlation I would say is when I run my farm if I 
look at the price of diesel fuel and seed, and that his all I 
look at, I do not get the whole picture. And quite frankly, I 
will not be in business long. If regulators are only looking at 
capital, that is not everything that is going on.
    At Silicon Bank they had a concentration in a highly 
volatile industry, they had grown rapidly, they had mostly 
uninsured deposits, their investments were poorly timed with 
interest rate increases that were clearly forecasted--all 
setting the conditions for a classic bank run, one that 
happened quickly due to new technologies that are out there.
    So Vice Chair Barr, from 2020 to 2022, the Silicon Valley 
Bank grew from $71 billion to more than $200 billion. This was 
a very rapid growth. It was heavily concentrated with techs and 
startups, industries that have always been volatile. Then the 
bank took those mostly uninsured deposits and invested them in 
long-term U.S. Treasuries, when the Fed had been clearly 
forecasting that rates were going to go up, which the bank 
executives should have known because their CEO was a director 
at the San Francisco Fed. And for 2 years it seems that Federal 
regulators were flagging concerns about this situation.
    Is that a fair statement, that for 2 years the Fed was 
flagging concerns about this bank's financial viability?
    Mr. Barr. Senator, the examiners were focused on interest 
rate risk and liquidity risk at the beginning of November 2021, 
at least as far as I know from the supervisory record thus far. 
I have not seen something that said that the supervisors were 
focused on whether the firm was viable, but our review is 
underway.
    Senator Tester. But does that not impact the viability?
    Mr. Barr. Yes, Senator. A core safety and soundness risk, 
liquidity risk and interest rate risk are core risks that the 
bank mismanaged.
    Senator Tester. So were the regulators physically in the 
bank? I have talked to a lot of intermediate-sized banks. They 
tell me that the regulators are right there 5 days a week, 7 
days a week if they are open 7 days a week. Were the regulators 
in that bank?
    Mr. Barr. Physically speaking----
    Senator Tester. Yes.
    Mr. Barr. ----I actually do not know. Part of the 
supervisory period is during the pandemic when activities were 
happening----
    Senator Tester. I have got you.
    Mr. Barr. ----in part remote.
    Senator Tester. OK.
    Mr. Barr. So I do not have yet----
    Senator Tester. But I just want to point out the fact that 
the pandemic has been over for a bit, for quite a bit, and the 
opportunity for those regulators to be in there would have been 
long before a month ago.
    Mr. Barr. Yes, Senator. I do not have the full supervisory 
record. We have just begun our review. And I want to be careful 
to answer only questions I know.
    Senator Tester. Do you know if the Fed supervisors met with 
the board of directors of Silicon Valley Bank?
    Mr. Barr. I do not know that yet. I know they met with 
senior management, but I am still reviewing that.
    Senator Tester. So you would not know if Silicon Valley 
Bank had a risk committee, and if, in fact, the Fed supervisors 
met with the risk committee?
    Mr. Barr. I will know that by the May 1st report.
    Senator Tester. So were they warned about potential finds?
    Mr. Barr. I am sorry. Could you say that again?
    Senator Tester. So, I mean, look, they had some problems. 
Were they warned to either fix them or they were going to get 
fined?
    Mr. Barr. The Matters Requiring Attention and Matters 
Requiring Immediate Attention, to my understanding, require the 
fixing of the problem, but I do not know whether they have 
highlighted any additional steps that might be taken. Certainly 
the firm was on notice that they needed to fix those problems 
quite clearly since November of 2021.
    Senator Tester. But yet they did not.
    Mr. Barr. They did not.
    Senator Tester. So at what point in time do the Fed 
regulators drop the hammer on this outfit? I mean, I do not 
even need to get going on the bank CEO taking a ton of money, 
right before this thing went belly up, as it was going belly 
up. At what point in time--we could have all the regulations on 
the book. I have talked to a lot of bankers who said if this 
would have happened before Dodd-Frank the regulations would 
have stopped this from happening.
    And we have Dodd-Frank, and we did make 2155 to tailor the 
regulations to fit the risk--that was a big part of it--on the 
intermediate banks, and, in fact, on the small banks too. But 
yet for over a year--and correct me if I am wrong, Mr. Barr--
for over a year regulators were saying to this bank, 
``Straighten up and fly right,'' and they never did a damn 
thing about it, and the regulators did not make it so damn 
miserable--which my understanding is regulators are pretty good 
at that when they want to be--make it so damn miserable that 
these folks would adjust their business plan to take care of 
the risks that were in their bank.
    Mr. Barr. Senator, I agree that the risks were there, that 
the regulators were pointing them out, and the bank did not 
take action. It is ultimately, in the first instance, the bank 
management responsibility to fix these problems, and they 
failed to do it.
    Where we did not take enough action, the Federal Reserve 
supervisors did not take enough action, we are going to be 
talking about that in our review and we expect to be held 
accountable for it.
    Senator Tester. So I have got to tell you, Michael Barr, I 
am not a banker. I ain't even close to being a banker. I am a 
dirt farmer. And I am going to tell you, when they laid out 
what had happened at this bank over the last 2 years, you did 
not have to be an accountant to figure out what the hell was 
going on here.
    Mr. Barr. I agree.
    Senator Tester. And all I have got to say is as you do your 
look-back into what transpired, it better be fixed. If it is 
the regulators' fault, it better be fixed. If it is the 
regulation fault, it better be fixed. If it is something else, 
I hope there is a report to this Committee saying, ``You know 
what, guys? This can happen again unless this happens.'' But it 
looks to me--I will just say this and I am looking from the 
outside in--it looks to me like the regulators knew the problem 
but nobody dropped the hammer.
    Mr. Barr. Thank you, Senator Tester. As I said, our review 
is going to be thorough, it is going to be open, and if we find 
problems like the ones that you just described, we are going to 
say it clearly and describe what we think should be done.
    Senator Tester. When do you think that report will be done? 
And I am way over time. Sorry. When do you think that report 
will be done?
    Mr. Barr. May 1st.
    Senator Tester. May 1st. So we have got a month.
    Senator Scott. We should have them back after the report is 
done.
    Senator Tester. We look forward to that. Thank you.
    Senator Scott [presiding]. Senator Vance.
    Senator Vance. Thank you, Mr. Chairman, and thanks to the 
three of you for being here.
    I want to talk just a little bit about the inherent 
unfairness and what I think transpired with Silicon Valley 
Bank. I come from the venture capital industry, and this is a 
statement against interest and certainly a statement against 
the interest of some of my friends. But the business model of 
Silicon Valley Bank was to provide banking services to venture 
capital firms and to venture-backed companies. And if you think 
about the fundamental trade that was implied--and I would even 
say explicit in their business model--what they did is they 
offered highly beneficial financial products to venture-backed 
companies and venture-capitalists in exchange for having a 
large number of deposits in your Silicon Valley Bank account, 
sometimes often exclusively.
    So a common practice, for example, was to say that you 
would provide a line of credit to a venture capital firm but 
only if that firm put all of its money, 100 percent of its 
deposits, in Silicon Valley Bank, or they would offer private 
jet financing and other goodies that are basically beneficial 
only to the very wealthy, in exchange for having all of your 
deposits at Silicon Valley Bank.
    Now given that that was implied in the business model of 
the bank, I think it is important that we use the term 
``bailout''--and I know that some of you do not like that term, 
but I think it is the only term that applies fairly here, 
because we, using excess fees on community banks all across the 
country, effectively chose to bail out the uninsured depositors 
at Silicon Valley Bank.
    Now there are some outrageous examples there. I think one 
firm had deposits over $3 billion, and another, I think Roku 
had deposits of $500 million. But there were a lot of people, a 
lot of firms at Silicon Valley Bank that had deposits well over 
$1 million, well over $5 million. And what we did, in practice 
do was bail them out.
    I guess my first question, I put this to all three of you, 
and because time is limited I would like you to answer quickly, 
is what is the threshold? Whether you guys meant to or not, I 
think the implication of what happened with Silicon Valley Bank 
is that there are a lot of people who expect that their 
uninsured deposits are effectively insured at an unlimited 
level, or if you are a banker there is an assumption, for a lot 
of people, that at a certain level if you are systemically 
important enough you uninsured depositors are going to get 
bailed out.
    Maybe just go from left to right, starting with Mr. 
Gruenberg. But at what level do you think uninsured deposits, 
in theory, are effectively unlimited, uninsured in our banking 
system today?
    Mr. Gruenberg. If I may say, Senator, you are asking 
important questions. I think we have a lot of lessons to learn 
from this episode. The decision to cover uninsured depositors 
at these two institutions was a highly consequential one----
    Senator Vance. Yes.
    Mr. Gruenberg. ----that has implications for the system. I 
think we need, and I indicated in my statement earlier, we need 
to do a comprehensive review of our deposit insurance system 
and consider the questions that you raise. The FDIC is going to 
undertake that, and by May 1 we will deliver a report, 
including policy considerations to take into account. So we 
want to try to be responsive on that.
    Senator Vance. Thank you. Mr. Barr.
    Mr. Barr. I also think you raise important questions. When 
we were looking at the systemic risk determination with respect 
to these institutions we were thinking about the risk to the 
broader financial system, not the particular depositors at one 
or two institutions. We were thinking about and concerned about 
the extent to which that could impact regional banks across the 
country, community banks across the country.
    We were hearing concerns from bankers and from depositors, 
from businesses around the country. It is a difficult judgment 
but one that, at the end of the day, unanimous FDIC board and a 
unanimous Federal Reserve board and the Treasury Secretary 
agreed that that risk to the system was not a risk that was 
worth taking.
    And so, you know, today I think we can say that the banking 
system is sound and resilient, and the steps we took 
demonstrated that resilience and the safety of deposits around 
the country.
    Senator Vance. So I am less concerned with the decision 
itself, though obviously I have a lot of questions there. I 
think there is an open question about whether we could have 
provided the confidence to the banking system, the liquidity 
that was needed in case of a bank run without bailing out the 
uninsured Silicon Valley Bank depositors. I think that is maybe 
a topic for a follow-on hearing.
    But what I worry about is the fundamental unfairness here, 
that we have drawn a line--and I do not know whether the line 
stops at Silicon Valley Bank. Maybe it goes much further. Maybe 
it stops there--where if you are systemically important, which 
is a term that is impossible for anybody here to define with 
confidence, if you are systemically important, your uninsured 
deposits are effectively unlimited in their insurance, whereas 
if you are not systemically important, if you are a regional 
bank in Ohio, there is a very good chance that your uninsured 
depositors will not receive that bailout.
    And I think that uncertainty is a really, really big 
problem with what you guys have done. I am not saying that in 
an accusatory way. I understand that there were reasons to do 
what you did, even though I do not think it was the right 
decision. I am just saying I think it has some real moral 
hazard here.
    I know I am over time here, so the one thing I would ask 
here is just unanimous consent to introduce a letter into the 
record from American Share Insurance. This is a company that 
provides private deposit insurance to most State-chartered 
credit unions, including the 43 in Ohio. And just on this point 
of moral hazard and on this point of unfairness, what I would 
you guys to consider doing is extending the same implied offer 
that you gave to the Silicon Valley Bank uninsured depositors, 
to do it a little bit further down the banking ladder so that 
everybody benefits from the rule that you guys have created for 
Silicon Valley Bank.
    Senator Scott. Without objection.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman, and thank all 
of you for your service and testimony today.
    Mr. Gruenberg, you are aware, are you not, of the fact that 
the CEO of SVB sold $3.6 million in company stock just 10 days 
before the bank collapsed and the FDIC took over its deposits. 
You are aware of that, right?
    Mr. Gruenberg. I am, Senator.
    Senator Van Hollen. And are you aware of the fact that 
other executives of the bank and employees of the bank received 
bonuses literally hours before SVB collapsed?
    Mr. Gruenberg. Yes, Senator.
    Senator Van Hollen. Now I believe we need to have an 
independent investigation into any criminal culpability, the 
possibility of insider trading in this case. But regardless of 
any criminal culpability that may be there, I think it is 
simply wrong, and I think almost every American would agree it 
is simply wrong for the CEO and top executives to profit from 
their own mismanagement and then leave FDIC to be holding the 
bag.
    Would you agree with that proposition, that that would be 
wrong?
    Mr. Gruenberg. Yes, Senator.
    Senator Van Hollen. Now Dodd-Frank provides clawback 
authority that applies to the biggest banks under the Orderly 
Liquidation Authority, under OLA. But as I understand it, that 
authority does not apply to SVB Bank. Am I right about that?
    Mr. Gruenberg. That is correct, Senator. Could I elaborate 
on that briefly?
    Senator Van Hollen. If you could briefly.
    Mr. Gruenberg. Very briefly. We do not have explicit 
clawback authority. We do have an obligation to investigate any 
misconduct by the board and management of the institution, and 
we do have authorities to impose consequences, including civil 
money penalties, restitution, and barring individuals from the 
business of banking.
    So we can get at some of the issues raised, but it is true 
we do not have explicit clawback authority. And I indicated 
earlier it would be reasonable to create parity between the 
Dodd-Frank Act and the Federal Deposit Insurance Act in that 
regard.
    Senator Van Hollen. Well, I am glad you raised that. I 
heard your response earlier, and Senator Kennedy, a Member of 
this Committee, and I are working right now on bipartisan 
legislation to accomplish exactly what you said. I hope we can 
introduce it this week, and I know the Chairman of the 
Committee is interested as well, in pursuing that. And I asked 
Secretary Yellen in another hearing last week whether she and 
the Biden administration fully supported it. The answer was 
yes.
    So I hope we can move forward on that piece as quickly as 
possible, because there does seem to be a hole in your 
authority. You have some authorities, you indicated, but there 
is a hole in that authority that we have to plug, and you agree 
with that.
    Mr. Gruenberg. I do, Senator.
    Senator Van Hollen. So Vice Chair Barr, I wanted to ask you 
about some guidance, in fact a rule that was issued by your 
predecessor, former Vice Chair of Supervision Quarles, shortly 
before his departure in March 2021. And this rule established 
that supervisory guidance does not have the force of law, and 
it cannot be used in the event where it would halt banks' 
abilities to conduct mergers and acquisitions and that sort of 
thing.
    I fully understand the distinction between supervisory 
guidance and black-letter law, but I think it is important to 
note that this request for this rule, according to the Fed's 
staff memo, that this guidance was issued upon industry 
request, and they specifically note the Bank Policy Institute 
and the American Bankers Association is submitting a petition 
asking for this rule to provide guidance to try to weaken the 
punch of the supervisory rules.
    Are you aware of that?
    Mr. Barr. Yes, Senator.
    Senator Van Hollen. This goes into the frame that the 
Chairman of the Committee made earlier on, where we have got a 
lot of folks that had been saying, for months and years, let us 
rein in the bank supervisors, and now all of a sudden it is 
like where were the supervisors? Why were they not being more 
aggressive?
    Do you agree that that guidance, putting that into a rule, 
sent a message that you do not have to listen to supervisors' 
guidance that much, and would you be willing to take a look at 
whether or not that should be repealed?
    Mr. Barr. Senator, I am not sure of the impact of that 
guidance. I think it is an appropriate area for us to be 
looking at. I know that staff are going to be thinking about 
that with respect to the SVB case, whether it mattered or it 
did not matter. I do think it is an appropriate area to look 
at, but I do not have a firm conclusion about it.
    Senator Van Hollen. Well, I hope you will take a look at it 
because it was done at the behest of the industry, and clearly 
the intent was to undermine the impact of the guidance provided 
by the regulators. So it seems to be part of a pattern of an 
effort to push back on regulators' authority and then come back 
and do the Monday morning quarterbacking and saying where were 
they.
    Thank you, Mr. Chairman.
    Chair Brown [presiding]. Thank you, Senator Van Hollen.
    Senator Daines has yielded to Senator Britt, right? Senator 
Britt is recognized, from Alabama.
    Senator Britt. Thank you, Mr. Chairman. Thank you, Senator 
Daines. I appreciate the opportunity to be able to ask you all 
a few questions. I want to start by saying I am proud to be 
from the great State of Alabama, where our financial 
institutions are strong, our regional banks, our community 
banks, our credit unions, and the critical role they play from 
our Main Streets to our rural roads could not be understated. 
So I am proud of the work they do and proud of the strength 
they continue to exhibit.
    Mr. Barr, I want to follow up on a question that one of my 
colleagues brought up. You keep talking about the Fed focusing 
on the size of SVB and banks. However, 2155 also requires the 
Fed to take into consideration riskiness, complexity, financial 
activities, along with other risk-related factors. Tailored 
supervision ensures that the Fed focuses on the most risky 
banks. You have said repeatedly that bank mix management led to 
SVB's failure.
    The whole point of 2155 was so that you could tailor your 
regs and your supervision to risk. So why did you not require 
definitive corrective action based on the flaws that you saw?
    Mr. Barr. Thank you very much, Senator Britt, and I 
appreciate your comments about the Alabama banking sector, 
which I think is a thriving sector and is contributing to its 
communities, and like bankers across the country, is strong and 
vibrant. You should be very proud.
    Senator Britt. Thank you. We are.
    Mr. Barr. We are looking at the range of tailoring 
approaches the Federal Reserve took. The decision to set those 
lines by asset size and other risk factors was made back in 
2019. I joined the board in July of 2022, and began looking at 
that approach. I expect to continue to review it as part of the 
SVB review, and I believe we have substantial discretion to 
alter that framework.
    Senator Britt. Excellent. You have talked about your 
review, which is ongoing. In that review will you take a look 
at if you used all of the tools in your toolbox to prevent 
this, both before and after? Will that be part of your review?
    Mr. Barr. Yes, Senator. The staff are reviewing the steps 
that supervisors took and whether they should have taken more 
aggressive action.
    Senator Britt. So at the current rate, though, you cannot 
speak to whether or not you utilized all of the powers that 
were given to you.
    Mr. Barr. I really would like to wait for the formal 
review, for the staff to come evaluate the full supervisory 
record to make an assessment. But we are certainly very focused 
on that question, and if we did not do the right steps we are 
going to say that.
    Senator Britt. Yes. Well, I find it concerning, though, 
when you all were asked, each one of you were asked would you 
like to see more powers, more strength in this, and every 
single one of you said yes, when you do not actually know if 
you utilized the tools in your toolbox correctly or if the 
people that were under your supervision were supervising 
appropriately.
    I think that is what people hate about Washington. We have 
a crisis and you come in here without knowing whether or not 
you did your job. You say you want more. That is not the way 
this works. You need to be held accountable, each and every one 
of you. I am a big believer in you have got to own your own 
space.
    And speaking of, Mr. Gruenberg, I want to talk about yours. 
You were not the primary supervisor here. Obviously that is the 
Fed. But you are the nonprimary supervisor for SVB, or were. Is 
that correct?
    Mr. Gruenberg. Yes. We have backup supervision.
    Senator Britt. You have backup supervision. You had that 
before Dodd-Frank. Correct?
    Mr. Gruenberg. Yes.
    Senator Britt. You had it after Dodd-Frank. Correct?
    Mr. Gruenberg. Yes.
    Senator Britt. And 2155 did not change that responsibility 
that you had.
    Mr. Gruenberg. That is correct.
    Senator Britt. Right. So in that role what did you do prior 
to the bank's failure to exercise that power?
    Mr. Gruenberg. In this instance we were working with the 
Fed as the institution was experiencing difficulties, but I 
think it is fair to say that it was in a supportive role with 
the primary regulator.
    Senator Britt. OK. But you did raise this to the primary 
regulator. You did exercise that.
    Mr. Gruenberg. We were working with the primary regulator 
in regard to the institution.
    Senator Britt. Excellent. I am so glad to hear that. We 
have to make sure that we are working together and doing our 
job in order to prevent these things from happening in the 
future.
    One of the things I also want to talk about is just the 
different responsibilities that each of you have and whether 
they were executed, and then additionally we will move into the 
FDIC's bank auction process for just a minute, although I only 
have 33 seconds left.
    It seems that you failed to put the bank in receivership, 
and the FDIC passed on allowing the Silicon Valley Bank to be 
purchased. Is that a correct assessment, or do you feel like 
that has been incorrectly identified throughout the new cycles?
    Mr. Gruenberg. Yes, Senator. The bank was placed in 
receivership on Friday morning, and we endeavored to solicit 
bids over the weekend As I indicated previously it was a rapid 
failure so there was no opportunity prior to failure to prepare 
for a resolution. We tried to market it. We had two bids. 
Neither would have been less costly than liquidation. So we 
then proceeded to put in place a process where we were able to 
bid it out.
    Senator Britt. Yes, and I am out of time but I will say, 6 
months prior, JPMorgan noticed that there was a problem, their 
equity research team, and then Moody's obviously met with SVB 
prior to saying they were going to downgrade. So I have heard 
you all say this was a rushed process. If the outside sector 
knew this was happening, you and the Fed and the 4,000 
examiners should have known that this was coming as well.
    Chair Brown. Senator Warnock, of Georgia, is recognized.
    Senator Warnock. Thank you very much, Mr. Chairman.
    Many Americans, in fact all of us, would remember the 
unfairness of 2008 and that crisis, when bankers who made bad 
decisions, who played games with our economy, not only did they 
not go to jail, they got to keep their jobs and their 
multimillion-dollar salaries. I feel that in a particular way 
as someone who pastors and moves in communities where poor and 
marginalized people have the weight of the law come down upon 
them for the smallest of infractions. Not one banker went to 
jail. They kept their multimillion-dollar salaries. When 
bankers made risky bets that threatened our entire economy they 
got to cash in. They should be held accountable.
    We discovered shortly after regulators took control of 
Silicon Valley Bank that top executives at the bank offloaded 
millions of dollars' worth of stock in the weeks leading up to 
the collapse--very convenient--including their former CEO, who 
sold $3.6 million worth of stock 2 weeks before the bank 
crashed. The Dodd-Frank banking reform law included a 
compensation clawback provision for executives identified as 
excessive risk takers, in other words, those who put their 
banks and the entire economy in jeopardy.
    Mr. Gruenberg, the FDIC, in conjunction with the other 
financial regulators, began working on a rule to implement this 
provision in Dodd-Frank in 2011, and then again in 2016, but a 
final rule was never issued. Does the FDIC have plans to 
revisit this rule?
    Mr. Gruenberg. It has been discussed, Senator, and it seems 
to me appropriate.
    Senator Warnock. It is appropriate, and I would say urgent. 
And I know that the Justice Department and the SEC are looking 
closely into this matter, and I would encourage them to include 
any evidence of insider trading. That seems only appropriate 
given the circumstances. That should be a part of the scope of 
their probe.
    But there is a scenario where these executives not only get 
away scot-free but also with sizable paydays, and the FDIC 
should use every tool it has at its disposal to prevent it. We 
certainly do not want to incentivize this kind of behavior.
    So again, Mr. Gruenberg, outside of this rule, tell me 
where can Congress step in to stop incentivizing this type of 
high-risk behavior? Does the FDIC need additional legal tools 
to hold excessive risk takers accountable?
    Mr. Gruenberg. Thank you, Senator. First, as a matter of 
law, whenever a bank fails the FDIC is required to conduct an 
investigation of the conduct of the board and the executives of 
the institution, and we have authorities under the law to 
impose accountability, including civil money penalties, 
restitution, and barring individuals from the business of 
banking. So we have significant civil authorities under the law 
now.
    It was mentioned earlier, and I think it is appropriate, 
that we do not have explicit clawback authority in regard to 
compensation. We can get at that issue through our existing 
authorities, but certainly providing explicit clawback 
authority under the Federal Deposit Insurance Act, as the FDIC 
has under the Dodd-Frank Act, would be appropriate, in addition 
to completing the rulemaking that you raised previously.
    Senator Warnock. Both of these things are important. We 
have got to complete the rulemaking and see whatever additional 
tools may be necessary. Certainly as the ship is sinking we do 
not want bankers to be able to move all of their products on 
the lifeboat.
    Mr. Gruenberg. I agree, Senator.
    Senator Warnock. And so we have got to address this.
    I want to switch to a related topic. For several days, 
payroll providers banking with SVB or Signature Bank had no way 
to access their deposits--everyday folks--leading to many 
Americans receiving their paychecks late or having missing 
paychecks. Too many Americans live paycheck-to-paycheck, and in 
this case they got it late. And as a result, some of the 64 
million Americans living paycheck-to-paycheck were hit with 
overdraft fees, nonsufficient fund fees due to the disruption, 
something I have addressed in other settings. And that is why I 
sent a letter with Senator Booker urging regulators to impose a 
temporary moratorium on overdraft and nonsufficient fund fees 
for folks who incurred these fees at no fault of their own.
    Mr. Gruenberg, does the FDIC have a plan surrounding 
overdraft and nonsufficient fund fee protections in the event 
that we experience broader systemic issues?
    Mr. Gruenberg. Senator, you raise an important question. We 
received your letter. As a starting point, we know there were 
delays. We really want to get the facts in terms of if 
overdraft fees were really imposed as a result of those delays. 
If we can confirm that information then we can consider what 
actions to undertake. We are glad to work with you and your 
staff as we follow up on that.
    Senator Warnock. I look forward to working with you on 
this.
    Here is the bottom line. Ordinary folks who just showed up, 
put in their deposits, they should not have to bear the brunt 
and burden of these bad decisions made by bank executives.
    Mr. Gruenberg. Understood.
    Chair Brown. Thank you, Senator Warnock.
    Senator Daines, from Montana, is recognized.
    Senator Daines. Mr. Chairman, thank you.
    The failure of Silicon Valley Bank, Signature Bank, and the 
general turmoil in the banking sector are the direct result of 
the failures of regulators, including the agencies we have 
before us today, also the executive teams at these financial 
institutions, and the inflationary environment sparked, in no 
small part, by the Biden administration's reckless spending. I 
remember having debates right here with the Banking Committee 
about these massive stimulus bills, that $1.9 trillion spending 
bill, that even Lawrence Summers said was inflationary. On a 
purely partisan vote it passed, with Democrats supporting and 
Republicans opposing.
    But each of these groups, back to Silicon Valley Bank and 
Signature Bank, failed to prioritize properly clear and present 
risks of the inflationary environment, rising interest rates, 
what it did to bond values, instead opting to focus on climate 
change, equity, and other factors that did not contribute in 
any way to the crisis we have before us. I raised these issues 
of misaligned priorities with Secretary Yellen during a Finance 
Committee hearing back in June of 2021, when she identified 
climate change, nonbank financial intermediation, and Treasury 
market resilience as the key priorities for FSOC.
    Now we are facing a situation where responsible banks, in 
my home State of Montana and elsewhere, will be on the hook for 
providing tens of billions of dollars, and potentially more, to 
bail out irresponsible coastal banks for risk-taking that 
regulators failed to act upon, despite first noticing as far 
back as 2019.
    Turning to my question, Vice Chair Barr, you state in your 
testimony that your review is, quote, ``focusing on whether the 
Federal Reserve supervision was appropriate for the rapid 
growth and vulnerabilities of the bank,'' end quote.
    The question is, if you find, as part of your review, that 
certain individuals were clearly negligent in the performance 
of their duties, are you willing to recommend they be fired?
    Mr. Barr. Senator, I do not want to prejudge in any way the 
review. I am going to get that evidence back. I am going to 
understand it fully, and----
    Senator Daines. I said if as part of your review you find 
them negligent, would you recommend they be fired?
    Mr. Barr. It is hard for me to answer in the abstract, sir. 
I believe we will take appropriate action with respect to the 
supervisory structure as a whole. With respect to----
    Senator Daines. Are you willing to--is termination one of 
the options?
    Mr. Barr. I do not know----
    Senator Daines. That is an easy question. I just said an 
option. I am not saying you have to exercise it. Is that an 
option? Can somebody be fired for this?
    Mr. Barr. I would have to understand the basis in our human 
resources law, and I do not want to----
    Senator Daines. The bank executives lost their jobs, as 
should some of these regulators. Should that not be the case if 
they are asleep at the wheel?
    Mr. Barr. Senator, I want to be very careful. There are 
laws and procedure with respect to how you----
    Senator Daines. But you can make a recommendation to HR, 
and they can tell you whether or not that is allowed or not. I 
have been in the corporate world for most of my career. I have 
worked with HR, as is true within the Federal Government. You 
can make a recommendation if somebody is asleep at the wheel 
and negligent.
    Mr. Barr. I would be happy to follow up with you, Senator. 
I promise we will take appropriate action based on the review, 
but I do not have a definitive answer for you at this moment.
    Senator Daines. I do find it ridiculous that you are 
unwilling to say that if people failed to perform their 
responsibilities that you might recommend they be fired.
    Vice Chair Barr, did you visit the San Francisco Fed in 
October of last year?
    Mr. Barr. October of last year? What year? I mean, in----
    Senator Daines. In 2022.
    Mr. Barr. I do not believe so.
    Senator Daines. OK. Well, the San Francisco Fed published a 
supervision and brief memo, saying the top priorities that you 
outlined with that visit aligned with their top priorities.
    Mr. Barr. It may be that I did a virtual seminar for a 
range of supervisors, and so the San Francisco Fed folks were 
in attendance for that, but I do not believe I was in San 
Francisco.
    Senator Daines. So the regulators' perspective that came 
out from the 12th District, the San Francisco Fed, said they 
were aligned with what was top-of-mind for the work being done 
in the 12th District. The first thing it says is ``financial 
risks from climate change.'' This is at a time, back in October 
of 2022, when you saw the discount rate was all the way up to 3 
percent. We were seeing those three-quarter-point increases 
coming out of the Federal Reserve over and over, and they were 
communicating this was probably going to continue.
    And that was about the time that also the Richmond Fed, in 
the 5th District, they had a little different view in terms of 
prioritizing risks, and they thought perhaps a rising rate 
environment might be the highest risk in terms of priority to 
look at, versus San Francisco Fed says it is about climate 
change was the number one priority listed, stack-ranked with 
the three that they placed out.
    It is clear, in hindsight, that the Richmond Fed was 
focused on the clear and present risks of rising interest rates 
while the San Francisco Fed was not.
    My question is, since you were confirmed in July, what 
percentage of your time have you spent focusing on climate 
policy and financial inclusion versus how the Federal Reserve's 
monetary policy might impact banks like Silicon Valley Bank?
    Chair Brown. Be as brief as you can in that answer. Thank 
you.
    Mr. Barr. Senator, I have been focused on risk throughout 
the system, both short-term and long-term risks, and interest 
rate risk is a bread-and-butter issue in banking. It is what 
our supervisors do all the time.
    Chair Brown. Thank you.
    Senator Daines. But the San Francisco Fed said it was 
climate change. And by the way----
    Chair Brown. Senator Sinema is recognized.
    Senator Sinema. Thank you, Mr. Chairman, and thank you to 
our witnesses for being here today.
    Today's hearing is about trust--whose trust has been 
broken, who broke that trust, and how all of us work together 
to reaffirm and rebuild that trust. Trust is a key principle 
that the modern banking system is built on. Families trust that 
their hard-earned savings are safe in the U.S. banking system. 
Congress entrusts are Federal banking regulators with the power 
to supervise, regulate, and examine banks. We trust you to be 
the cops on the beat and have given you the tools to do that 
job.
    The failure of Silicon Valley Bank on the Federal Reserve's 
watch very clearly calls into question whether or not some of 
trust was misplaced. Make no mistake: the lion's share of the 
blame is on incompetent bank executives, and it is outrageous 
that these people took bonuses and sold stock in the days 
leading up to the bank's failure. We should hold these 
executives accountable to the fullest extent of the law and 
claw back those bonuses and stock sales. I am cosponsoring a 
bill to do just that.
    But as I laid out in a letter to you, Vice Chair Barr--
that, by the way, was signed by 11 other Senators, spanning the 
ideological spectrum--it is gravely concerning that retail 
participants, literally just regular, everyday people, were 
able to figure out that something was wrong with Silicon Valley 
Bank before your regulators took appropriate action.
    Now these folks do not have access to nonpublic information 
like the bank examiners do, but when people on Reddit and 
Twitter can spot bank mismanagement before the regulators, 
something is terribly wrong.
    So my questions today are for you, Vice Chair Barr. I have 
lots of questions so I would like concise answers, and we will 
follow up in writing. You were sworn in as Vice Chair for 
Supervision on July 19, 2022. Your testimony indicates that due 
to ongoing review you will focus on what you know, so let us 
start there. The Fed knew of problems at the bank dating back 
to 2019. Were you personally made aware of major deficiencies 
at Silicon Valley Bank prior to the collapse, and if so, which 
ones, and when were you notified?
    Mr. Barr. Thank you, Senator. The staff made a presentation 
to the Board of Governors in the middle of February of this 
year, that was focused on interest rate risk broadly in the 
banking system and how banks and managers and supervisors were 
addressing those risks. And as part of that presentation the 
staff highlighted the interest rate risk that was present at 
Silicon Valley Bank, and indicated that they were in the middle 
of a further review and expected to be basically coming back to 
the bank shortly with further information about their status. I 
believe that is the first time that I was told about interest 
rate risk at Silicon Valley Bank.
    Senator Sinema. So you were first notified shortly after 
folks on your staff learned about these deficiencies.
    Mr. Barr. Senator, the supervisors began highlighting these 
deficiencies at the firm in interest rate risk management and 
liquidity risk management in a serious way in November of 2021, 
as far as I know. So a little bit more than a year prior to 
that. They intensified that supervisory review as part of its 
full scope exam in the summer of 2022, when the firm was 
downgraded for deficiencies in its risk-management practices. 
And they brought those issues again, according to the record, 
to the CFO of the firm in October, and issued additional 
findings in November of 2022.
    So that, as far as we know from the current supervisory 
record, is the picture.
    Senator Sinema. And that is when you--so you were first 
notified in October and November of 2022?
    Mr. Barr. No, Senator. To the best of my knowledge I first 
learned about the issues at Silicon Valley Bank with respect to 
interest rate risk in mid-February of 2023, so several weeks 
before the bank failed staff made a presentation to the board 
about interest rate risk broadly, and with a highlight, if you 
will, on Silicon Valley Bank, and indicated that they were 
following up with the bank with further measures.
    Senator Sinema. So your testimony says that asset size is 
not necessarily an indicator of complexity, and I agree, which 
is why Section 401 of S. 2155 gives the Fed explicit authority 
to impose the regulations and enhance supervision normally 
reserved for the largest institutions. And you can do that on 
any bank between $100 and $250 billion in assets, like SVB. The 
Fed is given this authority to prevent or mitigate risks to the 
financial stability of the U.S. We both agree that this is 
existing authority that the Fed has had since the enactment of 
S. 2155 in 2018. Correct?
    Mr. Barr. Yes. The Fed has broad authority to change the 
rules it uses for different approaches to supervision of firms. 
Under the rules that were put in place in 2019, the firm was 
bucketed by a set of categories. I think that it is important 
to revisit those, as I have been doing since arriving at the 
Federal Reserve in July.
    Senator Sinema. So given the documented issues that----
    Chair Brown. You are over time, but wrap up if you can. One 
more question.
    Senator Sinema. This will be my last question. Thank you, 
Mr. Chairman.
    So given the documented issues that your supervisors found 
with SVB, that we just kind of went over, did the Fed ever 
consider using its existing Section 401 authority before the 
failure, to more aggressively regulate the bank?
    Mr. Barr. Based on the current supervisory record it looked 
like the escalations that had occurred were in the format of 
Matters Requiring Attention and Matters Requiring Immediate 
Attention. And the supervisors also put in place what is called 
a 4M agreement, which is a limitation on the firm's ability to 
engage in merger transactions with financial companies.
    Chair Brown. Thank you, Senator Sinema.
    Senator Sinema. Thank you.
    Chair Brown. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chair. Thank you all for 
being here.
    I want to start maybe with a question that I think, Vice 
Chair Barr, you answered to Senator Warren, saying you thought 
banks over $100 billion should have additional prudential 
requirements. Did I hear that correctly?
    Mr. Barr. I think it is important for us to strengthen 
capital and liquidity requirements for large banks really up 
the spectrum.
    Senator Tillis. Is there any the tools--you know, just 
going back--Mr. Chair, I would like, without objection, to 
submit this to the record. This is the regulatory regimen that 
applies to banks of certain categories.
    Chair Brown. Without objection.
    Senator Tillis. And so I am curious. I always worry about 
when we create an arbitrary asset limit for doing something, 
because it was the activities of Silicon Valley that got them 
in trouble. And so I just want to ask briefly--I have got a lot 
of questions, and I will get them done on time--you have 
mentioned a couple of times, Vice Chair Barr, that the 2019, I 
guess, implementation of Senate bill 2155--I am inferring 
that--bucketed Silicon Valley in a certain regulatory regimen. 
Did that mean that it restricted it from having supervisors 
make the judgment that the increased prudential regulations or 
supervisory functions could not occur?
    Mr. Barr. Senator, we are bound by the rules we put out. So 
new framework----
    Senator Tillis. Yeah, OK. So what--in 2019, different 
administration, predates your tenure, are you saying that the 
promulgation and the implementation of 2155 took certain 
supervisory or regulatory regimens off the table for Silicon 
Valley Bank?
    Mr. Barr. The Federal Reserve's implementation in 2019 set 
basically the standard for how that firm would apply. I think 
that regulators, supervisors do have judgment----
    Senator Tillis. That is my point.
    Mr. Barr. ----and can put in place mitigating matters.
    Senator Tillis. Because when I hear ``bucketing'' I think 
about ring-fencing, and I wonder if that meant that a 
supervisor--in my opinion, if you take a look at the matters 
requiring attention and then immediate attention, do you know 
yet--I know we will get the report in May--but do you know yet 
how many of those MRAs were followed by an MRI? In other words 
the six that were issued over the course of a year-and-a-half 
or 2 years, how many of these was an escalation of the Matter 
Requiring Attention to immediate attention, if any? And if you 
do not know that you can submit it. Actually, if you will just 
submit it for the record.
    Look, we have got a CEO of Silicon Valley Bank that is a 
Class A member of the board of the San Francisco Federal 
Reserve, who got summarily terminated on the day of the bank's 
collapse. In your review, will we also have insight into 
California's role in regulating this bank, or will this be 
purely Federal jurisdiction?
    Mr. Barr. We are looking only at the Federal Reserve. The 
State of California is initiating its own review with respect 
to this.
    Senator Tillis. I think that is going to be very helpful, 
because in my opinion I agree with former Fed Tarullo that he 
sees this as a regulatory lapse. Tarullo was never 
complimentary of Senate bill 2155. He was implementing Dodd-
Frank when we were doing it. He was hammering it. He made the 
statement, and Mr. Chair, I would also like to submit for the 
record an article interview with Mr. Tarullo from Marketplace, 
that he specifically says in here, you know, 2155 is likely or 
impossible to be a root cause of the problem. I am 
paraphrasing. He was saying it looks like a regulatory and 
supervisory lapse. Now I think we are going to find that that 
lapse is not only with the Fed but more likely even the 
supervision that the State of California----
    Chair Brown. Without objection, so ordered.
    Senator Tillis. ----was involved in.
    So I am also kind of curious in the report, are we going to 
see any movement? I am not a conspiracy theorist, but there is 
one question of did we have a level of comfort with this bank, 
among some of the supervisors? Do we know or have any insight 
over the past few years if anybody who had worked for the Fed 
worked for this bank? We know that the CEO was on the Fed 
board, or on a board at the Fed?
    Mr. Barr. Senator, just with respect to the Class A 
directors that you mentioned, Class A directors are prohibited 
from participating in any way in supervision.
    Senator Tillis. Yeah, no, I get that. But it is just people 
in proximity, maybe people calling balls and strikes, the 
supervisors did not get that quite right.
    But, you know, I think that there are some people who--and 
I want to find the root cause of the problem, and I think that 
you all will find a lot of information when you issue your 
report. I do not think that we are doing the banking industry 
any service going forward if we talk about now we have just got 
to rein in the small banks, we have got to increase, by 
default, regardless of the activities of the bank, we have got 
to increase, by default, their prudential requirements, and 
with your holistic review, capital requirements, and a number 
of other things.
    When you have a run on a bank like you did with Silicon 
Valley, could any bank possibly have enough to cover the run? 
Any bank.
    Mr. Barr. You know, Senator, the particular bank in 
question was quite unique in its structure, in its liability 
approach, and its interest rate risk management. I can just 
speak to that particular bank.
    Senator Tillis. If you look at their bank, if you looked at 
their internal liquidity stress testing, if you took a look at 
their contracts and interest rate exposure, this does not take 
a highly sophisticated person to understand the risk, and it 
damn sure had to be known months before the chickens came home 
to roost. And I wish that we could just focus on that problem 
and not use the red herring of some lapse in regulatory 
oversight that was the root cause of this bank collapse. It 
simply was not, and I would love to find anybody to prove it 
wrong.
    I do not care how you feel about regulatory tailoring, but 
use a valid argument to fight against it. Do not use Silicon 
Valley Bank as an example. I am not suggesting that you have. 
But there are many people that sit up here who have, at the 
expense of looking at how we can prevent this in the future.
    And I do have questions for the record that I will submit. 
Thank you all.
    Chair Brown. Thank you, Senator Tillis. Thanks to all three 
of you for your testimony, your public service, and I look 
forward to the reviews on these bank failures, and thank you 
for helping to start that process.
    It is interesting, many of my Republican colleagues are now 
so eager for bank regulators to crack down on banks for taking 
on too many risks. I hope they remember that when it comes time 
to empower regulators and strengthen guardrails, including 
protecting the independent funding financial regulators.
    The events of the last month have shown why we need 
independent regulators funding and stability for all of our 
financial watchdogs, but now as the Supreme Court considers 
whether the CFPB's independent funding is constitutional, these 
independent watchdogs' ability to keep our financial system 
stable faces an existential threat. U.S. financial regulators, 
as we know, are independently funded so they can quickly 
respond when crises happen. On this and every issue I will 
continue to fight to protect American workers from Wall Street 
arrogance and greed.
    Thank you for joining us. The meeting is adjourned.
    [Whereupon, at 12:33 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIR SHERROD BROWN
    Thanks to the New Deal and the hard work of our regulators today, 
most bank failures, while never a good thing, are generally not a big 
deal.
    But the quick collapses of Silicon Valley Bank and Signature Bank 
were no ordinary failures.
    In less than a day, Silicon Valley Bank customers pulled $42 
billion out of the bank--fueled by venture capitalists and their social 
media accounts. They created the largest and fastest bank run in 
history. In the following days, Signature Bank lost $17.8 billion.
    Regulators--both Republicans and Democrats--came together to 
prevent the panic from spreading.
    They increased liquidity, promoted confidence in our banking 
system, and protected the deposits of customers and small businesses--
not the investments of executives and shareholders.
    I spent that weekend on the phone with Ohio small businesses and 
banks and credit unions.
    Ohio small business owners simply wanted to make payroll. They 
didn't want to see years of hard work go down the drain because of 
venture capitalists panicking on Twitter 2,000 miles away.
    One woman told me she was terrified she wouldn't be able to pay her 
workers the next week.
    And Ohio banks and credit unions institutions--institutions that 
are sound and well-capitalized--didn't want to see deposits flee their 
institutions for the biggest Wall Street banks.
    For anyone who lived through the Global Financial Crisis, it's 
impossible not to think of 2008.
    Once again, small businesses and workers feared they would pay the 
price for other people's bad decisions. And we're left with many 
questions--and justified anger--toward bank executives and boards, 
toward venture capitalists, toward Federal and State bank regulators, 
and toward policymakers.
    The scene of the crime does not start with the regulators before 
us. Instead, we must look inside the bank, at the bank CEOs, and at the 
Trump-era banking regulators, who made it their mission to give Wall 
Street everything it wanted.
    Monday morning quarterbacking aimed only at the actions of 
regulators this month is as convenient as it is misplaced--coming from 
those who have never met a Wall Street wish list they didn't want to 
grant.
    Many who are the first to scold the regulators for their failures, 
offer ready ears whenever bank CEOs line up at their offices 
complaining about ``out of control bank examiners.''
    Remember some of those complaints at our hearing with Fed Chair 
Powell over the Fed merely reviewing capital? Just three days before 
Silicon Valley Bank failed?
    How soon we choose to forget.
    When we ask who should have known how the risks were building in 
these banks, we should start at the source: with the executives.
    Silicon Valley Bank almost quadrupled in size over 3 years, and 
Signature Bank more than doubled in that time.
    The principles here are not complicated--banks should be prudently 
managed and be mindful of the full scope of risks they face, and should 
diversify across customers and products.
    This Committee must consider how these banks exploded in size, in a 
way that was clearly unsustainable. Some explanations will focus on 
complicated-sounding concepts like: balance sheet risk, moral hazard, 
stress tests, liquidity ratios.
    Really though, it comes down to more basic concepts--hubris, 
entitlement, greed. And always with big paydays for the executives at 
the top.
    The CEOs' own pay was tied directly to the growth at SVB.
    At SVB, executive bonuses were pegged to return on equity. So they 
took more risk by buying assets with higher yields to make higher 
profits. When those investments started to lose money, they didn't back 
down.
    It won't surprise anyone that Silicon Valley Bank went nearly a 
year without a Chief Risk Officer.
    Venture Capitalists fueled the bank's growth by forcing the 
companies they invested in and advised to keep their money at Silicon 
Valley Bank.
    And then those same VCs turned around and sparked the bank run by 
telling the companies to pull their money out, creating more chaos and 
panic.
    Signature Bank found itself in the middle of Sam Bankman-Fried's 
crime spree at the crypto exchange FTX. The bank let him open multiple 
accounts and ignored red flag after red flag.
    It's all just a variation on the same theme--the same root cause of 
most of our economic problems:
    Wealthy elites do anything to make a quick profit and pocket the 
rewards. And when their risky behavior leads to catastrophic failures, 
they turn to the Government asking for help, expecting workers and 
taxpayers to pay the price.
    Even though no taxpayer money is being used to save these 
depositors, I understand why many Americans are angry--even disgusted--
at how quickly the Government mobilized, when a bunch of elites in 
California were demanding it.
    People have a pretty good sense of whose problems get taken more 
seriously than others in this town.
    Of course we have to prevent systemic threats to the economy. But 
corporate trade deals are a systemic threat to towns in Ohio and across 
the industrial Midwest. So is a Wall Street business model that rewards 
short-term profits over investments in innovation and workers.
    And those threats are not only tolerated--they've been actively 
pushed by the same crowd that this month clamored for the Government to 
save them.
    Just as there are no atheists in foxholes, it appears that when 
there is a bank crash, there are no libertarians in Silicon Valley.
    I hope that from now on, those who have no problem with Government 
intervention to protect their own livelihoods will think a little 
harder about what their warped version of the free market has done to 
workers in Ohio.
    It may be tempting to look at all this and say, we don't need new 
rules. The real problem was these arrogant executives.
    But there will always be arrogant executives. That's exactly why we 
need strong rules, and public servants with the courage to stand up to 
bank lobbyists and enforce them.
    The officials sitting before us today know that their predecessors 
rolled back protections--like capital and liquidity standards, stress 
tests, brokered deposit limits, and even basic supervision. They 
greenlighted these banks to grow too big, too fast.
    There are important questions about deposit insurance we must 
examine to consider--whether the current amount works for everyone, 
including small businesses who need and want to make payroll.
    We expect bank executives to understand the basic principles of 
bank management and to know they can't grow a bank by over-
concentrating business in specialized areas and then pay themselves 
huge bonuses right up until things blow up. That's not being a trusted 
partner to your customers--it's taking advantage of them.
    These executives must answer for their banks' downfalls. I have 
called on the former CEOs of these failed banks to testify and I thank 
Ranking Member Scott for joining me in that effort.
    But they must also face real consequences for their actions.
    Right now, none of the executives who ran these banks into the 
ground are barred from taking other banking jobs, none have had their 
compensation clawed back, none have paid any fines.
    Some executives have decamped to Hawai`i. Others have already gone 
on to work for other banks. Some simply wandered off into the sunset.
    It will surprise no one in Ohio that these bank executives face 
less accountability than a cashier who miscounts the cashbox.
    That's why I'll be introducing legislation to strengthen 
regulators' ability to impose fines and penalties, clawback bonuses, 
and ban executives who caused bank failures from working at another 
bank ever again.
    We also need to look at bank regulators' ability to not only 
identify risks and problems at banks, but to also be empowered to 
actually make the banks fix them.
    Today, my colleagues and I are asking GAO to follow up on a 2019 
report where they highlighted communication failures, and the extent to 
which senior bank management fully addressed identified deficiencies.
    I am looking forward to hearing from our financial watchdogs today. 
We will be watching them to make sure they assess the damage, hold 
accountable those responsible, and fix what is broken.
    Last, I ask my colleagues to work together to make sure that our 
financial system is stronger after this crisis.
    Americans have watched the same pattern over and over:
    A crisis occurs. Some of us push for reforms--and if we're lucky, 
we're able to seize the moment, and actually pass some.
    And then the lobbyists go to work.
    Politicians spend the ensuing years rolling back reforms, right up 
until the next crisis. And that crisis happens because, you guessed 
it--we rolled back regulations.
    And we know who's the first to get help in any crisis.
    It's little wonder that workers in Ohio and around the country 
don't trust banks, and don't trust their own Government. It's time we 
proved them wrong--ignore corporate lobbyists, and put workers and 
their families first.
                                 ______
                                 
                PREPARED STATEMENT OF SENATOR TIM SCOTT
    Today, we are here to understand just how we found ourselves in the 
middle of the second and third-largest bank failures in United States 
history. Though our questions are nowhere near answered, this is an 
important first step in providing transparency and accountability 
necessary to the American taxpayer.
    I'd like to thank you, Mr. Chairman, for taking the time and 
working with me to try to bring the bank CEOs into this hearing. I 
think it's incredibly important that we hear from the folks 
specifically and uniquely responsible for the failure of these banks, 
the folks who managed them.
    By all accounts, this is a classic tale of negligence, and it 
started with the banks themselves. Without any question, that's where 
the buck stops. So, it is imperative that we hear straight from the 
horse's mouth, so to speak, to find out why these banks were so poorly 
managed and so poorly managed their risks.
    Unfortunately, the bank executives aren't the only managers we're 
missing.
    The Secretary of the Treasury and the Chairman of the Federal 
Reserve are also not here to testify. I don't mean to offend the 
witnesses that are here, but it is hard to believe the Biden 
administration seriously is concerned about the failure that we're 
seeing when they themselves are shielding the top official at the 
Department of Treasury.
    The same official who briefed the President and invoked the System 
Risk Exception.
    Nor do we have Chair Powell here, instead, we have the Vice Chair 
of Supervision here to use our Committee as a platform to talk about 
the wrongs under his supervision. As the Federal Reserve has already 
announced, he is conducting a review to assess any supervisory 
failures, which is an obvious, inherent conflict of interest and a 
classic case of the fox guarding the hen house.
    The Fed should focus on its mission and not the climate arena. This 
is a waste of time, attention, and manpower. All things that could have 
gone into bank supervision.
    Banks, like any other business, must manage their risk and be good 
stewards for their customers. But unlike other businesses, banks are 
highly regulated. Sometimes--banks even have their regulators sitting 
in their banks and continually monitoring their risks and activities--
as is the case with Silicon Valley Bank.
    For the last 2\1/2\ weeks, the regulators have consistently 
described Silicon Valley as unique and highly ``idiosyncratic''--
meaning the warning signs should have been flashing red and SVB should 
have stood out as what it was--absolutely a problem child. Clear as a 
bill were the warning signs.
    In fact, reports indicate that these warning signs were already 
flashing, and on March 19, the New York Times wrote that ``Silicon 
Valley Bank's risky practices were on the Federal Reserve's radar for 
more than a year . . . ''.
    Moreover, Silicon Valley suffered from extreme interest rate risk, 
due to investments in long-term securities that declined in value 
because of soaring inflation. Of all our supervisors, the Federal 
Reserve should have been keenly aware of the impact its interest rate 
hikes would have on the value of these securities, and it should have 
been actively working to ensure the banks it supervises were hedging 
their bets and covering their risk accordingly.
    But now we know, based on your testimony Mr. Barr, that the Fed was 
aware! In fact, in 2021 your supervisors found deficiencies in the 
bank's liquidity and its management, resulting in six supervisory 
findings. Later, in 2022, supervisors then issued three findings 
related to ineffective board oversight, risk-management weaknesses, and 
the bank's internal audit function. What were the supervisors thinking?
    The law and the regulations are crystal clear; the Federal Reserve 
can take any supervisory or enforcement action it deems necessary to 
address unsafe and unsound practices.
    Recent reports confirm what we already know, your priorities and 
your work with the San Francisco Federal Reserve Bank President, Mary 
Daly, centered on climate change--an issue wholly unrelated to the 
Federal Reserve's dual mandate and role as supervisor. Given SVB's 
social and climate agenda, one must ask if SVB's investments in climate 
caused its regulators to be a bit more permissive of its risks.
    If you can't stay on mission and enforce the laws as they already 
are on the books, how can you ask Congress for more authority with a 
straight face?
    To that end, I hope to learn how the Federal Reserve could know 
about such risky practices for more than a year, and fail to take 
definitive, corrective action. By all accounts, our regulators appear 
to have been asleep at the wheel.
    In addition, I also hope to learn more from the FDIC about its role 
in the receivership and sale of both SVB and Signature Bank. Especially 
on the auction and bid process.
    I am very concerned that private sector offers appear to have been 
submitted, and yet, were denied. If Silicon Valley Bank had been 
purchased before it failed, the panic and the shock to the market and 
to market confidence we've seen over the past 2\1/2\ weeks may have 
been avoided.
    If Silicon Valley had been purchased over the weekend of March 10, 
confidence in the marketplace may have sustained Signature Bank and 
prevented its failure.
    The FDIC's bid auction process has been a black hole for Congress 
and the American people--and we deserve answers.
    I know hindsight is 2020--but when you hear rumors that this 
process was delayed because the White House doesn't like mergers in any 
shape, form, or fashion, it makes you wonder what actually is going on. 
Sometimes, when it looks like a duck, quacks like a duck, it's just a 
duck.
    As I close on this opening statement, three things remain clear to 
me regarding SVB. First, the bank was rife with mismanagement. Second, 
there was a clear supervisory failure. Our regulators were simply 
asleep at the wheel. And finally, President Biden's reckless spending 
caused this 40-year high in inflation, and the country, as well as the 
bank, experienced tremendous loss.
                                 ______
                                 
                 PREPARED STATEMENT OF MARTIN GRUENBERG
            Chairman, Federal Deposit Insurance Corporation
                             March 28, 2023
    Chairman Brown, Ranking Member Scott, and Members of the Committee, 
thank you for the opportunity to appear before the Committee today to 
address recent bank failures and the Federal regulatory response.
    On March 10, 2023, just over 2 weeks ago, Silicon Valley Bank 
(SVB), Santa Clara, California, with $209 billion in assets at year-end 
2022, was closed by the California Department of Financial Protection 
and Innovation (CADFPI), which appointed the FDIC as receiver. The 
failure of SVB, following the March 8, 2023, announcement by Silvergate 
Bank that it would wind down operations and voluntarily liquidate, \1\ 
signaled the possibility of a contagion effect on other banks. On 
Sunday, March 12, 2023, just 2 days after the failure of SVB, another 
institution, Signature Bank, New York, NY, with $110 billion in assets 
at year-end 2022, was closed by the New York State Department of 
Financial Services (NYSDFS), which also appointed the FDIC as receiver. 
With other institutions experiencing stress, serious concerns arose 
about a broader economic spillover from these failures.
---------------------------------------------------------------------------
     \1\ See Silvergate Capital Corporation Press Release, ``Silvergate 
Capital Corporation Announces Intent To Wind Down Operations and 
Voluntarily Liquidate Silvergate Bank'' (March 8, 2023), available at 
https://ir.silvergate.com/news/news-details/2023/Silvergate-Capital-
Corporation-Announces-Intent-to-Wind-Down-Operations-and-Voluntarily-
Liquidate-Silvergate-Bank/default.aspx.
---------------------------------------------------------------------------
    After careful analysis and deliberation, the Boards of the FDIC and 
the Federal Reserve voted unanimously to recommend, and the Treasury 
Secretary, in consultation with the President, determined that the FDIC 
could use emergency systemic risk authorities under the Federal Deposit 
Insurance Act (FDI Act) \2\ to fully protect all depositors in winding 
down SVB and Signature Bank. \3\
---------------------------------------------------------------------------
     \2\ 12 U.S.C. 1823 (c)(4)(G).
     \3\ See FDIC Press Release, Joint Statement by the Department of 
the Treasury, Federal Reserve, and FDIC (March 12, 2023), available at 
https://www.fdic.gov/news/press-releases/2023/pr23017.html.
---------------------------------------------------------------------------
    It is worth noting that these two institutions were allowed to 
fail. Shareholders lost their investment. Unsecured creditors took 
losses. The boards and the most senior executives were removed. The 
FDIC has authority to investigate and hold accountable the directors, 
officers, professional service providers and other institution-
affiliated parties of the banks for the losses they caused to the banks 
and for their misconduct in the management of the banks. \4\ The FDIC 
has already commenced these investigations.
---------------------------------------------------------------------------
     \4\ 12 U.S.C. 1821(d)(13)(E) and (k). See also 12 U.S.C. 1818(e) 
and (i).
---------------------------------------------------------------------------
    Further, any losses to the FDIC's Deposit Insurance Fund (DIF) as a 
result of uninsured deposit insurance coverage will be repaid by a 
special assessment on banks as required by law. The law provides the 
FDIC authority, in implementing the assessment, to consider ``the types 
of entities that benefit from any action taken or assistance 
provided.'' \5\
---------------------------------------------------------------------------
     \5\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
    The FDIC has now completed the sale of both bridge banks to 
acquiring institutions. New York Community Bancorp's Flagstar Bank is 
the acquiring institution for Signature Bridge Bank, N.A., and First-
Citizens Bank & Trust Company is the acquiring institution for Silicon 
Valley Bridge Bank, N.A. \6\
---------------------------------------------------------------------------
     \6\ The acquiring institutions entered into purchase and 
assumption agreements for the bridge banks' deposits and assets, as 
described in detail later in this statement.
---------------------------------------------------------------------------
    My testimony today will describe the events leading up to the 
failure of SVB and Signature Bank and the facts and circumstances that 
prompted the decision to utilize the authority in the FDI Act to 
protect all depositors in those banks following these failures. I will 
also discuss the FDIC's assessment of the current state of the U.S. 
financial system, which remains sound despite recent events. In 
addition, I will share some preliminary lessons learned as we look back 
on the immediate aftermath of this episode.
    In that regard, the FDIC will undertake a comprehensive review of 
the deposit insurance system and will release a report by May 1, 2023, 
that will include policy options for consideration related to deposit 
insurance coverage levels, excess deposit insurance, and the 
implications for risk-based pricing and deposit insurance fund 
adequacy. In addition, the FDIC's Chief Risk Officer will undertake a 
review of the FDIC's supervision of Signature Bank and will also 
release a report by May 1, 2023. Further, the FDIC will issue in May 
2023 a proposed rulemaking for the special assessment for public 
comment.
    The two bank failures also demonstrate the implications that banks 
with assets over $100 billion can have for financial stability. The 
prudential regulation of these institutions merits serious attention, 
particularly for capital, liquidity, and interest rate risk. This would 
include the capital treatment associated with unrealized losses in 
banks' securities portfolios. Resolution plan requirements for these 
institutions also merit review, including a long-term debt requirement 
to facilitate orderly resolution.
Economic Conditions

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    On February 28, 2023, the FDIC released the results of the 
Quarterly Banking Profile, which provided a comprehensive summary of 
financial results for all FDIC-insured institutions for the fourth 
quarter of last year. Overall, key banking industry metrics remained 
favorable in the quarter. \7\ Loan growth continued, net interest 
income grew, and asset quality measures remained favorable. Further, 
the industry remained well-capitalized and highly liquid, but the 
report also highlighted a key weakness in elevated levels of unrealized 
losses on investment securities due to rapid increases in market 
interest rates. Unrealized losses on available-for-sale and held-to-
maturity securities totaled $620 billion in the fourth quarter, down 
$69.5 billion from the prior quarter, due in part to lower mortgage 
rates. The combination of a high level of longer-term asset maturities 
and a moderate decline in total deposits underscored the risk that 
these unrealized losses could become actual losses should banks need to 
sell securities to meet liquidity needs.
---------------------------------------------------------------------------
     \7\ See Remarks by FDIC Chairman Martin Gruenberg on the Fourth 
Quarter 2022 Quarterly Banking Profile (February 28, 2023) available at 
https://www.fdic.gov/news/speeches/2023/spfeb2823.html.
---------------------------------------------------------------------------
    This latent vulnerability within the banking system would combine 
with several other prevailing conditions to form a key catalyst for the 
subsequent failure of SVB and systemic stress experienced by the 
broader banking system.
The Wind Down of Silvergate Bank
    Silvergate Bank, La Jolla, California, with $11.3 billion in assets 
as of December 31, 2022, had a business model focused almost 
exclusively on providing services to digital asset firms. Following the 
collapse of digital asset exchange FTX in November 2022, Silvergate 
Bank released a statement indicating that it had $11.9 billion in 
digital asset-related deposits, and that FTX represented less than 10 
percent of total deposits in an effort to explain that its exposure to 
the digital asset exchange was limited. \8\ Nevertheless, in the fourth 
quarter of 2022, Silvergate Bank experienced an outflow of deposits 
from digital asset customers that, combined with the FTX deposits, 
resulted in a 68 percent loss in deposits--from $11.9 billion in 
deposits to $3.8 billion. \9\ That rapid loss of deposits caused 
Silvergate Bank to sell debt securities to cover deposit withdrawals, 
resulting in a net earnings loss of $1 billion. \10\ On March 1, 2023, 
Silvergate Bank announced it would be delaying issuance of its 2022 
financial statements and indicated that recent events raised concerns 
about its ability to operate as a going concern, which resulted in a 
steep drop in Silvergate Bank's stock price. \11\ On March 8, 2023, 
Silvergate Bank announced that it would self-liquidate. \12\
---------------------------------------------------------------------------
     \8\ See ``Silvergate Provides Statement on FTX Exposure'', 
Businesswire (November 11, 2022), available at https://
www.businesswire.com/news/home/20221111005557/en/Silvergate-Provides-
Statement-on-FTX-Exposure.
     \9\ See Silvergate Capital Corporation, 4Q22 Earnings Presentation 
(January 17, 2023), available at https://s23.q4cdn.com/615058218/files/
doc--financials/2022/q4/Ex.-99.2-SI-4Q22-Earnings-Presentation-
FINAL.pdf.
     \10\ Ibid.
     \11\ See Silvergate Capital Corporation Form 12b-25, Notification 
of Late Filing, available at https://ir.silvergate.com/sec-filings/sec-
filings-details/default.aspx?FilingId=100117301783.
     \12\ See Silvergate Capital Corporation Press Release, 
``Silvergate Capital Corporation Announces Intent To Wind Down 
Operations and Voluntarily Liquidate Silvergate Bank'' (March 8, 2023), 
available at https://ir.silvergate.com/news/news-details/2023/
Silvergate-Capital-Corporation-Announces-Intent-to-Wind-Down-
Operations-and-Voluntarily-Liquidate-Silvergate-Bank/default.aspx.
---------------------------------------------------------------------------
    The troubles experienced by Silvergate Bank demonstrated how 
traditional banking risks, such as a lack of diversification, 
aggressive growth, maturity mismatches in a rising interest rate 
environment, and sensitivity to liquidity risk, when not managed 
adequately, could combine to lead to a bad outcome. Many of these same 
risks were also present in the failure of SVB.
The Failure of Silicon Valley Bank
    SVB was established in San Jose, California, on October 17, 1983. 
SVB's approximately $191.4 billion in deposit liabilities as of 
December 31, 2022, were associated with its commercial and private 
banking clients, mostly linked to businesses financed through venture 
capital. The bank did not maintain a large retail deposit business. 
Total assets grew rapidly from under $60 billion at the end of 2019 to 
$209 billion by the end of 2022, \13\ coinciding with rapid growth in 
the innovation economy and a significant increase in the valuation 
placed on public and private companies. This influx of deposits was 
largely invested in medium- and long-term Treasury and Agency 
securities. SVB also had significant cross-border operations, with a 
subsidiary in the United Kingdom and branches in Germany, Canada, and 
the Cayman Islands.
---------------------------------------------------------------------------
     \13\ See Silicon Valley Bank's FFIEC Call Report filings from 
December 31, 2019, and December 31, 2022.
---------------------------------------------------------------------------
    On the same day that Silvergate Bank announced its self-
liquidation, SVB announced that it had sold substantially all of its 
available-for-sale securities portfolio at a $1.8 billion after tax 
loss. \14\ SVB simultaneously announced an attempt to raise 
approximately $2.25 billion through the issuance of common equity and 
mandatory convertible preferred shares via an underwritten public 
offering and planned private investment. \15\ The following day, SVB's 
share price dropped 60 percent. In an attempt to quell the rising 
concerns of the bank's depositors and borrowers, the Chief Executive 
Officer of SVB urged venture capital clients to remain calm and keep 
their deposits in the institution. The appeal did not have the intended 
effect. \16\ Many of SVB's venture capital customers took to social 
media to urge companies to move their deposit accounts out of SVB. \17\ 
By the end of the day on Thursday, March 9, 2023, $42 billion in 
deposits had left the bank.
---------------------------------------------------------------------------
     \14\ See Silicon Valley Bank Strategic Actions/Q1 2023 Mid-Quarter 
Update (March 8, 2023), available at https://s201.q4cdn.com/589201576/
files/doc--downloads/2023/03/Q1-2023-Mid-Quarter-Update-vFINAL3-
030823.pdf.
     \15\ See SVB Financial Group Form 8-K (March 8, 2023), available 
at https://www.sec.gov/ix?doc=/Archives/edgar/data/719739/
000119312523064680/d430920d8k.htm.
     \16\ See New York Times, ``Silicon Valley Bank's Financial 
Stability Worries Investors'' (March 9, 2023), available at https://
www.nytimes.com/2023/03/09/business/silicon-valley-bank-investors-
worry.html.
     \17\ Ibid.
---------------------------------------------------------------------------
    The evening of March 9, the FDIC was informed by SVB's primary 
Federal regulator, the Federal Reserve, of the deposit run, subsequent 
funding shortfalls and that the bank was unlikely to have adequate 
liquidity to meet the demands of depositors and other creditors. FDIC 
staff engaged with the chartering authority, the CADFPI, shortly 
thereafter. FDIC staff worked through the night with SVB's primary 
regulators in an effort to put a resolution strategy in place. At 11:15 
a.m., EST, on March 10, 2023, SVB was closed by the CADFPI, which 
simultaneously appointed the FDIC as receiver. To protect insured 
depositors, the FDIC created the Deposit Insurance National Bank (DINB) 
of Santa Clara, an institution operated by the FDIC on a temporary 
basis to provide insured depositors with continued access to their 
funds until they could open accounts at other insured institutions. The 
FDIC also announced its intent to provide uninsured depositors with an 
advance dividend against their claims for the uninsured amounts of 
their deposits as soon as Monday, March 13, when the DINB of Santa 
Clara was scheduled to reopen. \18\
---------------------------------------------------------------------------
     \18\ See FDIC Press Release, ``FDIC Creates a Deposit Insurance 
National Bank of Santa Clara To Protect Insured Depositors of Silicon 
Valley Bank, Santa Clara, California'' (March 10, 2023), available at 
https://www.fdic.gov/news/press-releases/2023/pr23016.html.
---------------------------------------------------------------------------
    By using a DINB and announcing an advance dividend, the FDIC hoped 
to minimize disruption for insured depositors and to provide a measure 
of immediate relief for the uninsured depositors while the agency 
worked to resolve the institution. The FDIC did not foreclose the 
possibility that another institution could purchase the deposits or 
assets of the failed bank, an unlikely but far preferable outcome to 
liquidation. Over the weekend, the FDIC actively solicited interest for 
a purchase and assumption of the failed bank.
    Although several institutions expressed an interest in acquiring 
SVB, given the limited timeframe for bidders to consider making an 
offer, the FDIC received bids from only two institutions, only one of 
which provided a valid offer on the insured deposits and some of the 
assets of SVB. \19\ The costs associated with the sole valid offer 
would have resulted in recoveries significantly below the estimated 
recoveries in liquidation. Once the systemic risk determination was 
made, the FDIC was able to move all depositors and assets into a bridge 
bank and continue the operations of SVB, enabling the FDIC to engage a 
wider range of potential acquirers. As a result, the decision was made 
to conduct an expanded marketing effort of the institution on a whole-
bank basis, which was anticipated to engender more and better offers.
---------------------------------------------------------------------------
     \19\ The other institution failed to submit a resolution from its 
board of directors authorizing its offers on SVB; therefore, the offers 
could not be considered.
---------------------------------------------------------------------------
Signature Bank Closing
    Unlike SVB, which catered almost exclusively to venture capital 
firms, and Silvergate Bank, which was almost exclusively known for 
providing services to digital asset firms, Signature Bank was a 
commercial bank with several business lines. For example, of its 
approximately $74 billion in total loans as of year-end 2022, 
approximately $33 billion were in its commercial real estate portfolio, 
approximately $19.5 billion of which consisted of multifamily real 
estate. Signature Bank also had a $34 billion commercial and industrial 
loan portfolio; $28 billion of these were loans made through the Fund 
Banking Division, which provided loans to private equity firms and 
their general partners. Unlike SVB, which showed depreciation in its 
total securities portfolio of 104 percent to total capital, Signature 
Bank's level of depreciation was approximately 30 percent.
    Signature Bank's operating model did share some of the same risk 
characteristics of both Silvergate Bank and SVB. Like SVB, Signature 
Bank grew rapidly, from $43 billion in total assets at year-end 2017 to 
$110 billion at year-end 2022. Growth was particularly significant from 
2019 to 2020, when assets grew 64 percent. Also like SVB, Signature 
Bank was heavily reliant on uninsured deposits for funding. At year-end 
2022, SVB reported uninsured deposits at 88 percent of total deposits 
versus 90 percent for Signature Bank. Signature Bank also operated a 
business line serving venture capital firms, although it was much 
smaller than that of SVB, at less than one percent of total loans and 
only 2 percent of total deposits. Moreover, in 2019, Signature Bank 
opened an office in San Francisco--the site of SVB's home office--and 
later opened another in Los Angeles, although West Coast operations 
were small in relation to the overall bank.
    Like Silvergate Bank, Signature Bank had also focused a significant 
portion of its business model on the digital asset industry. Signature 
Bank began onboarding digital asset customers in 2018, many of whom 
used its Signet platform, an internal distributed ledger technology 
solution that allowed customers of Signature Bank to conduct 
transactions with each other on a 24 hours a day/7 days a week basis. 
As of year-end 2022, deposits related to digital asset companies 
totaled about 20 percent of total deposits, but the bank had no loans 
to digital asset firms. Silvergate Bank operated a similar platform 
that was also used by digital asset firms. \20\ These were the only two 
known platforms of this type within U.S. insured institutions.
---------------------------------------------------------------------------
     \20\ See CoinDesk, ``Silvergate Closes SEN Platform Institutions 
Used To Send Money to Crypto Exchanges'' (March 3, 2023), available at 
https://www.coindesk.com/policy/2023/03/03/silvergate-suspends-sen-
exchange-network.
---------------------------------------------------------------------------
    Signature Bank's balance sheet shrank during 2022, from $118 
billion in total assets and $110 billion in total deposits at year-end 
2021 to $110 billion in total assets and $89 billion in total deposits 
at year-end 2022. In the second and third quarters of 2022, Signature 
Bank, like Silvergate, experienced deposit withdrawals and a drop in 
its stock price as a consequence of disruptions in the digital asset 
market due to failures of several high profile digital asset companies. 
\21\ Signature Bank met these deposit withdrawals with cash.
---------------------------------------------------------------------------
     \21\ See Bloomberg, ``A $60 Billion Crypto Collapse Leads to a New 
Type of Bank Run'' (May 19, 2022), available at at https://
www.bloomberg.com/news/articles/2022-05-19/luna-terra-collapse-reveal-
crypto-price-volatility?leadSource=uverify%20wall.
---------------------------------------------------------------------------
    Signature Bank was subject to media scrutiny following the 
bankruptcy of FTX and Alameda Trading in November 2022, as the bank had 
deposit relationships with both. \22\ Subsequently, in December 2022, 
Signature Bank announced that it would reduce its exposure to digital 
asset related deposits. \23\ These declines were funded primarily by 
cash and borrowings collateralized with securities.
---------------------------------------------------------------------------
     \22\ See Businesswire, ``Signature Bank Provides Digital Asset 
Banking Update'' (November 15, 2022), available at https://
www.businesswire.com/news/home/20221115006076/en/. See also Seeking 
Alpha, ``Silvergate Gives Mid-Quarter Update After FTX Collapse''; 
stock slips (November 16, 2022), available at https://seekingalpha.com/
news/3908970-silvergate-gives-mid-quarter-update-after-ftx-collapse-
stock-slips.
     \23\ See PYMNTS, ``Signature Bank Tries To Distance Itself From 
Crypto'' (December 6, 2022), available at https://www.pymnts.com/
cryptocurrency/2022/signature-bank-tries-to-distance-itself-from-
crypto/.
---------------------------------------------------------------------------
    In February 2023, Signature Bank was again subject to media 
attention when a lawsuit was filed alleging it facilitated FTX 
commingling of accounts. \24\ Following the March 1, 2023, announcement 
by Silvergate Bank regarding the delay in filing its year-end 2022 
financial statements and comments about its ability to continue as a 
going concern, Signature Bank once again experienced negative media 
attention, which raised questions about its liquidity position. \25\ 
This attention continued as Silvergate Bank later announced its self-
liquidation.
---------------------------------------------------------------------------
     \24\ See CoinDesk, ``Signature Bank Sued for `Substantially 
Facilitating' FTX Comingling'' (February 7, 2023), available at https:/
/www.coindesk.com/business/2023/02/07/signature-bank-sued-for-
substantially-facilitating-ftx-comingling/.
     \25\ See Crain's New York Business, ``Signature Bank Warns Its 
Growth Could Be Impacted if the Cryptocurrency World Suffers Another 
Downdraft'' (March 6, 2023), available at https://
www.crainsnewyork.com/finance/signature-bank-warns-its-growth-could-be-
impacted-if-cryptocurrency-world-suffers-another.
---------------------------------------------------------------------------
    Subsequently, as word of SVB's problems began to spread, Signature 
Bank began to experience contagion effects with deposit outflows that 
began on March 9 and became acute on Friday, March 10, with the 
announcement of SVB's failure. On March 10, Signature Bank lost 20 
percent of its total deposits in a matter of hours, depleting its cash 
position and leaving it with a negative balance with the Federal 
Reserve as of close of business. Bank management could not provide 
accurate data regarding the amount of the deficit, and resolution of 
the negative balance required a prolonged joint effort among Signature 
Bank, regulators, and the Federal Home Loan Bank of New York to pledge 
collateral and obtain the necessary funding from the Federal Reserve's 
Discount Window to cover the negative outflows. This was accomplished 
with minutes to spare before the Federal Reserve's wire room closed.
    Over the weekend, liquidity risk at the bank rose to a critical 
level as withdrawal requests mounted, along with uncertainties about 
meeting those requests, and potentially others in light of the high 
level of uninsured deposits, raised doubts about the bank's continued 
viability.
    Ultimately, on Sunday, March 12, the NYSDFS closed Signature Bank 
and appointed the FDIC as receiver within 48 hours of SVB's failure. 
\26\
---------------------------------------------------------------------------
     \26\ See FDIC Press Release, ``FDIC Establishes Signature Bridge 
Bank, N.A., as Successor to Signature Bank, New York, NY'' (March 12, 
2023), available at https://www.fdic.gov/resources/resolutions/bank-
failures/failed-bank-list/signature-ny.html.
---------------------------------------------------------------------------
Systemic Risk Determination
    With the rapid collapse of SVB and Signature Bank in the space of 
48 hours, concerns arose that risk could spread to other institutions 
and that the financial system as a whole could be placed at risk. 
Shortly after SVB was closed on Friday, March 10, a number of 
institutions with large amounts of uninsured deposits reported that 
depositors had begun to withdraw their funds. Some of these banks drew 
against borrowing lines collateralized by loans and securities to meet 
demands and bolster liquidity positions. As previously noted, the 
industry's unrealized losses on securities were $620 billion as of 
December 31, 2022, and fire sales driven by deposit outflows could have 
further depressed prices and impaired equity.
    With the failure of SVB and the impending failure of Signature 
Bank, concerns had also begun to emerge that a least-cost resolution of 
the banks, absent more immediate assistance for uninsured depositors, 
could have negative knock-on consequences for depositors and the 
financial system more broadly. With uninsured depositors at the two 
banks likely to face an undetermined amount of losses, depositors at 
other banks began to move some or all of their deposits to other banks 
to diversify their exposures and increase their deposit insurance 
coverage. \27\ There were also concerns that investors could begin to 
doubt the financial strength of similarly situated institutions making 
it difficult and more expensive for these banks to obtain needed 
capital and wholesale funding.
---------------------------------------------------------------------------
     \27\ Depositors also moved funds to Treasury securities and 
Government money market funds.
---------------------------------------------------------------------------
    A significant number of the uninsured depositors at SVB and 
Signature Bank were small and medium-sized businesses. As a result, 
there were concerns that losses to these depositors would put them at 
risk of not being able to make payroll and pay suppliers. Moreover, 
with the liquidity of banking organizations further reduced and their 
funding costs increased, banking organizations could become even less 
willing to lend to businesses and households. These effects would 
contribute to weaker economic performance, further damage financial 
markets, and have other material negative effects.
    Faced with these risks, the FDIC Board voted unanimously on March 
12, to recommend that the Secretary of the Treasury, in consultation 
with the President, make a systemic risk determination under the FDI 
Act with regard to the resolution of SVB and Signature Bank. \28\ That 
same day, the Federal Reserve Board unanimously made a similar 
recommendation, and the Secretary of the Treasury determined that 
complying with the least-cost provisions in Section 13(c)(4) of the FDI 
Act would have serious adverse effects on economic conditions or 
financial stability, and any action or assistance taken under the 
systemic risk exception would avoid or mitigate such adverse effects.
---------------------------------------------------------------------------
     \28\ 12 U.S.C. 1823(c)(4)(G).
---------------------------------------------------------------------------
    The systemic risk determination enabled the FDIC to extend deposit 
insurance protection to all of the depositors of SVB and Signature 
Bank, including uninsured depositors, in winding down the two failed 
banks. At SVB, the depositors protected by the guarantee of uninsured 
depositors included not only small and mid-size business customers but 
also customers with very large account balances. The ten largest 
deposit accounts at SVB held $ 13.3 billion, in the aggregate.
    The systemic risk determination does not protect any shareholders 
or unsecured debt holders of the two failed banks. \29\ The board and 
the most senior executives of the banks were removed. The FDIC has 
authority to investigate and hold accountable the directors, officers 
and other professional service providers of the bank for the losses 
they caused to the bank and for their misconduct in the management of 
the bank. \30\ The FDIC has already commenced these investigations. In 
accordance with the law, any losses to the DIF as the result of 
extending coverage to the uninsured depositors are to be recovered by a 
special assessment on the banking industry. \31\
---------------------------------------------------------------------------
     \29\ The FDIC as receiver for a failed bank routinely affirms the 
bank's obligations to providers of services, such as, for example, IT 
contractors and utility companies, because the payment of these 
obligations is necessary for the administration of the bank's 
receivership. 12 U.S.C. 1821(d)(2)(B) & (d)(11).
     \30\ The FDIC as receiver for SVB and Signature Bank will pursue 
all civil actions against directors, officers, and professional service 
providers of the former banks that are meritorious and cost-effective, 
as permitted under State and Federal law. Additionally, the FDIC in its 
supervisory capacity may pursue administrative enforcement actions 
against SVB's officers and directors and institution-affiliated 
parties, including the assessment of civil money penalties and 
prohibitions from the banking industry, where the individual's 
misconduct evidences personal dishonesty, recklessness, or a willful or 
continuing disregard for the safety and soundness of the institution. 
12 U.S.C. 1818(e) & (i). 12 U.S.C. 1821(d)(13)(E). See also 12 U.S.C. 
1821(k) and 12 U.S.C. 1818.
     \31\ 12 U.S.C. 1823(c)(4)(G)(ii).
---------------------------------------------------------------------------
Establishment of the Bridge Banks
    After the systemic risk determination was approved on March 12, the 
FDIC chartered Silicon Valley Bridge Bank, N.A., (SV Bridge Bank) and 
transferred all deposits, both insured and uninsured, and substantially 
all the assets of SVB to SV Bridge Bank. \32\ The FDIC also chartered 
Signature Bridge Bank, N.A., (Signature Bridge Bank) and transferred 
all deposits and substantially all assets of the failed Signature Bank 
to Signature Bridge Bank. \33\
---------------------------------------------------------------------------
     \32\ See FDIC Press Release, ``FDIC Acts To Protect All Depositors 
of the Former Silicon Valley Bank, Santa Clara, California'' (March 13, 
2023), available at https://www.fdic.gov/news/press-releases/2023/
pr23019.html.
     \33\ See FDIC Press Release, ``FDIC Establishes Signature Bridge 
Bank, N.A., as Successor to Signature Bank, New York, NY'' (March 12, 
2023), available at https://www.fdic.gov/news/press-releases/2023/
pr23018.html.
---------------------------------------------------------------------------
    A bridge bank is a chartered national bank that operates on a 
temporary basis under management appointed by the FDIC. \34\ It assumes 
the deposits and certain other liabilities and purchases certain assets 
of a failed bank. The bridge bank structure is designed to ``bridge'' 
the gap between the failure of a bank and the time when the FDIC can 
stabilize the institution and implement an orderly resolution. It also 
provides prospective purchasers with the time necessary to assess the 
bank's condition in order to submit their offers.
---------------------------------------------------------------------------
     \34\ 12 U.S.C. 1821(n).
---------------------------------------------------------------------------
    Depositors and borrowers of SVB and Signature Bank automatically 
became customers of the new bridge institutions, which reopened on 
Monday, March 13, with normal business activities.
Marketing and Sale of the Bridge Banks
    The FDIC's ultimate goal in operating a bridge institution is 
always to return the institution to private control as quickly as 
possible. In the context of SVB and Signature Bank, this goal was 
especially important, given the need to provide stability and certainty 
to affected depositors and customers of the banks, as well as to 
maintain stability and confidence in the banking system and stem the 
risk of contagion to other financial institutions. The FDIC opened 
bidding for the bridge banks on Wednesday, March 15.
Signature Bridge Bank Purchase and Assumption Agreement
    Bidding for Signature Bridge Bank closed on Saturday, March 18. The 
FDIC received five bids from four bidders. The FDIC Board approved 
Flagstar Bank, N.A., Hicksville, New York, a wholly owned subsidiary of 
New York Community Bancorp, Inc., Westbury, New York, as the successful 
bidder.
    On March 19, the FDIC entered into a purchase and assumption 
agreement for the acquisition of substantially all deposits and certain 
loan portfolios of Signature Bridge Bank by Flagstar Bank, N.A. The 40 
former branches of Signature Bank began operating under Flagstar Bank, 
N.A., on Monday, March 20. Depositors of Signature Bridge Bank, other 
than depositors related to the digital asset banking business, 
automatically became depositors of the acquiring institution. The 
acquiring institution did not bid on the deposits of those digital 
asset banking customers. The FDIC is providing those deposits, 
approximating $4 billion, directly to those customers.
    As of December 31, 2022, the former Signature Bank had total 
deposits of $88.6 billion and total assets of $110.4 billion. The 
transaction with Flagstar Bank, N.A., included the purchase of about 
$38.4 billion of Signature Bridge Bank's assets, including loans of 
$12.9 billion purchased at a discount of $2.7 billion. Approximately 
$60 billion in loans will remain in the receivership for later 
disposition by the FDIC. In addition, the FDIC received equity 
appreciation rights in New York Community Bancorp, Inc., common stock 
with a potential value of up to $300 million.
SV Bridge Bank Purchase and Assumption Agreement
    On March 20, the FDIC announced it would extend the bidding process 
for SV Bridge Bank. \35\ While there was substantial interest from 
multiple parties, the FDIC determined it needed additional time to 
explore all options in order to maximize value and achieve the optimal 
outcome. The FDIC also announced it would allow parties to submit 
separate bids for SV Bridge Bank and its subsidiary Silicon Valley 
Private Bank. Qualified, insured banks and qualified, insured banks in 
alliance with nonbank partners would be able to submit whole-bank bids 
or bids on the deposits or assets of the institutions. Bank and nonbank 
financial firms were permitted to bid on the asset portfolios.
---------------------------------------------------------------------------
     \35\ See FDIC Press Release, ``FDIC Extends Bid Window for Silicon 
Valley Bridge Bank, N.A.'' (March 20, 2023), available at https://
www.fdic.gov/news/press-releases/2023/pr23022.html.
---------------------------------------------------------------------------
    Bidding for Silicon Valley Private Bank and SV Bridge Bank closed 
on March 24. The FDIC received 27 bids from 18 bidders, including bids 
under the whole-bank, private bank, and asset portfolio options. On 
March 26, the FDIC approved First-Citizens Bank & Trust Company (First-
Citizens), Raleigh, North Carolina, as the successful bidder to assume 
all deposits and loans of SV Bridge Bank. First-Citizens also acquired 
the bank's private wealth management business. The 17 former branches 
of SV Bridge Bank in California and Massachusetts reopened as First-
Citizens on March 27.
    As of March 10, 2023, SV Bridge Bank had approximately $167 billion 
in total assets and about $119 billion in total deposits. The 
transaction with First-Citizens included the purchase of about $72 
billion of SV Bridge Bank's assets at a discount of $16.5 billion. 
Approximately $90 billion in securities and other assets remained in 
the receivership for disposition by the FDIC. In addition, the FDIC 
received equity appreciation rights in First Citizens BancShares, Inc., 
Raleigh, North Carolina, common stock with a potential value of up to 
$500 million.
    The FDIC and First-Citizens entered into a loss-share transaction 
on the commercial loans it purchased of the former SV Bridge Bank. \36\ 
The FDIC as receiver and First-Citizens will share in the losses and 
potential recoveries on the loans covered by the loss-share agreement. 
The loss-share transaction is projected to maximize recoveries on the 
assets by keeping them in the private sector. The transaction is also 
expected to minimize disruptions for loan customers
---------------------------------------------------------------------------
     \36\ For more information on FDIC loss share transactions, see 
https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-
list/lossshare/index.html.
---------------------------------------------------------------------------
Impact on the Deposit Insurance Fund
    The FDIC estimates that the cost to the DIF of resolving SVB to be 
$20 billion. The FDIC estimates the cost of resolving Signature Bank to 
be $2.5 billion. Of the estimated loss amounts, approximately 88 
percent, or $18 billion, is attributable to the cost of covering 
uninsured deposits at SVB while approximately two-thirds, or $1.6 
billion, is attributable to the cost of covering uninsured deposits at 
Signature Bank. I would emphasize that these estimates are subject to 
significant uncertainty and are likely to change, depending on the 
ultimate value realized from each receivership.
    Under the FDI Act, the loss to the DIF arising from the use of a 
systemic risk exception must be recovered from one or more special 
assessments on insured depository institutions, depository institution 
holding companies, or both, as the FDIC determines to be appropriate. 
\37\ The FDI Act provides the agency with discretion in the design and 
timeframe for any special assessment to cover the losses from the 
systemic risk exception. Specifically, the law requires the FDIC to 
consider: the types of entities that benefit from the action taken, 
economic conditions, the effects on the industry, and such other 
factors as the FDIC deems appropriate and relevant. \38\ Finally, the 
FDI Act requires that a special assessment be prescribed through 
regulation. \39\ The FDIC intends to seek input on any special 
assessment from all stakeholders through notice-and-comment rulemaking 
and expects to issue a notice of proposed rulemaking for a special 
assessment related to the failures of SVB and Signature Bank in May 
2023.
---------------------------------------------------------------------------
     \37\ 12 U.S.C. 1823(c)(4)(G)(ii)(I).
     \38\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
     \39\ Ibid.
---------------------------------------------------------------------------
Current State of the U.S. Financial System
    The state of the U.S. financial system remains sound despite recent 
events.
    The FDIC has been closely monitoring liquidity, including deposit 
trends, across the banking industry. Since the action taken by the 
Government to support the banking system, there has been a moderation 
of deposit outflows at the banks that were experiencing large outflows 
the week of March 6. In general, banks have been prudently working 
preemptively to increase liquidity and build liquidity buffers.
    Over the past 2 weeks, banks have relied on new Federal Home Loan 
Bank (FHLB) advances to strengthen liquidity and have also pre-
positioned additional collateral at the FHLB to support future draws, 
if needed. Banks have also prepared to access the Federal Reserve's 
Discount Window and new Bank Term Funding Program by ensuring that they 
have prepositioned collateral. It is important that we, as regulators, 
message to our supervised institutions that these facilities can and 
should be used to support liquidity needs. Sales of investment 
securities have been a less common source of liquidity as the level of 
unrealized loss across both available-for-sale and held-to-maturity 
portfolio remains elevated.
    With reference to deposits, as expected, banks report that they are 
closely monitoring deposit trends and researching unexpected account 
activity. Banks report instances of corporate depositors, in 
particular, moving some or all of their deposits to diversify their 
exposures and increase their deposit insurance coverage. Banks have 
also reported clients moving their deposits out of the banking system 
and into Government money market funds or U.S. Treasuries. In general, 
the largest banks appear to be net beneficiaries of deposit flows, 
increasing the amounts on deposit, or held in custody, at the global 
systemically important banks and at large regional banks. While some 
banks are reporting a moderate decline in total deposits over the past 
2 weeks, the vast majority are reporting no material outflows.
    The FDIC is also following other trends in bank activities, in 
particular, the steps institutions are taking to support capital and 
liquidity in times of market instability and uncertain deposit outlook.
    More broadly, the financial system continues to face significant 
downside risks from the effects of inflation, rising market interest 
rates, and continuing geopolitical uncertainties. Credit quality and 
profitability may weaken due to these risks, potentially resulting in 
tighter loan underwriting, slower loan growth, higher provision 
expenses, and liquidity constraints. Additional short-term interest 
rate increases, combined with longer asset maturities may continue to 
increase unrealized losses on securities and affect bank balance sheets 
in coming quarters.
Preliminary Lessons Learned
    In the immediate aftermath of the failure of SVB and Signature 
Bank, some preliminary lessons can be identified. A common thread 
between the failure of SVB and the failure of Signature Bank was the 
banks' heavy reliance on uninsured deposits. As of December 31, 2022, 
Signature Bank reported that approximately 90 percent of its deposits 
were uninsured, and SVB reported that 88 percent of its deposits were 
uninsured. The significant proportion of uninsured deposit balances 
exacerbated deposit run vulnerabilities and made both banks susceptible 
to contagion effects from the quickly evolving financial developments. 
One clear takeaway from recent events is that heavy reliance on 
uninsured deposits creates liquidity risks that are extremely difficult 
to manage, particularly in today's environment where money can flow out 
of institutions with incredible speed in response to news amplified 
through social media channels.
    A common thread between the collapse of Silvergate Bank and the 
failure of SVB was the accumulation of losses in the banks' securities 
portfolios. In the wake of the pandemic, as interest rates remained at 
near-zero, many institutions responded by ``reaching for yield'' 
through investments in longer-term assets, while others reduced on-
balance sheet liquidity--cash, Federal funds--to increase overall 
yields on earning assets and maintain net interest margins. These 
decisions led to a second common theme at these institutions--
heightened exposure to interest rate risk, which lay dormant as 
unrealized losses for many banks as rates quickly rose over the last 
year. When Silvergate Bank and SVB experienced rapidly accelerating 
liquidity demands, they sold securities at a loss. The now realized 
losses created both liquidity and capital risk for those firms, 
resulting in a self-liquidation and failure.
    Finally, the failures of SVB and Signature Bank also demonstrate 
the implications that banks with assets of $100 billion or more can 
have for financial stability. The prudential regulation of these 
institutions merits additional attention, particularly with respect to 
capital, liquidity, and interest rate risk. This would include the 
capital treatment associated with unrealized losses in banks' 
securities portfolios. Given the financial stability risks caused by 
the two failed banks, the methods for planning and carrying out a 
resolution of banks with assets of $100 billion or more also merit 
special attention, including consideration of a long-term debt 
requirement to facilitate orderly resolutions.
Conclusion
    Recent efforts to stabilize the banking system and stem potential 
contagion from the failures of SVB and Signature Bank have ensured that 
depositors will continue to have access to their savings, that small 
businesses and other employers can continue to make payrolls, and that 
other banks--small, medium, and large--can continue to extend credit to 
borrowers and serve as a source of support. The FDIC continues to 
monitor developments and is prepared to use all of its authorities as 
needed.
    The circumstances surrounding the failures of SVB and Signature 
Bank merit further thorough review by both regulators and policymakers. 
The FDIC's Chief Risk Officer will undertake a review of the FDIC's 
supervision of Signature Bank and intends to release a report by May 1, 
2023. The FDIC will also undertake a comprehensive review of the 
deposit insurance system and will release by May 1, 2023, a report that 
will include policy options for consideration related to deposit 
insurance coverage levels, excess deposit insurance, and the 
implications for risk-based pricing and deposit insurance fund 
adequacy.
    The FDIC is committed to working cooperatively with our 
counterparts at the other Federal regulators as well as with 
policymakers in the Congress to better understand what brought these 
institutions to failure and what measures can be taken to prevent 
similar failures in the future.
                                 ______
                                 
                   PREPARED STATEMENT OF MICHAEL BARR
   Vice Chairman for Supervision, Board of Governors of the Federal 
                             Reserve System
                             March 28, 2023
    Chairman Brown, Ranking Member Scott, and other Members of the 
Committee, thank you for the opportunity to testify today on the 
Federal Reserve's supervisory and regulatory oversight of Silicon 
Valley Bank (SVB). \1\
---------------------------------------------------------------------------
     \1\ This testimony uses ``Silicon Valley Bank (SVB)'' to refer to 
both the State member bank, Silicon Valley Bank, and its bank holding 
company, SVB Financial Group.
---------------------------------------------------------------------------
    Our banking system is sound and resilient, with strong capital and 
liquidity. The Federal Reserve, working with the Treasury Department 
and the Federal Deposit Insurance Corporation (FDIC), took decisive 
actions to protect the U.S. economy and to strengthen public confidence 
in our banking system. These actions demonstrate that we are committed 
to ensuring that all deposits are safe. We will continue to closely 
monitor conditions in the banking system and are prepared to use all of 
our tools for any size institution, as needed, to keep the system safe 
and sound.
    At the same time, the events of the last few weeks raise questions 
about evolving risks and what more can and should be done so that 
isolated banking problems do not undermine confidence in healthy banks 
and threaten the stability of the banking system as a whole. At the 
forefront of my mind is the importance of maintaining the strength and 
diversity of banks of all sizes that serve communities across the 
country.
    SVB failed because the bank's management did not effectively manage 
its interest rate and liquidity risk, and the bank then suffered a 
devastating and unexpected run by its uninsured depositors in a period 
of less than 24 hours. SVB's failure demands a thorough review of what 
happened, including the Federal Reserve's oversight of the bank. I am 
committed to ensuring that the Federal Reserve fully accounts for any 
supervisory or regulatory failings, and that we fully address what went 
wrong.
    Our first step is to establish the facts--to take an unflinching 
look at the supervision and regulation of SVB before its failure. This 
review will be thorough and transparent, and reported to the public by 
May 1. The report will include confidential supervisory information, 
including supervisory assessments and exam material, so that the public 
can make its own assessment. \2\ Of course, we welcome and expect 
external reviews as well.
---------------------------------------------------------------------------
     \2\ Typically, the Board does not disclose confidential 
supervisory information. We are sharing confidential supervisory 
information in the case of SVB because the bank went into resolution, 
and its disorderly failure posed systemic risk.
---------------------------------------------------------------------------
Why the Bank Failed
    To begin, SVB's failure is a textbook case of mismanagement. The 
bank had a concentrated business model, serving the technology and 
venture capital sector. It also grew exceedingly quickly, tripling in 
asset size between 2019 and 2022. During the early phase of the 
pandemic, and with the tech sector booming, SVB saw significant deposit 
growth. The bank invested the proceeds of these deposits in longer-term 
securities, to boost yield and increase its profits. \3\ However, the 
bank did not effectively manage the interest rate risk of those 
securities or develop effective interest rate risk measurement tools, 
models, and metrics.
---------------------------------------------------------------------------
     \3\ By year-end 2022, the firm's investment portfolio represented 
over 55 percent of its total assets.
---------------------------------------------------------------------------
    At the same time, the bank failed to manage the risks of its 
liabilities. These liabilities were largely composed of deposits from 
venture capital firms and the tech sector, which were highly 
concentrated and could be volatile. Because these companies generally 
do not have operating revenue, they keep large balances in banks in the 
form of cash deposits, to make payroll and pay operating expenses. 
These depositors were connected by a network of venture capital firms 
and other ties, and when stress began, they essentially acted together 
to generate a bank run.
The Bank's Failure
    The bank waited too long to address its problems, and ironically, 
the overdue actions it finally took to strengthen its balance sheet 
sparked the uninsured depositor run that led to the bank's failure. 
Specifically, on Wednesday, March 8, SVB announced that it realized a 
$1.8 billion loss in a sale of securities to raise liquidity and 
planned to raise capital during the following week. Uninsured 
depositors interpreted these actions as a signal that the bank was in 
distress. They turned their focus to the bank's balance sheet, and they 
did not like what they saw.
    In response, social media saw a surge in talk about a run, and 
uninsured depositors acted quickly to flee. Depositors withdrew funds 
at an extraordinary rate, pulling more than $40 billion in deposits 
from the bank on Thursday, March 9. On Thursday evening and Friday 
morning, the bank communicated that they expected even greater outflows 
that day. The bank did not have enough cash or collateral to meet those 
extraordinary and rapid outflows, and on Friday, March 10, SVB failed.
    Panic prevailed among SVB's remaining depositors, who saw their 
savings at risk and their businesses in danger of missing payroll 
because of the bank's failure.
Contagion and the Government's Response
    It appeared that contagion from SVB's failure could be far-reaching 
and cause damage to the broader banking system. The prospect of 
uninsured depositors not being able to access their funds could prompt 
depositors to question the overall safety and soundness of U.S. 
commercial banks. There were signs of distress at other banking 
organizations, and Signature Bank, an FDIC-supervised institution, 
experienced a deposit run that resulted in the bank's failure. On 
Sunday, March 12, the Secretary of the Treasury, upon the unanimous 
recommendation of the boards of the Federal Reserve and the FDIC, 
approved systemic risk exceptions for the failures of SVB and 
Signature. This enabled the FDIC to guarantee all of the deposits of 
both banks. Equity and other liability holders of the two failed banks 
were not protected and lost their investments. Senior management was 
immediately removed.
    In addition, the Federal Reserve Board (Board), with the Treasury 
Department's approval, created a temporary lending facility, the Bank 
Term Funding Program, to allow banks to receive additional liquidity to 
meet any unexpected depositor demand. The facility allows banks to 
borrow against safe Treasury and agency securities at par for up to 1 
year. Together with banks' internal liquidity and stable deposits, 
other external sources, and discount window lending, the new facility 
provides ample liquidity for the banking system as a whole.
Our Review of the Bank's Failure
    Immediately following SVB's failure, Chair Powell and I agreed that 
I should oversee a review of the circumstances leading up to SVB's 
failure. SVB was a State member bank with a bank holding company, and 
so the Federal Reserve was fully responsible for the Federal 
supervision and regulation of the bank. The California Department of 
Financial Protection and Innovation--the State supervisor--has 
announced its own review of its oversight and regulation of SVB.
    In the Federal Reserve's review, we are looking at SVB's growth and 
management, our supervisory engagement with the bank, and the 
regulatory requirements that applied to the bank. As this process is 
ongoing, I will be limited in my ability to provide firm conclusions, 
but I will focus on what we know and where we are focusing the review.
    The picture that has emerged thus far shows SVB had inadequate risk 
management and internal controls that struggled to keep pace with the 
growth of the bank. In 2021, as the bank grew rapidly in size, the bank 
moved into the large and foreign banking organization, or LFBO, 
portfolio to reflect its larger risk profile and was assigned a new 
team of supervisors. LFBO firms between $100 billion and $250 billion 
are subject to some enhanced prudential standards but not at the level 
of larger banks or global systemically important banks (G-SIBs).
    Near the end of 2021, supervisors found deficiencies in the bank's 
liquidity risk management, resulting in six supervisory findings 
related to the bank's liquidity stress testing, contingency funding, 
and liquidity risk management. \4\ In May 2022, supervisors issued 
three findings related to ineffective board oversight, risk-management 
weaknesses, and the bank's internal audit function. In the summer of 
2022, supervisors lowered the bank's management rating to ``fair'' and 
rated the bank's enterprisewide governance and controls as ``deficient-
1.'' These ratings mean that the bank was not ``well-managed'' and was 
subject to growth restrictions under section 4(m) of the Bank Holding 
Company Act. \5\ In October 2022, supervisors met with the bank's 
senior management to express concern with the bank's interest rate risk 
profile and in November 2022, supervisors delivered a supervisory 
finding on interest rate risk management to the bank.
---------------------------------------------------------------------------
     \4\ Supervisory findings include Matters Requiring Attention (MRA) 
and Matters Requiring Immediate Attention (MRIA). An MRA is ``a call 
for action to address weaknesses that could lead to deterioration in a 
banking organization's soundness.'' An MRIA is ``a call for more 
immediate action to address acute or protracted weaknesses that could 
lead to further deterioration in a banking organization's soundness, 
may result in harm to consumers, or have caused, or could lead to, 
noncompliance with laws and regulations.'' MRAs and MRIAs typically are 
the first step in communicating supervisory findings to a firm. When a 
bank has a weakness, supervisors decide whether to assign an MRA or 
MRIA--and the timeline for remediation--depending on the severity of 
the issue. The number of MRAs and MRIAs per firm is variable and 
largely reflects the extent of risk-management weaknesses of a firm. 
While most MRAs and MRIAs are resolved without further escalation, to 
the extent not resolved, they can serve as the basis for provisions 
included in a public enforcement action. See Board of Governors of the 
Federal Reserve System, ``Supervision and Regulation Report'' 
(Washington: Board of Governors, November 2019), at 21, https://
www.federalreserve.gov/publications/files/201911-supervision-and-
regulation-report.pdf.
     \5\ 12 U.S.C. 1843(m), 12 CFR 225.83. The growth restrictions 
under section 4(m) apply to the expansion of nonbank activities through 
merger and acquisition.
---------------------------------------------------------------------------
    In mid-February 2023, staff presented to the Federal Reserve's 
Board of Governors on the impact of rising interest rates on some 
banks' financial condition and staff's approach to address issues at 
banks. Staff discussed the issues broadly, and highlighted SVB's 
interest rate and liquidity risk in particular. Staff relayed that they 
were actively engaged with SVB but, as it turned out, the full extent 
of the bank's vulnerability was not apparent until the unexpected bank 
run on March 9.
Review Focus on Supervision
    With respect to our review, let me start with the supervision of 
the bank. For all banks but the G-SIBs, the Federal Reserve organizes 
its supervisory approach based on asset size. The G-SIBs--our largest, 
most complex banks--are supervised within the Large Institution 
Supervision Coordinating Committee, or LISCC, portfolio. Banks with 
assets of $100 billion or more that are not G-SIBs are supervised 
within the LFBO portfolio. Banks with assets in the $10 to $100 billion 
range are supervised within the regional banking organization, or RBO, 
portfolio. Banks with assets of less than $10 billion are supervised 
within the community banking organization, or CBO, portfolio.
    As I mentioned, SVB grew exceedingly quickly, moving from the RBO 
portfolio to the LFBO portfolio in 2021. Banks in the RBO portfolio are 
supervised by smaller teams that engage with the bank on a quarterly 
basis and conduct a limited number of targeted exams and a full-scope 
examination each year. \6\ Banks in the LFBO portfolio are supervised 
by larger teams that engage with the bank on an ongoing basis. As 
compared to RBOs, LFBO banks are subject to a greater number of 
targeted exams, as well as horizontal (cross-bank) exams that assess 
risks such as capital, liquidity, and cybersecurity throughout the 
year. \7\ In addition, banks in the LFBO portfolio are subject to a 
supervision framework with higher supervisory standards, including 
heightened standards for capital, liquidity, and governance. \8\
---------------------------------------------------------------------------
     \6\ A full scope examination is an assessment of safety and 
soundness of a bank and includes an evaluation of financial condition, 
risk management, and control. A target examination is an assessment of 
a particular area or risk within a firm.
     \7\ A horizontal review is an examination in a particular area or 
risk that is coordinated across several firms. Horizontal reviews also 
provide a clear picture of the relative risk in an individual firm and 
allow supervisors to align supervisory expectations with the firm's 
risk profile. For more information, see Board of Governors of the 
Federal Reserve System, Supervision and Regulation Report (Washington: 
Board of Governors, May 2019), at 18, https://www.federalreserve.gov/
publications/files/201905-supervision-and-regulation-report.pdf.
     \8\ SR letter 12-17 / CA 12-14, ``Consolidated Supervision 
Framework for Large Financial Institutions,'' https://
www.federalreserve.gov/supervisionreg/srletters/sr1217.htm.
---------------------------------------------------------------------------
    In our review, we are focusing on whether the Federal Reserve's 
supervision was appropriate for the rapid growth and vulnerabilities of 
the bank. While the Federal Reserve's framework focuses on size 
thresholds, size is not always a good proxy for risk, particularly when 
a bank has a nontraditional business model. As I mentioned in a speech 
this month, the Federal Reserve had recently decided to establish a 
dedicated novel activity supervisory group, with a team of experts 
focused on risks of novel activities, which should help improve 
oversight of banks like SVB in the future. \9\
---------------------------------------------------------------------------
     \9\ Michael S. Barr, ``Supporting Innovation With Guardrails: The 
Federal Reserve's Approach to Supervision and Regulation of Banks' 
Crypto-related Activities'' (speech at the Peterson Institute for 
International Economics, Washington, DC, March 9, 2023), https://
www.federalreserve.gov/newsevents/speech/barr20230309a.htm.
---------------------------------------------------------------------------
    But the unique nature of this bank and its focus on the technology 
sector are not the whole story. After all, SVB's failure was brought on 
by mismanagement of interest rate risk and liquidity risks, which are 
well-known risks in banking. Our review is considering several 
questions:

    How effective is the supervisory approach in identifying 
        these risks?

    Once risks are identified, can supervisors distinguish 
        risks that pose a material threat to a bank's safety and 
        soundness?

    Do supervisors have the tools to mitigate threats to safety 
        and soundness?

    Do the culture, policies, and practices of the Board and 
        Reserve Banks support supervisors in effectively using these 
        tools?

    Beyond asking these questions, we need to ask why the bank was 
unable to fix and address the issues we identified in sufficient time. 
It is not the job of supervisors to fix the issues identified; it is 
the job of the bank's senior management and board of directors to fix 
its problems.
Review Focus on Regulation
    Let me now turn to regulation. In 2019, following the passage of 
``The Economic Growth, Regulatory Relief, and Consumer Protection 
Act'', the Federal Reserve revised its framework for regulation, 
maintaining the enhanced prudential standards applicable to G-SIBs but 
tailoring requirements for all other large banks. At the time of its 
failure, SVB was a ``Category IV'' bank, which meant that it was 
subject to a less stringent set of enhanced prudential standards than 
would have applied before 2019; they include less frequent stress 
testing by the Board, no bank-run capital stress testing requirements, 
and less rigorous capital planning and liquidity risk-management 
standards. SVB was not required to submit a resolution plan to the 
Federal Reserve, although its bank was required to submit a resolution 
plan to the FDIC. \10\ And as a result of transition periods and the 
timing of biennial stress testing, SVB would not have been subject to 
stress testing until 2024, a full 3 years after it crossed the $100 
billion asset threshold. \11\
---------------------------------------------------------------------------
     \10\ Previously, SVB was in the $50 billion to $100 billion 
category, which under the statutory tailoring framework does not 
require a resolution plan, stress testing, or liquidity rules.
     \11\ To be subject to enhanced prudential standards, a bank 
holding company's assets must exceed $100 billion on a four-quarter 
rolling average. The phase-in for stress testing is roughly 2 years and 
was unchanged by the 2019 rule changes. However, moving to an every-
other-year stress test for Category IV firms can result in another year 
lag if the phase-in period concludes in an odd-numbered year.
---------------------------------------------------------------------------
    Also in 2019, the banking agencies tailored their capital and 
liquidity rules for large banks, and as a result, SVB was not subject 
to the liquidity coverage ratio or the net stable funding ratio. \12\ 
In addition, SVB was not subject to the supplementary leverage ratio, 
and its capital levels did not have to reflect unrealized losses on 
certain securities.
---------------------------------------------------------------------------
     \12\ The banking agencies include the Board, the FDIC, and the 
Office of the Comptroller of the Currency.
---------------------------------------------------------------------------
    All of these changes are in the scope of our review. Specifically, 
we are evaluating whether application of more stringent standards would 
have prompted the bank to better manage the risks that led to its 
failure. We are also assessing whether SVB would have had higher levels 
of capital and liquidity under those standards, and whether such higher 
levels of capital and liquidity would have forestalled the bank's 
failure or provided further resilience to the bank.
Ongoing Work To Understand and Address Emerging Risks
    As I said a few months ago with regards to capital, we must be 
humble about our ability--and that of bank managers--to predict how a 
future financial crisis might unfold, how losses might be incurred, and 
what the effect of a financial crisis might be on the financial system 
and our broader economy. \13\
---------------------------------------------------------------------------
     \13\ Michael S. Barr, ``Why Bank Capital Matters'' (speech at the 
American Enterprise Institute, Washington, DC, December 1, 2022), 
https://www.federalreserve.gov/newsevents/speech/barr20221201a.htm.
---------------------------------------------------------------------------
    The failure of SVB illustrates the need to move forward with our 
work to improve the resilience of the banking system. For example, it 
is critical that we propose and implement the Basel III endgame 
reforms, which will better reflect trading and operational risks in our 
measure of banks' capital needs. In addition, following on our prior 
advance notice of proposed rulemaking, we plan to propose a long-term 
debt requirement for large banks that are not G-SIBs, so that they have 
a cushion of loss-absorbing resources to support their stabilization 
and allow for resolution in a manner that does not pose systemic risk. 
We will need to enhance our stress testing with multiple scenarios so 
that it captures a wider range of risk and uncovers channels for 
contagion, like those we saw in the recent series of events. We must 
also explore changes to our liquidity rules and other reforms to 
improve the resiliency of the financial system.
    In addition, recent events have shown that we must evolve our 
understanding of banking in light of changing technologies and emerging 
risks. To that end, we are analyzing what recent events have taught us 
about banking, customer behavior, social media, concentrated and novel 
business models, rapid growth, deposit runs, interest rate risk, and 
other factors, and we are considering the implications for how we 
should be regulating and supervising our financial institutions. And 
for how we think about financial stability.
    Part of the Federal Reserve's core mission is to promote the safety 
and soundness of the banks we supervise, as well as the stability of 
the financial system to help ensure that the system supports a healthy 
economy for U.S. households, businesses, and communities. Deeply 
interrogating SVB's failure and probing its broader implications is 
critical to our responsibility for upholding that mission.
    Thank you, and I look forward to your questions.
                                 ______
                                 
                   PREPARED STATEMENT OF NELLIE LIANG
    Under Secretary for Domestic Finance, Department of the Treasury
                             March 28, 2023
    Chairman Brown, Ranking Member Scott, and other Members of the 
Committee, thank you for inviting me to testify today.
    I have had the opportunity to speak with Committee Members several 
times in recent days to share updates from Treasury regarding current 
events. In light of that, I will keep my introductory remarks brief.
    The American economy relies on a healthy banking system--one that 
includes large, small, and mid-size banks and provides for the 
financial needs of families, businesses, and local communities. 
Households depend on banks to finance their cars and homes and build 
their savings. Businesses borrow from banks to start and expand their 
operations, creating jobs for American workers and benefits for their 
local economies.
    Nearly 3 weeks ago, problems emerged at two banks with the 
potential for immediate and significant impacts on the broader banking 
system and the economy. The situation demanded a swift response. In the 
days that followed, the Federal Government took decisive actions to 
strengthen public confidence in the U.S. banking system and protect the 
American economy.
    On March 9th, depositors of Silicon Valley Bank (SVB), withdrew $42 
billion in deposits in a period of just a few hours. After concluding 
that significant deposit withdrawals would continue the next day, the 
California State regulator closed SVB and appointed the Federal Deposit 
Insurance Corporation (FDIC) as receiver on March 10th. Two days later, 
on Sunday March 12th, the New York regulator closed Signature Bank, 
which also had experienced a depositor run, and appointed the FDIC as 
receiver.
    Treasury worked to assess the effects of these failures on the 
broader banking system, consulting regularly with the Federal Reserve 
and FDIC. On Sunday evening, recognizing the urgency of reducing 
uncertainty for Monday morning, Treasury, the Federal Reserve, and the 
FDIC announced a number of actions to stem uninsured depositor runs and 
to prevent significant disruptions to households and businesses.
    First, the boards of the FDIC and the Federal Reserve unanimously 
recommended, and Secretary Yellen approved after consulting with the 
President, two actions that would enable the FDIC to complete its 
resolutions of the two banks in a manner that fully protects all of 
their depositors. These actions ensured that businesses could continue 
to make payroll and that families could access their funds. Depositors 
were protected by the Deposit Insurance Fund. Equity holders and bond 
holders were not covered.
    Second, the Federal Reserve created the Bank Term Lending Program, 
a new facility to provide term funding to all insured depository 
institutions eligible for primary credit at the discount window, based 
on their holdings of Treasury and Government agency securities. This 
program, along with its preexisting discount window, has helped banks 
meet depositor demands and bolstered liquidity in the banking system.
    This two-pronged, targeted approach was necessary to reassure 
depositors at all banks, and to protect the U.S. banking system and 
economy. These actions have helped to stabilize deposits throughout the 
country and provided depositors with confidence that their funds are 
safe.
    In addition to these actions, on March 16th, 11 banks deposited $30 
billion into First Republic Bank. The actions of these large and mid-
size banks represent a vote of confidence in the banking system and 
demonstrate the importance of banks of all sizes working to keep our 
economy strong. Moreover, on March 20th the deposits and certain assets 
of Signature Bridge Bank were acquired from the FDIC, and on March 26th 
the deposits and certain assets of Silicon Valley Bridge Bank were 
acquired from the FDIC.
    We continue to closely monitor developments across the banking and 
financial system, and coordinate with Federal and State regulators. As 
Secretary Yellen has said, we have used important tools to act quickly 
to prevent contagion. And they are tools we would use again if 
warranted to ensure that Americans' deposits are safe.
    Looking forward, while we do not yet have all the details about the 
failures of the two banks, we do know that the recent developments are 
very different from those of the Global Financial Crisis. Back then, 
many financial institutions came under stress because they held low 
credit-quality assets. This was not at all the catalyst for recent 
events. Our financial system is significantly stronger than it was 15 
years ago. This is in large part due to postcrisis reforms for stronger 
capital and liquidity requirements.
    As you know, the Federal Reserve announced a review of the failure 
of SVB and the FDIC a review of Signature bank. I fully support these 
reviews and look forward to learning more in order to inform any 
regulatory and supervisory responses. We must ensure that our bank 
regulatory policies and supervision are appropriate for the risks and 
challenges that banks face today.
    The American financial system is strong in part because of our 
dynamic and diverse banking system. Large, small, and mid-size banks 
all play an important role in our economy. Small and mid-size banks, 
including community banks, serve a vital role in providing credit and 
financial support to families and small businesses. Smaller banks 
provide 60 percent of loans to U.S. small businesses. \1\ Their 
specialized knowledge, expertise, and relationships in their 
communities enable them to capably serve customers, and their presence 
increases competition in the banking sector for the benefit of 
consumers.
---------------------------------------------------------------------------
     \1\ https://cdn.advocacy.sba.gov/wp-content/uploads/2022/07/
12095600/2020-Small-Business-Lending-Report-508c.pdf
---------------------------------------------------------------------------
    I want to thank the Committee for its leadership on these important 
issues and for inviting me here to testify today. I look forward to 
your questions.
         RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
                     FROM MARTIN GRUENBERG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                     FROM MARTIN GRUENBERG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                     FROM MARTIN GRUENBERG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR MENENDEZ FROM MARTIN GRUENBERG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


               RESPONSES TO WRITTEN QUESTIONS OF
           SENATOR CORTEZ MASTO FROM MARTIN GRUENBERG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
                     FROM MARTIN GRUENBERG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


         RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
                       FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                       FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


               RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR MENENDEZ FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR CORTEZ MASTO FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                       FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


               RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR FETTERMAN FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                       FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
                       FROM MICHAEL BARR

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


         RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
                       FROM NELLIE LIANG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                       FROM NELLIE LIANG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM NELLIE LIANG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR CORTEZ MASTO FROM NELLIE LIANG

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


              Additional Material Supplied for the Record
              LETTER SUBMITTED BY AMERICAN SHARE INSURANCE

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                   BETTER MARKETS BANKING FACT SHEET

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                        LETTER SUBMITTED BY CUNA

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                       LETTER SUBMITTED BY NAFCU

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]