[Congressional Record Volume 169, Number 48 (Wednesday, March 15, 2023)]
[Senate]
[Pages S783-S784]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                             Bank Failures

  Mr. President, I want to talk for a few minutes about President 
Biden's bailout of the three banks that went under.
  When I ran for this office in 2016, I observed at that time that one 
of the problems in America was that we had too many undeserving--I 
emphasize ``undeserving'' because I don't want to paint too broad of a 
brush--we had too many undeserving people at the top in America getting 
bailouts, and we had too many undeserving people at the bottom getting 
handouts, and the rest of America--most of America in the middle--was 
getting the bill, and I didn't think that was fair. Apparently, it is 
still the case today, and I still don't think it is fair.
  Now, President Biden chose to bail out three of our banks. It was a 
bailout. You can pretty it up any way you want to, and you can put 
perfume on a pig, but it still smells like a pig. This was a bailout. 
It was a bailout for two reasons. No. 1, except for the people who own 
the stock in the banks and their unsecured creditors, President Biden 
and his regulators guaranteed that nobody affiliated with these banks 
would have any losses. And he said that is not a bailout because money 
is not being provided by the American people; it is being provided by 
all the other banks in America.
  Well, Mr. President, you know as well as I do there is no money 
fairy. There isn't anything free. Anything free, somebody had to work 
for.
  By taking the hit--all the banks in America, now, I am referring to--
banks are taxpayers. That is point one. But point two, those banks--all 
the banks in America that are going to have to pay for the President's 
bailout--they are just going to pass on those costs, including but not 
limited to their depositors. And, the last time I checked, most 
depositors and banks in America were taxpayers as well.

  The second reason President Biden's bailout is a bailout--and this is 
in the fine print--is that he has set up, I think it is, a $25 billion 
fund that other banks that are in trouble can borrow from. And this 
fund, he says, does not come from the American people. It came from the 
banks. Once again, the costs of it will be passed on by the banks to 
the depositors, to the taxpayers.

[[Page S784]]

  But this $25 billion fund that banks that are in trouble can borrow 
from is set up as follows. The banks can borrow money as they need it, 
and as collateral they put up their securities.
  So the President says that is a safe bet. Except, when you read the 
fine print, you find out that the securities that the banks put up as 
collateral to borrow money from the American people are not what is 
called ``mark to market.'' The securities are not put up at their real 
value. They are put up at the value at the time they were purchased.
  So if you bought a security that was--let's say, to make it simple--
$20, and it is owned by a bank and it is now worth $5, you give that $5 
to the $25 billion fund, and you get credit for $10. But it is really 
worth only $5. I mean, it is a bailout, and I am not going to bubble-
wrap it, and I don't think we ought to try to bubble-wrap it to the 
American people.
  Now, let me say a word about Silicon Valley Bank. All the bank 
failures were an abomination, but I think Silicon Valley Bank is 
symptomatic of the problem among all three.
  SVB we call it, or Silicon Valley Bank. First of all, Silicon Valley 
Bank was not broke. It was not an insolvency problem. It wasn't 
insolvent. Silicon Valley Bank had a liquidity problem.
  I mean, here is what happened. Silicon Valley Bank took in a whole 
bunch of deposits on which they were paying an interest rate. And then 
Silicon Valley Bank took that money and went out and bought a bunch of 
securities, paying a higher interest rate than Silicon Valley Bank was 
paying the depositors.
  You say: That is pretty smart.
  There is just one problem. The securities that Silicon Valley Bank 
bought were very sensitive to interest rates, and, as interest rates 
went up--and they have--the value of those securities went down if 
Silicon Valley Bank had to sell them.
  And, sure enough, Silicon Valley Bank got itself in the position of 
having to sell them, because a lot of its depositors got scared about 
the bank's position, and other reasons, and said: We want our money 
back.
  And Silicon Valley Bank didn't have the money because it had to go 
sell these securities at a loss, and that put it at risk. That is why 
it had a liquidity problem that could have been fixed. It wasn't broke.
  President Biden's bailout could have been easily avoided if we had 
done--let me put that another way--if three things had happened, not 
all three but any one of the three things I am about to explain.
  Let me say that again. President Biden's bailout could have been 
avoided if one or more of three things had happened: No. 1, if the 
management of Silicon Valley Bank had known the difference between a 
banking textbook and an L.L. Bean catalog, Silicon Valley Bank would 
have never bought securities that are so sensitive to interest rates 
without hedging that risk. And it is a very easy thing to do.
  Honestly, it is banking 101. If you buy securities to back your 
deposits that are very sensitive to interest rates, there are other 
securities you can buy to hedge that risk so you don't take the risk.
  I am appalled. The bankers at Silicon Valley Bank didn't do it. I 
mean, it was bone-deep, down-to-the-marrow stupid.
  No. 2, OK, Silicon Valley Bank management did it. It was like a rock, 
only dumber, but they did it. The regulators didn't catch it. There has 
been a lot of talk that Silicon Valley Bank wasn't being regulated 
because of a bill passed back in 2018 and 2019. That is not true. 
Silicon Valley Bank was heavily regulated. It had to file regular 
reports with the Federal banking regulators. It was subject to stress 
testing. It was subject to liquidity stress testing. All the regulators 
had to do was read the reports that Silicon Valley Bank was submitting, 
and they would have seen the problem.
  Do you know who solved the problem? Way back in November and October, 
stock analysts in the private sector that were covering Silicon Valley 
Bank warned--way back last fall--they said: Do you know what? This bank 
is setting itself up for a potential liquidity problem.
  The private sector knew it. Where were the regulators? Where were 
they? You couldn't have found them with a search party. I guess they 
were asleep. But this whole debacle could have been avoided if the 
regulators had just done their job and stepped in and said: Silicon 
Valley Bank, what you are doing is dumb, and you can't do it anymore.
  That would have avoided it.
  The third thing that could have avoided President Biden's bailout--I 
think the bank went under on a Friday, as I recall. The Federal 
Reserve, the Secretary of the Treasury, the head of the FDIC, and all 
of the other regulators allowed the bank to go under, instead--
instead--of getting on the telephone and calling other banks and 
saying: I have got a situation here with Silicon Valley Bank. It is not 
insolvent. It is just illiquid. We want you to buy it.
  That is what normally happens, and that is all the regulators had to 
do.
  Now, why didn't they do that? There has been a lot of talk about, 
well, they had an auction for the bank and nobody wanted it. That is 
not true. There were buyers. But the problem was that the people at the 
FDIC do not like bank mergers.
  Some bank mergers make sense. Some bank mergers don't make sense. In 
this case, it would have made extraordinary sense.
  And so the folks at the FDIC stalled and restalled, and then we had 
mass panic. Think back to the bailouts in 2008 and 2009. If you are a 
banker and you get a call from the Secretary of the Treasury, the head 
of the Federal Reserve, and the head of the FDIC saying: Can we sit 
down and talk with you and structure the terms by which you would buy 
this illiquid but still solvent bank, you are going to take that phone 
call.
  The regulators didn't do that, and all of this could have been 
avoided. If we had done any one of those three things--any one of those 
three things--this mess could have been avoided.
  With that, I yield--well, let me make just one last comment. I am 
going to say it again. In 2016, in America, we had too many undeserving 
people at the time getting bailouts, and we still do today.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. KENNEDY. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.