Financial Services Policymakers Tracking Recent Bank Failures – What’s Next

By Keaghan Ames, Vice President, Financial Services

Behind the drama of the debt ceiling, many policymakers and in Washington and the states have been keeping tabs on recent bank failures and what if any actions need to be taken. In recent weeks, both the House Financial Services Committee (HFSC) and Senate Banking Committee (SBC) each hosted two hearings focused largely on the failing of Silicon Valley Bank (SVB)and Signature Bank: (1) calling former executives from SVB and Signature to testify as to what happened at their respective failed institutions; and, (2) semi-annual testimony of the federal prudential supervisors (including the FRB, FDIC, and OCC) with the SBC also including NYDFS Superintendent Adrianne Harris California DFPI Commissioner Hewlett to discuss the failures as well.

Back in March, BGR cited that most of the Hill had retreated to their ideological corners and by and large many have remained there. In addition to calling for a rollback of the previous Administration’s tailoring reform under S.2155, progressive democrats are also citing concerns around too-big-too-fail, particularly with more acquisitions on the way akin to the JP Morgan acquisition of First Republic. Moderate Democrats and Republicans continue to be focused on supervisory deficiencies including the lack of supervisory action taken following ratings downgrades of the failed institutions over the last two years.  It should be noted that the GAO recently testified in front of the HFSC subcommittee on Oversight and Investigations regarding its report citing FRB and FDIC supervisory deficiencies.

Despite the continued attention on these failures from the Hill, it’s still unlikely any legislation comes about as a result of these banking failures. However, we expect increased attention by Republicans and moderate Democrats on oversight of the financial regulators. To that end, Senators Tom Tillis (R-NC) and Jon Tester (D-MT) called on President Biden to appoint an independent investigator to “hold both reckless bank executives and ineffective federal regulators accountable for their roles in the recent bank failures.” In their letter, they cite that the Federal Reserve’s review of SVB’s failure was insufficient (see more from BGR here).

From the regulators, however, there will likely be some action in the coming months. The Federal Reserve Bank (FRB) and FDIC have made it clear they plan on taking policy actions to remediate the fallout. The FRB has made clear they plan on raising capital requirements through the implementation of Basel III, which was set to happen prior to the bank failures. Additionally, FRB Vice Chair for Supervision Michael Barr continued to reiterate that the Fed will reassess the tailoring reform from S.2155, including potentially rolling back regulatory and supervisory relief for medium, small, and foreign banks. The FDIC has noticed a proposed special assessment on any bank over $50 billion in assets with uninsured deposits to offset the costs associated with these failures, the comment period for which is open. Finally, the FDIC has also outlined a number of insurance deposit reforms, which was acknowledged by HFSC Chairman Patrick McHenry (R-NC). Congressional action would be needed for any changes to deposit insurance.