Top officials at the Federal Reserve, Treasury and the Federal Deposit Insurance Corporation on Tuesday defended their response to the collapse of two banks that shocked the global financial system this month and raised the risk of a US recession.
Officials blamed the leaders of the two failed banks, Silicon Valley Bank and Signature Bank, and said mismanagement had led to the crisis. While members of the Senate Banking Committee also cited the executives’ failings, they sharply questioned regulators about their actions.
Michael S. Barr, vice president of supervision at the Fed, SVB’s main regulator, said the bank failed because “its management failed to adequately address” clear risks that were brought to its attention more than two years ago. But he later acknowledged that he did not find out about the seriousness of the bank’s problems until the middle of last month.
Here’s what you should know:
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The officials who testified were Mr. Barr; Martin Gruenberg, Chairman of the FDIC; and Nellie Liang, Treasury undersecretary for domestic finance. Read more about them.
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Barr said the run that led to the failure of Silicon Valley Bank was of “extraordinary pace and scale.” The bank had a $42 billion outflow on March 9, the fastest run in history, and the bank was expecting a $100 billion outflow the next day, when regulators stepped in. Catch up on what happened to the banks at the center of the crisis.
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Some Democrats on the committee emphasized the idea that deregulation left agencies without the tools they needed to tackle problems at smaller banks like SVB. Some Republicans sought to link public spending and the Fed’s broader agenda, including on issues like climate change, to the crisis. Both parties expressed concern about the effect the turmoil could have on the broader economy.
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In response to questions about his actions to support deposits at failing banks, Gruenberg said there would have been “contagion,” a spread of the crisis. Ms. Liang agreed, saying that without federal action, the bank runs “would have intensified and caused serious problems.” These are the regulatory proposals that the White House is considering.
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This was the first of two days of testimony. The same officials will appear before the House Financial Services Committee on Wednesday.
