Congress Investigates Why Bank Failures Were Not Prevented Despite Warning Signs Transcript

Lawmakers also dug into what went wrong and the role of federal regulators both before the banks collapsed and since then. Congressional correspondent Lisa Desjardins reports on the hearing.

It looks to me like the regulators knew the problem, but nobody dropped the hammer.

In the first formal congressional hearing on the collapse of Silicon Valley Bank, senators grilled top federal regulators on why they didn’t do more to prevent the bank’s demise.

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.

If the outside sector knew this was happening, you and the Fed and the 4,000 examinators should have known that this was coming as well.

Officials, including the Federal Reserve’s top regulator, Michael Barr, laid the blame primarily on the bank itself, saying SVB grew too quickly and rolled the dice rather than acting as rising interest rates created high risk.

This is a textbook case of bank mismanagement.

But Senators’ gaze was pointed equally at the Fed.

Vice Chair Barr, did the Fed drop the ball because it didn’t see the risk that was building?

Fundamentally, the bank failed because its management failed to appropriately address clear interest rate risk, and clear liquidity risk. The Federal Reserve Bank brought forward these problems to the bank and they failed to address them in a timely way.

Senators asked why Fed regulators didn’t act sooner with some Republicans noting that the agency saw signs of risk and flagged them as early as 2021.

The Federal Reserve knew well in advance that Silicon Valley Bank had a problem withholding too much of its money in interest rate-sensitive long government bonds, didn’t you?

I think the investing public and the Federal Reserve, which cited it for interest rate risk problems, knew that it had interest rate risk.

The Federal Reserve didn’t do anything about it, did it?

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 citations.

You didn’t follow up, did you?

Some Senate Democrats like Elizabeth Warren are urging more regulation, but not all. John Chester of Montana voiced his larger frustration.

I am not a banker. I ain’t even close to being a banker. I’m a dirt farmer, and I’m going to tell you, when they laid out what at this bank had happened over the last two years, you did not have to be an accountant to figure out what the hell was going on here.

Raphael Warnock of Georgia.

Here’s the bottom line. Ordinary folks who just showed up, put their deposits, they shouldn’t have to bear the brunt and burden of these bad decisions.

The FDIC is in the middle of a review of what happened and how it ensures bank customers. As for the Fed, Barr said it will consider stricter regulations for banks going forward. For the PBS News Hour, I’m Lisa Desjardins.