This week, the Senate Banking Committee and House Financial Services Committee held hearings to review the recent failures of Silicon Valley Bank (SVB) and Signature Bank.
Members of both committees, on both sides of the aisle, took aim at banking regulators for failing to appropriately oversee SVB and Signature Bank in a manner that ensures safe and sound banking practices. Representatives also emphasized the unusual nature of the SVB collapse happening partially as a result of comments on Twitter and exacerbated by the ease and speed of digital banking. Members of both parties sought clarity on the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) on the failure of SVB and Signature Bank.
In both hearings, it was clear that the underlying cause of the failure of SVB was the rampant mismanagement of the bank by former executives. Mismanagement ranged from SVB’s lacking a Chief Risk Officer for more than a year, over-leveraging and failing to diversify deposits, interest rate mismanagement, and more. Several Members of both committees expressed interest in learning more about the FDIC’s auction and bid process for finding successor banks of SVB and Signature.
Another area of bipartisan consensus was on the vital role of community and regional banks and credit unions in our economy. Representatives on both sides of the aisle outlined their support for these smaller financial institutions and encouraged regulators to preserve these financial institutions following the collapse of SVB and Signature.
Several Representatives also discussed digital assets. Rep. Emmer and Rep. Andrew Garbarino (R-NY) questioned the process around selling assets of SVB and Signature Bank, but excluding digital assets-related accounts.
The Office of the Comptroller of the Currency (OCC) announced the establishment of its Office of Financial Technology and the selection of Prashant Bhardwaj to lead the office as Deputy Comptroller and Chief Financial Technology Officer, effective April 10, 2023.
The CFPB announced that it has determined that state disclosure laws covering lending to businesses in California, New York, Utah, and Virginia are not preempted by the federal Truth in Lending Act (TILA). After analyzing public comments on its preliminary determination, the CFPB affirmed there is no conflict because the state laws extend disclosure protections to businesses and entrepreneurs that seek commercial financing.
Senators Elizabeth Warren (D-MA), Catherine Cortez Masto (D-NV), Josh Hawley (R-MO), and Mike Braun (R-IN) introduced the Failed Bank Executives Clawback Act – bipartisan legislation that would require that, in the event of a bank failure, federal regulators claw back all or part of the compensation received by a bank executive in the five-year period preceding the failure. For more information, see our list of legislation introduced following Silicon Valley Bank’s failure.
The Financial Accounting Standards Board (FASB) published a proposed Accounting Standards Update (ASU) to improve the accounting for and disclosure of certain crypto assets. The amendments in the proposed ASU would improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The proposed amendments also would improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, restrictions, and changes in those holdings. Comments are due by June 6.
The White House published a Fact Sheet stating that President Biden is urging regulators to “reverse Trump Administration weakening of common-sense safeguards and supervision for large regional banks.” Specifically, the President urged the federal banking agencies, in consultation with the Treasury Department, to consider a set of reforms that will reduce the risk of future banking crises.
The Commodity Futures Trading Commission (CFTC) charged global digital asset platform Binance and its founder, Changpeng Zhao, with willful evasion of federal law and operating an illegal digital asset derivatives exchange in the United States. The ÇFTC also charged Samuel Lim, the platform’s former chief compliance officer, with aiding and abetting the platform’s violations.
The SEC charged Beaxy, a crypto asset trading platform, and its executives for failing to register as a national securities exchange, broker, and clearing agency. It also charged the platform’s founder, Artak Hamazaspyan, for offering and selling unregistered securities in the form of BXY tokens.
The Federal Reserve Board (FRB) announced that it fined Wells Fargo & Co., of San Francisco, California, $67.8 million for the firm’s “unsafe or unsound practices relating to historical inadequate oversight of sanctions compliance risks” at its subsidiary bank, Wells Fargo Bank, N.A. The FRB stated that Wells Fargo & Co.’s deficient oversight enabled the bank to violate U.S. sanctions regulations by providing a trade finance platform to a foreign bank that used the platform to process approximately $532 million in prohibited transactions between 2010 and 2015.
The Federal Financial Institutions Examination Council (FFIEC) announced Michael Hsu, Acting Comptroller, Office of the Comptroller of the Currency, as its Chair. Mr. Hsu’s two-year term runs from April 1, 2023, through March 31, 2025. The FFIEC also named Michael Barr, Vice Chair for Supervision, Board of Governors of the Federal Reserve System, as its new Vice Chair for the same two-year term.
Federal Reserve Vice Chair for Supervision Michael Barr delivered remarks on the Community Reinvestment Act (CRA) at the National Community Reinvestment Coalition Just Economy Conference. Vice Chair for Supervision Barr discussed priorities for CRA reform, including advancing the core purpose of the statute, addressing the significant changes in the banking sector, providing greater clarity, consistency, and transparency, and aligning evaluations and data collection to bank size and type.
Federal Reserve Governor Philip Jefferson delivered a speech entitled “Implementation and Transmission of Monetary Policy.” Governor Jefferson discussed the Fed’s mandate of maximum employment and price stability and the actions that the Fed takes to implement monetary policy.
Secretary of the Treasury Janet Yellen delivered remarks on financial stability, the post-global financial crisis financial system, and mitigating vulnerabilities in nonbank financial intermediation at the National Association for Business Economics 39th Annual Economic Policy Conference. Secretary Yellen discussed the importance of financial stability, the rationale between financial stability policies and the post Global Financial Crisis financial system, as well as potential vulnerabilities from non-traditional financial products, including digital assets.
The House Committee on Small Business Subcommittee on Economic Growth, Tax, and Capital Access held a hearing to examine the regulatory implications of the proposed implementation of Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act by the Consumer Financial Protection Bureau (CFPB).
The House Committee on Appropriations Subcommittee on Financial Services and General Government held a hearing to discuss the SEC’s Fiscal Year 2024 budgetary request.
Congressman Patrick McHenry (R-NC), Chair of the House Financial Services Committee, and Congresswoman Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee, sent a letter to the U.S. Government Accountability Office (GAO) calling on the Office to begin a study and an investigation into the recent collapse of Silicon Valley Bank and Signature Bank. Specifically, the lawmakers urge the office to examine the factors that led to the mismanagement of both banks, including any regulatory or examination failures.
The Chairman of the House Financial Services Subcommittee on Oversight and Investigations, Bill Huizenga (R-MI), the Chairman of the Subcommittee on Financial Institutions and Monetary Policy, Andy Barr (R-KY), and Congresswoman Young Kim (R-CA) sent a letter to Vice Chair for Supervision of the Board of Governors of the Federal Reserve System (FRB) Michael Barr and President and CEO of the Federal Reserve Bank of San Francisco (FRBSF) Mary Daly expressing concern about supervisory activity conducted prior to the collapse of Silicon Valley Bank (SVB). In the letters, the lawmakers specifically demand all communications between the FRB and FRBSF, along with the regulators’ communications with SVB and SVB Financial Group regarding supervisory determinations and regulatory red flags, among other requests. Read the full letter here.