Top banking regulators say stronger rules are needed in the wake of SVB collapse

Three top banking regulators testified before the Senate Banking Committee that stronger banking regulations are needed to prevent bank failures such as Silicon Valley Bank (SVB) that recently collapsed.

The regulators, Federal Reserve’s Vice Chairman for Supervision Michael Barr, Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg, and Nellie Liang, the undersecretary for domestic finance at the Treasury Department, faced questions from both sides of the aisle about the collapses of SVB and Signature Bank, the second- and third-largest bank failures in the US.

Testifying before the Senate Banking Committee, Barr said that, in his view, stronger capital and liquidity standards are required to prevent future failures. Similarly, Liang highlighted that the regulatory policies and supervision must be appropriate for the risks and challenges that banks face today.

All three regulators agreed that they support stronger banking rules to prevent bank failures from happening again. Gruenberg emphasized the need for prudential regulation of banks with assets worth $100 billion or more, especially regarding capital, liquidity, and interest-rate risk standards.

However, there was a disagreement among lawmakers from both parties about the cause of the SVB’s meltdown and the regulatory failure to prevent its collapse. Some Republicans accused the regulators of failing to enforce existing laws and procedures to prevent SVB’s collapse. In contrast, Democrats blamed the Trump-era easing of rules for banks with assets between $100 billion and $250 billion, which included SVB.

Sen. Elizabeth Warren used the hearing to put regulators’ support for strengthening banking rules on the record. Sen. Sherrod Brown emphasized that greed leads to risky behavior and said that there will always be arrogant executives, and thus strong rules and public servants’ courage to enforce them are necessary.

Centrist Sen. Jon Tester stressed the importance of financial regulators correcting any problems they find during the Fed’s review of the circumstances and decisions leading up to SVB’s implosion, whether related to regulators or regulation.

Finally, the hearing was held 2.5 weeks after SVB’s failure, and Barr, Gruenberg, and Liang are scheduled to appear before the GOP-controlled House Financial Services Committee to face more questions about SVB’s failure and its implications for future regulation and supervision.

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