US regulators in the hot seat after bank failures

(Washington) US senators grilled the country’s banking regulators on Tuesday, accused of not having anticipated the bankruptcy of SVB and Signature Bank, and who will issue several reports on the subject on May 1.

“The leaders of SVB and Signature took crazy risks and must be held accountable for blowing up their banks. […] But let’s be clear, these collapses also represent a massive failure in the supervision of our country’s banks,” said Senator Elizabeth Warren, from the left wing of the Democratic Party.

“You didn’t have to be an accountant to figure out what was going on,” said another Democrat, Jon Tester. “It seems to me that the regulators knew about the problem, but nobody took it up.”

The Senate Banking Committee heard on Tuesday from officials of the American central bank (Fed), responsible for regulating banks, as well as the American bank deposit guarantee agency, the FDIC.

Reproaches also came from the Republican side: “The result of this failure puts the banking industry in a state of disarray that we have never seen before. Despite all the preparation and tools at your disposal, the FDIC failed to do their job,” Hagerty said.

The FDIC and the Fed have both announced reports on the subject.

The FDIC will conduct “a comprehensive review of the deposit insurance scheme and will release a report by May 1, 2023,” said FDIC Chairman Martin Gruenberg.

In the United States, bank deposits are protected by the FDIC up to $250,000 per institution per customer. Recently, US banks have requested coverage of all deposits.

The authority will also release a second report, on “FDIC Supervision of Signature Bank.”

“The circumstances surrounding the SVB (Silicon Valley Bank) and Signature Bank bankruptcies deserve careful consideration by regulators and policymakers,” Mr. Gruenberg said.

The Fed report is also due out on May 1.

The institution’s vice president for banking regulation, Michael Barr, called the bankruptcy of SVB “a textbook case of mismanagement” on the part of the company’s management.

“I think it’s obviously bad risk management not to have a (risk manager) in the company,” as SVB had been for several months at the time of its downfall, said added the Vice Chairman of the Fed.

“Supervisors had told the company over the summer that they had deficiencies in governance and control at the executive level, at the board level and that this was related to their inability to manage risks properly,” he stressed.

Mr. Barr was one of the architects of the Dodd-Frank Act, passed after the 2008-2009 financial crisis to better regulate the activity of large American banking institutions, and then unraveled in 2018 by former President Donald Trump .