Following the collapse of Silicon Valley Bank in March — the second-largest bank failure in U.S. history — there were plenty of questions that have still gone unanswered as to how SVB fell apart, what its businesses practices were, and how state and especially federal regulators failed to take action after seeing warning signs before it was too late and the U.S. government (read: taxpayers) ended up on the hook for a bailout.
Well, House Republicans are launching a new investigation into the Federal Reserve Bank of San Francisco to get some answers for themselves and the American people. Led by Oversight Committee Chairman James Comer (R-KY) and Health Care and Financial Services Subcommittee Chairwoman Lisa McClain (R-MI), the investigation will probe the role the San Francisco Fed and other regulators played in the collapse of SVB and whether any other considerations impacted the SF Fed's enforcement decisions.
Opened with a letter to SF Fed President and CEO Mary Colleen Daly on Thursday, GOP lawmakers noted that the San Francisco Fed "appears to have failed to adequately supervise SVB and respond to the bank's mismanagement, ultimately leading to SVB's seizure by federal regulators."
The letter notes that the "SF Fed reportedly filed at least six Matters Requiring Attention (MRA) or Matters Requiring Immediate Attention (MRIA) against SVB, citations meant to highlight issues of concern but which do not require action by the bank" that "date back to at least November 2021." That is, federal regulators were aware of issues at SVB, yet they never mandated any changes to address concerns.
What's more, "[p]ublic documents show that SVB's assets and liabilities were not appropriately diversified to match the bank's growth and regulators filing MRAs and MRIAs may have been responding to knowledge that, at the end of 2022, almost 96 percent of deposits held at SVB were uninsured, making the bank susceptible to a run," the letter explains. How many alarm bells needed to go off before the SF Fed took meaningful action, one could wonder.
According to the Republican lawmakers, "the signs of significant and alarming risk were clear," yet "no regulator used more severe tools, such as fines or consent orders, to require action from SVB."
The obvious question the House GOP investigation seeks to finally find an answer to is simple: why?
"SF Fed’s light hand necessitates review as to whether your institution allowed business relationships or other issues to impact its enforcement of regulations established to secure our banking system and keep Americans’ financial institutions safe and sound," the House GOP letter to the federal regulator concludes.
With a deadline of May 11, the lawmakers requested documents and information from the San Francisco Fed including:
- All examination or audit reports (including supporting documentation) and communications generated by SF Fed in relation to SVB, including but not limited to all Matters Requiring Attention, Matters Requiring Immediate Attention, hold-to-maturity and available-for-sale portfolios, and “run risk” scenario documentation, dated between January 1, 2019 and when this letter is processed;
- A list of all individuals present at any discussions where elements of SF Fed’s decision to issue warnings against SVB were discussed;
- A list of all individuals who served as lead examiners on SF Fed examination teams tasked with overseeing SVB;
- All minutes of the SF Fed Board meetings between January 1, 2019 to the present;
- All communications between the SF Fed and the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Treasury Department or the White House related to SVB;
- All correspondence – including letters, emails, electronic documents, and data – between and among SF Fed Board Members in which SVB was discussed between January 1, 2019 and the present; and
- All communications between SF Fed and the Federal Reserve Board regarding heightened prudential standards permitted under Section 401 of the Economic Growth, Regulatory Relief and Consumer Protection Act (P.L. 115-174).
The Biden Department of Justice previously said it was investigating the collapse of SVB, but with the way Biden has turned the DOJ into a partisan tool to advance his own goals, it's important for House Republicans to use their oversight power to ensure Americans get the full picture of what happened and lawmakers can decide whether additional legislation might be necessary to prevent more bank collapses. The House GOP's probe is all the more important given the "progressive" values held by the company's leaders, as Vespa explained here.
The San Francisco Fed owes lawmakers answers, especially given how, as Rep. Thomas Massie (R-KY) explained, the Federal Reserve as an institution seems to have allowed both SVB's "malfeasance" and ultimate failure.
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