Senate panel to examine bank failures

The collapse of Silicon Valley Bank (SVB) and Signature Bank has prompted fears of a broader economic meltdown, leading to a hearing scheduled for Tuesday. Michael Barr, the Federal Reserve’s vice chair for supervision, is set to testify that SVB’s collapse could have been prevented by the bank itself.

According to his testimony, the bank failed to account for the damaging impact of interest rate hikes on its balance sheet, making SVB a “textbook case of mismanagement.” Barr also criticized lackluster regulations on midsize banks such as SVB, with Congress weakening oversight in a 2018 law and the Fed choosing not to implement stricter standards that were opposed by the banking industry.

Barr will suggest that stricter capital requirements may have bolstered SVB’s position, and the Federal Deposit Insurance Corp. (FDIC) oversaw the sale of SVB to First-Citizens Bank on Sunday. FDIC Chair Martin Gruenberg will testify that the bank’s failure and decision to protect all depositors will cost the agency $20 billion, but he assured lawmakers that the FDIC would replenish the fund by implementing new fees on banks. Gruenberg noted that the 10 largest accounts held a combined $13.3 billion in SVB.

Lawmakers are likely to debate whether the FDIC made the right decision to bail out SVB and Signature Bank depositors to prevent further contagion in the banking sector. In his testimony, Gruenberg pointed out that shareholders lost their investment, unsecured creditors took losses, and the boards and senior executives were removed. This event has highlighted the need for better oversight of midsize banks and may lead to further regulation in the future.