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NCUA notably absent from list of regulators to receive sharply-worded letters from both sides of political spectrum ahead of hearings this week.
If banking regulators simply respond to recent letters from members of Congress seeking answers to piercing questions about the recent bank failures, they might find themselves short on time to actually regulate.
Notably for credit unions, none of the missives were sent to the NCUA.
The House Financial Services Committee and the Senate Banking Committee have scheduled high-profile hearings this week with regulators concerning the recent failures of Silicon Valley Bank and Signature Bank. The Senate Banking Committee hearing is scheduled for Tuesday, while the House panel will meet Wednesday.
Political Backdrop
As usual, political divisions already have emerged. Republicans are blaming Biden Administration regulators, while many Democrats are blaming legislation enacted during the Trump Administration that loosened some of the requirements under the Dodd-Frank Act.
To complicate matters even further, some of the Senate Banking Committee members face an uncertain political future next year, making the high-profile hearing all the more important.
For instance, Chairman Sen. Sherrod Brown, D-Ohio, is seeking reelection in a state that has been trending Republican. The panel’s ranking Republican, meanwhile, Sen. Tim Scott of South Carolina, is considering a race for the Republican nomination for president.
Additionally, on Monday, Sen. Elizabeth Warren, D-Mass., known for her advocacy for a strict financial services regulatory regime, announced her bid for reelection. And Sen. Kyrsten Sinema of Arizona, who has left the Democratic Party and is considered an Independent, also is seeking reelection next year.
Who Are the Letters to and What Do They Say?
Against this backdrop, the letter writers seeking ammunition for the upcoming hearings and beyond have been busy. In recent weeks, this has included the following letters:
House Financial Services Committee
To: Michael Barr, vice chairman for supervision at the Federal Reserve and Mary Daly, president/CEO of the Federal Reserve Bank of San Francisco
From: Committee Republicans Andy Barr of Texas, Bull Huizenga of Michigan and Young Kim of California
Subject: The percentage of uninsured deposits at Silicon Valley Bank should have been a “red flag” for regulators
From the letter: “According to reports, Federal Reserve staff had clear indications that Silicon Valley Bank was deficient in both their interest rate risk management and balance sheet management that could have been mitigated before its failure.”
“If these reports are accurate, it is concerning that Federal Reserve staff did not intervene in a timely manner and use the powerful supervisory and enforcement tools available to prevent the firm’s failure and subsequent market uncertainty.”
To: FDIC Chairman Martin Gruenberg
From: Committee chairman Rep. Patrick McHenry, R-N.C., and Rep. French Hill, R-Ark.
Subject: Request for information about the events leading up to the bank failures
To: Treasury Secretary Janet Yellen
From: Committee chairman Rep. Patrick McHenry and Rep. French Hill
Subject: Request for information about the events leading up to the bank failures
To: The California Department of Financial Protection and the New York Department of Financial Services
From: Rep. Bill Huizenga, Rep. French Hill and Rep. Young Kim
Subject: Questions about state supervision of Silicon Valley and Signature
From the letter: “As policymakers, Congress needs to understand why supervisors failed to use their available tools to correct the firm’s numerous financial and management deficiencies.”
To: Treasury Secretary Janet Yellen
From: Rep. Andy Barr and Rep. Bill Huizenga
Subject: Request for information about recent meetings of the Financial Stability Oversight Council
Senate Banking Committee
To: Former executives at Silicon Valley and Signature Banks
From: Committee chairman Sen. Sherrod Brown and ranking Republican Sen. Tim Scott
Subject: Request to testify at a Senate hearing
To: Mary Daly, president/CEO of the Federal Reserve Bank of San Francisco and Fed Chairman Jerome Powell
From: Committee Republicans
Subject: Accusations against federal officials of ignoring red flags that should have been warnings about the health of Silicon Valley Bank
From the letter: “It is evident that, in the months and years preceding the failure of SVB, several areas of concern should have been readily apparent to the Federal Reserve.”
To: Michael Barr, vice chairman for supervision at the Federal Reserve
From: Committee Republicans
Subject: Deep concerns that regulators may have missed clear warning signs in the lead up to the failure of SVB
What Happens Next?
The two committees might get some answers sooner than the deadlines they set for a series of pointed questions about the bank failures.
On Tuesday, Barr, Greunberg and Nellie Liang, the Treasury’s undersecretary for domestic finance, are all scheduled to testify at a Senate hearing. On Wednesday, the trio will cross the Capitol and testify at a House panel meeting.
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