Steven T. Dennis and Laura Litvan
Tue, 14 March 2023 at 10:21 pm GMT
(Bloomberg) — Senate Banking Chairman Sherrod Brown said Tuesday that he sees little chance Congress will tighten bank regulations following the collapse of Silicon Valley Bank and Signature Bank, and is urging the Federal Reserve to act unilaterally to impose tougher regulations and pause interest rate increases.
Brown, an Ohio Democrat, blamed the bank failures, at least in part, on Republicans and some of his fellow Democrats for rolling back regulations in a 2018 law. He said he has been talking to the Fed about addressing regulation directly.
“I’m less hopeful that Congress will do that because I’ve seen the influence of the bank lobby and Wall Street, and in the end, Ohio workers always pay for this when they get their way,” Brown told Bloomberg Television’s “Balance of Power.”
The US, Brown said, needs stronger capital and liquidity standards. “We clearly need to strengthen the stress tests,” he added.
Brown, in a later interview, put the blame for inaction on Republicans and said they weren’t interested in strengthening standards.
“Republicans aren’t going to move anything,” he said, pointing out that last week they were pressing Fed Chair Jerome Powell not to increase bank capital requirements in the days before the banks collapsed.
John Thune, the No. 2 Senate Republican, said he doesn’t want a “rush to regulate.” Like many in his party — and even some Democrats — he sees the issue as a failure of bank supervision and not of the law.
“I think there’s a valid question about where were the regulators, where were the supervisors and why didn’t they see this coming,” Thune said.
Senator Mark Warner, a Virginia Democrat who backed the 2018 deregulation law, pointed the finger at bank supervision and regulators. He wants to see the results of the Fed’s investigation into the failures before decided what Congress should do.
“If you’re purchasing long-term securities in a rising interest rate process — that’s again Banking 101 — where were the regulators, where was the management?” Warner asked.
Other supporters of the Trump administration rollback of regulations were more frank. Senator Mike Crapo of Idaho, a senior GOP member of the Senate Banking Committee, said there was “no damage” done by the 2018 law.
“They got into a crunch between the interest rate and the bonds they were holding,” Crapo said. “And the regulators have full authority to regulate those types of issues.”
But Senator Elizabeth Warren has already introduced a bill that would repeal the 2018 weakening of regulations on mid-size banks.
“I don’t understand how any representative or senator can stand up after this past weekend and say that we don’t need to change the banking regulations,” Warren, a Massachusetts Democrat, said when asked about Brown’s skepticism about Congress taking action. “Obviously we need to change the regulations and we need to do it fast.”
Brown said he wanted hearings on the bank failures “sooner rather than later” but isn’t sure he wants to hear from the failed bank executives yet. “I really want to get the regulators especially to talk about what their plans are so this doesn’t happen again,” he said.
In a break from Warren, Brown stood by Powell’s investigation of the crisis, but said his committee and others would also be investigating. Warren has called for Powell to recuse himself.
“I’m just going to make sure he does it right,” Brown said.
To address inflation, Brown suggested the Fed keep interest rates where they are, while holding companies accountable for raising prices.
Silicon Valley Bank was supervised by the Fed and its chief executive, Greg Becker, was a member of the San Francisco Fed’s board of directors. He departed from that position Friday.
Vice Chair of Supervision Michael Barr will review the supervision and regulation around SVB. “We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” Barr said in a statement this week. The review will be released May 1.
Earlier on Fox Business, Representative Andy Barr, a Kentucky Republican on the Financial Services Committee, shut down talk of Congress enacting more regulations.
“The fact that regulators over the weekend had the existing legal and regulatory tools to restore some semblance of market confidence demonstrates existing regulations are all we need,” he said.
Barr suggested the problem was in part a failure of supervision, and said hearings would be held on that subject. More regulation, he said, “is not the answer.”
On a private Monday night call with House Republicans, Speaker Kevin McCarthy privately blamed Biden’s fiscal policies, while Financial Services Chairman Patrick McHenry reiterated that social media contributed to a rush on the bank, lawmakers on the call said.
–With assistance from Billy House, Craig Torres and Erik Wasson.
(Updates with more senators, starting in the seventh paragraph.)