Experts testifying at a Thursday hearing categorically blamed executive mismanagement for the recent spate of bank failures feared to be hurtling the economy into a recession.
At a Senate Banking Committee hearing, banking and regulatory experts from the University of Richmond School of Law, Catholic University and the U.S. Chamber of Commerce lobbying group all said bad management was the primary causes of the failures.
“Those three banks had very unique business models,” Chamber of Commerce vice president Tom Quaadman testified. “Silicon Valley Bank concentrated on capital intensive tech startups as well as biomedical startups. First Republic Bank concentrated on wealth management, whereas Signature Bank had a large exposure to digital assets.”
Regulatory lapses on the part of the Federal Reserve were also cited by the experts and by lawmakers of both parties.
While the hearing was focused on “holding executives accountable after recent bank failures,” no bank executives were present at the Senate hearing, and no legal actions have been taken against any of them.
Executives from the failed Silicon Valley Bank (SVB) and Signature Bank are expected to testify before the Senate Banking Committee on May 16, the committee announced Wednesday night. Committee staff told The Hill that no subpoenas related to the failed banks have been sent out.
SVB CEO Greg Becker also served on the board of the San Francisco Federal Reserve, which was his bank’s own direct regulator. Becker was removed only after his bank bit the dust and received a bailout from the Treasury Department.
Administration officials have repeatedly assured the public that the fallout from the bank failures is contained.
Federal Reserve Chair Jerome Powell asserted Wednesday that “a line” had been drawn under the banking crisis with the failure of First Republic, but the U.S. financial sector continues to wobble.
PacWest Bancorp shares were down more than 50 percent Thursday, and multiple regional bank stocks and exchange traded funds posted double-digit percentage losses on the week. Uninsured deposit flights by big investors to larger, “too-big-to-fail” banks, as well as money market accounts, have lowered confidence in the sector.
Advocates for the sector have argued that the same extraordinary insurance extensions afforded to SVB and Signature should be to be afforded to midsize and smaller banks.
That would effectively backstop the entire U.S. banking business with a taxpayer guarantee.
SVB, Signature and First Republic were highly specialized businesses catering to wealthy clientele that the Treasury Department has described as “highly correlated.”
The failures have made led other banks to become more conservative about their lending, making credit less available to businesses and households.
Economic slowdown caused by the credit crunch amplifies the impact of the Fed’s interest rate increases.
Questions also remain about the extent to which the bank collapses in March, which triggered a “systemic risk exception” in order to fully insure depositors, were truly systemically risky.
“The Basel Committee on Banking Supervision is reported to be considering urging more regulation of U.S. banks. The failed SVB was not considered ‘internationally relevant’ and so did not have to follow Basel rules,” analysts with the investment banking company UBS wrote in April.
In March, Bank of Internal Settlements (BIS), which acts as the international central bank coordinating body, emphasized the need for strong regulation and supervision.
“Recent events have further highlighted the importance of a resilient global banking system underpinned by effective bank governance and risk management practices, robust regulatory standards, and strong supervision supported by proactive cross-border cooperation,” BIS wrote.
Advocates for the U.S. banking sector are already balking at these proposed reforms.
“Regulators around the globe are now engaged in implementing another round of internationally agreed-upon capital reforms, known as Basel 3 Finalization. And once again, there are clear signs that U.S. regulators will implement these reforms more stringently than other regulators,” economist Sean Campbell of the Financial Services Forum wrote in an analysis Thursday.
Top-ranking House Financial Services Committee Democrat Rep. Maxine Waters (D-Calif.) also wants the CEOs of failed banks to testify before her committee. Waters sent a letter urging their appearance to Financial Services Chairman Patrick McHenry (R-N.C.).