U.S. lawmakers grill regulators in Senate hearing addressing SVB failure

Yahoo Finance Fed reporter Jennifer Schonberger details the regulator testimonies from today’s Senate hearing addressing the banking crisis.

Video Transcript

SEANA SMITH: Facing the fire, the first of two hearings this week over the collapse of Silicon Valley Bank and Signature Bank, three regulators facing questions from Senate Banking Committee members today. We will hear from Republican Senator Cynthia Lummis.

DAVE BRIGGS: Plus Alibaba is breaking up. Don't be sad, though. This is good news, as you can see. The e-commerce giant announcing its $220 billion empire will be divided into six main units. The move comes a day after the company's founder Jack Ma resurfaced in China after months of absence.

SEANA SMITH: And later, we've got some big earnings reports after the bell. We'll bring you the numbers from Lululemon and chip giant Micron as soon as they cross.

DAVE BRIGGS: But first, let's get you up to speed on the latest out of the banking crisis. Top banking regulators testifying today in the Senate over their department's role in the collapse of Silicon Valley Bank and the fallout from it. Yahoo Finance's Jen Schonberger has the details for us. Jen, it certainly was an interesting day. What have we learned?

JENNIFER SCHONBERGER: Hey there, Dave. And then at times, a fiery hearing as lawmakers on the Senate Banking Committee on both sides of the aisle grilled three regulators on why Silicon Valley Bank failed. Ranking member Tim Scott called it a classic tale of negligence, while Senator Tester said that I'm a dirt farmer, and I'm going to tell you that I didn't need to be an accountant to figure out what the heck was going on here. Barr said to that, he agreed. Tester implored Barr to look back at what transpired and fix it. He says if it's the regulator's fault, it better be fixed.

The Federal Reserve's vice chair of supervision Michael Barr, along with FDIC head Martin Gruenberg and Treasury Undersecretary for Domestic Finance Nellie Liang all pledged to strengthen capital rules. Pressed by Senator Elizabeth Warren, Barr, who was conducting an official review of why SVB failed and what should be done to prevent such failures, said he anticipates strengthening capital and liquidity standards for banks with over $100 billion in assets.

JOHN KENNEDY: If you had stress tests-- so, well, let me put it this way. If you had stress tested Silicon Valley Bank in 2022, it wouldn't have made any difference, would it?

- I don't know the answer to that question.

JOHN KENNEDY: Well, you didn't test for Silicon Valley Bank's problem.

- Agree with you that it would be useful to test for higher rising interest rates. That's why, in our alternative scenario, multiple scenario that we put in place for this year's stress test, we do that. These decisions were made before I arrived, but I agree with you that it would be better to do that.

JOHN KENNEDY: So it's like somebody going in for a test for COVID and getting a test for cholera. Isn't it?

JENNIFER SCHONBERGER: Barr noted that the Fed was aware of deficiencies at SVB as early as the fall of 2021 and warned the bank about its issues. Senators questioned why the Fed didn't further assert authorities it already has to stop mismanagement and prevent SVB from failing. Barr replied that he agreed that the Fed has, quote, "substantial discretion" through notice and comment rulemaking to change its rules for firms with assets in the $100 to $250 billion range, which is where SVB sat.

Now Senate Banking Committee Chairman Sherrod Brown says that he's going to introduce legislation that will give regulators more authority to impose fines, clawback executive bonuses and compensation, and ban executives responsible for bank failures from ever working in the banking industry again. Back to you.