US Regulators Criticized in Senate Hearing After Collapse of Several American Banks

(MENAFN) The sudden collapse of several American banks in recent weeks prompted a Senate Banking Committee hearing in which three top US regulators were criticized. Federal Reserve's top regulator on banking, Michael Barr, along with Federal Deposit Insurance Corporation's (FDIC) Chairman Martin Gruenberg and Treasury Department's Undersecretary for Domestic Finance Nellie Liang, faced questions on various topics ranging from banking regulations to decisions made by regulators during the crisis.

Barr attributed the failure of Silicon Valley Bank (SVB) to its management practices' inability to address interest rate risks and issues related to its liquidity. Despite customers withdrawing $42 billion from the bank on March 9 due to widespread panic, SVB informed the Fed that an additional $100 billion would be withdrawn by depositors the following day. Barr explained that the central bank looked for collateral to borrow the additional amount from its discount window to meet the withdrawals.

Sen. Elizabeth Warren questioned the officials about banking regulations and asked if rules should be stricter. The officials agreed that the US should strengthen financial rules in the future. Warren noted that Congress put banking regulations in place after the 2008 financial crisis and that the collapses represented a massive failure in supervision. She also stated that executives at SVB and Signature Bank took wild risks and must be held accountable for exploiting their banks, adding that she would soon introduce a bipartisan bill concerning the issue.

Gruenberg argued that regulators need to rethink how they examine uninsured depositors when calculating a bank's risk profile. He stated that money could flow out of banks with incredible speed since news is amplified through social media channels. Gruenberg added that the FDIC has concluded an investigation of the top management at the banks, which is a requirement for the agency when an institution fails.

Liang said that the sudden demise of the banks required a swift response. She added that in the days that followed, the federal government took decisive actions to strengthen public confidence in the US banking system and protect the American economy. Liang mentioned that her agency worked to examine the effects of the failures on the broader banking system and regularly consulted with the Fed and the FDIC. However, no executives from the failed banks appeared at the hearing.


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