Warren Lambastes Fed Chair Powell for “Astonishing List of Failures” that Contributed to Collapse of Silicon Valley Bank and Signature Banks
Letter Notes Powell’s Support for Legislative, Regulatory, and Supervisory Rollbacks: “Make no mistake: your decisions aided and abetted this bank failure, and you bear your share of responsibility for it.”
Washington, D.C. - United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing and Urban Affairs Committee, sent a 10-page letter to Federal Reserve (Fed) Chair Jerome Powell criticizing his leadership failures at the Fed that directly contributed to the sudden collapse of Silicon Valley Bank Financial Group (SVB) and Signature Bank (Signature) and the significant risk to the banking system and the economy unleashed by those collapses. Earlier this week, Senator Warren called on Chair Powell to recuse himself from the Fed’s internal review of its supervision and regulation of SVB, which she reiterates in the letter.
“The banks’ executives – who took too many risks, and failed to protect their customers – are the primary agents responsible for their failure. But the greed and incompetence of these officials was allowed to happen under your watch. It was allowed to happen because of Congress and President Trump’s weakening of the Dodd-Frank Wall Street Reform and Dodd-Frank Act that you supported. It was allowed to happen because of regulatory rollbacks that you initiated. And it was allowed to happen because of supervisory failures by officials that worked for you. This is an astonishing list of failures and you owe the public an explanation for your actions,” wrote Senator Warren.
When it was shuttered by the California Department of Financial Protection and Innovation on Friday, SVB held approximately $209 billion in assets – at the close of 2022, the bank was the 16th largest in the nation and its collapse is now the second largest bank failure in U.S. history. SVB’s swift collapse injected instability into the financial system – threatening small and large businesses and nonprofits with deposits at the bank, businesses with indirect connections such as payroll processors that used the bank, and other, similar regional banks.
“As Chair of the Fed, you have led and vigorously supported efforts to weaken the regulations that would have subjected banks like SVB and Signature to stronger liquidity requirements, more robust stress testing, and routine resolution planning obligations Make no mistake: your decisions aided and abetted this bank failure, and you bear your share of responsibility for it,” said Senator Warren.
In 2018, Chair Powell supported passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP), which the bank lobby – including the former SVB CEO himself – championed. The law weakened safety and soundness requirements, eliminating the mandate that banks with assets of less than $250 billion be subject to enhanced regulatory requirements. “But you supported the bill, saying “our view has been that that combination of raising the threshold and giving us the ability to go below it in cases where needed gives us the tools that we need.” This is a damning statement in the wake of the SVB and Signature collapses,” continued Senator Warren.
In the letter, Senator Warren urges Powell to provide answers to the following questions no later than March 29, 2023:
- Do you agree that the passage of the EGRRCPA helped create the lapses in regulatory and supervisory standards that ultimately resulted in the collapse of SVB and Signature, and the threat of contagion posed by that collapse?
- Do you support my legislation to repeal the elements of the EGRRCPA that weakened critical Dodd-Frank protections and restore much-needed safeguards to our banking system?
- Do you agree that your 2019 rollback of LCR requirements helped create the conditions that ultimately resulted in the collapse of SVB and the threat of contagion posed by that collapse?
- Do you agree that your decision to make stress tests weaker helped create the conditions that ultimately resulted in the collapses of SVB and Signature Bank and the threat of contagion posed by those collapses?
- Do you agree that your decision to reduce stress-based capital requirements helped create the conditions that ultimately resulted in the collapse of SVB and the threat of contagion posed by that collapse?
- Do you agree that your decision to weaken the living will/resolution planning process helped create the conditions that ultimately resulted in the collapse of SVB and Signature Bank and the threat of contagion posed by those collapses?
- Will you commit to reimplementing the rules that you rolled back? If so, what is your timeline for this rulemaking?
- Have you reviewed the supervisory efforts of the SF Fed? Do you agree that failures in the supervisory process helped create the conditions that ultimately resulted in the collapse of SVB and the threat of contagion posed by that collapse?
- In particular, do you believe the conflict of interest posed by former SVB CEO Gregory Becker’s role on the Board of Directors may have played a role in the SF Fed’s supervision of SVB?
- Have you acted to limit conflicts of interest like those posed by Mr. Becker’s dual role as SVB CEO and SF Fed board member?
- Will you commit to full recusal from the Fed’s internal review of the regulation and supervision of SVB?
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