Top US regulators criticized in Senate for bank failures

A group of top US regulators were criticized in a Senate hearing Tuesday amid the sudden collapse of several American banks in recent weeks.

The Federal Reserve's top regulator on banking, Michael Barr; Federal Deposit Insurance Corporation's (FDIC) Chairman Martin Gruenberg and Treasury Department's Undersecretary for Domestic Finance Nellie Liang answered questions on topics from banking regulations to decisions by regulators during the crisis, in a Senate Banking Committee hearing.

Barr argued that Silicon Valley Bank (SVB) failed because its management practices could not address interest rate risks and issues about its liquidity.

Although customers withdrew $42 billion from the bank March 9 due to widespread panic, Barr said SVB told the Fed an additional $100 billion was scheduled to be withdrawn by depositors the following day.

Barr, the Fed's vice chair for supervision, told lawmakers that the central bank looked for collateral to borrow the additional amount from its discount window to meet the withdrawals.

"We must evolve our understanding of banking in light of changing technologies and emerging risks," Barr told the Senate regarding the collapse of SVB and Signature Bank, in addition to financial difficulties surrounding Silvergate Bank and First Republic Bank.

Sen. Elizabeth Warren, a Democrat from the state of Massachusetts, grilled 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.

"These collapses represent a massive failure in supervision," said Warren as she noted that Congress put banking regulations in place in the aftermath of the 2008 financial crisis.

"Executives at SVB and Signature took wild risks and must be held accountable for exploiting their banks," she said, noting that she will soon introduce a bipartisan bill concerning the issue.

No executives from the failed banks appeared at the hearing.

Gruenberg argued that regulators need to rethink how they examine uninsured depositors when calculating the risk profile of a bank.

He said money can flow out of banks with "incredible speed" since "news are amplified through social media channels."

Gruenberg noted that the FDIC has concluded an investigation of the top management at the banks -- a requirement for the agency when an institution fails.

Liang said the sudden demise of the banks required a "swift response."

"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."

She said her agency worked to examine the effects of the failures on the broader banking system and consulted regularly with the Fed and the FDIC.

Liang noted that all the details about the failures are not yet known but the Treasury Department sees the recent developments differently when compared to the financial crisis in 2008.

The three officials will appear Wednesday before the House Financial Services Committee for another hearing.