Regulators consider stronger rules for larger banks

The Federal Reserve is reviewing its capital and liquidity standards for all large banks following the closures of Silicon Valley Bank and Signature Bank, including those with more than $100 billion in assets, Fed Vice Chairman Michael Barr said today. Testifying before the House Financial Services Committee for the second of two days of congressional hearings on the closures, Barr was asked whether Category III and IV banks should be held to the same rule as those of larger banks.

“I still think a tiering approach makes some sense,” Barr said. “It doesn’t have to be the same rules for all banks, but we do need stronger rules for firms of this size. Stronger rules on capital and liquidity, I think, are going to be really important.” He later added that the Fed’s ongoing capital review does not include community banks. “We’re not intending to increase capital requirements on community banks,” he said.

Lawmakers on both sides of the aisle questioned whether regulators missed warning signs in the leadup to bank closures. Barr and FDIC Chairman Martin Gruenberg noted their agencies are currently conducting reviews of their supervision of the banks. Also during the hearing, some members pointed to the speed at which SVB failed and the role social media likely played in spreading panic about it and other banks. Asked what regulators could do to mitigate similar technological risks in the future, Gruenberg said consumer education is likely key.

“In regard to deposit insurance, we should do more and perhaps a better job of explaining to the public how deposit insurance works, what is covered, what is not covered [and]what are the options available to people when they open a bank account,” Gruenberg said. The FDIC recently announced it was conducting a review of the deposit insurance system, and a public education element could be part of that review, he added.