Federal Reserve regulators get “a failing grade” for their policy response to last year’s bank failures, pushing for new capital requirements when that wasn’t the issue that brought down Silicon Valley Bank and two other institutions, House Financial Services Committee Chairman Patrick McHenry (R-N.C.) said today. During a Q&A at a Brookings Institution event on lessons learned from the bank failures, McHenry was critical of both the Basel III endgame capital proposal and what he labeled the Fed’s “self-reverential” review on its supervision of SVB, which he said attempted to justify the policy change.
“The response is to raise more capital for institutions that were not affected by this and actually performed quite well in a moment of trepidation and crisis last year,” McHenry said.
McHenry was also critical of what he labeled as the Fed’s antiquated systems for Discount Window borrowing, noting it slowed the ability of troubled banks to quickly raise capital. “On the front end of this, you have a bank run based off consumer tech, which is how we live, and on the backend, banks are getting provisions of capital the way they did in the 1940s…. It should be a push of a button rather than phone calls, and it should be in an instant rather than days,” he said. “That piece [regulators] didn’t fix.”
Finally, McHenry said that lawmakers need to learn more about the “FDIC tapping the Federal Reserve to bail out the FDIC.” The American Bankers Association that morning released a new report questioning the FDIC’s decision to borrow from the Fed to resolve the bank failures, noting that along with the Fed’s decision to apply penalty pricing to the loan, the agency’s actions added billions of dollars to fees that banks will pay to recover the loss the Deposit Insurance Fund. “We need more information from the Fed and the FDIC on that decision making,”
