But as the letter explains, the Fed has not exactly embraced the Committee’s investigation. While the Fed has – after much prodding – provided the Committee with some non-public “confidential supervisory information,” the fact that the Fed ever asserted privilege over any requested information is outrageous.
The Fed was SVB’s primary regulator for more than 20 years. When SVB failed, the federal government made whole all the bank’s customers, even those depositors who were not covered by FDIC deposit insurance. And it’s clear there were regulatory failures. As the initial GAO report states, “SVB’s foundational problems were widespread and well‐known, yet core issues were not resolved, and stronger oversight was not put in place.”
Ensuring that these kinds of “foundational problems” were promptly corrected was the Fed’s responsibility. And it failed. Claiming some kind of privilege over the information needed to find out why it failed should not be an option.
Obviously, investigating what went wrong with federal regulators should not be limited to the Fed and SVB. As the initial GAO report revealed, the FDIC made similar missteps with Signature, and it “lacked urgency despite Signature Bank’s repeated failures to remediate liquidity and management issues.”
In fact, the FDIC has even more to explain to the public because it botched the closure and sale of SVB.
The FDIC has closed thousands of banks without incident, even many large banks. This time, though, the FDIC appeared discombobulated from the start. It ended the week without closing a deal to sell the bank, raising even more questions over whether the FDIC shunned a potential buyer. The FDIC also found it necessary to use a systemic risk exception which, according to one FDIC board member, was needed to preserve SVB’s “operations and franchise value.” (Go to the 29:40 mark for former FDIC Chair Jelena McWilliams’ view.)
The House deserves credit for investigating the Fed’s failures, but it needs to go much further. Similarly, the initial GAO report, supported by both the Chairman and the Ranking Member of the House Financial Services Committee, provided valuable information but needs to be expanded. (To be fair, the report does say the “GAO will further explore these issues in upcoming work and may report additional findings and relevant information.”)
So far, the Senate Banking Committee seems more concerned with punishing bank executives than getting to the bottom of the federal regulatory failures, but accountability for the regulators is at least as important.
Congress should require an independent review of the role regulatory failures by the Fed Board, the San Francisco Fed, and the FDIC played in these bank failures. The investigation should also include exactly what transpired inside the FDIC and the Biden administration surrounding the closure of SVB, including all details about interactions with potential buyers.
All information concerning these events should be made available to the GAO. None of the information should be withheld from the public.