First Came Bank Failures. Now Comes The Hearing Of The House Of Representatives

Federal regulators of New York (CNN) are being asked to testify Tuesday before the House Financial Services Committee about the collapse of Silicon Valley Bank and Signature Bank.

Here is who should appear on the witness stand:

Martin Grünberg, CEO of the Federal Deposit Insurance Company
Michael Barr, Vice Chairman for Oversight, Board of Governors of the Federal Reserve
Nellie Liang, Undersecretary for Domestic Treasury, US Treasury Department

The hearing is likely to be the first of many to address events that escalated into a banking crisis that left customers fleeing regional banks and sending markets into turmoil.

What the legislature says: Elected officials want an investigation into what happened at Silicon Valley Bank and Signature Bank earlier this month, as well as stricter regulations to prevent it from happening again. A central theme will likely be: Why didn’t anyone see the collapses coming? Or maybe someone saw it coming?

“It is critical that we get to the bottom of the collapse of Silicon Valley Bank and Signature Bank so we can maintain a strong banking system, protect Americans’ hard-earned money, and hold those responsible, including CEOs, accountable,” said US Sen. Sherrod Brown, a Democrat who has called for Silicon Valley bank executives to be held accountable for the bank’s failure.

US Senator Elizabeth Warren of Massachusetts and Rick Scott of Florida last Wednesday introduced legislation requiring a president-appointed inspector general to report on the Federal Reserve Board and the Bureau of Consumer Financial Protection.

What has happened so far: The government has already set the wheels in motion to examine the factors that contributed to the bank collapse. The Federal Reserve Board said on March 13 that Barr is leading a review of the Silicon Valley bank with the report scheduled for release by May 1st.

Treasury Secretary Janet Yellen on Friday chaired a private meeting with financial regulators held by the Financial Stability Oversight Council, established in 2010 as part of the Dodd-Frank Act to watchdog the financial system.

The federal government and key players in the banking sector have intervened in recent weeks to contain the commotion.

Regulators announced a guarantee on all deposits at the bank and Signature Bank on March 12, just days after the collapse of SVB. The Federal Reserve on the same day announced a new funding program for eligible financial institutions to help meet their liquidity needs.

In the days that followed, the country’s largest banks intervened to bail out First Republic after their stocks plummeted. As fear spread to Credit Suisse, the Swiss government and rival bank UBS stepped in to bail out the ailing lender.

What to expect: It is unclear what will become of the hearings on SVB and Signature Bank.

While the bank collapses can be attributed in part to poor investment decisions and the Fed’s tightening of the economy, everyone from tech to Wall Street is wondering how internal oversight, or lack thereof, might have been a factor as well.

But a trail of evidence suggests the bank’s demise didn’t come out of the blue, including its lightning-fast growth, its tech startup clientele and a vacant position as chief risk officer. Depends on who is subpoenaed during testimony In the coming hearings, some may have to answer how they missed those red flags.

The banks aren’t out of the woods yet, and neither is the economy. Here’s why

Markets oscillated wildly this week as two of the US economy’s most prominent leaders made seemingly contradictory statements about the health of the banking sector. Expect more turbulence.

Fresh from the Federal Reserve’s decision on Wednesday to raise interest rates by a quarter point, Fed Chair Jerome Powell said in the central bank’s post-meeting press briefing that “all depositors’ savings are safe.”

But elsewhere in Washington DC, Treasury Secretary Janet Yellen testified before a congressional committee on Wednesday that she was not considering guaranteeing all deposits.

A day later, Yellen said in a sort of reversal that the federal government was ready to take further action to stop the contagion of banks if it was needed to contain systemic risk.

The apparent discrepancy puzzled Wall Street investors, who for weeks have been searching for clues about the state of the banking sector and the importance of the crisis for the Fed’s fight against inflation.

“It kind of smacks of a lack of leadership from the people we need leadership from,” said Matthew Tuttle, CEO and CIO of Tuttle Capital Management. “You need to get your story straight.”

At the end of the week, the stock market was relatively resilient, with all three major indices posting gains. The benchmark S&P 500 fell about 1.7% on Wednesday. On Thursday, the index gained as much as 1.8% before paring gains to 0.3%. The broad-based index rose about 0.6% on Friday to end the week up 1.4%.

This resilience is being driven in part by the Fed’s signaling that it will suspend rate hikes later this year. But the unfolding banking crisis makes it unclear whether the central bank’s best plans will succeed.

First came bank failures. Now comes the hearing of the House of Representatives

The banks aren’t out of the woods yet, and neither is the economy. Here’s why

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