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League Closely Watching Lawmakers' Review of Recent Bank Failures

Authored By: Lewis Wood on 3/28/2023

The Senate Banking Committee today held a hearing on the recent bank failures and the federal regulatory response. FDIC Chair Martin Gruenberg, Fed Vice Chairman for Supervision Michael Barr and Treasury Undersecretary for Domestic Finance Nellie Liang were the key witnesses.

“While it’s critically important for lawmakers and regulators to review these bank failures, our greatest concern remains that credit unions might be swept up in any moves to pursue new or revised regulation,” said League President/CEO Carrie Hunt. “We urge policymakers to consider a targeted, tailored approach to addressing any regulatory issues brought to light in reviewing these bank failures. Credit unions and our members should not suffer for the failings of a few institutions or those institutions’ regulators.”

We continue to reach out to our Congressional delegation on this issue, reminding them that credit unions are community financial institutions, focused on meeting the banking needs of members by providing everyday banking services that help our members buy a home, finance a car or save for retirement. We have a very different model from the fast-growth, non-traditional model of Silicon Valley Bank or Signature Bank.

Of interest to credit unions from today’s Senate Banking Committee:

  1. Much was made by both Democrats and Republicans of Silicon Valley Bank’s “gross mismanagement” and failure to address regulators’ concerns related to interest rate risk and liquidity risk. Democrats also focused on what they view as the weakening of some regulations following the passage of  S.2155, the banking reg relief measure. Republicans focused heavily on the failure of regulators to police Silicon Valley Bank, with some noting that everyday people on social media seemed more plugged into the issues at Silicon Valley Bank than the bank's regulators.
  2. Responding to a line of questioning on the decision to cover uninsured deposits at Silicon Valley Bank and Signature bank, FDIC Chair Gruenberg said he believes the FDIC needs a comprehensive review of the deposit insurance system. Sen. J.D. Vance noted the “fundamental unfairness” of many customers and clients at systemically important institutions believing they have – essentially – unlimited insured deposits. Sen. Vance asked the regulators to consider whether that guarantee of “coverage” for uninsured deposits should be extended beyond those institutions deemed systemically important.
  3. Regarding risk faced by non-bank entities -- including hedge funds and mortgage companies – and the threat they might pose to the wider financial system during what some have now termed a “banking crisis,” Fed Vice Chair Barr noted that the financial system remains strong and resilient. “Most banks are highly effective at managing interest rate risk and liquidity risk. It is the bread and butter of bank management. … We’re looking broadly across the financial landscape to where those risks might arise and how those might propagate into other ways into the banking system, so we’re highly attuned to that.”
  4. Following a question from Sen. Elizabeth Warren, Barr noted that regulators need to strengthen capital and liquidity standards for firms with more than $100 billion in assets.

Related: CUs did not cause bank collapse, remain safe and sound

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