GAO Slams Fed, FDIC
Laying out a counter-story if the FRB and/or FDIC reports later today are self-exculpatory, the GAO this morning released its preliminary assessment of the SVB and SBNY failures. In short, it places blame squarely on the agencies for ignoring how fast the banks grew without adequate risk-management capabilities.
FSOC Sets Deadline For Systemic, Nonbank Activity Proposals
The Federal Register today includes the framework proposed at FSOC’s meeting last week outlining an analytical approach to identifying and addressing systemic risks. As previously noted (see FSM Report SYSTEMIC95), the proposal expands on the criteria for systemic intervention, differing from the Fed’s criteria used to designate GSIBs and thus creating the possibility of SIFI designation for smaller banks.
Fed SVB Post Mortem: Now We Need to Kill Trump-Era Regs, Supervisory Construct
As presaged by Vice Chair Barr’s testimony (see Client Report REFORM217), today’s “unflinching” Fed report on SVB’s failure pins a good deal of the blame on Trump-era tailoring rules and the Fed’s accompanying light-touch supervisory construct. In the accompanying release, Fed Chairman Powell endorsed the report, reversing the votes he cast supporting the 2019 changes.
Bills Back GOP Anti-LLPA Push
Following demands earlier this week from top HFSC Republicans that FHFA reverse changes to the GSEs’ loan level pricing adjustments (LLPAs), Reps. Lawler (R-NY) and Biggs (R-AZ) introduced separate pieces of legislation to prevent the agency’s changes from taking effect.
FDIC Bemoans NY Office Failings, Signature Bad Behavior
Following the FRB’s SVB report and a critical one also on Signature’s failure earlier today from the GAO, the FDIC released its own assessment of Signature’s demise. The FDIC is still more emphatic that the bank it supervised failed due to poor management, saying it is now clear in retrospect that the FDIC should have escalated its concerns. Much of these internal problems are blamed on resource “challenges,” a surprising finding given the FDIC’s essentially unlimited resources from DIF premiums, with the agency reiterating its “forward-looking” supervisory philosophy without acknowledging significant structural flaws in the way it was administered.
Basel Sticks With The Program
In remarks today, Basel Committee Chairman Pablo Hernández de Cos largely reiterated action items in the Committee’s 2023/2024 work program, also emphasizing that monitoring of existing guidance in light of recent banking system turmoil does not amount to “reopening Basel III.”
Signature’s NY Supervisors Blame Social Media
The New York Department of Financial Services (DFS) today blamed Signature’s failure on a “confluence of events,” most notably a social media generated deposit run that must be addressed via revisions to the liquidity coverage ratio. DFS also says its supervisory reports were accurate but not timely and its review process for supervisory reports is “cumbersome.” It blames staff shortages, although it notes that hiring has recently picked up despite continuing pay disparities between examiner compensation and that in the private sector.
FDIC Puts Third-Party Banking in Freezer
Perhaps energized by its promises earlier today to improve supervisory responses, the FDIC today released a March 8 enforcement action against Cross River Bank, one of the most aggressive bank partners with fintech and other nonbanking institutions.
Key Lawmakers Give Mixed Reactions To Bank Failure Reports
Key Members of Congress were quick today to comment on the GAO, Fed, and FDIC reports analyzed earlier today for FedFin clients. Although Senate Banking Chairman Brown (D-OH) seconded the Fed’s call for Trump-era regulatory repeal, his statement also made it clear that he wants substantive supervisory reform at the Federal Reserve with or without this action, planning to quiz Mr. Barr hard at future hearings.