HFSC Focuses on Supervision, Clawbacks, Process, New Resolution and Run-Risk Options

Today’s HFSC hearing on recent bank failures was more partisan than yesterday’s Senate Banking session (see Client Report REFORM217). Still, there were significant areas of agreement evidenced not only through the marathon hearing, but also at its end, when Chairman McHenry (R-NC) and Ranking Member Waters (D-CA) agreed that they are frustrated with the regulators’ testimony, want more supervisory accountability, and will demand reforms once promised internal investigations are concluded. Several new issues were brought out today, including why the FedWire closing times precluded liquidity support that might have sustained SVB liquidity, whether TLAC should be required at banks of all sizes, tactics to quell viral runs, and whether tough new rules will cover mid-sized banks and/or community institutions. Vice Chairman Barr confirmed that the capital and liquidity revisions he plans may cover Categories 3 and 4 under the current tailoring rule (see FSM Report SIFI34), but community banks will not be subject to higher capital requirements.