Barr Delivers Remarks at Hearing on Federal Responses to Recent Bank Failures
Washington,
May 10, 2023 -
oday, the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, led by Chairman Andy Barr (KY-06), is holding a hearing entitled “Federal Responses to Recent Bank Failures.”
Watch Chairman Barr’s opening remarks here.
Read Chairman Barr’s opening remarks as prepared for delivery:
“Thank you to our witnesses for appearing before us today. Because of economic mismanagement under the Biden administration and failures of bank supervision we now face increased odds of a recession.
“Following the bipartisan CARES Act, a partisan, nearly $2 trillion reckless American Rescue Plan Act was enacted by the President which fueled runaway inflation. While the Administration and Federal Reserve tried to convince the American people that inflation was transitory, it was not.
“Inflation skyrocketed and persisted, and Americans were hammered by rising costs in grocery aisles and at the pump and saw their wages rapidly eroding.
“Despite warnings from my Republican colleagues and myself, the Federal Reserve was late to the game in responding to inflation, and therefore had to raise interest rates at one of the fastest paces in modern history.
“The precipitous interest rate increases put heightened interest rate risks into the system, and regulators and supervisors at the Fed were, again, late to react.
“These risks were not attended to by Fed or state regulators and supervisors, but were recognized by depositors. This led to bank runs and systemic stress. We now face increasing odds of a credit crunch, as banks of all sizes anticipate more onerous regulations and market scrutiny.
“If recent events are not dealt with productively, we also run a risk of ending up with a banking system with a small number of Too Big To Fail banks and a scattering of very small banks.
“Such a barbell banking system is not good for communities across America.
“The Vice Chair for Supervision at the Federal Reserve has signaled his desire to go beyond reviewing supervisory failures that contributed to the recent bank runs. He continues to signal his desire to increase capital charges and impose more stringent regulations on already well-capitalized banks that are not to blame for recent stresses in the system.
“Following the failures of Silicon Valley Bank and Signature Bank that were caused by bank runs, key regulators decided to issue their own self-referential reports on those failures to set a narrative.
“The Chairman of the FDIC ordered a review of Signature Bank’s failure, taking some blame for inadequate supervision, but the review mostly blamed the banks and internal FDIC vacancy issues. The full Board of the FDIC did not adequately participate in the review.
“The FDIC also issued a term paper on deposit insurance, and what it believes Congress should focus on, before responding to multiple inquiries from this Committee for information so Congress could arrive at our own conclusions.
“Vice Chair for Supervision Michael Barr led his own self-serving, politicized review of the failure of Silicon Valley Bank, and made regulatory recommendations. The full Board of the Fed did not participate in the review.
“In the face of a need to inform Congress and respond to multiple requests from the Financial Services Committee for timely information, the Fed and FDIC decided to devote resources to hasty self-serving reviews of supervisory failures to set a narrative.
“To be clear, the Board of the Federal Reserve System and the Board of the FDIC should not view their recent narratives about failures of Silicon Valley Bank and Signature Bank as precedents for how Congress is informed in the future.
“Rather than being responsive to Congress so that we may consider potential legislative needs, federal agencies and officials have slow-walked us.
“Instead, they spent their time writing their narratives to cover their mistakes and inject politicized calls for more regulation into the public sphere. That is unacceptable, and clearly shows why we need to change emergency authorities for the Fed and FDIC and Treasury to, at least, obtain accountability and transparency.
“We need to ensure that the full Boards at the Fed and FDIC are adequately consulted in important decision making and that a single regulatory actor cannot act unilaterally to inject their political preferences into regulations.
“The bills noticed today get at the heart of increasing accountability and transparency of our federal financial regulators and emergency actions.
“The bills are not intended to be partisan, and their provisions would apply independent of what party is in power. They are about accountability to the American people and Congress of financial regulatory actors who take actions that affect trillions of dollars of resource flows.
“I look forward to discussing these issues today.”
###
