Republicans sharply question Treasury, FDIC on failed banks

Samuel Corum/Bloomberg

Senior Republican members of the House Financial Services Committee sent a lengthy list of questions to the Treasury Department and the Federal Deposit Insurance Corp. on the decision to declare a systemic risk exception for the failures of Silicon Valley Bank and Signature Bank, and the events that followed. 

House Financial Services Committee Chairman Patrick McHenry, R-N.C., and Rep. French Hill, R-Ark., wrote to Treasury Secretary Janet Yellen and FDIC Chairman Martin Gruenberg about the circumstances leading up to and following the systemic risk determination. Federal regulators granted the systemic risk determination last Sunday, which guaranteed all the uninsured deposits at Signature Bank and Silicon Valley Bank. 

In the letter to Yellen, the lawmakers questioned the agency's rationale for the federal regulators' moves. 

"As part of its notification, section 13 requires the Treasury Secretary to include a description of the basis for making a systemic risk determination," the representatives wrote. They added that "the basis for your determinations remains unclear." 

The letter notes that before the weekend when Signature failed, it appeared that Silicon Valley Bank's takeover was a one-off event, prompted by poor interest rate risk management and a glut of uninsured deposits. However, the letter suggests, something caused regulators to believe that the failure of that bank, plus Signature Bank, would pose a risk to the broader economy. 

Silicon Valley Bank failed during the day on Friday, March 10, and Signature was taken over by regulators on Sunday, March 12. 

"On March 10, 2023, Silicon Valley Bank (SVB)'s failure was described as an idiosyncratic event," McHenry and Hill said in the letter. "Yet, on March 12 the decision was made to invoke the systemic risk exception. Please explain the change in circumstances between March 10th and March 12th that led to the conclusion that a least cost resolution would have serious adverse effects on economic conditions or financial stability?" 

In a separate letter to Gruenberg, McHenry and Hill asked questions related to the auction process for Silicon Valley Bank and Signature Bank. While the FDIC found a buyer for most of Signature Valley Bank, minus its digital assets business, Silicon Valley Bank remains unsold. 

The lawmakers questioned if regulators received any bids for Silicon Valley Bank before or after the March 22 deadline, and how other bids were evaluated. 

McHenry has previously brought up concerns about the FDIC's bidding process for the two banks. 

"Did the administration allow its ideological lens to color its judgment?" he said in Wednesday comments at the American Bankers Association Washington Summit. 

McHenry and Hill asked that both the FDIC and the Treasury Department respond to their questions by April 1.