Senators Warren, Blumenthal, Duckworth, After Banks Collapse, Urge Banking Regulators To Strengthen Bank Capital Requirements, Secure Safety And Soundness Of Banking System

WASHINGTON, March 31 -- Sen. Elizabeth Warren, D-Massachusetts, issued the following news release and letter:

U.S. Senators Elizabeth Warren (D-Mass.), Richard Blumenthal (D-Conn.), and Tammy Duckworth (D-Ill.) sent a letter to Michael Barr, Vice Chair for Supervision of the Federal Reserve, Martin Gruenberg, Chairman of the Federal Deposit Insurance Corporation, and Michael Hsu, Comptroller of the Currency, urging the banking regulators to establish strong bank capital requirements to protect consumers and preserve the safety and soundness of the banking system.

"In the immediate aftermath of Silicon Valley Bank (SVB's) sudden failure, thousands of small businesses, nonprofits, and other customers were thrust into uncertainty, facing serious questions about whether they would be able to pay their employees, make payments, and stay afloat," wrote the lawmakers. "While regulators have taken extraordinary action to stem the threat of contagion, the failures of SVB, Signature, and Silvergate, are deepening concerns about the resilience of the banking system."

Banking executives and industry groups have long lobbied against strengthened capital requirements and, in 2018, they successfully rolled back Dodd-Frank regulations and loosened bank capital requirements. Just days before the collapse of SVB, Republican members of Congress pushed Fed Chair Powell to weaken capital requirements.

"The failures of SVB and Signature, and the regulatory and supervisory failures that enabled its costly collapse, are directly tied to the big banks' and Republican policymakers' cynical efforts to weaken our regulatory framework," concluded the lawmakers. "In order to prevent future bank crises and protect working Americans, we urge your agencies to quickly implement strong capital requirements and resist industry pressure to weaken or delay these requirements."

Senator Warren is a leading voice on the financial system, advocating for critical regulations to protect consumers, the financial system, and the economy:

* On March 29, 2023, Senators Warren and Catherine Cortez Masto (D-Nev.), both members of the Senate Banking, Housing, and Urban Affairs Committee, Josh Hawley (R-Mo.), and Mike Braun (R-Ind.) introduced the Failed Bank Executives Clawback Act - bipartisan legislation that would require that, in the event of a bank failure, federal regulators claw back all or part of the compensation received by bank executives in the five-year period preceding the failure.

* On March 22, 2023, Senator Warren and Rick Scott (R-Fla.) introduced bipartisan legislation to require a presidentially-appointed and Senate-confirmed Inspector General to the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection.

* On March 22, 2023, Senators Warren, Tammy Duckworth (D-Ill.), Richard Blumenthal (D-Conn.), Bernie Sanders (I-Vt.), Jack Reed (D-R.I.), Mazie Hirono (D-Hawaii), Ed Markey (D-Mass.), Angus King (I-Maine), Sheldon Whitehouse (D-R.I.), Tina Smith (D-Minn.), Chris Van Hollen (D-Md.), and Brian Schatz (D-Hawaii) sent a letter (http://ct.symplicity.com/t/wrn/d0eb160af89c2bbc02b280b148e91f25/3548134878/realurl=http:/ct.symplicity.com/t/wrn/5c3f939333e9fafce7733512ee57e041/3548134878/realurl=https:/www.warren.senate.gov/oversight/letters/warren-senators-call-on-fed-to-strengthen-rules-for-banks-with-assets-over-100b) to the Vice Chair for Supervision of the Federal Reserve Michael Barr, calling on him to exercise the Fed's authority to apply stronger regulation and supervision to banks with assets totaling $100 to $250 billion.

* On March 19, 2023, Senator Warren sent a letter (http://ct.symplicity.com/t/wrn/d0eb160af89c2bbc02b280b148e91f25/3548134878/realurl=http:/ct.symplicity.com/t/wrn/5c3f939333e9fafce7733512ee57e041/3548134878/realurl=https:/www.warren.senate.gov/newsroom/press-releases/warren-calls-for-inspectors-general-at-treasury-fdic-fed-to-conduct-independent-investigation-of-bank-collapses-and-regulatory-failures-report-to-congress-within-30-days) to the Inspectors General at the Department of Treasury, the Federal Deposit Insurance Corporation, and the Fed, urging them to immediately open a thorough, independent investigation of the causes of the bank management and regulatory and supervisory problems that resulted in this month's failure of Silicon Valley Bank and Signature Bank and deliver preliminary results to Congress and the public within 30 days.

* On March 14, 2023, Senator Warren and Representative Katie Porter (D-Calif.) led dozens of Democratic lawmakers to introduce the Secure Viable Banking Act, legislation that would repeal Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 following the collapse of SVB and Signature Bank. In 2018, Senator Warren was outspoken about the dangers of passing the Economic Growth, Regulatory Relief, and Consumer Protection Act, which reduced critical oversight and capital requirements for large banks.

* On March 14, 2023, Senator Warren sent a letter (http://ct.symplicity.com/t/wrn/d0eb160af89c2bbc02b280b148e91f25/3548134878/realurl=http:/ct.symplicity.com/t/wrn/5c3f939333e9fafce7733512ee57e041/3548134878/realurl=https:/www.warren.senate.gov/oversight/letters/senator-warren-calls-for-answers-from-silicon-valley-bank-ceo-following-collapse) to ex-SVB CEO Greg Becker, asking for answers about his and SVB lobbyists' efforts to roll back Dodd-Frank rules prior to the collapse of the bank.

* On March 14, 2023, Senator Warren called on Federal Reserve Chair Jay Powell to recuse himself from the Federal Reserve's announced internal review of its supervision and regulation of SVB.

* On March 13, 2023, Senator Warren published an op-ed in the New York Times calling Congress and federal regulators to strengthen weakened rules to avoid another crisis, intensify bank oversight, reform deposit insurance, and hold SVB executives accountable for any malfeasance or mismanagement that led to its failure.

* On March 10, 2023, Senator Warren released a statement following the collapse of SVB.

* On December 8, 2022, Senators Warren and Tina Smith (D-Minn.) sent letters (http://ct.symplicity.com/t/wrn/655afe5e033351bb2ef89d505a285647/2665571418/realurl=http:/ct.symplicity.com/t/wrn/22fb9e286a1b74a84be3262a707d2b10/3548134878/realurl=https:/www.warren.senate.gov/oversight/letters/warren-smith-ask-key-regulators-about-banking-systems-exposure-to-crypto-risks-after-ftx-crash) to three key banking regulators to raise concerns about the ties between the banking industry and crypto firms.

* On December 6, 2022, Senators Warren, Marshall, and John Kennedy (R-La.) wrote (http://ct.symplicity.com/t/wrn/655afe5e033351bb2ef89d505a285647/2665571418/realurl=http:/ct.symplicity.com/t/wrn/22fb9e286a1b74a84be3262a707d2b10/3548134878/realurl=https:/www.warren.senate.gov/oversight/letters/warren-marshall-kennedy-call-on-silvergate-bank-that-handled-bankrupt-crypto-firm-ftxs-funds-to-release-all-records-on-improper-transfer) to Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, seeking answers about the bank's role in the loss of billions of dollars in customer funds.

* In January 2022, Senators Warren and Reed (D-R.I.) sent a letter (http://ct.symplicity.com/t/wrn/655afe5e033351bb2ef89d505a285647/2665571418/realurl=https:/www.warren.senate.gov/oversight/letters/warren-reed-urge-ofr-director-falaschetti-to-step-up-and-use-tools-granted-by-congress-to-help-protect-consumers-and-the-economy) to Dino Falaschetti - the Trump-appointed Director of the Office of Financial Research (OFR) in the U.S. Department of the Treasury - urging the OFR to use its critical tools to collect data to safeguard the financial system from stability risks.

* In January 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren pressed Fed Chair Jerome Powell on the role of corporate concentration in driving up prices for consumers during his renomination hearing to be Chair of the Board of Governors of the Federal Reserve System.

* In December 2021, during a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren raised concerns over the growing risks presented by stablecoins.

* In September 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system.

* In May 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren questioned Randal K. Quarles, Vice Chairman for Supervision at the Board of Governors of the Federal Reserve System, about his decision to weaken supervision for large foreign banks including Credit Suisse, which suffered the largest losses from the implosion of the hedge fund Archegos.

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March 29, 2023

To: The Honorable Michael Barr, Vice Chair for Supervision, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, D.C. 20551

The Honorable Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, D.C. 20429

The Honorable Michael J. Hsu, Acting Comptroller, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, D.C. 20219

Dear Vice Chair Barr, Chairman Gruenberg, and Acting Comptroller Hsu:

We write to urge you follow through with establishing strong capital requirements that protect consumers and taxpayers, and preserve the safety and soundness of our banking system. The rapid failure of Silicon Valley Bank (SVB) on March 10, 2023 - which followed the sudden dissolution of Silvergate Bank on March 8, 2023 and set off the collapse of Signature Bank on March 12, 2023/1 - underscores the necessity of the critical work the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) are currently engaged in to strengthen capital requirements for large banks./2 Financial industry lobbyists and Republican lawmakers succeeded in weakening some of these rules under the Trump administration/3 and were pressing you to stave off stronger capital standards in the days before the bank failures./4

After the failures, they "are now hoping that the narrative coming out of the SVB failure focuses on faults at the Fed and other elements of bank regulation that were eased under the Trump administration."/5 These industry officials are right that bank regulators' failures are a key part of the reason that Signature and SVB failed - but this does not obviate the need for strong capital requirements. You must resist this industry spin and continue their long-overdue work to implement strong capital standards that keep our financial system safe.

With $211 billion in assets,6 SVB was the 16th-largest bank in the U.S. at the end of 2022,7 and its failure is the second-largest in U.S. history./8 In the immediate aftermath of SVB's sudden failure, thousands of small businesses, nonprofits, and other customers were thrust into uncertainty, facing serious questions about whether they would be able to pay their employees, make payments, and stay afloat./9 SVB's collapse also sparked fears of contagion to other regional banks - including to Signature, which failed soon after - causing a "crisis of confidence," a $30 billion injection of funds from multiple megabanks into First Republic Bank, and several trading halts on other regional banks./10 While regulators have taken extraordinary action to stem the threat of contagion, the failures of SVB, Signature, and Silvergate, are deepening concerns about the resilience of the banking system./11

These failures highlight the need to strengthen our prudential regulatory framework, including robust capital requirements that the Fed, FDIC, and OCC have committed to implementing in alignment with the international Basel III framework,/12 which was designed in the wake of the global financial crisis to provide "a regulatory foundation for a resilient banking system that supports the real economy."/13 As Federal Reserve Vice Chair for Supervision Michael Barr explained in September 2022, "[n]othing is more basic to the safety and soundness of banks and the stability of the financial system than capital. Capital enables firms to serve as a source of strength to the economy by continuing to lend through good times and bad. To continue to perform these functions, banks must have a sufficient level of capital to ensure that they can absorb losses and continue operations during times of stress in the financial system when losses may be significant."/14 The Basel III framework protects consumers and our financial system by setting stronger standards for addressing "market risk, operational risk, credit risk and leverage ratios," increasing resilience throughout the economy./15 Vice Chair Barr has separately announced a "holistic" review of capital standards for large banks under the Fed's supervision, noting in December that "[i]n times of stress, banks serve as central sources of strength to the economy, and they need capital to do so."/16

Yet just days before SVB's failure, Republican members of Congress pushed Federal Reserve Chairman Jerome Powell to weaken capital requirements, "echoing concerns from the banking industry" that higher capital standards would hurt the economy./17 One week before SVB failed, a group of ten Republican members of the Senate Committee on Banking, Housing, and Urban Affairs (BHUA) wrote to Chair Powell, arguing that regulators' plans to strengthen our banking system's resiliency appear "unfounded as banks subject to the current regulatory capital regime seem to have weathered the real-life stress test of the COVID-/19 pandemic well. Moreover, increasing capital requirements during an inflationary cycle may have serious consequences for lending, market liquidity, and the broader economy."/18 Three days before SVB's collapse, during a BHUA hearing at which Chair Powell testified, one Senator told the Fed Chair, "I believe that increasing capital requirements would have a chilling-effect on the economy and the availability of financial services."/19

Of course, SVB and Signature - with poor risk management controls,20 risky investments, and weakened supervision,/21 - failed to "weather the storm" of the obvious risks of rising interest rates, threatening thousands of small businesses and nonprofits, employees, and vendors,/22 and forcing regulators to take extraordinary action to stave off further contagion./23 In their push against strong bank capital requirements, prior to the failures of Signature and SVB, Republicans in Congress have toed the banking industry line, reinforcing an aggressive Wall Street lobbying campaign to further weaken rules designed to protect our economy from precisely the kinds of bank failures we saw last weekend. Banking executives and industry groups including the Bank Policy Institute have long lobbied against strengthened capital requirements, with JPMorgan Chase CEO Jamie Dimon warning that high capital requirements were "bad for America" and a "significant economic risk" in October 2022 - just months before SVB's collapse./24

The failures of SVB and Signature, and the regulatory and supervisory failures that enabled its costly collapse, are directly tied to the big banks' and Republican policymakers' cynical efforts to weaken our regulatory framework. In order to prevent future bank crises and protect working Americans, we urge your agencies to quickly implement strong capital requirements and resist industry pressure to weaken or delay these requirements.

Thank you for your attention to this matter.

Sincerely,

Elizabeth Warren, United States Senator

Richard Blumenthal, United States Senator

Tammy Duckworth, United States Senator

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View footnotes here: https://www.warren.senate.gov/imo/media/doc/2023.03.29%20Letter%20to%20Federal%20FDIC%20OCC%20re%20Bank%20Capital%20Requirements1.pdf

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Original text here: https://www.warren.senate.gov/oversight/letters/senators-warren-blumenthal-duckworth-after-banks-collapse-urge-banking-regulators-to-strengthen-bank-capital-requirements-secure-safety-and-soundness-of-banking-system