Yahoo Finance Neither Democrats or Republicans are happy about how the Fed handled SVB
When the Federal Reserve on Friday released its highly-anticipated report on the failure of Silicon Valley Bank, it said actions taken in Washington in 2018 and 2019 “combined to create a weaker regulatory framework” and contributed to the turmoil that began in March.
That generated a forceful response from a key policymaker behind some of those moves during the Trump administration. House Financial Services Committee Chairman Patrick McHenry (R-NC) said that “the bulk of the report appears to be a justification of Democrats’ long-held priorities.”
"Politicizing bank failures does not serve our economy, financial system, or the American people well," he added.
It also produced some sharp words from the other side of the aisle. Sen. Elizabeth Warren (D-MA) praised the report but criticized Federal Reserve Chair Jerome Powell, as she has before. She said it showed he "failed in his responsibility."
The report released Friday was overseen by Michael Barr, the Federal Reserve’s Vice Chair for Supervision. It split the blame for the crisis among different factors, including Silicon Valley Bank executives who failed to adequately manage risks as well as Fed supervisors who didn't act aggressively enough.
McHenry added Friday said he agrees with some ideas in the report, like an enhanced focus on liquidity in firms that are rapidly growing, but objected to passages that suggested the Federal Reserve should revisit some of the rules it imposed in 2019.
He called it “a thinly veiled attempt to validate the Biden Administration and Congressional Democrats’ calls for more regulation.”
“This report will certainly make Michael Barr's next visit to Capitol Hill a little more testy,” predicted Bartlett Naylor in an interview. Naylor is a financial reform advocate at the left-leaning group Public Citizen.
What’s in the 2018 law
Barr's 100-page report appears set to reopen debate on a controversial 2018 law called the Economic Growth, Regulatory Relief, and Consumer Protection Act.
The bill was signed into law by then-President Trump, after being supported by Republicans and a sizable number of Democrats, and it loosened requirements on institutions with assets from $50 to $250 billion - like Silicon Valley Bank - from some of the requirements that the nation’s largest banks face.
The changes in that law were followed by additional rules changes in 2019 at the Federal Reserve which further loosened restrictions.
“It is difficult to judge how these collective changes in policy affected the oversight of SVBFG, but a review of the historical record and staff interviews suggest that they played a role,” the report notes.
Growing bipartisan criticism of the Federal Reserve
The results of the review come at a time of bipartisan scrutiny and ahead of another crucial week with policymakers set to meet in Washington next Tuesday and Wednesday to decide on another possible interest rate increase.
Federal Reserve Chair Powell will surely face questions about the report at a press conference Wednesday. Powell wasn’t involved in preparing Friday's report but praised it Friday saying "I welcome this thorough and self-critical report on Federal Reserve supervision from Vice Chair Barr" and that he agreed supported its recommendations.
While few see a path to major action on this issue in a divided Congress in the months ahead, Senate Banking Committee Chairman Sherrod Brown (D-OH) promised more focus on the issue in the weeks ahead.
In a statement Friday, he said the report on the Silicon Valley Bank failure as well as a separate FDIC report released Friday on the fall of Signature Bank “confirm how poorly managed, overconcentrated, and over-reliant on particular industries both of these banks were.” He added that “those involved in these failures owe the American people an explanation.”
Brown's Republican colleague on the committee, Sen. Tim Scott (R-SC), added that the dual reports show that regulators failed “but they attempt to deflect blame by falsely using those failures as a scapegoat to argue for additional authorities and a rollback of the tailoring provisions" that the Fed implemented in 2019.
Ben Werschkul is Washington correspondent for Yahoo Finance.
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