Regulators to testify before Senate banking committee following SVB collapse

Yahoo Finance’s Jennifer Schonberger joins the Live show to discuss the expectations for regulators at Tuesday’s U.S. Senate hearing.

Video Transcript

JULIE HYMAN: Of course, a big part of confidence also has to do with what has happened in the banking system. And the first hearing over the collapse of Silicon Valley Bank and Signature Bank gets underway. Three regulators are facing the Senate Banking Committee, and Yahoo Finance's Jennifer Schonberger has the details on what this hearing's going to look like. Good morning, Jen.

JENNIFER SCHONBERGER: Good morning, Julie. More than two weeks after Silicon Valley Bank collapsed, causing shockwaves across the banking sector and financial markets, regulators will testify before the Senate Banking Committee this morning on why Silicon Valley Bank failed and what can be done to protect a situation like this from happening again.

On the hot seat this morning, Federal Reserve Vice Chair of Supervision Michael Barr, FDIC Chair Martin Gruenberg, and Treasury Undersecretary for Domestic Finance Nellie Liang. In testimony released Tuesday, Barr says SBV's failure is, quote, "a textbook case of mismanagement." He says the bank's management did not effectively manage its interest rate and liquidity risk and that the bank suffered an unexpected run by its uninsured depositors.

Quote, "The bank waited too long to address its problems, and ironically, the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank's failure. The picture that has emerged thus far shows SVB had inadequate risk management and internal controls that struggled to keep pace with the growth of the bank." Now, Barr admits that regulators spotted the issues leading up to SVB's failure, but that regulators need to ask why the bank was unable to fix and address the issues. He says it is not the job of the supervisors to fix the issues, rather senior management.

Now, FDIC Chair Martin Gruenberg will tell senators that the FDIC will review the deposit insurance system and release a report by May 1st, including options for deposit insurance coverage levels and excess deposit insurance. He says the regulation of banks with more than $100 billion in assets merits serious attention, including capital, liquidity, and interest rate risk. Senate Banking Committee chair Sherrod Brown says in his opening statement, quote, "The officials sitting before us today know that their predecessors rolled back protections, like capital and liquidity standards, stress tests, brokered deposit limits, and even basic supervision. They greenlighted these banks to grow too big, too fast."

Barr, who was conducting a review of SBV's failure, due out May 1st, will suggest improving capital requirements and requiring large regional banks to hold more long-term debt to act as a cushion to absorb losses in times of stress. This hearing getting underway right now. And I will monitor those headlines as they come. Back to you.

BRAD SMITH: All right, thanks so much. Yahoo Finance's own Jen Schonberger, appreciate the update. And we'll be tracking any of those updates to come from the hearing.