What Went Down in the Senate Banking Committee Hearing on March 28: Insights from the FDIC and Federal Reserve

Hearing Overview

The United States Senate Banking Committee held a notable hearing on March 28 to scrutinize the regulatory response following a series of bank failures. Key figures from the Federal Deposit Insurance Corporation (FDIC), Federal Reserve, and Treasury joined the party to provide their perspectives.

Lessons from Recent Bank Failures

FDIC Chair Martin Gruenberg kicked off the discussions by outlining the unfortunate events that led to the collapse of Silicon Valley Bank (SVB) and Signature Bank. He highlighted the alarming role digital assets played in these failures, emphasizing that a combination of rapid growth and high levels of uninsured deposits wreaked havoc.

Breaking Down Silvergate Bank’s Collapse

Gruenberg shared a gripping narrative beginning with Silvergate Bank, which saw itself tumble following the infamous collapse of FTX. Though FTX accounted for a mere 10% of Silvergate’s deposits, the shockwaves were undeniable, with the bank losing a staggering 68% of its deposits post-bankruptcy. The FDIC chair quipped, “The troubles experienced by Silvergate Bank showed how traditional banking risks, when mishandled, could lead to catastrophe.” The poor bank didn’t stand a chance!

Sneaky Moves at SVB

The saga continued with SVB; the FDIC was alerted to a bank run on March 9, leading to its closure the very next day. However, in a Herculean effort, the FDIC managed to reopen a bridge bank by that Monday. Like Silvergate, SVB had severely concentrated its activities within the venture capital sector, and we all know what focused investments can lead to—a whole lot of chaos!

Signature Bank: A More Diversified Tale

Unlike Silvergate, Signature Bank boasted a more diversified portfolio. This diversification was partly a result of its decision to trim exposure to the turbulent waters of digital assets after the FTX drama. Despite being more balanced, Signature still faced a frenzy of deposit withdrawals—20% gone in just hours! Gruenberg detailed how regulators and the Federal Home Loan Bank of New York joined forces to deal with the frantic situation.

The Power of Digital Platforms

Both Silvergate and Signature employed digital platforms that allowed for continuous transaction capabilities, a rarity among U.S. institutions. Gruenberg described these platforms as “the only two known platforms of this type within U.S. insured institutions,” adding a layer of intrigue to their failures.

What’s Next?

In wrapping up, Gruenberg estimated a jaw-dropping cost of $22.5 billion for the FDIC’s efforts in resolving the losses from SVB and Signature Bank. Appearing optimistic, he reassured attendees, saying, “The state of the U.S. financial system remains sound despite recent events.” The FDIC committed to releasing a comprehensive report and proposals for new rulemaking on the special assessment by May 1. Sounds like there’s more to come in this banking drama!