SVB and Signature Were 'Allowed to Fail,' Says FDIC Chair

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America’s banking regulator is investigating the recent collapse of two lenders.

Martin Gruenberg, chairman of the Federal Deposit Insurance Corp. (FDIC), says his agency is looking into how and why Signature Bank and Silicon Valley Bank failed earlier this month.

“It is worth noting that these two institutions were allowed to fail,” Gruenberg said in remarks prepared for a congressional hearing Tuesday (March 28). “Shareholders lost their investment. Unsecured creditors took losses. The boards and the most senior executives were removed.”

He goes on to say that the FDIC has the authority to “investigate and hold accountable the directors, officers, professional service providers and other institution-affiliated parties of the banks for the losses they caused to the banks and for their misconduct in the management of the banks.”

Those investigations, Gruenberg adds, are already underway.

Gruenberg is set to testify Tuesday before the Republican-led House Financial Services Committee, which itself has said it wants to investigate the FDIC’s response to the Signature/Silicon Valley Bank (SVB) crises.

“Given the unprecedented speed of the bank failures and subsequent effects on the U.S. financial system, it is critical that Congress understand the events leading up to and following the failures of both Silicon Valley Bank and Signature Bank,” Rep. Patrick McHenry (R-N.C.) and Rep. French Hill (R-Ark.) wrote in a letter to Gruenberg last week.

“In particular, Congress must understand the FDIC’s role both as receiver for the failed banks and as the primary Federal banking agency for Signature Bank.”

The congressmen also wrote to Treasury Secretary Janet Yellen, seeking clarification on the government’s decision to declare SVB and Signature Bank a “systemic risk” when announcing the takeover on March 12.

Federal law “requires the Treasury Secretary to include a description of the basis for making a systemic risk determination,” Hill and McHenry. “Notwithstanding your March 12th letter, the basis for your determinations remains unclear.”

Yellen is not scheduled to testify Tuesday, though the panel will hear from Nellie Liang, the Treasury Department’s undersecretary for domestic finance.

The secretary had said last week that regulators were prepared to do more to protect the banking system: “Certainly, we would be prepared to take additional actions if warranted,” Yellen told the House Appropriations Committee.

That statement followed remarks that were otherwise largely similar to those delivered at a Senate hearing a day earlier, in which Yellen said the Treasury had not considered a temporary expansion of federal insurance to all U.S. bank accounts, adding that this would require congressional legislation.