US regulators to face sharp questions from Congress over bank collapses

Lawmakers are expected to put top US bank regulators on the defensive over the unexpected failures of regional lenders Silicon Valley Bank and Signature Bank when they testify before Congress on March 28.

Top regulatory officials for the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Treasury Department are testifying before congressional committees on the swift collapse of the two banks earlier this month, which set off a broader loss of investor confidence in the banking sector, according to Reuters.

Regulators have vowed to review their rules and procedures after the twin failures while insisting the overall system remains sound. March 28's hearing at the Senate Banking Committee will give lawmakers the chance to press watchdogs on what went wrong on their watch and push preferred policy prescriptions.

In prepared remarks released before the hearing, top officials from the Fed and FDIC said depositor funds are safe and sound. But they both said they are reviewing what led to the bank failures, and what rules need to be changed to prevent such collapses in the future.

"There will be politicking at both hearings with progressives and conservatives looking to score political points," said Jaret Seiberg with TD Cowen.

"But we also expect substance as lawmakers press the officials on what went wrong at these banks and what the message should be for uninsured depositors."

The turmoil set off fresh recriminations in Washington, as some Democrats and Republicans sharply criticized regulators for allowing the banks to get to such a state.

Critics have noted how both firms, but particularly SVB, rapidly grew in size and ended up with huge amounts of uninsured deposits. Those funds quickly fled at signs of trouble, according to Fed Vice Chair for Supervision Michael Barr in his prepared testimony.

"It's very clear that the regulators had the authority to do their jobs, to supervise. They just didn't," said Sen. Tim Scott of South Carolina, the top Republican on the Senate Banking Committee, at a banking industry conference last week.

Barr promised in his testimony an "unflinching" look at how SVB was supervised, but also noted it ultimately falls to bank management to address shortcomings, not supervisors.

Some Democrats, including major bank critic Senator Elizabeth Warren of Massachusetts, have also argued a 2018 bank deregulation law is to blame. That law, mostly backed by Republicans but also some moderate Democrats, relaxed the strictest oversight for firms holding between $100 billion and $250 billion in assets, which included SVB and Signature.