Bank Regulators Call For New Rules In Wake of Silicon Valley Bank Failure

Fed's Barr tells Congress better regulation could prevent future chaos amid Republican pushback

By
Diccon Hyatt
Diccon Hyatt
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Diccon Hyatt is an experienced financial and economics reporter who has covered the pandemic-era economy in hundreds of stories over the past two years. He's written hundreds of stories breaking down complex financial topics in plainspoken language, emphasizing the impact that economic currents would have on individuals' finances and the market. He's also worked at The Balance, U.S. 1, Community News Service and the Middletown Transcript.
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Published March 29, 2023
Federal Reserve Board Vice Chair for Supervision Michael S. Barr (R) testifies before the Senate Banking, Housing and Urban Affairs Committee March 28, 2023 in Washington, DC. The committee heard testimony on the topic of "Recent Bank Failures and the Federal Regulatory Response." Also pictured is Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg (L).

Federal banking regulators told lawmakers for a second day that the industry needs stricter rules, such as forcing them to hold long-term debt, to guard against a repeat of this month's chaos.

“We need to move forward with our work to improve the resilience of the banking system,” Michael Barr, vice chair for supervision of the Federal Reserve, told the House Financial Services Committee on Wednesday. Mirroring comments day earlier to senators, Barr also suggested better stress-testing, changes to liquidity rules and implementation of the previously announced Basel III “endgame” reforms.

Republican lawmakers pushed back, saying more regulation would be costly and unneeded, and blaming the crisis on lax Fed regulators who failed to enforce existing rules on Silicon Valley Bank.

This week's testimony sets the stage for a debate in Congress over what, if anything, to change to prevent banks from unravelling so suddenly that the government was forced into a drastic response to backstop the banking system. The Fed is set to release a report on Silicon Valley Bank's failure and provide more detailed proposals on May 1.

Federal Deposit Insurance Corp. Chairman Martin Gruenberg told senators on Tuesday that regulation of banks that have more than $100 million of assets deserves “serious attention,” especially when it comes to capital requirements, liquidity and interest rate risk. He said the FDIC was reviewing the deposit insurance system and would submit a report on May 1.

While the FDIC insures deposits of more than $250,000, shortcomings came to light in SVB's failure, where more than 90% of depositors had banked more than that. 

Republicans kept up their criticism on Wednesday.

“These reforms will result in additional costs on consumers, on businesses, and investors,” said Missouri Congresswoman Ann Wagner. “Examiners and your supervisors were asleep at the wheel."

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  1. House Financial Services Committee. "Hearing Entitled: The Federal Regulators' Response to Recent Bank Failures."

  2. Federal Reserve. "Federal Reserve Board announces that Vice Chair for Supervision Michael S. Barr is leading a review of the supervision and regulation of Silicon Valley Bank, in light of its failure."

  3. Senate Committee on Banking, Housing, and Urban Affairs. "Statement of Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation."

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