Announcer: Please welcome
chief people officer of North State Bank,
Amanda Lloyd.
(exciting music)
-: Good morning y'all.
I am pleased and honored to introduce our next speaker,
a good friend to North Carolina Bankers and all of us,
Representative Patrick McHenry of North Carolina.
As the new chairman
of the House Financial Services Committee,
Representative McHenry leads the House committee
with direct oversight for the banking sector.
As our chairman,
he is pledged to be an advocate for innovative solutions
for banking services and credit
to all American families and small businesses.
Chairman McHenry will offer some opening remarks today
and then be joined by Rob Nichols, ABA president and CEO,
on the stage for a discussion.
Please join me in giving a warm welcome
to Representative Patrick McHenry.
(audience applauding) (exciting music)
Thank you.
-: Good morning.
What a time to be here, right?
Well, Amanda, thank you.
Thanks for your leadership
with the North Carolina bankers,
and for banking in America.
And thanks for the warm introduction.
Great to be with you.
And it's an honor to be the chair
of the Financial Services Committee,
and my goal was for it to be a very boring two years.
But goals are not often realized as members of Congress.
But I'm grateful that the American Bankers Association
and you as members are here to advocate
for your customers and your consumers
that you're helping in the American economy.
As chair of the House Financial Services Committee,
it's my goal to restore America's confidence
in the safety and soundness of our banking system.
There's been a great deal of speculation
about what led to SVB and Signature Bank's failures,
but I'm more interested in the facts,
the who, what, when, where, why, and how.
And then we need to determine where to go from there.
As I've said, this was the first Twitter-fueled bank run.
The speed of communication
through modern technology is a new reality
regulators and Congress need to be aware of.
I think we're all quite aware of it right now.
Last weekend, the Fed, Treasury.
and the FDIC acted to protect customer deposits,
limit contagion,
and prevent additional bank runs
without risking taxpayer money.
Responsible lenders should bolster confidence
in our financial system and contain the fallout.
That's what these actions were intended to do.
The Federal Reserve announced
that vice chair of supervision, Mr. Barr,
will conduct an internal review of the supervision
and regulation of these failed banks, and I welcome that,
and the other views of financial regulators as well.
However, Congress has a very important role to play here.
The House Financial Services Committee
will use its oversight authority
to get to the bottom of what led
to the failure of these banks.
Ranking member Maxine Waters and I
already announced our first bipartisan hearing
on these bank failures,
which will be held on March 29th
with the FDIC chair, Marty Gruenberg, Treasury,
Under Secretary for Domestic Finance, Nellie Liang,
and vice chair of dupervision from the Fed, Michael Barr.
Additionally, Chair Waters and I,
or Former Chair Waters and I requested
the government accountability office conduct
a fulsome examination of these bank failures.
This would be the first independent review of the situation.
While it's too early to start casting blame,
there are key questions that need to start,
we need to start answering.
Were our regulators asleep at the wheel?
Did they miss several red flags regarding SVB?
Or were these flags for management?
Were the bank's management deficient?
Did they recognize these problems?
And were they working to address them appropriately?
Was a private sector solution a viable option for SVB
and signature a week and a half ago over the weekend?
Or did the administration allow
its ideological lens to color its judgment?
And how do we ensure regulators have the tools necessary,
and whether or not those tools
that they currently have were used appropriately?
Now, I'm a legislator.
And in a moment like this, legislators want to legislate.
I think the goal first is to build
the facts of the matter and address
where the failures occurred.
Rather than walking around, too often as legislators,
we walk around and assume the answer is legislation.
But I wanna make sure that the call for legislation is
matched with the realities of the situation.
So I think it's too early to tell
whether or not new legislation will be necessary.
It's important to note that we can't legislate competence.
We give powers to regulators and supervisors.
They need to be competent.
Management of institutions need to be competent.
Boards of directors need to be competent.
We can't legislate that.
Either in the financial sector
or among financial institutions management,
nor with the regulators.
But we need to have competent people at the helm here.
Some policymakers on both sides
of the isle are already jumping to the conclusion
with the incomplete information.
It includes those advocating for raising
or abolishing the deposit insurance cap.
Changes to the deposit insurance cap
could have serious consequences for our financial system,
and we need to closely examine those ramifications.
They're trade-offs,
and we have to be aware of what those trade-offs are.
From moral hazard to fueling more bank consolidation,
we have to have a full understanding
of what those trade-offs truly are.
I think the use of systemic,
the systemic risk exception last weekend was
an appropriate move to stop the contagion.
But Congress will closely study these proposals
before moving forward with such an extensive change
to our deposit insurance system.
We've also seen a rush to blame
the bipartisan Economic Growth,
Regulatory Relief, and Consumer Protection Act, or S. 2155.
We know that SVB was subject
to robust state and federal regulation.
However, regulation of financial institutions
only works when bank supervisors do their job.
S. 2155 provided flexibility, not mandates for regulators.
It did not roll back regulation
or take away any regulatory authority.
SVB was subject to stringent internal liquidity stress tests
that allow bank examiners
to scrutinize institutions more closely.
Unfortunately,
it appears supervisors missed several red flags,
particularly in SVB's balance sheet.
In conclusion,
now is the time for policymakers to remain level-headed
when assessing the appropriate path forward.
The first step is restoring
America's confidence in our financial system.
And we must base our response on facts, not speculation.
And the House Financial Services Committee
will lead Congress' effort
to get to the bottom of what happened,
how it happened, and why.
And with that,
I look forward to the discussion today with Rob.
Thanks so much. (audience applauding)
-: How are ya? -: Thank you, Mr. Chairman.
-: Are you busy these days?
-: We have been busy these days,
just as you've been busy these days.
So first of all, thank you very much for being here.
I know you have an incredibly busy calendar
this week as well as next.
And we appreciate you taking time to visit
with the ABA during our Washington Summit.
And before I get into some of these current events too,
thank you also just for your thoughtful approach.
The comments you just delivered
about trying to figure out what happened and why,
and then figure out what the path forward
and steps should or should not be
as it pertains to a legislative response is
I think incredibly thoughtful.
You've been called in the press
the adult in the room at this moment.
And so I just wanted to thank you for your leadership
at this moment in time. -: Thank you.
As I said, when you, the old maxim of,
if you have a hammer, the world looks like a nail.
So we have legislators that are using
their typical book of business generally
and applying it to this particular circumstance
without the facts.
So let's establish the facts first,
and then we can decide
what kind of appropriate response we need.
-: We're in heated agreement,
and I saw you make those very comments
on "Face the Nation" just a number of days ago.
So let me just ask first.
You were in Congress during the Dodd-Frank Act,
so you've seen Congress act before.
You're now chairman.
Are there any lessons or observations you have
from what happened during the Dodd-Frank years
that may or may not be applicable present day
or that has impacted how you're gonna go about this
as chair of the committee?
-: Well, I think there are a couple things that are evident,
that were evident then that are evident now.
The two things that come to mind first and foremost was
when you have a class of financial institutions
that are assumed by the public to be too big to fail,
in a moment of risk,
the public will make a decision for themselves.
No matter what the law says, they will make an assumption.
And we've seen that in a moment of stress.
That larger institutions have have increased deposits.
And I think that's a direct consequence
of a regulatory system that states very clearly
that they're too big to fail.
Without failure, you cannot have capitalism.
So firms need to be able to fail.
And I'm saying this directly to bankers.
I don't think it's in banking's interest
or the American economy's interest
for institutions to not be able to fail.
Now, we see this with zombie institutions,
financial institutions in Europe,
that eventually fall victim to their lack of competence.
So let's get on with it and make sure that system works,
number one.
Number two,
we have a layering of cost that we've placed
on all financial institutions that have made
banking more expensive and less competitive.
We've driven up the cost of financial products
as a result of that regulation.
And we've layered regulation upon regulation
upon regulation upon regulation.
What we said,
I said clearly during the Dodd-Frank debate is
that you still have to have competence
in that decision making
inside the institution and among the supervisors.
And clearly with the massive expense
and layering of regulation,
we still had a failure that was publicly visible
and exposed on a balance sheet item.
And a new thing that happened,
which was the speed of electronic banking matched
with the speed of social media,
neither of which were gonna slow down,
but we didn't have regulatory provision
for a liquidity need
in that stress moment that was necessary.
So even with known things,
people perform differently with new technology
or behaviorally have different assumptions.
So no matter how much regulation
we pile on these institutions,
you still have this question of competence
that is operable in a free society.
-: So one of the things you just mentioned there,
Mr. Chairman, was the social media piece.
And so, you know,
we talked about this yesterday quite a bit,
that this is foundationally a bank management failure
around concentration risk,
interest rate risk, and a number of things.
To your point around the supervisory failure,
that's something you're gonna get
to the heart of during your hearings.
But then this is the first bank run
where social media was a contributor, or an accelerant,
or whatever word we want to use.
And I've heard you talk about this a little bit.
So I understand as you're thinking of the hearing makeup,
this is something that you're gonna explore,
the role of social media here.
-: Yes, and I think what folks
in the political lens of Washington think is
that means a new regulatory sphere on social media.
That's not what I'm saying.
We're not gonna slow down the means of communication.
In the 19, well, we have generation over generation,
finance and speed have had this enormous connectivity.
So there was a period of history
whereby the fastest runner or the fastest horse
gave you a financial advantage on the flow of information.
Then it became the telegraph, and the telephone.
Well, the steamship is in there as well, but we can just,
and then now we have technology.
We're not gonna throttle this.
Information moves much more quickly today
than it did a decade ago or 50 years ago.
So we have to adapt to that.
We're not gonna stop that.
As much as it enrages us or,
you know, we're frustrated by it.
You're not gonna throttle the flow of information.
I don't think that's in our interest.
So then we have to adapt to how you respond
in a moment of stress and being hyper aware.
So that needs to be incorporated in law and regulation,
just a mind's eye to that new performance of bank deposits
related to the flow of information that quickly.
-: I think that makes sense.
And look forward to watching those hearings.
And we've also been thinking
about the role of short selling of bank stocks
and social media and that whole intersection.
And I know that the Justice Department
and the SEC are probably likely to take that up too.
-: And that is appropriate.
I think that is appropriate at a moment like this
for them to look deeply at what people are doing.
-: Yep, we share that view.
I appreciate your comments around 2155,
because there have been,
I think to your point of your opening remarks,
some knee-jerk analysis already
of what did or didn't contribute to this.
I made that point yesterday as well that there's no evidence
that 2155 was the cause here for SVB.
And I think Dan Tarullo also, who is no,
you know, no fan, I would say, of banks,
has also made comments consistent
with that as well as some others.
Anything else you- -: No, I think that's true.
And what you have is people preaching
their solution from a month ago
and using that as a solution for the circumstance.
I don't think that's fitting.
And I don't, well, I mean, but it's Washington,
so people have their book of business,
they wanna deal in that book of business
and apply whatever circumstance
to whatever their narrative is.
I think it's unbecoming,
I think it's quite hackish.
And especially in a serious circumstance
like we're currently in and have just gone through,
we need to be a little more patient
and find out what the facts are.
What we know is the facts of the change in 2155
did not touch at all the facts
and circumstances for these two failed banks.
We do know that even the original Dodd-Frank Act
would not have addressed these failures,
and in many respects enhanced this type of balance sheet.
We have more plain vanilla balance sheets today
than we did 50 years ago in banking.
And there are consequences for that.
When one institution has a failure
in their bank balance sheet,
instead of being sort of walled off
to that type of institution,
it then has this broader implication for all institutions
because of regulatory requirements.
I think a less diversified banking system,
a more monolithic vanilla approach is problematic
for economic growth in America.
And without a vibrancy in the banking industry,
you don't have the vibrancy of our economic growth.
And what I don't want is for us
to have a Canadian banking system
where you have just a couple of large institutions.
If you have a Canadian banking system,
the consequence is you have Canadian economic growth.
I don't want that.
I want American economic growth,
and that vibrancy comes through financial institutions.
-: Yeah, a couple of observations, what you just said.
One, I completely agree
on some of the knee-jerk comments we've heard from folks.
I saw an elected official the other day say,
well, we need to make bank,
based on what just happened with these two banks,
we've gotta make banks safer,
therefore let's just jack up capital requirements.
I'm like, well, that's not,
this is not a capital failure here.
And then your comments about the overall nature
of the banking system I think are really spot on.
You know, we have the most dynamic banking system
on the planet with community banks, mid-size banks,
regional banks, and large globally active banks.
We should preserve and protect this thing
that is an amazing support
of the world's most dynamic economy.
You've said, and I wanted to just build on it,
on your comments around the debate,
immediate debate around the future
of the deposit insurance architecture
I think were really important,
I think consistent with ours.
I think a conversation around this is
a sensible conversation to have,
but we shouldn't rush into it without thinking
about all those trade-offs that you just articulated.
-: The way I think about this is two steps here.
You have the immediate question at hand,
and then a return to confidence.
Okay, well, immediate circumstance
versus sort of medium-term planning
and thoughtful policymaking.
Crisis politics is always bad policy.
You rarely, in the midst of a crisis,
gets sound, long-term law and policy.
In a normative time,
you can have a more deliberative approach
and understand the trade-offs.
That's what I'm focused on,
is getting to that deliberative phase
of understanding the trade-offs.
What's clear to me in this moment,
but it's been long time clear to me,
when we have fewer community
and mid-size banks in America today,
that tells us about the economic health
and the regulatory burden.
The economic health of America,
and the regulatory burden
we've placed on these institutions.
I think we have to have a focused effort
on ensuring we have a vibrancy
and a significant number of banks competing.
'Cause my constituents win with that type of competition.
So when we're down dramatically on the number
of financial institutions in the United States,
that is a, I think, a problem, not a good thing.
So I think we need to look holistically on this,
not just this question of the FDIC insured deposit level,
on the appropriateness of that,
but holistically on how we view this class of banks,
and whether or not there's sort of an appropriate set
of regulations so you can have that vibrancy in competition.
-: So before,
I'll ask you one more around the current state and affairs,
and then surface just one or two issues before we adjourn.
In terms of the hearings that you mentioned,
you know, who do you wanna, how long will this go on?
Who do you want to hear from?
And then also,
do we think they can be bipartisan perhaps,
or might that be a challenge?
-: Well, that's the hope.
And the first two actions we've taken as a committee,
the ranking member and I have announced them together,
and that is our questions
for the government accountability office
so they can look into this matter on behalf of Congress.
And we have bipartisan question sets
that we've proposed there.
And then the bipartisan hearing we announced,
which then, you know, frankly,
the administration went to the Senate,
going to the Senate first for the hearing.
But we announced it in a bipartisan way.
And my hope is that we can proceed along the line.
Next up, we obviously have
to look at the supervisors, right?
The San Francisco Fed, the folks that were in the bank.
The San Francisco and New York State Bank supervisors.
These are state banks.
What roles do they play?
What do they see?
So we have a number of options to move forward on.
My hope is that this first hearing,
we can actually get a lot of the facts out
and establish them as,
a lot of the information out
and established what are facts.
I think that would bring a great deal
of certainty and confidence to the market.
That's the goal of this first hearing, frankly.
-: Thank you.
I'll segue to an issue
that we've been grappling with as an industry,
and it's around cannabis banking.
As you know, I'm from Seattle.
Washington State was the first state to legalize,
and now we're at about 40 states.
So 80% of the US is legalized.
Putting aside the societal, cultural,
and moral implications of what the voters
have decided in these states, they decided,
and now banks are just caught
in the middle of the state-federal inconsistency.
I know it's passed the House a half dozen or so times.
It's been mired in the Senate over other reasons
of expanding into this much broader thing.
You now lead the committee, you chair the committee.
What are our prospects of moving this through the House?
And I know that we've had
a number of conversations around this.
So what do you think the path forward is here?
-: It's not on my agenda.
I have a focused agenda that because of the turbulence
in the banking system just expanded a little bit,
but it's not a priority for me.
I voted against the bill multiple times in the House,
but I've fellow Republicans
on the committee that have voted for it.
And I've not told a member
to vote one way or the other on it.
They've gotta represent their constituents.
And they're listening to their constituents,
and I am listening to my constituents.
And that's the process.
It's not a priority for me,
because what got caught up in safe banking
and the efforts that Ed Perlmutter put in,
which were heroic and really sound legislating.
I mean, I commend him for the way
he approached putting that package together,
and how he drew bipartisan support
in a really acrimonious time.
And now, you know,
my friend Dave Joyce is taking over that leadership,
and he is as sound and smart a legislator as Ed Perlmutter.
And I think the world of Dave Joyce.
And so, you know, I'm not closed off to this.
I understand the societal implications
and the challenges that are occurring here.
I don't think this is the proper means
to solve a societal problem through finance.
Whether it's putting climate politics
on financial institutions,
or the question of cannabis
in society on financial institutions.
So it doesn't fit with my view on that.
And what got caught up here is the Senate wants
to lay on this whole other layer of stuff
and social justice issues to this circumstance.
Rather than getting to the core of this issue,
which is the legal status of cannabis in federal law.
You fix that, the banking issue is fixed.
But again, you represent the bankers, I understand, Rob.
So we've had a frank conversation about it.
He's not let up, I gotta be honest with you,
but we can have a frank conversation about it.
The bigger issue is the status of cannabis in federal law.
And whether or not that fits and is appropriate
to the class of drugs it sits with,
let's have that debate.
The banking issue gets fixed as a result.
-: We'll return to that one later.
I'm gonna give you the final words.
-: I know, it never goes away, I got it.
-: Now, we'll return,
I reserve the right to come back to you on that.
But last one for you, something important,
having nothing to do with that,
and we've had a number of conversations around this is
the important role of oversight,
putting aside the moments of the day.
The oversight role of the House Financial Services Committee
as it pertains to the SEC, CFPB at all.
I know you have a lot to say on there, but,
so I wanted to give you the last word on something
that I know you feel quite passionately about.
-: It is, the preeminent role of Congress
to be a check and balance
on the other branches of government.
Part and parcel of that is our oversight
in investigations functions
as the Article I function in the Constitution.
And so we need to make sure
that these agencies that force of law creates are
actually sticking to their knitting.
The Supreme Court has stepped in and said,
Congress designed these agencies,
and they're taking powers
way beyond that which Congress contemplated.
And the judiciary is stepping in to say,
Congress, do your job.
And that is the imperative for us.
When we write laws, we need to be specific,
then we need to hold these agencies accountable
that they're sticking to those rules, those laws.
What we see clearly with the Security Exchange Commission,
at the pace of their rulemaking,
they don't care about congressional intent
or congressional oversight.
And you can say the same for the CFPB.
A poorly designed agency, yes.
Unaccountable, yes.
The way they get their funding
through the Federal Reserve is a novel, a new thing.
And I think the Supreme Court
will rightly judge that that is inappropriate.
That puts Congress back in charge.
But rather than the judiciary begging us
to do our job in Congress,
we need to do our job.
Serious oversight requires serious people.
I've got Bill Huizenga as my oversight chair,
and we've got a very aggressive agenda
and we're getting on with it.
So good to remind members
that that is their first obligation.
And out of sound oversight,
you can have smart legislation.
And I think we can do that in a very sound way,
and my hope is in a bipartisan way.
-: That is great, thank you.
Well, I'll have closing comments in a minute,
but first, ladies and gentlemen,
please join me in thanking Chairman McHenry.
(audience applauding) -: Thanks, Rob.
-: Thank you very.