Dear Chairman Brown, Chairman McHenry, Ranking Member Scott, and Ranking Member Waters:
We recently marked the one-year anniversary of the collapse of Silicon Valley Bank and Signature Bank. We write on behalf of trade associations representing banks of every size. Recognizing that the regulators played a central role in last year’s failures, we are concerned that investigations into the causes of last spring’s banking crisis remain incomplete. Specifically, we have concerns regarding the regulators’ post-failure actions and rulemakings.
As you are aware, the recent push for regulatory changes, including those related to the Basel III endgame, long-term debt requirements, and the FDIC governance proposal, allegedly stem from the failure of SVB. Still others, like proposed changes to debit card regulation, seem to have no policy justification whatsoever. Upon closer examination, however, it becomes clear that these measures would not have prevented the bank failures, nor would they foster a broad-based, diverse U.S. banking system that serves communities and business of all sizes and geographies. We believe this regulatory tsunami is not a rational response appropriate to current circumstances and warrants scrutiny.
For example:
Basel III Endgame – The Basel III endgame, which has been developed over the last decade, would not have prevented SVB's collapse. The key cause of SVB's failure was not capital inadequacy but rather a confluence of risk management failures, supervisory lapses, and market dynamics that traditional capital requirements alone could not address.
Long Term Debt – Similarly, the imposition of long-term debt requirements, while potentially reducing the cost of the failure to the Deposit Insurance Fund, would likely not have prevented SVB's failure once the bank’s depositors lost confidence. The failure of SVB was multifaceted, and long-term debt requirements alone would not have addressed the underlying issues that led to its demise.
FDIC Governance Proposal – The FDIC governance proposal, though intended to improve governance and risk management practices within banks, would not have been a sufficient safeguard against SVB's failure. In fact, at no point in its proposal does FDIC acknowledge or explain how its continuous examination program - to which banks with $10 billion or more in assets are already subject - and other components of FDIC’s and other regulators’ existing regulatory and supervisory framework failed to identify and avoid, or at least mitigate, the risks that ultimately led to SVB’s failure or any other recent large bank failure. It is imperative for regulators to prioritize addressing core risks to safety and soundness rather than focusing excessively on micromanaging process-related governance, as the latter may divert attention and resources from more critical areas. State regulators, represented by the Conference of State Bank Supervisors (CSBS), have strongly opposed FDIC’s approach and have called for its withdrawal.
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