New Haven Register (New Haven, CT)
CT senator says failed bank ‘unconscionably mismanaged’
In the wake of the failures of Silicon Valley Bank and Signature Bank, some of Connecticut’s top elected officials are expressing cautious confidence that the banking system would avoid a repeat of the 2008 financial crisis — but the state’s senior U.S. senator believes that federal regulators should have been better prepared for the crisis and wants reforms.
The downfall in the past week of Santa Clara, Calif.-based SVB and Manhattan-headquartered Signature, respectively, marked the second- and third-largest bank failures in U.S. history, behind only the 2008 collapse of Washington Mutual. Among the measures taken to shore up the banking system, the federal government has agreed to cover deposits at SVB and Signature, even those that exceeded the federally insured limit of $250,000.
“The immediate financial triage seems to have gotten the system back on its feet, but there is a need for longer-range scrutiny and oversight to prevent these kinds of crises. Silicon Valley Bank was completely and unconscionably mismanaged, and that imminent failure should have been detected by the regulators,” Sen. Richard Blumenthal, D-Connecticut, said in an interview Tuesday. “Clearly, their Treasury bonds were collapsing in value, and their depositors had a need for the money... The (Federal Deposit Insurance Corp.) should have known and foreseen this kind of crisis because obviously the value of the Treasury bonds had cratered, and these Silicon Valley startups would need money to meet their payrolls and other expenses. So the crunch was bound to come.”
Rep. Jim Himes, a Democrat whose district covers most of Fairfield County and a member of the House Financial Services Committee, said that he was also closely following the situation.
“The people who are calling this a bailout are wrong,” Himes said in an interview Tuesday. “That doesn’t mean we want to do that again, but the FDIC guarantees will be fully reimbursed by assessments on banks. I think they (the regulators) did just about as well as they could have been expected to do.”
Some banking industry leaders in Connecticut offered a similar assessment of regulators’ response.
“Within 48 hours (of failure), the banks went into receivership. On Monday morning, the (government officials) are able to say, ‘This is not going to going cost you, the taxpayer, any more,’” Bruce Adams, chief executive officer and president of the Credit Union League of Connecticut, said in an interview Monday. “The banks are still safe because the Fed insured their liquidity with a line of credit. It’s not a bailout. It’s giving financial institutions the liquidity to manage. We should all have confidence that our regulatory system worked swiftly and worked well.”
Meanwhile, an exchange on Twitter on Monday between Connecticut’s other U.S. senator, Democrat Chris Murphy, and one of his Republican counterparts highlighted some of the partisan divisions in response to the collapse of SVB and Signature.
“Count me in for all the ‘woke means everything I don’t like or understand’ content. Tremendous,” Murphy said in one tweet. “FYI it was a Republican super donor who backed the bank and then led the run that created the crisis. So maybe not everything is shirts/skins? But wth I’m in! Woke! It’s all woke!!”
Murphy’s tweet responded to one sent by Republican Sen. Roger Marshall, of Kansas, who said, “the FDIC will bail out Silicon Valley billionaires, forcing community bankers in Kansas to pay for the abysmal failures of a woke California bank. What kind of precedent is that? Why do we have a limit on FDIC insurance if we simply ignore it when times get tough?”
The bank failures are already spurring new legislative proposals from members of Congress including Blumenthal.
“There are broader questions about the adequacy of our oversight. I will be introducing legislation today or tomorrow that would enable the FDIC to reclaim or claw back bonuses given to any bank managers whose institutions are taken over by the government, as well as other measures to enforce accountability for incompetent or corrupt actions.”
Blumenthal added that, “in 2018, some of the rules were loosened as to reserve requirements for these banks. I voted against those measures, and I will also be supporting a bill that would restore those tighter rules. There has to be a multipronged approach to instituting stronger safeguards to protect depositors and our economy.”
Himes advocated for more analysis of the bank failures before pursuing any regulatory changes. Among related initiatives, he said he had been told that a Federal Reserve report on the situation would be released in May.
While banks chartered outside Connecticut are generally beyond their regulatory control, state elected officials also said that they were tracking the bank failures. Signature comprised the 12th-largest FDIC-insured institution operating in Connecticut, based on its deposits, as of June 30, 2022. At that point, its deposits in the state totaled about $2.2 billion. SVB was not listed in FDIC data on the 54 FDIC-insured institutions with deposits in Connecticut, as of last June.
“It’s a one-off deal. You don’t bail out the shareholders. You don’t bail out the executives. You make sure the depositors are whole, so they can make payroll today,” Gov. Ned Lamont said at a news conference Monday.
“I think that’s what the feds are doing. It’s the right way to do it.”