Financial Services Committee Requests Info on Use of "Systemic Risk Exception" for Failed Banks

House Financial Services Committee Chair Patrick McHenry (R-NC) and Vice Chair French Hill (R-AR) requested detailed information from FDIC Chair Martin J. Gruenberg and Treasury Secretary Janet L. Yellen on the decision to invoke the "systemic risk exception" to resolve the Silicon Valley Bank ("SVB") and Signature Bank failures. The systemic risk exception provides an exception to using the least cost method to winding up a failed bank when regulators determine that the banks failure would result in serious adverse effects on economic conditions or financial stability. The legislators asked for Mr. Gruenberg's and Ms. Yellen's responses no later than April 1, 2023.

In their letter to Mr. Gruenberg, the legislators requested:

• supervisory communications from FDIC to Signature Bank, such as (i) reports of examination, (ii) any communication conveying a mattering requiring attention or a matter requiring immediate attention or (iii) a ratings downgrade;
• informal or formal enforcement actions against Signature Bank;
• if Signature Bank was subject to any individual minimum capital ratios;
• any communication between the FDIC and the New York Department of Financial Services ("NYDFS") regarding (i) the risks posed by Signature Bank's balance sheet before its closing and (ii) coordination of supervisory and examination procedures of Signature Bank;
• whether Mr. Gruenberg was aware of any pending deposit withdrawal requests between the close of business on March 10th, 2023 and when Signature Bank was closed on March 12th, 2023;
• if SVB or Signature Bank were on any of the FDIC's watch lists or problem bank lists before their respective failures;
• any efforts that were made to market either SVB or Signature Bank before their closures and if any bids were received;
• the timing and dates around the decision to invoke the systemic risk exception for each (or both) banks and the agency or official who made the decision;
• whether Mr. Gruenberg spoke with President Biden regarding (i) the closing of the banks and/or (ii) the decision to invoke the systemic risk exception;
• the circumstances that led to the conclusion that a least cost resolution would have "serious adverse effects" on economic conditions or financial stability;
• Mr. Gruenberg's involvement in evaluating potential bidders for either SVB or Signature Bank, as well as (i) what criteria was used to evaluate the bids and (ii) whether evaluations of bidders were factored into the FDIC's decision to invoke the systemic risk exception for either banks;
• Mr. Gruenberg's involvement with specific bidders who placed bids on either SVB or Signature Bank prior to March 10, 2023;
• if any bids were made for SVB before the announcement that the window to bid would be extended; and
• the reasoning for creating different bid window deadlines for Silicon Valley Private Bank and Silicon Valley Bridge Bank, N.A..

In a separate letter to Ms. Yellen, the legislators requested:

• the date and timing around the decision to invoke the systemic risk exception and by which agency the decision was made;
• if Ms. Yellen did not make the decision, when was it communicated to her;
• if a separate determination was made to invoke the systemic risk exception for SVB and Signature Bank, respectively;
• the date and timing around when Ms. Yellen received the FDIC and FRB's recommendations on invoking the systemic risk exception;
• details of dates and timing around correspondence with the White House and President Biden on the decision;
• the circumstances that led to the conclusion that a least cost resolution would have "serious adverse effects" on economic conditions or financial stability;
• whether Ms. Yellen was aware of the circumstances surrounding SVB's and Signature Bank's respective failures;
• bidders for SVB and Signature Bank and, in particular, (i) Ms. Yellen's awareness of any bidders for SVB or Signature Bank before March 10, 2023, (ii) Ms. Yellen's involvement in evaluating potential bidders and if so, criteria used to evaluate them and (iii) whether the evaluation of potential bidders factored into her decision to invoke the systemic risk exception for SVB and Signature Bank;
• the exact time Ms. Yellen convened a videoconference meeting with the Financial Stability Oversight Council ("FSOC"); and
• an ordering of events placing the videoconference with the FSOC, NYDFS's closing of Signature Bank, and NYDFS's assigning the FDIC as receiver on March 12, 2023.