Senators Warren and Kennedy Ask FRB Inspector General to Testify on SVB Failure
Commentary by Steven Lofchie
Senator Elizabeth Warren (D-MA) and Senator John Kennedy (R-LA) asked Federal Reserve Board ("FRB") Inspector General Mark Bialek to testify before the Senate Banking Committee on the FRB's role overseeing Silicon Valley Bank before its failure.
The Senators said that the Committee "will examine the Fed’s oversight of SVB, consider potential legislative reforms that strengthen transparency and accountability at the Fed, including proposals to designate the Fed Inspector General as a Senate-confirmed presidential appointee and to subject the Federal Reserve Banks to the Freedom of Information Act." The hearing, entitled "Strengthening Accountability at the Federal Reserve: Lessons and Opportunities for Reform", is scheduled for Wednesday, May 10, 2023.
Senator Warren also highlighted her efforts to hold the FRB accountable for what she called "ethics, supervision, and regulation failures." In a Press Release, Senator Warren recounted her efforts to hold FRB accountable, including:
- calling on the FRB to "immediately" adopt regulations enforcing stricter bank oversight, and pointing to FRB Chair Jerome Powell’s failure to supervise banks that pose a systemic risk to the economy;
- reintroducing the Financial Regulators Transparency Act to ensure responsiveness from regional Federal Reserve Banks to congressional and public information requests;
- proposing legislation that would designate a presidentially appointed and Senate-confirmed Inspector General of the FRB and CFPB;
- urging FRB Vice Chair for Supervision Michael Barr to apply stronger regulation and supervision of banks with assets ranging between $100 and $250 billion;
- promoting her proposed Secure Viable Banking Act which would "reverse the mistakes that Congress and President Trump made with rollbacks of Dodd-Frank protections";
- requesting that FRB Chair Powell recuse himself from the FRB’s review of Silicon Valley Bank after its failure;
- sending several requests for information to FRB Chair Powell regarding the FRB's "trading scandal" to which Senator Warren said that the FRB has "failed to adequately respond";
- calling out Atlanta Federal Reserve President Raphael Bostic’s "alarming failure" regarding disclosure of certain financial transactions; and
- calling out the "culture of corruption" at the FRB over (i) its conflicts of interest and (ii) "ethically questionable" financial activity by high-ranking FRB officials.
Commentary
The determination of who/what is at fault for the bank failures is a matter of significance for both financial policy and politics. Expect to see at the hearing Senator Warren continue her line of attack on "the culture of corruption at the Fed," including her specific criticism of FRB Chair Powell, and her condemnations of the regulators for refusing to produce documentation.