Warren calls for investigation of regulatory failures that led to bank collapses  

Sen. Elizabeth Warren (D-Mass.) is calling on the inspectors general of the Treasury Department, Federal Deposit Insurance Corp. (FDIC) and the Federal Reserve to investigate the failures of Silicon Valley Bank (SVB) and Signature Bank.  

And Warren is insisting that investigation be conducted independently of Fed Chair Jerome Powell, citing a New York Times report that Powell blocked efforts to include language about regulatory failures in a joint statement released last week by the Fed, Treasury and the FDIC.  

“The bank’s executives, who took unnecessary risks or failed to hedge against entirely foreseeable threats, must be held accountable for these failures. But this mismanagement was allowed to occur because of a series of failures by lawmakers and regulators,” Warren wrote in her March 18 letter to the inspectors general.  

Warren wrote that “your investigation [should] be completely independent and free of influence from the bank executives or regulators that were responsible for action that led to these bank failures” and expressed particular concern that the inspectors general “avoid any interference from Fed Chair Jerome Powell, who bears direct responsibility” for the bank failures. 

She noted that she has already asked Powell to recuse himself from the Fed’s internal investigation of the bank failure, but that he has not yet responded to the request. 

“This silence is troubling, as are reports that last week, as officials sought to develop a plan responding to [Silicon Valley Bank’s] failure, Chair Powell muzzled regulators from any public mention of the regulatory failures that occurred under his watch,” she wrote.

Warren is blaming a bipartisan bill passed by Congress and signed into law by then-President Trump in 2018 that gave the Fed more discretion to perform stress tests on banks with less than $250 billion in assets. 

She says the rollback of the Dodd-Frank Wall Street Reform Act “allowed banks like SVB and Signature to evade key rules and regulations” but that the Federal Reserve under Powell also “initiated key regulatory rollbacks.”  

“And the banks supervisors — particularly the Federal Reserve Bank of San Francisco, which oversaw SVB — missed or ignored key signals about their impending failure. These regulatory rollbacks created an environment in which failure was inevitable,” she wrote. 

Warren wrote that Powell “has a long record of failure” involving regulatory and supervisory matters related to Silicon Valley Bank and Signature Bank, and that if it’s true he blocked a statement acknowledging regulatory failures, it would be an “outrageous and inappropriate” intervention. 

She is asking the inspectors general to provide Congress a full and unredacted preliminary report and recommendations within 30 days.

Senate Majority Leader Chuck Schumer (D-N.Y.) last week said “we need a thorough investigation as to what went wrong and hold those responsible accountable.”  

Some lawmakers were outraged to learn that former Silicon Valley Bank Financial Group CEO Greg Becker was a director of the Federal Reserve Bank of San Francisco until SVB collapsed. 

Sen. Bernie Sanders (I-Vt.) on Saturday called Becker’s dual role an “absurd” conflict of interest.

“One of the most absurd aspects of the Silicon Valley bank failure is that its CEO was a director of the same body in charge of regulating it: the San Francisco Fed. I’ll be introducing a bill to end this conflict of interest by banning big bank CEOs from serving on Fed Boards,” he tweeted.

The New York Times reported Sunday that the Fed had repeatedly warned Silicon Valley Bank that it had serious risk management problems, citing a person familiar with the matter, but the bank failed to adequately address the problems. 

Warren noted in a letter to Becker last week that he received $9.9 million in compensation last year, including a $1.5 million cash bonus, and paid out bonuses just hours before federal regulators took over Silicon Valley Bank.