South Dakota US Sen. Mike Rounds said he’s waiting on a report to see if federal regulators responded correctly to the collapse of two medium-sized banks earlier this month.
That comes after a Senate Banking Committee hearing where Senators grilled federal regulators about their handling of the fallout.
During the Tuesday hearing, the Federal Reserve’s vice chair of supervision, Michael Barr, said Silicon Valley Bank was issued a warning that required immediate attention.
Barr said bank managers should pay attention to those warning and that they’re not issued lightly. He said SVB’s bank risk model was "not aligned with reality."
Rounds said he’s interested to see if the errors lay squarely with the banks, or if federal regulators are at fault, also.
“We want to see did the regulators actually give them a demand for an immediate response, which is what they suggested they did," Rounds said. "If they demanded an immediate response to the situation they found, did they actually get a response, or did it slide by? Or did the bank give them a response, and did they fail to live up to what they said they were going to do.”
Rounds said he wants to see the report before pushing for further banking regulation.
In 2018, Senator Rounds co-sponsored legislation to increase the threshold for banks before Dodd-Frank Act regulations get triggered.
At the time, Rounds called Dodd-Frank an overreaction to 2008 financial crisis and limited the ability for banks to grow. He said the rollbacks were "regulatory relief."
Now, Rounds said he does not think the 2018 changes led to runs on SVB and Signature Bank.
“It goes back to Banking 101, based on everything that we’ve heard so far. They simply didn’t acknowledge the interest rate risk that was occurring. Every small-town banker, medium-size bank and large banker that I’ve talked to said this is something that every single bank in the country should be paying attention to.”
Rounds said discussion needs to be had about increased deposit limits for FDIC coverage. That threshold is at $250,000. Many depositors at SVB and Signature Bank had deposits above that. In these cases, the FDIC covered losses beyond the threshold.
Rounds praises that move.
Making customers whole is expected to cost the FDIC $20 billion for Silicon Valley Bank and $2.5 billion for Signature Bank.
“Longer term, I think we need to talk about what size deposits need to have insurance on them,” Rounds said. “And whether or not there’s another tool that needs to be available so that—on a commercial basis, so to speak, in other words on a transfer of risk basis--are there other tools to be able to assure depositors that regardless of the size of the bank that they’re in even if their deposits are larger than $250,000."
Rounds said the question then becomes who pays that bill, which he said is a healthy discussion to have.
