Senator Jack Reed (D-RI) discusses the ongoing banking crisis in wake of the collapses of SVB and Signature Bank and breaks down the potential for legislative action to be taken against mismanagement that occurred.
Video Transcript
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- Executives from Silicon Valley Bank and Signature Bank will testify today about the failures of their institutions. They'll be doing that in front of the Senate Banking Committee. Four US banks have now failed since March, starting with crypto-friendly Silvergate back on March 8.
SVB's former CEO Greg Becker will testify today that the failure of Silvergate and previously reported links between the banks caused what he says are rumors and misconceptions to spread quickly online, leading to a, quote, "unprecedented bank run." Investors tried to withdraw $42 billion from SVB on March 9, another $100 billion the next day. Becker writes, quote, "I do not believe that any bank could survive a bank run of that velocity and magnitude."
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Joining us now, Rhode Island Senator Jack Reed. Senator Reed, the most senior Democrat on the Banking Housing and urban Affairs Committee, he'll have, of course, the opportunity to question those bank executives. Senator Reed, thank you so much for being here.
JACK REED: Thank you.
- Looking at that opening statement from Mr. Becker is quite interesting because it suggests that the bank run happened out of nowhere, and nothing preceded it, where, clearly, there had to have been some precipitating events. What's going to be your main question for him?
JACK REED: Well, I think the bank was poorly managed. And the managers should be responsible for their poor leadership, poor management. And it should be exposed today, pointed out.
This was a bank that had been repeatedly warned by the Federal Reserve that they had problems, but they dismissed those problems. This was a bank that did not have a chief risk officer on the premises, if you will, for at least a year before the collapse. And this was a bank that had 93% of its deposits uninsured, above the $250,000 limit. So this is an example of people who told us years ago, don't regulate us, we're smarter than you are, who turned out to make some very foolish mistakes.
- Senator, the committee has seen three of the four largest bank failures in history take place this year. Does the committee believe that the banking crisis is over?
JACK REED: I think we are carefully watchful of what's happening in the market. I think we can't assume that there might not be a repetition. But what we're seeing, I think, is these institutions that fail were outliers in some respects.
SVB catered to a very small group of Silicon Valley entrepreneurs. They had a huge amount of uninsured deposits. They only had 14 branches. This was not a consumer bank. This was a specialized bank that was not aware of, apparently, the dangers they ran, or if they were, were ignored. And I don't think that applies to the majority of major regional banks, which have multiple branches, which rely on deposits which are almost always or significantly insured.
- Do you think Gregory Becker should have to give back some of his salary, all of his salary? He talks in his statement about how there were some stock sales ahead of the collapse of the bank, ahead of the bank run. But he says they were routine. He didn't know about them. Regardless, because of what you say is this mismanagement, should he have to give money back?
JACK REED: Well, yes. I proposed legislation that would claw back compensation from institutions that fail, and it's clear that the failure was significantly attributed to the management. I find it interesting that these stock sales, which netted him $2 million, he was apparently unaware of, which I don't think most people would be unaware of a $2 million increment in their salary or their benefits. I guess he paid the same attention to the bank as he did in his own personal accounts.
- Do you believe that coming out of this, there will be an issue for regional banks of being able to just grow out their operations, be competitors with some of the largest megacap banks, given that the megacaps banks are often the ones that are tapped to purchase assets at often firesale prices after events like this happen?
JACK REED: No. I think they can. Again, I think the majority of, the vast majority of banking institutions, both regional and even very small banks, are well managed. They understand they have to be careful about the risks they assume. They have to understand the climate of inflation, of interest rates. And they've done so reasonably well.
And I think you've seen in my part of the country-- and Citizens Bank is our largest bank. And it's doing very well because it's extremely well managed. They pay attention. And I think that's the vast majority of the banks in the country.
- I guess for the banks that don't pay attention, though, you do need those regulators, right? And I know that you have called upon bank regulators to examine whether we need to bring back some of the rules that were changed under the Trump administration to increase capital requirements for these midsized banks, right, like an SVB, for example. What do you still need to hear in these hearings today in other investigations to let you know whether that is necessary?
JACK REED: Well, I think we have to get from the regulators-- and I think Michael Barr did a very good job to examine the role of the regulators. And he was unflinching in his criticism. And we have to take steps to follow up there, too.
I think within the purview of the regulators, they can change many regulations. And they think they might. One of the aspects, I think, that was really more important than some of the regulations was the chilling effect that the passage of the bill and, more importantly, the Trump administration had on regulators. They basically said in many respects, you're wrong and the banks are right. And remember that.
That's not a good way to regulate. I think changing the importance of and emphasizing the ability and responsibility of regulators to not only point out deficiencies, but to take corrective action or required corrective action is just as important. And I hope that's done.
- Senator, this is an extremely busy day for you. Not only is this hearing taking place, but there's also still, oh yeah, the small debt ceiling resolution that needs to be pushed over the line. And how close are we to that finish line, or perhaps how far away at this point? And what's the hang-up?
JACK REED: Well, the hang-up is that I think my Republican colleagues are recklessly flirting with a default that will harm the country and the world economy. And they seem to be very cavalier about it. It's interesting, when Trump was president, we passed three debt ceiling extensions. And he, in fact, came out in 2019 and said it would be reckless, in so many words, not to pass the debt ceiling without any strings attached. We did it.
But now the Republicans are in here and flirting with economic disaster that will impact every American household and, indeed, the world economy. So I think what they've got to do is finally realize that, as we did, that we should pass a debt ceiling. And then we can sit down and argue, as we do, discuss a budget that will meet their requirements and hopefully our requirements and that we can get it passed.
- In talking to folks on the other side of the aisle, Senator, do you think there are any prospects for a so-called clean debt ceiling to be passed, for those two things to be separated? How close to the brink do you think we're going to come here?
JACK REED: Well, I, unfortunately, I think we're going to be-- we're already too close to the brink. We should have resolved this. We should have done this, as we did under the Trump administration, routinely. And, frankly, one of our-- it was done, essentially, with Democratic votes because we understood, even as President Trump was president, the devastating consequences of a failure to pass a new debt ceiling.
So I think we should move very quickly. I think there are many Republicans that understand this. But they are, I think, standing back and letting McCarthy take point, if you will. And I think Speaker McCarthy is now subject to the whims, if you will, of a very radical group of Republicans, 20, 30, 40 who are insisting that there's no problem with the debt default, and they want to really set back the economy of the United States and, indeed, the world.
And we're in a difficult position. But I am encouraged that there are people talking now. That the president is meeting with the speaker and other leaders today. Those talks will continue.
And I just hope-- and, frankly, this is where Wall Street and the financial sector, which has the most, really, at risk, has to start standing up and more vociferously saying a failure to pass the debt ceiling, a clean debt ceiling, hopefully, would be catastrophic. And when those voices, not just publicly, but privately weigh in, that could make a real difference.
- Senator Reed, we certainly do appreciate the time. I know you'll probably have to put on your running shoes to get on over to the hearings taking place. But thanks so much for taking some of this quick timeout here ahead of that hearing.