Thom Tillis Grills FDIC Chairperson Nominee: What ‘Is The Root Cause' Of The SVB Failure?

3 months ago

Earlier this month, Sen. Thom Tillis (R-NC) questioned FDIC Chairperson Nominee Christy Goldsmith Romero on bank failures during a Senate Banking Committee hearing.

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Transcript

00:00of North Carolina is recognized. Thank you, Mr. Chair. Congratulations to all of

00:05you for your nominations. Commissioner Crenshaw, I want to start with you. You

00:11made a statement after the SEC's recent climate rule, and I think to use your

00:17words, you said you considered the rule to be the bare minimum and not the rule

00:23I would have written. So I'm curious, with respect to scope 3 reporting

00:29requirements, is that one of the root causes of your disappointment? If you can

00:33keep your comments brief, I would appreciate it. Sure, Senator. Thank you.

00:36With respect to bare minimum, my intent there was... Where did it fall short? It fell

00:43short, well, investors. I talked about two places where investors... what I was

00:48really thinking about when I said not the rule I would have written was I

00:52would have thought about using models, assumptions, and estimates much more

00:56completely than we did, and that way we could have gotten more information to

01:00investors in a way that was less expensive, and I would also have considered

01:04robust safe harbors from liability. If confirmed, would you consider

01:11reopening the rule? And if you did, would scope 3 reporting requirements be a

01:16part of the revised rule? I don't know, Senator. As you know, it's in litigation

01:22right now, so a lot is going to depend on the outcome of the litigation, and I don't

01:25know. Do you generally support the notion of scope 3 reporting requirements? I think

01:29investors had put comments in the comment file, and I think we need to

01:33balance the interests, but I think there's a way that you can look at

01:37assumptions and estimates and a safe harbor from liability to ensure that the

01:41costs are not prohibitive, and to ensure that you're not asking farmers and

01:45unregistered entities to provide information. Okay, thank you.

01:48Ms. Goldsmith-Romero, I want to go back to Silicon Valley Bank. What, in your

01:55opinion, if you could only, the major root cause of SVB's failure, what

01:59cause of SVB's failure, what was it? Was it, well, actually, let me not give you

02:06choices. What do you think the root cause of SVB Bank was? Thank you, Senator, for

02:13that failure of risk management at the bank, and then failures on the

02:17regulatory supervision. Yeah, so you didn't see capitalization as an issue? I

02:23was not, you know, a bank regular at that time, but it seemed like the root

02:27cause is what you were just asking. Poorly managed and poorly supervised?

02:31Correct. And I think as a result, because at the time of the, it seems like it

02:42was ages ago, it's hard to believe it hasn't been that long, but at the time of

02:48the failure, everybody was saying, and because they felt so many other banks

02:52were failing, was it your opinion that what we saw there was going to ripple

02:55through? I know we had the one other failure, First Republic, but do you

03:01view those, as some of us do, as kind of outliers in the banking industry based

03:06on their models and activities? So this is a really interesting question, so let me

03:11take it back even a little bit farther, which is the crisis, and this really

03:15comes down to consumer confidence, right? If consumers don't have confidence that

03:19their money is safe, you know, businesses and individuals, then you're going to see

03:23bank runs, and you're going to see contagion. You may have bank runs not

03:27even related to the banks who are in trouble, and what we don't want to have

03:31that. We don't want to have people pulling their money out of the bank and

03:33putting it in just one of the hugest banks, thinking that it's safe, and so, you

03:38know, I think there was a situation where there was Silicon Valley Bank and

03:41Signature, and they tried to, the regulators tried to contain that, but I

03:46do think we need to, we need to really be looking deeply at this issue of bank

03:50runs and consumer confidence, particularly in modern, modernized

03:54banking. I just felt like there was some thinking, you know, a lot of people were

03:58attributing the Senate Bill 2155, I was one of four on my side that, that worked

04:03with Senator Warner and others on that bill. They were trying to blame it on

04:08just a lack of regulation, but it doesn't really, it seemed like a lack of

04:13supervision, and a lack of risk management, so I'll move on from there.

04:19Kind of curious about your view of the 2024 stress test. I read the results of

04:25those stress tests to say that our banks are pretty well capitalized. How do you

04:28read the results of those stress tests? Yeah, so again, I'm on the outside looking

04:34at it just like you are, and so it does seem like some capital is strong. I think

04:40there are some areas that need to be looked at, but that's how I read this.

04:43But is a stress test by definition really subjecting the banks to some of

04:48those areas? Do you think that the stress tests themselves are

04:52insufficient, or you just need to look at the details within the stress test scenarios?

04:56Yeah, I mean, I'm very familiar with stress tests. I mean, it's designed for

04:59capital adequacy, and so... And it's literally stressing, so it's

05:03coming up with extraordinary circumstances, so... Absolutely, sir, yes. Okay, thank you.

05:08Thank you, Mr. Chair.

Thom Tillis Grills FDIC Chairperson Nominee: What ‘Is The Root Cause' Of The SVB Failure?

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