Barr, who chairs the Financial Services Subcommittee overseeing the FDIC and other key regulators, spoke out on Fox Business about the SVB failure. Part one of the interview here. Part two here.
Washington, D.C.— U.S. Congressman Andy Barr (R-KY) joined Maria Bartiromo to discuss the fallout of the Silicon Valley Bank failure. Congressman Barr serves as Chairman of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, which has jurisdiction over the Federal Deposit Insurance Corporation and other bank regulators. The full transcript of Congressman Barr’s interview is below:
Bartiromo: Andy Barr, a member of the House Financial Services and Foreign Affairs Committees, we are grateful to have you here this morning what do you make of the President blaming Trump?
Barr: Well, we don’t need to be assigning premature blame but instead focusing on vigorous oversight of the financial regulators to make sure we prevent systemic risk and restore financial stability. We also need to make sure uninsured depositors are made whole without, without a taxpayer bailout. But let me just say this was not a failure of regulation as the President suggests, it was a failure of… in the proximate cause, of course was the failure of bank management, but also a failure of bank supervision, and a failure of government policy as the underlying cause, overspending by the Democrats that fueled inflation and then a monetary policy kept interest rates too low for too long.. And then Quantitative Easing when we had economic growth resulted in a need for a precipitous rise in interest rates.. That combined with basic bad bank management here, a huge percentage of uninsured deposits combined with a failure to hedge interest rate risk, resulted in this bank failure. But, look. the -- the fact that regulators over the weekend had the existing legal and regulatory tools to restore some semblance market confidence demonstrates existing regulations are all we need. And if the bank supervisions had done their job and looked at this unhedged interest rate risk, the San Francisco Fed in particular, the regulators would not have needed to do what they did over the weekend. Calls for more regulation on regional banks and putting more pressure on regional banks with more rules regulations is not the answer.
Bartiromo: Really amazing to me that the President can look at us with a straight face and try to blame other people. Where is the accountability? What are the consequences for 15 years of zero interest rates, where is the accountability on Federal Reserve? And on the Treasury? The fact that the rules in place were making the sector even more vulnerable than people understood? You know, I mean here we have 40-year high inflation, we had Treasury Secretary Yellen and Powell from the Fed telling us inflation was transitory. We are watching inflation cutting into wages. We have bank failures now. The second and third largest bank failure ever, all partly a result of these widely easy policies from the Federal Reserve, zero interest rates for 15 years. What is going to happen, what are you going to do about it sitting on Financial Services Committee?
Barr: Well as I said, in the near term, the important thing is to be an adult and not assign political blame right now. but oversight over the federal regulators to make sure we eliminate any systemic risk, to restore financial stability, to the extent possible, protect the uninsured depositors and all the payroll that’s out there without a taxpayer bailout. But ultimately, in the longer term, we're going to have oversight hearings about the underlying causes of this. And Maria, you are absolutely right, the underlying causes was basic fiscal and monetary policy errors and a failure not of a lack of regulation but inadequate bank supervision. The regulators need to do some soul searching about extracurricular political errands they are on instead of basic nuts and bolts bank supervision. The bank regulators have all the tools that they have, and all the authorities they need, and over the weekend they used them, which shows that they have the tools. But they need to be basically cognizant of the interest rate risk that frankly, fiscal policy and monetary policy caused, and that’s why we have interest rate sensitivity in many regional banks, so -- -- also, to finish the thought this particular bank SVB had 90% of uninsured deposits in a single sector 50% market share in tech, a sector under distress, that is why you had a run on these uninsured deposits, and the fact bank management did the riskiest thing you could have done which is invest those deposits in long dated hold maturity securities.
Bartiromo: Ken Griffin is saying that the rescue package for SVB unveiled by regulators is breaking down capitalism before our eyes. He told the Financial Times, the government should not have intervened to protect all SVB depositors. That the U.S. is supposed to be a capitalist economy breaking down before our eyes he said in interview yesterday he says, there has been a ton every financial discipline with government bailing out depositors in full, so what are we supposed to do now Congressman? Support and guarantee all if deposits at all banks?
Barr: Well, Griffin is right that capitalism requires risk and in order to have market discipline avoid moral hazard you have to allow failure. In this case, there is a failure, even with the government intervention insofar as the equity holders, bond holders and management are punished here. But the point is taken that here…And Tom Hoenig said the bailout of uninsured depositors, these deposits were induced to park millions of dollars, tens of millions dollars of uninsured deposits with the one institution. We need to look at why that happened. Why there was that inducement to take on that much risk on the part of depositors. But it is noteworthy to say that with the -- with the -- the exception the systemic risk that the FDIC, the Treasury, and the Fed invoked here, that taxpayers, at least for now, that taxpayers are not bailing out SVB depositors or these other uninsured depositors.. It is an assessment on the banks through the deposit fund.. But the point is a good one that whatever we do here, we should not put the liability on the taxpayer that is critically more we need market discipline.
Bartiromo: Do you think you will have hearings on this?
Barr: Absolutely, I am anticipating hearings soon. We are going to be exercising oversight of the regulators to make sure that we prevent systemic risk, restore financial stability, also look at other issues, relating to underlying causes bad monetary fiscal policy preventing taxpayer bailouts would create a hazard we must avoid.
###