Washington, D.C.—Today, U.S. Congressman Andy Barr (R-KY), a senior member of the House Financial Services Committee, pressed Vice Chair for Supervision of the Board of Governors of the Federal Reserve System Michael Barr and FDIC Chairman Martin Gruenberg on federal financial regulators supervisory oversight failures regarding the collapse of Silicon Valley Bank. The full transcript of Barr’s questioning is below. You can watch the full clip of his questioning here or by clicking the image above.

Congressman Barr: Thank you Mr. Chairman and ranking member for holding this important hearing. Vice Chairman Barr, true or false Silicon Valley Bank experienced rapid asset growth in a short period of time?

Vice Chairman Barr: Yes, that is correct.

Congressman Barr: Silicon Valley’s rapid growth was fueled by an extremely high concentration of deposits from a single sector?

Vice Chairman Barr: Yes, that is correct.

Congressman Barr: Silicon Valley Bank became over-dependent on an extremely high percentage of uninsured deposits?

Vice Chairman Barr: Yes, that is correct.

Congressman Barr: Silicon Valley Bank failed to hedge the risk of holding long-duration securities in the rising interest rate environment?

Vice Chairman Barr: My understanding is at one point they had hedges and those were not in place at the time they failed.

Congressman Barr: And that was apparent to the Fed?

Vice Chairman Barr: Yes, it was apparent to the Federal Reserve.

Congressman Barr: Silicon Valley Bank had no Chief Risk Officer for 8 months before its collapse?

Vice Chairman Barr: Yes, that is correct.

Congressman Barr:  Was the San Francisco Fed unaware of any of these basic facts in the months leading up to its failure on March 9th?

Vice Chairman Barr: Not to my knowledge.

Congressman Barr: So, nothing in the existing regulatory framework concealed these basic facts from the San Francisco Fed which had responsibility for supervising this bank?

Vice Chairman Barr: The regulatory structure doesn’t conceal facts; it may have an effect on how supervisors act with respect to those facts.

Congressman Barr: True or false, Silicon Valley Bank was subject to enhanced credential standards under Dodd-Frank as amended by the 2018 bipartisan regulatory relief law?

Vice Chairman Barr: The Federal Reserve’s supervisory structure did not apply most enhanced credential standards to the firm. It did have some enhanced credential standards once it became subject to those standards after it passed the rolling average at the $100 billion level.

Congressman Barr: Before it passed that $200 billion threshold, when it passed the $100 billion threshold, it was under 2155, the bipartisan regulatory relief law under Section 401(a)(1)(c) of that law. The Fed could have applied enhanced credential standards to Silicon Valley Bank, is that correct?

Vice Chairman Barr: Under the 2019 rules that the Federal Reserve put in place, most enhanced credential standards did not apply to the firm.

Congressman Barr: Well wait a minute, I don’t know about that because under 401(a)(1)(c) of that law, the Fed by order or rule could apply enhanced credential standards to banks, not above $200 billion, but above $100 billion in assets on a one-off basis.

Vice Chairman Barr: Yes, the legislation provided the Federal Reserve with ample discretion. The way that discretion was implemented in 2019, was with a rule and that rule provided some enhanced standards.

Congressman Barr: Reclaiming my time Vice Chair. By order, the Fed could have applied enhanced credential standards before the bank reached the size it did by February 2023. My point is, it doesn’t seem appropriate to change the tailoring rules for all banks to account for a lapse in supervision by the Fed and the inability of the Fed to deploy enhanced credential standards to firms when it is currently able to do so under existing law. Mr. Barr, as you and I have discussed, and as we agree, we need to preserve the diversity of the financial ecosystem here. The Fed had all of the existing tools it needed to supervise this bank and apply those enhanced credential standards. I think pushing a one-size-fits-all or reimposing a one-size-fits-all regulatory regime on community and regional banks, especially regional banks under distress right now, would result in fewer of those institutions, more consolidation, and less competition for too-big-to-fail banks. Director Gruenberg, the vast majority of community banks in my districts are well-managed and they actually understand how to manage interest rate risks in a rising interest rate environment. Since the failure of Silicon Valley Bank, those Kentucky banks and their customers have been asking me why they should have to pay an assessment for your rescue of Silicon Valley Bank with 100% guarantee of deposits of largely wealthy, sophisticated depositors at Silicon Valley Bank. Some of whom apparently cared more about the bank’s commitment to environmental sustainability than their capability to be good stewards of their deposits. I think this is a legitimate question. I also think it is a good question whether invoking the systemic risk exception to the least cost resolution mandate under the act, was in fact, the least cost solution. After all, your decision to cover all of the uninsured deposits cost the deposit insurance fund an estimated $20 billion. Will you commit to using your authority under 12 USC 1817 to establish separate risk-based assessment systems for large and small members of the deposit insurance fund, so that these well-managed banks don’t have to bail out Silicon Valley Bank?

Director Gruenberg: Certainly willing to consider that, Congressman, and as I indicated we are going to be preparing a comprehensive review of the deposit insurance system, so we will come back to you and glad to engage with you.