Last week the Senate Banking Committee joined the House Financial Services Committee in announcing hearings on the banking troubles which were started with the collapse of Silicon Valley Bank (SVB). The Senate will get a head start by having their hearings on Tuesday, while the House will follow the next day. Here is the press release the Senate Committee put out announcing their hearings (link).
Both the Senate and House Committees are scheduled to have the same panel of witnesses: Martin Gruenberg, Chair of the FDIC, Michael Barr, Fed Vice Chair for Supervision, and Nellie Liang, Under Secretary of Treasury for Domestic Finance. These types of hearings always pose some degree of headline risk when the witness can make a remark, purposely or inadvertently, that surprises markets.
We saw a good example of the risk hearings pose last week when Treasury Secretary Yellen, in response to a question before the Senate Finance Committee, raised questions as to whether or not the government would rescue all depositors. This came shortly after Fed Chair Powell had given reassuring words on the safety of bank deposits.
In my view Fed Chair Powell had well-rehearsed answers to the question of uninsured deposits, and Yellen wasn’t as well prepared. Yellen later reversed herself to assure markets that deposits would be protected. However, the episode was a good demonstration of how a quick response at a Congressional hearing, even from a practiced professional like Secretary Yellen, can lead to a market moving comment.
As someone who had prepared Members of the House and Senate for hearings I know that the questions can often be used to make a political point or a headline. Senator Elizabeth Warren sits on the Senate Banking Committee and she will be pressing her central point that Congress made a mistake in 2018 when a bipartisan majority relaxed some of the regulatory burdens on smaller banks – under $250B. This cap was high enough to cover SVB and the others that ran into trouble.
The ranking Republican on the Senate Banking Committee is South Carolina Senator Tim Scott. Senator Scott is widely reported to be looking into a run for the Republican Presidential nomination. The hearing gives the Senator an opportunity to get national attention on a timely economic issue; his questions will have to be provocative enough to draw an answer that makes the national news.
Bottom line is that Congressional hearings are as much a search for headlines as for truth.
For Fed Vice Chair Barr, he will likely face the bulk of the questioning on the effectiveness of the government’s regulation as the Fed was SVB’s principal Federal regulator. A central question will be whether or not the San Francisco Fed could have done more to prevent the failure of SVB. At his press conference after the FOMC meeting, Fed Chair Powell made clear that Vice Chair Barr has broad discretion to look into the problems of SVB and other institutions that needed help. Powell said that some of the problems at SVB had been identified by regulators but there was no explanation of why stronger action wasn’t taken. This will obviously be a focus of the hearings.
Fed
At last week’s meeting of the Fed’s Federal Open Markets Committee (FOMC), as generally expected, rates were raised by 25bps. However, putting this in context with the sudden failure of bank confidence, it was just ten days earlier that Chair Powell testified before the House and Senate with a very hawkish message and put a 50bps increase on the table.
Perhaps the biggest news that came out of the Chairman’s post-FOMC press conference was the statement by Powell that the Committee made a very deliberate change in the post-meeting press release substituting the words “may” and “some” to replace “ongoing” in describing future rate policy. With both the statement and the Chair’s comments, a pause is now clearly on the table. Here is a link to the Fed’s post FOMC statement (link).
The Fed’s policy is to release the minutes of the FOMC meeting three weeks after the meeting. This means that the minutes will be released on April 12. The FOMC minutes should make for interesting reading as they are reviewed carefully by all the FOMC members and Fed staff to make sure all points made by the Committee members are properly expressed. Powell was able to deliver a unanimous vote in support of the 25bps hike, but clearly there was discussion at the meeting on future rates decisions that led to the new wording in the FOMC statement. The minutes may give some insight as to the thinking that went into the new wording.