While the political world turned its attention late in the week to the indictment of former President Trump, the policy discussion was dominated by the House and Senate hearings on the failure of SVB and other banks, as well as the pending debt-ceiling issue.
Both the Senate Banking Committee and the House Financial Services Committee held hearings this past week, calling representatives from the Fed, FDIC and Treasury to testify. At both hearings, the Senators and Representatives focused on the regulators’ failure to act with more speed when the issues developed. Particularly concerning to some of the Members was the failure of the Federal Reserve’s San Francisco Regional Bank to push senior management to take more aggressive action when concerns arose with SVB’s core businesses and balance sheet. Fed Vice Chair Barr made clear that the central bank was conducting a complete review of the failure of SVB.
Democrats and the White House raised questions about how much the relaxation of regulation on small and midsize banks, prompted by the bipartisan 2018 banking bill, might have contributed to the problems. The Biden administration has proposed tightening regulation on banks with between $100B and $250B in assets. Expect more reports coming from both the regulators and Congress in the coming months.
The Washington stalemate continues on how Congress and the Administration can find a way out of the financial crisis posed by a possible U.S. Government default. This week, House Speaker Kevin McCarthy tried to move the ball down the field by writing a letter to President Biden suggesting a head to head meeting. The President didn’t take the bait and replied that he needed to see House Republican budget proposals before they could have further talks.
The deadline is still months away, with the earliest date suggested so far sometime in June. This date was given to Congress by the Treasury earlier this year. The need to increase the debt ceiling remains one of the most important issues a divided government will need to deal with in the coming months.