(CNSNews.com) – Rep. Andy Barr (R-Ky.), who serves on the House Financial Services Committee, said Tuesday that the failed Silicon Valley Bank was not because of a failure of banking regulations, and more regulation on regional banks “is not the answer.”
Instead, he said, it was fueled by “overspending by the Democrats, which fueled inflation,” among other things.
“Well, what we need to be doing right now, what we need to be focused on is not assigning premature blame but instead focusing on vigorous oversight of the financial regulators to make sure we prevent systemic risk and restore financial stability,” Barr told Fox Business’ “Mornings with Maria.”
“We also need to make sure that the uninsured depositors are made whole without, without a taxpayer bailout, but let me just say this was not a failure of regulation as president suggests,” the congressman said.
“It was a failure of– and the approximate 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, which fueled inflation, and then a monetary policy that kept interest rates too low for too long,” he said.
“Quantitative easing when we had economic growth resulted in a need for a precipitous rise in interest rates, and 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,” the congressman said.
“The fact that the regulators over the weekend had the existing legal and regulatory tools to do what they did to restore some semblance of market confidence demonstrates that the existing regulations are all we need, and if the bank supervisions had they 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, but calls for more regulation on regional banks and putting more pressure on regional banks with more rules and regulations is not the answer,” he said.
Barr said that it’s important not to assign political blame and that there should be “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 are going to have oversight hearings about the underlying cases of this.”
He agreed with host Maria Bartiromo that “the underlying causes was basic fiscal and monetary policy errors and a failure not of a lack of regulation but of inadequate bank supervision, and the regulators need to do soul-searching here about extra-curricular political errands that they’re on instead of basic nuts and bolts bank supervision.
“The bank regulators have all the tools that they have. They have all the authorities that they need, and over the weekend they used them, and it 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 of these regional banks,” Barr said.
“So lack of hedging is important and– also, just to finish the thought, this particular bank SVB had a 90% uninsured deposits concentrated in a single sector 50% of the market share in tech, a sector under distress, and that is why you had a run on these uninsured deposits and the fact that the bank management did the riskiest thing that they could have done, which is invest those deposits in long dated hold maturity securities,” he said.
Barr said that “capitalism requires risk, and in order to have market discipline and avoid moral hazard, you have to allow failure.”
“In this case, there is a failure even with the government’s intervention insofar as the equity holders and the bond holders and obviously, the management are punished here, but the point is taken that there is a– and Tom Hoenig also said there’s a bailout of the uninsured depositors. These depositors were induced to park millions of dollars, tens of millions dollars of uninsured deposits at this one institution,” he said.
“We need to look at why that happened, why there was that inducement to take on that much risk on the part of the depositors, but it is noteworthy to say that with the exception, the systemic risk exception that the FDIC and Treasury and the Fed invoked here that the taxpayers – at least for now – that the taxpayers are not bailing out SVB depositors or these other uninsured depositors,” the congressman said.
“It’s an assessment on the banks through the deposit insurance fund, but the point is a good one that whatever we do here, we should not put the liability on the taxpayer. That’s critically important, and we need market discipline,” he said.
Barr said that he’s anticipating hearings “soon” on the issue, “and again, we are going to be exercising oversight of the regulators to make sure we number one, prevent systemic risk, restore financial stability, but we’ll also look at these other issues, relating to the underlying causes, bad monetary fiscal policy and preventing taxpayer bailouts, which really would create a moral hazard that we must avoid.”
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