Transcripts For CSPAN GovernmentAccountability 20240706

Democracy. Watch video on demand any time online at cspan. Org. And try our points of interest feature, a timeline tool that uses markers to quickly guide you to news worthy and interesting highlights of our coverage. Use points of interest any time online at cspan. Org. Michael cn official at the Government Accountability office, testifies on his agencys review of now Michael Clements testifies on his agencys review of the Signature Bank and Silicon Valley bank collapses. This runs about 90 minutes. Without objection, all members will have five legislative days to submit extraneous materials to the chair for inclusion in the record. I would like to take five minute heres for mr. Huizenga i would like to take five minute heres far brief opening state. Congressional oversight is a Constitutional Authority used to maintain the well being of our system of government. This is a lesson i learned from my fellow congress sorry surt the timer going. There we go. This lesson of oversight was something that i learned from someone who is considered the lion of the house, john dingell. He was still in congress when i first came here and he taught me a couple of things. One, he called it the tyranny of the vote. Didnt matter who you were with, what you were doing, what was happening or where you were. When they rang the bells we had that time to go to the house floor to vote. The other was, our constitutional standing, our obligation, frankly, of oversight of administration. And he was an expert at that. Didnt matter what the party label was. He always fought for the standing of congress. Well, the g. A. O. Office is the Government Accountability office is an investigative arm of congress. They provide factbased, nonpartisan information that can be used to improve government and save taxpayers billions of dollars. Committee republicans and democrats should support robust oversight of our financial regulators aiming to seek transparency and demanding that accountability. Unfortunately as youll hear in todays testimony, regulators in washington are attempting to paint a bit of a different picture. But the facts are clear. The collapse of s. P. B. And Signature Bank were the result of Risky Business strategies, no doubt, and years of failed supervisory action. Some of the concerns identified in g. A. O. s april report are now not new. In 2013, a report titled Financial Institutions causes and consequences of recent bank failure, the g. A. O. Highlighted that Aggressive Growth strategies using nontraditional riskier funding similar to those of s. P. B. And signature were key factors in those failures. This accounted for much of their total asset which is the fdic noted in 2019 could pose risks to Regional Banks. S. P. B. Was also affected by Rising Interest Rates, fueled by reckless spending in the Federal Reserve that was too late to react. In 2015, g. A. O. Report on Bank Failures conclude the regula tirrer to process was not always effective or timely in correcting the underlying problems before the banks failed. In years prior to their collapse, the Federal Reserve and the fdic identified management risks at both banks. Yet allowed those risks to go unfixed. The failure of federal regulate dwrors mitigate or escalate management concerns proved costly. While the f. A. O. s report that examining treasurys use of the Systemic Risk exception, the s. R. E. , and the establishment of the Bank Term Funding program, particularly the use of the s. R. E. Is a powerful emergency tool and that has not been without criticism. In part of our investigation into the governments response to these bank failure, the subcommittee hopes to better understand how Federal Reserve and the fdic concluded that the that recommending use of the s. R. E. Was the last resort. Again, the g. A. O. Has previously reported that use of the Systemic Risk exception, quote, may weaken Market Participants incentives to properly manage risk, close quote. While the treasury secretary has warned the public not assume the action create guarantee of deposits, its hard, frankly, to think otherwise. Ultimately whatever losses to the Insurance Fund will be passed down to hardworking americans. Frankly, any loss in confidence in our Banking System is a loss in confidence of our regulators. Regulators had the tools at their disposal to prevent Bank Failures from happening and they missed it. Period. And instead of concentrating on the basic, the things that they didnt get right, some of my friends on the other side of the aisle want to give our regulators even more complicated rules. The g. A. O. s report provides no evidence they failure of s. P. B. Or Signature Bank were the result of relaxed regulations. I believe it necessary to reiterate how important it is that this committee receives the information that has been requested and the information we will be requesting moving forward. The American People deserve answers. We should not allow history to be rewritten and i welcome the fdic and the Federal Reserve to appear at future subCommittee Hearings to further answer our questions. Im committed to making sure this subcommittee doesnt just draw conclusions but bases its findings on evidence. That is what oversight is and as chairman thats my commitment to our members. I look forward to hearing from director cle menthes clements and i yield back the balance of my time. With that, i recognize the gentleman from texas, mr. Green. Mr. Green i commend the prompt response of President Biden, Ranking Member waters and federal regulators to the failures of Silicon Valley bank and other banks. It prevented contagion, prestherved integ i have to our Banking System among many other things. The rapid collapse of these banks reveals how quickly bank runs can occur in our increasingly connected world. Although fingers will be pointed at technology, President Biden, and regulators as factors in the failure of Silicon Valley bank and Signature Bank, they were not in not, not the root cause of bank failure. The focus of todays hearing should be the mismanagement of these banks by their executives in the years leading up to the collapse. In tandem with the trump era deregulation that enabled this mismanagement to fester. Both Silicon Valley bank and Signature Bank experienced outsized greet between 2018 and 2022. Signature bank grew from approximately 47 billion in total assets in 2018, 110 billion in 2022. Silicon valley Bank Increased from 56 billion to 209 billion over that same period of time. Mr. Chairman, some things bear repeating. Silicon valley Bank Increased from 56 billion to 209 billion over that same period of time. This outsized growth in assets was fueled by more than 70 uninsured deposits at both banks, for a higher than the median of 32 for comparable banks. Executives at beth banks knew, or should have known, that their Risk Management practices had to be strengthened appropriately as they grew exponentially. Adding insult to injury, mr. Chairman, Silicon Valley bank irresponsibly operated without a chief risk officer from april until december of 2022. Is it a coincidence, i ask . That these banks grew rapidly beginning in 2018 and failed to adequately manage their risk around the same time that former President Trump signed s. 2155, his Bank Deregulation bill, into law . S. 2155 diminished regulatory standards on these mid sized banks, resulting in much less enforcement security. Friends, blaming President Biden and regulators wont reinstate stronger regulations on mid sized banks or promulgate needed legislation to enable lawful clawbacks of illgotten mismanagement executive compensation. Only legislation can do this. I want to thank you for the time and i want to ask the Ranking Member of the full committee if she desires time. Yield to the Ranking Member. Ms. Waters i thank the g. A. O. For preliminary review issued at mine and chairman ken distribution request on sill von valley and Signature Banks. It clearly describes how the fdic failed repeatedly to inform these banks as early as 2018 about deficiencies in their liquidity and Risk Management. Instead of taking actions, these banks ignored warnings. Let me be clear. Regulators need to be more aggressive, something i have long been demanding with regard to repeated abuses at wells fargo. However, it was the responsibility of the banks first and foremost to swiftly and thoroughly correct the deficiencies that were flagged regulators. We now need to hold banks and their executives accountable, reverse trump era deregulation, enhance supervision of banks, and reform deposit insurance. Bawng and i yield back. Mr. Huizenga the gentleman yields back. Today we welcome the testimony of mr. Clements who leads the g. A. O. s work in overseeing Financial Markets and regulators. Mr. Clements led the team responsible for preparing the interim report by the g. A. O. Weeks ago on the march, 2023, Bank Failures. Since 1999 he has contributed to the g. A. O. And previously the Broadband Communications and Telecommunications Industries as well. We thank you for taking your time here today sir. Youll be recognized for five minutes to give an oral presentation of your testimony and without objection, your written statement will be made part of the permanent record. You are recognized for five minutes. Mr. Clements thank you, chair huizenga, Ranking Member green, Ranking Member waters. I am here to speak about the bank failure as reflected in our april, 2023, report to the committee. At the time Signature Bank and Silicon Valley bank were the 16th and 29th largest banks in the country respectively. Their failures could have posed a 25 billion cost on the Insurance Fund. While not part of our work, First Republics recent failure could have posed another 13 billion cost on the fund. I will focus on one banks specific factors that contributed to the fail yurks and two, supervise yory actions regulators took leading up to the failures. First, the bank failure. We found that Risky Business strategies and weak liquidity contributed to the failures at s. V. B. And Signature Banks. S. V. B. And signature both exceeded rapid growth, exceeding that of pure banks. S. V. B. s assets more than tripled in the three years prior toits failure. S. V. B. And signature also relied heavily on uninsured deposits. Signature funded 82 of its assets with uninsured deposits. S. V. B. And signature also exhibited weak liquidity and Risk Management controls. When confronted with external pressures, Rising Interest Rates for s. V. B. And weakening Digital Asset markets for signature, the Risky Business strategies and weak management contributed to the banks failure the banks failures. Secondly, the regulators supervisory ry actions. We found the regulators identified problems at s. V. B. And Signature Banks but didnt escalate in time to mitigate the risk. Federal reserve staff who examined s. V. B. And fdic staff who examined signature identified problems at the banks. For example, between 2018 and 2022, the Federal Reserve issued 10 matters requiring attention to s. V. B. For liquidity and Risk Management problems. Likewide, fdic issued matters requiring board attention and other recommendation for similar problems. However we found the Federal Reserve and fdic did not adequately escalate their superviedzry actions. The fdic was largely positive in ratings of s. V. P. From 2018 to 2022, rating them as satisfactory. When s. V. B. Moved from the Federal Reserve regionalling or neenyization they began to downgrade. Yet despite serious management problem, the Federal Reserve didnt issue and enforcement action before the bank failed. Likewise, fdics ratings of Signature Bank found its overall condition was satisfactory from 2018 to 2021. Fdic staff told us they were considering escalating supervisory actions in 2022 including taking Enforcement Actions. However, despite stig in atures repeated failures to remediate the liquidity and management problems, they only issued Enforcement Actions the day before the bank failed. In 2015 we reported that though regulators often identified risky failures, their actions were not timely or effective in correcting the problems. Mr. Huizenga ive just gotten notice that theyre having a difficult time hearing you through the audio. If you could pull that closer. We can hear it all well here in the hearing room, but apparently just not through television. So if just pick up where youre at. Thats helpful. Sorry about that. Mr. Clements in 2011, following the financial crisis we recommended they added noncapital triggers to the prompt corrective action framework to help give more advanced notice of deteriorating conditions and in 1991, following the savings and loan crisis, we found that regulators did not always use the most forceful actions available to them to correct unsafe and unsound practices. We continue to believe taking early action would give regulators and banks more time to address deteriorating conditions. Chairman huizenga, Ranking Member green, members of the subcommittee this completes my prepared statement and im happy to respond to any questions you may have. Mr. Huizenga we appreciate that. We will turn to member question. The chair recognizes himself for five minutes for questioning. Again, mr. Clements, thank you for testifying before our subcommittee today here, the work you and your team have done to complete the preliminary report so quickly is much appreciated. Your report is the only impartial review conducted on these Bank Failures in my estimation and id like to start by setting the stage, starting with how the preliminary review was conducted. I understand you conducted interviews with staff from the Federal Reserve, fdic and treasury. Can you talk to us about how those witnesses were identified for you to interview . Did you do that on your own . How did that work . Mr. Clements we had one meeting with each of those entities. Our Standard Practice is to send our list of questions over to the agencies and then the agencies will identify staff who are best positioned to answer those questions and do any followup work. We will be more specific in asking for particular individuals to speak with. So in the case of the Federal Reserve, we met with board staff and supervisor and supervision and Regulation Division and also with staff from the Federal Reserve bank of San Francisco. Mr. Huizenga did you feel like you had full access to agency staff . Were you table do followup with those folks as we were getting back with some of these answers . You said you passed the questions along, they selfidentified who would be best to answer those, were you table interview those folks and do some followup . Mr. Clements at this point we just had one meeting with the three agencies. Moving forward well have further meetings with them. Mr. Huizenga were they in person . They were virtual. Mr. Huizenga ok. And then do you know that the interviews that you conducted, were there others, were there multiple people on at the same time . Was it with one individual . Mr. Clements these were among the entire staff that the agencies identified for us. Mr. Huizenga so it was a whirlwind, you had everybody on the screen doing the zoom . Mr. Clements its a preliminary initial meeting with the agency to go over what the work will be and soom preliminary questions. Mr. High. Sen. Tba so you were planning to do followup . Mr. Clements we did plan additional work beyond the april 28 report. Mr. Huizenga did you feel the regulators provided you with access to all the documents and material facts that you had requested and in a timely manner . What was the turn around time from the requests scs you yao sent in to doing the zoom interviews . Mr. Clements the agencies were responsive in getting us the desired information. We had requested a variety of information. Scoping memos. Schedules. Records of exams. Supervisory letters. We received all of those, i would say, within three or four days. The staff was working over the weekend to get us that information. We did appreciate the timeliness for this as they did recognize the importance of the work. Mr. Huizenga im a glad to hear theyre responsive to a somebody. We have a number of letters out that are lacking that response. Now id like to pivot and ask about something specific in your report or rather something that was maybe not in your report. G. A. O. Is in a position to provide sort of a unique Historical Perspective on Bank Failures with other economic events from the past because you have done some of these reports in the past, correct, on previous challenges . Mr. Clements we go back to 1991, 1989 may have been the first time looking at the savings and loan. Mr. Huizenga in contrast to the g. A. O. Report, the report issued by the Federal Reserve partially blames the failure by fed examiners not escalating s. V. B. Easlick widty and Interest Rate risks concerns quickly, unquote, their words, a shift in culture and expectations that changed how supervision was executed, close quote. From what you saw, was a a Culture Shift referenced in any discussions you had with the fed staff or any documents you reviewed over the course of compiling your initial report . Mr. Clements i couldnt say if it was a Culture Shift one way or the other. We had the single meeting with the fed, the issue of culture wasnt brought up. We didntscrk they did not bring it up. Mr. High. Sen. Tba but it features mr. Huizenga but it features prom lently in your prominently in their report. To your knowledge was a Culture Shift mentioned in any past g. A. O. Work on past issues in 1991 or 2011 or 2015 or 2019 when youve done some of these other reports . Mr. Clements im not aware of there being a culture change. There is we previously reported that in general examiners in the past have taken a cooperative approach with agencies. Thats been as early as 1991. Mr. Huizenga my time has expired. Well send you additional written questions from me as well regarding the fdic and trying to make sure we understand the process for s. V. B. And Signature Banks. With that, i recognize the Ranking Member of the full committee, ms. Waters, for five minutes. Ms. Waters thank you very much. Mr. Clements when i served as chairwoman, i investigated the egregious pattern of consumer abuse at wells fargo and found that regulators failed to use escalating enforce. Actions to correct the banks bad behavior. Even as new and similar abuses emerged. I have legislation to require regulators to impose limits on bank growth, divestment and other penalties for noncompliance. Thats why im pleased to hear that regulators like the cfpb and o. C. C. Are beginning to focus on ways to ensure that repeat offenders correct their bad behavior. According to the g. A. O. Report, the Federal Reserve and the fdic have been advising Silicon Valley bank and Signature Bank about the weaknesses in their Risk Management and liquidity programs in multiple examinations since 2018. Now, mr. Clements, from your review, did the banks receive adequate explanations and information from the regulators to know that they had problems and what those problems were and what was needed to fix them . Mr. Clements we certainly saw numerous instances of matters requiring attention, matters requiring board attention, matters requiring immediate attention, that laid out issues. We focused on the liquidity and Risk Management because that was sort of the proximate causes of the failures. We didnt go on the various other consumers we have if the past reported that the communications, the clarity on some of the supervisory letters could be clearer. We issued a report in 2019 on those issues. The agencies have taken steps to address the lack of charity that they provide to the banks. Their veup visery letters are available for examination. Ms. Waters if the banks had adequate information on what the problems were and how to fix them for five years, what were the reasons they offered for not being able to correct the problems in that time period . Mr. Clements in our past work we have seen a couple of issues, in some instances the bank would disagree with the finding. And in the case of Signature Bank i think there were a few instances where it did not agree with the supervisors thoughts on where there were problems. In other instance, the bank simply is unable to fix the problem. And we certainly saw in the case of s. V. B. It agreed with the findings but it was taking them a longer time than needed to get the problems fixed. In the interim, the bank failed. Ms. Waters could you explain further the excuse that the banks were unable to fix the problem . For example for example. Mr. Clements the bank would agree with the problem but say its going to take a while to fix the underlying problem. That was case with the s. V. B. And the San Francisco fed they agreed it would take a while to fix the problem. Unfortunately the problem got large enough where the bank failed before the problem could get resolved. Ms. Waters let me raid a question with you i need to understand further. The Balance Sheet. Does the Balance Sheet reflect liquidity and do they have the responsibility to report the securities that they have and the value and whether the value has changed . And someone said to me for the regional, its just a footnote. Can you explain that . Mr. Clements a bank of these sizeses, they are required to mark securities that are available for sale, mark those to market value. Any changes to that value is accounted through a accumulate other income were able to be reported. It is being recorded. If the securities are held not for sale then those securities are not marked to the market. Ms. Waters have there been recommendations about how the Balance Sheet should reflect the value of those securities . Mr. Clements im not aware. In our past work we have recommended, reported that its important to have an accurate accounting of the firms, or the banks financial conditions. To be able to have a good sense of its vulnerabilities. Ms. Waters thank you very much. I yield back. Mr. Huizenga the gentleladys time has expired. The gentleman from texas, mr. Sessions is recognized for five minutes. Mr. Sessions id like to continue down the line that the Ranking Member was coming down and ive got the report in front of me here. It provides me, me, im sure other people here, a lot of entrancic information but it talks about the amount of outstanding shares of advances under the program in april of 14 billion outstanding advances. Does that mean that they put all this excessive money they had into a longer term something that would generate money to them . Perhaps interest . Is that what your reference to outstanding advances under the program . At the bottom of page, i think the first page that ive got here. Says as of april 19, 2023, outstanding advances under the program were approximately 74 billion. Can you describe that to me . Mr. Clements so that is the Federal Reserves term funding program. So at the point when s. V. B. And signature were failing, the treasury made a Systemic Risk determination which essentially allows the coverage of uninsured and insured deposits at the two banks. The Federal Reserve also set up this term funding program, the purpose of the program is to allow banks that perhaps would be experiencing liquidity problems to borrow money from the fed. The collateral being the security that theyre holding which would be treasuries and Mortgage Backed securities. Mr. Sessions im going to keep going here, maybe ill catch up with myself at some point. They took in an excessive amount of money. What did they do with those uninsured risks that we talked at here . Where were they holding that money . Were they loaning it back out . Was it unavailable at the time that someone would need the money to be available when they wrote checks . What did they do with all this money that came in . Mr. Clements theres two program, theres the program with 79 billion which is lending to existing nonfailed banks to help cover their liquidity. Mr. Sessions whose money was that . Mr. Clements this was the feds. Mr. Sessions what about all this money that s. V. B. Brought in . What did they do with that large amount of money that was called an uninsured risk . Mr. Clements correct. In the period of 2018 through mid 2022, s. B. V. Grew rapidly. It grew rapidly through uninsured deposits, principally from Venture Capitalbacked firms. It used those funds to purchase what, in theory, would be safe securities. Treasuries. Mortgagebacked securities. Agency securities. Mr. Sessions so then they mark those that they were going to, over the long run, be getting back money. And then they got pulled out early to where there was an unrealized mr. Clements correct. They held those securities. Unfortunately they invested in longer term securities, and when the Interest Rates started going up, the value of those securities dropped. About the same time in the Venture Capital tech industry, they started pulling their deposits because they were no longer getting a bunch of funding. They started falling. The bank eventually needed to start selling those securities. And it was selling them at a loss. At some point. And depositors an other investors got spooked. Mr. Sessions would have expected to receive. Are you saying they lost money or did not realize what they thought they were going to get so they booked it as a loss . Mr. Clements they lost money because the value of the securities had dropped as the Interest Rates dropped. Mr. Sessions they lost money. This is what i thought coming into this but i did not understand that most of this, are we at my time . Chairman . Mr. Huizenga you can complete your thought. Well have a light gavel today. Mr. Sessions thank you. I want to get, i think the Ranking Member will want to get to this. Who is that held by . Treasury . Most of these . Mr. Clements securities were held by the bank by s. V. B. It took in money and deposits, invested that money in long dated treasuries an other securities. When the deposits started falling because the tech firms needed the money for payroll and whatever, the bank needed to sell the securities. Sold them at a loss. Mr. Sessions got it. Thats what i thought happened too. You connected it for me. Mr. Chairman, thank you very much. Mr. Huizenga thank you. Well be mindful of the time on both sides. Its my understanding were going to ms. Williams. Thats not the list i had in front of me. Mr. Horsford. You are up for five minutes. Mr. Horsford thank you, mr. Chairman. To the Ranking Member of the subcommittee and Ranking Member of the full committee, thank you to director clements for taking the time to discuss this important report and the g. A. O. s nonpartisan work which is crucial to our ability to know what occurred during the rapid collapse of Silicon Valley and Signature Banks and now others that have followed. And while this may be only a preliminary report the insight provided point to a serious, serious deficiencies with both supervisory practices as well as managements reaction to glaring issues. Actually, it would be more fitting to describe it as managements inaction to the warning signs that were flashing when it came to even the most rudimentary management. I really want to point out that reality right now in this moment. Dealing with the default on america that my colleagues on the other side are failing to acknowledge and their role in basic, rudimentary Risk Management against an economic collapse that none of us can even imagine. According to the white house, in the event of a default, because of our colleagues on the other sides unwillingness to raise the debt limit, quote, a crisis characterized by spiking Interest Rates and plunging equity prices including home equity would be ignited. Shortterm funding marks which are vital for the liquidity backing longterm mortgages would likely shut down completely. There would be a rapid and complete tightening of credit at regional and Community Banks who would no longer be able to accurately type their treasury bills or use them as high quality collateral. Since these banks do the bulk of mortgage lending, the Mortgage Rates would be go through the roof. That is the management decision of the house of representatives in this moment. We are standing here as the board of directors for the people of america, whose mortgages, whose car loans, whose financing ability is being jeopardized because of Kevin Mccarthy and the default on america proposal that is Holding America ransom from paying its bills. Excuse me, i have the i have the order. Parliamentary inquiry which is appropriate. [inaudible] mr. Huizenga the chair did not hear a reference. Mr. Horsford i reclaim my time. Mr. Huizenga he was not referencing another member. It was noted. The gentleman may continue. Mr. Horsford clearly i hit a nerve. Because this is about the American People. Their finances. Which are being held hostage because of a ransom note that is being offered by kevin mccar theyre and the default on america proposal that theyve made, rather than our obligation to raise the debt limit and to pay the bills that have already been incurred. By the Prior Administration and prior congresses. So i think that while we do our job in examining Silicon Valley bank and Signature Bank and First Republic bank, we should actually do our job as congress and avoid this major ka its a to fee that is weeks away and we know it. We have a responsibility to manage risk as congress and were failing to do our job. Let me make it clear. Republicans are failing to do their jobs. So im asking that we use the time of our committee to focus on the crisis thats right in front of us. And if my constituents, Small Businesses, people who have mortgages, families who are worried about meeting their obligations, are going to be impacted by higher Interest Rates because of congress inability to do its job, then we should be discussing that at this time. Now, mr. Director, you primarily focused on the failure of regulateors to adequately escalate their supervisory concerns. And we certainly have some work to do bolstering supervisory escalation. However i found sections in the report focused on managements unwillingness to address repeated shortcomings just as alarming. For example, a Silicon Valley banks board which i would say is the congress right now, is unwilling or unable to, as you say, quote, provide effective oversight of implementation of the Risk Management framework, unquote, then what is the use of the framework in the first place . You go on to say that the behavior of these executives and Board Members was irresponsible at best as they let multiple soup visery letters fall on deaf ears, as were hearing from economists tell us today. Specifically for Silicon Valley, im particularly the other side went for more than a minute last time im just mr. Huizenga the chair is aware of the timing. Im giving you a tap of wrapping it up. Mr. Horse forest everford if the report is correct that Silicon Valley banks management was focused on then short run impact to profit, in this report its mentioned that Silicon Valley bank did take steps to revise its Compensation Program but evidently failed to do so mr. Huizenga if were going to play that game were going to play that game. Mr. Horsford the only game being played is by the other side being refusing to do their job. Mr. Huizenga the gentleman will suspend. The chair will not accept this behavior. I let a line of questioning go for an answer that was along the line of the Ranking Member. I then allowed you to have a full minute. Which was not what my colleague from texas got. So i expect that we are going to behave like adults at this table as you are just a moment. As you are demanding that congress act. So lead by example, everybody. Parliamentary inquiry. Are you going to afford to every member of the committee and additional minute. Mr. Huizenga we will not be we will adhere to the exact five minutes from now on. Its been even on both sides. Ms. Waters i would caution you not to our members are not acting like adults. Thats an incredible statement. Mr. Huizenga that commend was to all sides and everybody watching as were on television. Lets present to the American People that we can actually act like adults at this table. Everyone. Ms. Waters i think we are, we dent need you to tell us. Mr. Huizenga thank you for your commentary. The gentlelady is recognized. I remind my good friend from nevada, mr. Horsford, that the only body, the only body in congress or the administration that has passed a debt ceiling are the republicans in the United States house of representatives. Weeks ago. We have waited over 100 days to hear from the white house regarding very important issue of the debt limit and reining in out of control spending which frankly has driven inflation which drove Interest Rates, that drove us to some of the banking volatility that were seeing currently right now. So i would remind us all once again that it is Republican House that passed a debt ceiling. Thank you very much. Mrs. Wagner mr. Clements, i thank you for prepare appearing before us today and i thank the g. A. O. For preparing this very authority rogue report. Over the past few months this committee has gathered more information about the management failures within this bank and the blatant lack of urgency for many years to act more forcefully in preventing these failures. I am committed to investigating and Holding Accountable those who were asleep at the wheel once again and allowed these preventible failures to occur. Mr. Clements, on page 23 on your report, you note that the Federal Reserve bank of San Francisco did not recommend the issuance of a single enforcement action against s. V. B. Despite the banks serious liquidity and Management Issues. On march 29, vice chair barr stated that there were supervisory issues raised and we have now come to learn that since 2018 there were 15 related liquidity and Risk Management issued. After 15m. R. A. s and mrias, matters requiring attention and matters requiring immediate attention, have been issued, did you agree that escalating supervisory actions should have happened sooner, sir . Mr. Clements yes. Mrs. Wagner thank you. What is the g. A. O. s perspective when it comes to this slow to act pattern were seeing when it comes to federal regulators . Mr. Clements this has been a pattern going back to 1991, going back to the financial crisis in 2011. We have in the past recommended trigger mechanisms. For example, if a particular measure is hit or if theres multiple instances of not dizoing a problem, that would force and escalation. Mrs. Wagner enforcement must happen after so many citations have been given out year after year after year after year. In your work did the g. A. O. See a notable shift in how s. V. B. Was supervised especially as it grew rapidly in size from a bank with over 1 billion in assets in 2019 to 100 billion in assets in 2022 . What were the differences . Mr. Clements there was a shift. Under 100 billion they were overseen by the Regional Bank organization. Once it passed over that threshold, then it moved to the large and foreign banks organization. At that point the number of examiners expanded rapidly. I think it got up to around 20 examiners. Mrs. Wagner but these citations that were issued went back to 2018, sir. Mr. Clements thats correct. Mrs. Wagner they cited the pandemic as part of why they failed to supervise s. V. B. Yet according to the feds november 2020 supervision and regulation report, and i quote, redeuced examination activity only lasted for three month from late march to mid june work the greatest reduction occurring at the smallest banks. Do you think that three month pause was a significant contributor to the feds challenges in escalating s. B. V. s known supervisory issues. Mr. Clements there were a number of warning signs along the way. Clearly there was the combination of the pandemic and their switch between regulatory division. Mrs. Wagner three months only and only the smallest banks. Im going to adhere to the clock and decorum and i will yield back the rest of my time, mr. Chairman. I thank you. Mr. Huizenga the gentlelady yields back. The gentlelady from georgia, msr five minutes. Ms. Williams in our full Committee Hearing on the failures of Silicon Valley bank and Signature Bank i reminded everyone listening of the regular, hardworking people impacted by these failures. Ill continue to center these same people that the failures of Signature Bank, Silicon Value Bank and now Republic Bank has affected. As a representative of atlanta im focused on how to prevent future Bank Failures that disproportionately affect marginalized comurchts. We have organizations to monitor beengs practices and ensure repeat offenders correct bad behavior. Regulators warned s. V. B. And Signature Bank about problems. They noted numerous matters requiring amention and matters requiring immediate attention regarding s. V. B. And Signature Bank. These warnings were not sufficiently acted upon as as a result many Small Business owners including blank entrepreneurs from sleant were faced with the possibility of not being able to make payroll. As intrep if entrepreneurs of color cant trust Bank Regulators are taking serious action to ensure their banks are safe then how are they supposed to build their businesses and create wealth and communities like wealth in communities like atlanta . How can regulators ensure matters requiring attention and matters requiring immediate attention are appropriately addressed by banks . Mr. Clements i think that goes back to our prior recommendations to have some type of trigger mechanism. The regulators currently operate on a more informal basis, trying to get a collaborative solution. Its been our recommendation in 1991 and 2011 to have some type of trigger mechanism that if a problem is serious enough or there are multiple instances of problems not getting resolved theyd automatically require enforcement action. Ms. Williams how does that impact the escalation framework . How can they improve their escalation framework for Regional Banks . Mr. Clements it takes some discretion away from regulators by requiring enforcement action if it would if a trigger is met. Ms. Wmtion how could those ms. Williams how could those improvements be applied or adapted to banks considered too big to fail . Mr. Clements i think wed apply those standards throughout. If conditions are met that would require either and informal or formal enforcement action or other escalation of supervisory actions. Ms. Williams the preliminary review states in years prior to 2023, the Federal Reserve and fdic identified key drivers of bank fail yurks liquidity and management risk. Neither regulate years actions resulted in the Bank Management sufficiently mitigating the risk that contributed though banks failures. Based on the g. A. O. s review can we determine who is at fault here . I see three potential options and i would like your thoughts on which is the most act ral accurate portrayal of fault. Was it the banks failure of officials to adopt corrective action. Was it banks failure to institute the action directed by the agencies . Or was it the banks failure toking institute the corrective actions directed by the agencies combined with the agencys fail your to take action when beengs responses were insufficient . Mr. Clements at the end of the day nest bngs responsibility to operate in a safe manner. At the same time we would say if an operator is seeing problems and theyre repetitive, action would be taken. Ms. Williams as we id sith here two weeks after the failure of First Republic bank and two months after the failures of s. V. B. And Signature Bank im concerned about anotherback failure that could have even more disastrous effects. I would like you to speak to what congress should take away from the g. A. O. Preliminary report. Mr. Clements at the end of the day its the banks responsibility to manage the organization. However we think if there are repeated problems or serious problems, that the regulators need to take more forceful and early action before the problems become too large to get resolved. In fact, when we were talking with the San Francisco fed officials and they dekriebd the liquidity at s. V. B. And they said it would take a while for s. V. B. To take a to fix the problem because its so big, the natural question is, why did it become so big . Ms. Williams my time is expired, i have many more questions i would like to submit later to get answered. Mr. Huizenga the gentlelady is allowed to do so. The gentleman from tennessee, vice chair of the subcommittee, mr. Rose, is recognized for five minutes. Mr. Rose thank you, chairman, Ranking Member green, for holding this hearing. Obviously an important topic. I want to dive right in. Collector clements, am i saying that right . Mr. Clements thats correct. Mr. Rose you mentioned that there were multiple people in the interviews between the g. A. O. , fdic and fed staff. Director clements work staff conferring with council during these interview with counsel during these interviews . Mr. Clements traditionally the agencies would have their General Counsel Office there. Mr. Rose so they were conferring in these particular interviews . Mr. Clements the staff spoke freely to us but its common for someone from legal to be present at the meetings. Not just these meetings but in general. Mr. Rose First Citizens bank stock has nearly doubled since acquiring silicon value bee lanc capped their gain at 500 million which seeps like the fdic got a raw deal for us. My concern is that sweetheart deals like this actually encourage acquiring banks to wait until the fdic tiervetion a bank before making a bid because they can get a better deal once theyre in conservatorship. Why buy the cow when the milk is free, so to speak. Director clements, did g. A. O. Review the terms of the officers submitted to the fdic . Mr. Clements we did not have time to get to that level of detail. Mr. Rose would you commit to reviewing that issue, these concerns of offers that are considered but not accepted . Mr. Clements again were working with the staff to with the Committee Staff to sequence our range of work thats something we can consider. Mr. Rose the mr. Rose they conducted analyses to Work Together. Do you have any insight into how many drafts of the recommendations there were to invoke the Systemic Risk exception . Mr. Clements i do not. We saw the final letters that were sent along with some preliminary analysis that the agencies had conducted. Mr. Rose the g. A. O. Report notes that treasury staff consulted regularly with the fdic and Federal Reserve and concurred with the basis of their recommendations to invoke the Systemic Risk exception. Could you please provide some specifics on what this consultation actually looked like . Could ii dont have the he mr. Clements i dont have the specific details. They told us there were conversations between the three agencies over that weekend. As each were doing their own anall seals analyses. Mr. Rose thank you. The g. A. O. Report notes that you were being that you will be moving forward with more work on this issue as we move throughout the year. As im sure youre aware, the United States in the United States we have a Financial Stability Oversight Council which is charged by statute with identifying risk to the Financial Stability of the United States. Promoting market discipline and responding to emerging threats to the stability of the u. S. Financial system. It seems to me the fsoc was asleep at the switch here and was instead busy studying the weather when they should have been concerned with Interest Rate risks. So, would the g. A. O. Commit to conducting a review of fsocs actions during these Bank Failures . Mr. Clements we have ongoing work looking at fsoc. Were aware in its most recent annual report it did have a recommendation pertaining to Interest Rate risk. But you may know that the recommendations that fsoc makes are nonbinding. Mr. Rose i hope you do continue to look at that. Some have argued that Signature Banks involvement with the digital with Digital Asset customers somehow contributed to its subsequent failure. There also appear to be competing views from the fdic and the new York Department of Financial Services in their recent reports about the role Digital Assets played in signatures failure. Did g. A. O. Review whether Signature Banks Customer Base contributed to its failure . Mr. Clements we looked at the supervisory letters and records of examinations, we learnly saw we certainly saw instances where there were large deposits from the Digital Assets base. Again, it was simply holding the deposits and operating accounts for those entities. Following some of the turmoil in 2022 and particularly f. T. X. , some of those deposits did start falling off. Mr. Rose i hope youll dig into that issue. Thank you and i yield back. Mr. Huizenga the gentlemans time has expired. The congresswoman from michigan, ms. Tlaib, is up for five minutes. Ms. Tlaib thank you so much, chairman. Thank you, director clements, for this report. I get a lot of questions regarding the lack of transparency, in fully understanding this. Did you look at the timeline of some of the compensation and payouts and things like that that led up to the failure . Mr. Clements we havent gotten to that. We know ms. Tlaib is that something would you look into . Mr. Clements its one of the requests we received from the letter. Ms. Tlaib that would be wonderful. One of the things my good colleague was talking about was regarding regulators. You said its not binding. Could they because they how when walz the first time they said, yo, somethings going on . The regulators are like, you know, could you call us back, can you respond, somethings going on, what year was that . Mr. Clements the first instance that fsoc brought up the Interest Rate risk was its most recent annual report which would have come out early this year. Ms. Tlaib so they sent a letter, can they go arrest them . Can they fine them . What can they do to make them respond . Mr. Clements the recommendations in the annual report are nonbinding. It can also do what are called section 120 recommendations, but again those are also nonbinding. Ms. Tlaib so when you do look at the timeline, because i dont know if you can answer this question, likewise did the banks take on the risks and ignore repeated warnings . Why . Why ignore the federal government and their warnings . Mr. Clements i dont have a good answer to that. Ms. Tlaib i think bankers know how to manage risks. Theyre not stupid. I just think theyre greedy. And so senior employees promoted unsound practices, ignored risks because they stood to benefit from it. Look at the timeline director when you do this next followup report. S. V. B. Offered some of the most generous compensation packages around. Look at it. Compare it to other banks. In 2022 the c. E. O. s salary was roughly 1 million but he enjoyed over 5 million in stock awards last year and 2 million in stock options. Becker also earned over 6 million since 2020 from an incentive Compensation Plan on s. V. B. s net income. Even when the warnings were coming in. This helps explain to me why during 2022 s. V. B. Terminated close to 15 billion in Interest Rate swaps that hedged against the impact of rising rates. The bank started same bank, started in 2023 almost completely unhedged because for senior employees, higher net income met higher compensation, correct . Mr. Clements im not familiar with their arrangements, again, that would be something we can look at. Ms. Tlaib you need to look at how the timeline is critically important. You can see how it led up. But they still thought they got benefits. They still won even though, again, this is impacting now other banks and really peoples payrolls, Small Businesses and so forth. Last year the Signature Bank c. E. O. Received over 8 million in total compensation. I mean, do you think that compensation incentives contributed to the poor Risk Management by the banks . Mr. Clements i dont think i dont have a basis at this point. Ms. Tlaib i know you cant, i just really love to ask that question. I think in the report, you know, one of the things in doddfrank and its something that our committee has been wonderfully educating me on, but the section 956. Its been 12 years, they havent implemented it. Can you in your role look at the impact of not implementing the section 956 of the doddfrank act . Mr. Clements we can certainly take a look at this. Ms. Tlaib this is really important because we need teeth. We need enforcement. We need to be able to claw back. We need to be able to hold them accountable. Because theyre just not going to respond. Theres nothing we can do. They are just going to ignore us so they can set it up so they can benefit from it over and over again. One of the things that i think the American People do fully understand is we as a role of oversight, is that we can call it out and do basically expose the agreed. But tkpwrao ed. But unless we give the authority and kind of the binding force for our regulators to do something about it, other banks are going to do the same. Theyre just not going to respond to us. Theyre just going to continue doing this, kinds of really crooked, very criminallike, actually, setup so they can benefit and get more compensation. My god, they sold a stack when they knew they knew and never informed to ping the phone and tell us, hey, sorry, tomorrow were closing shop. I mean, why isnt anybody more mad at the banks . They literally ignored the American People when they ignored the regulators. Thank you. Mr. Huizenga the gentleladys time has expired. The gentleman from pennsylvania is recognized for five minutes. Mr. Meuser thank you, mr. Chairman. Mr. Clements, you are the director of g. A. O. s Financial Market and Community Investment team. I want to ask you a couple of quick questions. In 20012022 20212022, this congress overspent by over 5 trillion. With policies that caused huge spikes in energy. Causing high levels of inflation and which in turn we got high much higher Interest Rates escalation. Rattling the economy, crushing Pension Funds and disposable income. Do you think the American People trust congress with a blank check moving forward . Particularly when its the American People who have to pay the bills . Mr. Clements i dont think im qualified honestly to answer to direct those mr. Meuser sorry. Thank you. According to a report, s. V. B. Was downgraded in june 30, 2022, by the Federal Reserve. Of San Francisco. Due to concerns about its liquidity Risk Management from 2022 may review. Your report states the Federal Reserves board was still working on how to address this issue when s. V. B. Failed in march of 2023. Isnt it true that the regulators have discretion for oversight on such banks regardless of the s2155 set thresholds . Red flags, they have all kinds of discretion . Mr. Clements the regulators have options to do supervisory letters, recommendations, informal and formal Enforcement Actions, including civil monetary penalties. Mr. Meuser so blaming it on s2155 would head us down the wrong direction. Wed never solve the problem. Or uncover where the problems occurred. Mr. Clements the agencies have plenty of authorities now. We do know that the committee has asked us to look at the prudential standards so i dont want to prejudge where we might come on that. Mr. Meuser thank you. G. A. O. Also points out in its report that the San Francisco fed gave s. V. B. A sevenmonth extension to address in november, two upb, deficiency 2021, deficiency. A key finding from the report was that the regulators did not escalate supervisory actions to mitigate key risks associated with bank failure, specifically you state that the San Francisco fed lacked urgency. They did not recommend the issuance of a single enforcement action despite the banks serious liquidity and Management Issues before the banks failure. Why do you think that is . Mr. Clements again, i think this has been a repetitive problem going back to the 1990s and early 2000s. And now the regulators in general favor and inform an informal cooperative process. It also is a little challenging if a bank is profitable, has adequate capital, to then suggest to the bank it needs to stop behaviors that the regulator thinks are potentially risky. So theres a variety of issues that could affect it. We looked at this environment and saw numerous instances where escalation problem was warranted. Mr. Meuser the report says the supervisory teams blame tailoring reform under s frbgs2 s2155 for these failures. We know the fed and fdic have discretion regardless of those thresholds as earlier mentioned to address, investigate, perceive, potential or discovered problems. Why didnt they . Why would they blaming is that really didnt stand in the way in the first place . Mr. Clements i think its this standard, what weve seen in the past. Which is a hesitancy to take more aggressive actions. Mr. Meuser let me ask you this. In general, do you think Community Banks are much better managed than these outliers that have failed . Mr. Clements i dont think i have any basis to talk about the distinction between the banks. We can go back to the 1990s and a number of the Smaller Banks failed. Mr. Meuser im talking about now. I believe they are based upon my research and knowledge and discussions and financial discussions with Community Banks. You dont feel the Community Banks would be better managed than these banks that have failed . S. V. B. And First Republic and signature . Mr. Clements theyre obviously better managed than the two that failed. Mr. Meuser what about Regional Banks . Mr. Clements weve not done work for me to talk about their management. Mr. Meuser state of affairs then. Do you find it to be these banks have been rattled by all of this, this bailout that occurred with s. V. B. And now Community Banks are concerned that they may bear the brunt in higher fdic fees. So thats unnerving some of their detoeser toes depositors. Do you think thats undue, unnecessary . Or whats your thought . Mr. Huizenga the gentlemans time has expired. Mr. Meuser i yield back, mr. Chairman, thank you. Mr. Huizenga youll be able to answer that question in writing. With that, the congresswoman from texas, ms. Garcia, is recognized for five minutes. Mr. Garcia thank you, mr. Chairman. And thank you, mr. Clements, for being here with us today. I wanted to also lay out a few facts before i begin. The first one is that the president has lowered the deficit by 1. 7 trillion. 1. 7 trillion in his first two years in the office. So we really, when we talk about the debt ceiling, and we look at everything, we really need to get some facts out. This president has made it clear that defaulting on the debt is not an option. The statement made earlier that republicans are the only ones who have passed anything is probably true. But whats not shared is its not a clean debt ceiling raising, it comes with cuts. Cuts that are so deep that they would impact Social Security, they would impact medicaid, it would impact our veterans, teachers, it would create more job losses. So thats the reason many of us cannot support that. Always there has been a raise of the debt ceiling hundreds of times, in fact, every year since world war ii, its been raised. Only because its this president and this year do we see so many concerns about making cuts before or doing it together. We dont have any problems with making some cuts. They just should not be tied to raising of the debt ceiling. It should be a debt ceiling thats clean, one that has been done so many times before, including for the former twiceimpeached president , many of the people talking about this issue now did that last time. So where were they then, making some of these comments . Secondly, im glad that were doing this hearing but i wonder, mr. Chair, when were going to really focus on the root causes of what caused some of these failures. And when were going to look at comprehensive legislation and responsible governance. Because as i review some of these items, it appears to me that i agree with others that have already said it here at the table, that this was about governance, it was about management, it was about failing to minimize risks. And i was particularly, you know, drawn to the response that you gave ranking chair when she asked you about some of the reviews that are done by the examiners and you said that many of them, that yall were told that, quote, it would take a while to fix the problem. Since when has taking a while to fix a problem been acceptable when someone does an you haddity . You know, audit . You know, i oversaw a 2. 3 billion budget of houston. We did audits. Somebody told us, well, its going to take us a while to fix the perron. First thing wed say is, what is your timeline for getting it fixed . So did we see any of that or did the examiners just kind of go, ok, fine, yall fix it . Mr. Clements that occurred in the 2022 time frame. We mentioned in reports, starting in august, the San Francisco fed and the fed itself mr. Garcia but lets get to my question ms. Garcia but lets get to my question, sir. Were they given a timeline in when they needed to submit a management response, take corrective action, were going to be back to make sure that they did what they promised to do . Or it was just let go . Mr. Clements in many instances, the supervisory letters detailed what needed to be done and the time frames. Again, some of these larger issues it appeared that the dates were allowed to slip. Ms. Garcia things were allowed to slip. Well, then that is part of the root of the problem, isnt it . Things were allowed to slip. Can you give us an example of what was so major that they couldnt do immediately and take corrective action that would take time, quoteunquote, to fix a problem . Mr. Clements the concern was principally about the liquidity and the governance of the liquidity and the liquidity controls at s. V. B. Ms. Garcia so they didnt have investment review committees or an Investment Team that really looked at that . Mr. Clements there were numerous failures in its internal liquidity stress testing and the fed was looking for solutions to those problems. Ms. Garcia and let me ask you, because theres been a lot of focus on the federal examiners. What about the state examiners . What responsibility do they have in this whole scheme . Mr. Clements theres a mix, depending upon the signature and s. V. B. Are different because theyre dealing with different states and how they manage that relationship. For the most part, the federal regulators were the ones in charge. Mr. Huizenga the gentleladys time has expired. The gentleman from tennessee, mr. Ogle, is recognized for five minutes. Mr. Ogles thank you, mr. Chairman. And if i may, i would like to correct the record. I think my colleague had inadvertently mischaracterized some things that were taking place, as far as the debt ceiling goes. Theres no intent to impact Social Security or medicare and nor are we going to ipact our veterans. In fact, if you go back to 2011, our current president in his own words stated that compromise was part of the process. In fact, that it was a normal political order of things to do so. So just for the record, mr. Chairman, i did want to just set the record straight. You know, i know weve talked a lot about this and dont want to beat a dead horse and we have the benefit of kind of afteraction or the Rearview Mirror approach. But as you look at some of the high marks, the satisfactory marks that were given to s. V. B. , you mentioned the hesitancy and the difficulty it is for the regulator to step in, if you will. But in part isnt that their job . Mr. Clements it is the purpose of supervisory regulation to make sure banks operate in a safe and sound manner. Mr. Ogles so as we look forward and keep in mind that the small and midsized banks, theres roughly 4700 doing it right, you know, so we dont want to target an industry because of a few bad actors, but how do we fix the process and the culture that seems to have crept into the regulatory structures that are quite frankly preventing them from doing their job in a timely fashion . Mr. Clements i think thats where we think triggers come in to play. That if aer particular measure if a particular measure exceed as threshold or in these cases where theres been m. R. A. s, multiple times, that that triggers inaction, that the regulator would be required to take action, rather than continuing to wait and trying to work through a problem. Mr. Ogles again, im not going to ask you to second guess the regulators in these specific instances but when you look back going back for s. V. B. , 2018, there were clear signals and signs that there was a problem but yet fast forward four years later, nothing was happening in a timely fashion. What would be, again, if you were to lay out a road map of how do we improve the process, what timelines might you map out for the regulators to say, heres a problem, yes, theyre profitable, however you have increased liquidity risk, you have this slight risk as you move forward, what would you see those triggers looking like . Mr. Clements in the past weve recommended that the regulators and industry Work Together to find out what would be the best practices to ensure that theres adequate action, you dont want action for a bank that is healthy. Right . And that the regulator thinks, well perhaps the problem will owe kirks because you this occur, because then you have unnecessary costs pwaurpblds on that institution and burdens on that institution. Working together to come up with adequate measures and benchmarks. Mr. Ogles i want to be clear. Ive said once, ill say it again, Ronald Reagan said the scariest phrase in the american language and ill paraphrase is, im from the government and im here to help. I think as we move forward, weve got to be cautious and reaching too far in this process. But i do look at the Regulatory Regimes in both california and new york and see a systemic failure on their part to take action. I mean, when you look at, again, the timeline of when these the draft is taking place in the Previous Year and six months later, the draft is still being drafted and then meanwhile s. V. B. Collapse, i mean, is that acceptable in part of thing regulators to take six months to draft a letter . I can write a letter in a more timely fashion than six months even if im having to Research Data points. Mr. Clements i think we had a concern again. Thats why we talked about a lack of urgency and finally action in that case timely action in that case. Going from august, 2022, i guess the argument was they needed to collect additional information, but it did seem to us that there were enough instances of these m. R. A. s and m. R. I. s finding those problems, that they could have moved forward with more urgency. Mr. Ogles my last 30 seconds, is there anything in the Regulatory Regime that would have prevented the regulators from doing their job . Mr. Clements the regulators have authority to make recommend recommendations and actions up to including civil monetary penalties. Mr. Ogles mr. Chairman, i yield back. Mr. Huizenga the gentleman yields back. With that, the Ranking Member of this subcommittee, the gentleman from texas, mr. Green, is recognized for five minutes. Mr. Green thank you, mr. Chairman. Mr. Director, youre not here to tell us that the banks are not responsible, are you . Mr. Clements Bank Management is responsible. Mr. Green and you are here to tell us that the Bank Regulators mismanaged the banks. Mr. Clements the records we saw were numerous instances of liquidity and Risk Management problems that had been identified going back to 2018. Mr. Green you said that the regulators were calling things to their attention that you thought should have been dealt with and youve indicated as much. Do you now say that the banks did not have the responsibility to make these changes themselves . Mr. Clements the banks are responsible to resolving the problems that the supervisors identified. Our concern and thats the banks side. The supervisory concern is mr. Green excuse me. Lets talk about the bank side for just a moment, if you would, please. You also have indicated that the agency has plenty of authority and then you went on to say, but you didnt want to prejudge, youd like to have an opportunity to review. Is that a fair statement . Mr. Clements correct. Mr. Green excuse me, if i may, i just needed to know if that was a fair statement. Knowing this, that it has plenty of authority, youre in the saying that they have enough authority, are you . Because enough would mean that you wouldnt have the time to review. Mr. Clements the committees request is for us to look at enhanced prudential standards. Mr. Green are you saying the regulators have enough authority and nothing more should be done . Mr. Clements im not in a position right now to judge mr. Green so youre not saying that, are you . Youre not saying are you saying that . Mr. Clements im saying they have authority. Mr. Green they have authority but youre not saying they have enough authority, are you . Mr. Clements i think we would need to do additional work in that space. Mr. Green so determine mr. Clements correct. Mr. Green so date youre not saying they have enough authority, are you . Mr. Clements were saying they have authority, we need to mr. Green but they dont have enough. Mr. Clements we need to conduct additional work. Mr. Green you dont know that they have enough. Mr. Clements i cant at this point say that they have enough. Mr. Green thats fair enough. You cant at this point say they have enough. Its important for you to say this, mr. Director, because the other side is making the case for enough authority. Theyre making the case for the status quo. Theyre making the case for banks to be able to do what Silicon Valley did. Were making the case for doing something that can have an impact on the people who have the responsibility to manage the depositors money. Theyre not. Now, mr. Director, is it true that the stress test can have an impact on the decisions that regulators make . Once they review it, if its an adverse conclusion, can it have an impact on their decision . Mr. Clements it is a factor in the supervision of an organization. Mr. Green so it can have an impact on what they think, can it not . Are you shy about saying that an adverse stress test will have an impact on the decisions of regulators, mr. Director . Mr. Clements the supervisory test is an important element. Mr. Green i understand. Lets talk about the stress test. Mr. Clements yes. Mr. Green ok. Thank you. [talking simultaneously] because of changes, the stress test was scheduled for 2024 for Silicon Valley bank. Let me use my last 48 seconds to say this. I want to commend all of the members for their questions. But i want to commend especially the members on this side. And those that decided to talk about the preeminent issue facing this congress. Which is are we going to allow a default . I commend them for bringing it up. Its not unusual for us to bring up issues that relate to the business of the congress, but not necessarily relate to the business of a given hearing. And i thank mr. Horsford for what he did. He is upset because we be facing a default that could cause the collapse of our economy. I yield back. Mr. Huizenga the gentlemans time has expired. And in accordance with committee rules, we do allow nonsubcommittee members to wave on for questioning. Well be doing so with the gentleman from kentucky, mr. Barr, who is also the chairman of the subcommittee on Financial Institutions. So with that, the gentleman from kentucky has five minutes. Mr. Barr mr. Chairman, thank you. Thanks for allowing me to wave on. I want to start by thanking the g. A. O. , mr. Clement, and your team for putting out a timely, nonpartisan, apolitical report that is external to the selfassessments weve seen from the fed and the fdic that dont give a complete narrative. Mr. Huizenga mr. Barr, sorry to interrupt, if you pull that closer. Mr. Barr thank you. To finish the point, i think its vital that we have an unbiased external report that helps inform the American Public and the congress. I also want to thank my good friend, mr. Green, and mr. Horsford, for raising the important preeminent issue facing the congress and that is raising the debt limit. And avoiding default. I would remind my colleagues that the only institution in government that has actually done that work of raising the debt limit is the republican majority in the congress and every single democrat member of the house of representatives voted against raising the debt limit. To get to my questions, in your work in looking at the Bank Supervisors here, especially the San Francisco fed, do you see any evidence of concern leading up to Silicon Valley banks failure of the large concentration of uninsured deposits in a single sector . Mr. Clements there was a concern. We certainly saw concerns raised. Mr. Barr so there was evidence that they raised that concern. Mr. Clements correct. Mr. Barr ok. I believe the fed report that ive reviewed, theyre selfassessment, they say in here that Silicon Valley bank crossed the Regional Bank Organization Portfolio to the Large Foreign Bank foreign bank to the large Bank Portfolio within the Federal Reserve structure in february of 2021. Is that correct . Mr. Clements i dont have the specific dates. Mr. Barr thats what the fed said. They said they crossed that supervisory threshold almost two years, almost two years before the banks failure. Mr. Clements i think it was certainly the days in our report. We might say june but its somewhere in the 2001 time fram. Mr. Barr then it also says, in other words, enhanced prudential standards applied to this institution as a large institution, according to the feds own determination, two years before the bank failed. Is that correct . Mr. Barr it would have been a category four firm at that time. Barr mr. Clements it would have been a category four firm at that time. Mr. Barr under doddfrank as amended by the bipartisan regulatory relief law of 2018. Mr. Clements correct. Mr. Barr under the 100 billion threshold. Mr. Clements correct. Then theres tailoring above that. Mr. Barr sure. But in this case, this bank, under fed regulations, implementing doddfrank as amended by the regulatory relief law of 2018, enhanced prudential standards applied to this bank, categorized as a large financial institution, as of february, 2021. Two years before the bank failed. Mr. Clements thats correct. In 2021 it became it got into that group. Mr. Barr the fed report also said the Federal Reserve board staff provided the San Francisco fed team a waiver to delay initial set of ratings under the l. F. I. , large financial institution, Rating System by six months until august, 2022. In your investigation, do you have any insight or visibility as to why the board waived that requirement . Mr. Clements no, thats additional work well need to do. Mr. Barr please look into that. The regulators at the fed are delaying implementation. They are. The law doesnt say that they have to. But they, the supervisors, the Bank Examiners are delaying implementation of the law that we passed and that we amended in 2018 and that the fed implemented. So, look, its on the supervisors. Let me just say this also. According to your report in 2020 the examiners at the Federal Reserve bank of San Francisco found that s. V. B. Was not doing all required liquidity stress testing, specifically s. V. B. Did not provide liquidity risks for a period of 30 days or less. However,ed a they were required as they were required, but examiners continued to give s. V. B. A satisfactory remark for liquidity and the highest camels rating. Would it be unusual for an examiner to give a high liquidity rating despite some of the required testing not being done . Mr. Clements i think thats the concern we had. We didnt the high ratings, especially for liquidity arblgs for management. Mr. Barr your report says action that was taken by the Federal Reserve board to address infective governance, ineffective governance. However in march of 2023, and the failure, the m. O. U. Is still in drafting process. Mr. Huizenga the gentlemans time has expired. Mr. Barr for the gentleman for the record maybe, is it typical for a formal enforcement action like this to make more than six months . Mr. Huizenga the gentlemans time has expired. Mr. Barr it has expired. I appreciate mr. Huizenga excuse me, Ranking Member. Ive got it handled. The gentleman will suspend. The gentleman from kentucky can submit the final thought and final question to the witness for a written response and i would like to thank our witness for coming in today. Without objection, all members will have five legislative days with which to submit additional written questions to the witness through the chair and that will be forwarded to the witness for a response. We would appreciate your timely response on that. Mr. Clements. And with that, this hearing is adjourned. [captions Copyright National cable satellite corp. 2023] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] fridays at 8 00 p. M. Eastern, cspan brings you afterwards from book tv, where authors are interviewed by journalists, legislators d others on their books. Tonight, a behind the scenes look at the issues teachers are facing in the classroom today with her book the teachers. Shes interviewed by Education Week staff writer madelyn will. Watch afterwards tonight at 8 00 p. M. Eastern on cspan. The commissioner of the f. D. A. , dr. Robert califf and others at a symposium hosted at the National Health council in washington, d. C. We never had a divorced president or a president who was married to somebody who had been divorced until gerald ford and betty ford. And then reagan, of course, had been divorced. And then we kind of tolerated clinton because as James Carville said, its only sex. And here is trump on, what, wife number three or four, i lost count and all of these accusations made against him. And i just think at a certain point character overcomes Everything Else and i am not certainly not supporting him in the next election. I hope somebody younger and better character qualities gets the nomination. Calhomas with his book a watchman in the night sunday on q a. You can listen to q a on our free cspan app