Washington, D.C. – U.S. Senator Steve Daines at a Senate Banking Committee hearing today demanded answers from regulators on the cause of the banking crisis, including how the San Francisco Federal Reserve was focused on climate change policy rather than the Federal Reserve’s dual mandate of price stability and full employment. A transcript of Senator Daines’ opening remarks following by his questioning of Michael Barr, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System, is below:
Senator Daines: “Chairman, thank you. The failure of Silicon Valley Bank, Signature Bank and the general turmoil in the banking sector are the direct result of the failures of regulators, including the agencies we have before us today. Also, the executive teams for these financial institutions and the inflationary environment is sparked in no small part by the Biden administration’s reckless spending. I remember having debates right here with the Banking Committee about these massive stimulus bills, that $1.9 trillion spending bill that even Lawrence Summers said was inflationary. On a purely partisan vote it passed, with Democrats supporting and Republicans opposing. But each of these groups, back to Silicon Valley Bank and Signature Bank, failed to prioritize, properly clear and present risks of the inflationary environment rising interest rates, what it did to bond values, instead opting to focus on climate change, equity and other factors that did not contribute in any way to the crisis we have before us.
“I raised these issues of misaligned priorities with Secretary Yellen during the Finance Committee hearing back in June of 21. When she identified climate change, non-bank financial intermediation, and Treasury market resilience as the key priorities for F sock. Now, we’re facing a situation where responsible banks in my home state of Montana and elsewhere will be on the hook for providing tens of billions of dollars and potentially more to bail out irresponsible coastal banks for risk-taking that regulators failed to act upon despite first noticing as far back as 2019. Going into my question, Vice Chair Barr you state in your testimony that your review is, ‘focusing on whether the Federal Reserve supervision was appropriate for the rapid growth and vulnerabilities of the bank.’ Question is, did you find as part of your review, that certain individuals were clearly negligent in the performance of their duties? Are you willing to recommend that they be fired?”
Michael Barr, Vice Chair for Supervision, Board of Governors of the Federal Reserve System: “Senator, I don’t want to prejudge in any way the review. I’m going to get that evidence back, I’m going to understand it fully.”
Senator Daines: “And I said what if part of your view you find the negligent would you recommend that they be fired?”
Mr. Barr: “It’s hard for me to answer in the abstract, sir. I believe we will take appropriate action with respect to the supervisory structure as a whole. Whether with respect to…”
Senator Daines: “Are you willing to is termination one of the options?
Mr. Barr: “I don’t know.”
Senator Daines: “That’s an easy question. I just said an option. I’m not saying you have to exercise it, is that an option? Could somebody be fired for this?”
Mr. Barr: “I would have to understand the basis in our human resources law. I don’t want to prejudge.”
Senator Daines: “The bank executives lost their jobs, as should some of these regulators. Shouldn’t that be the case? If they’re asleep at the wheel?”
Mr. Barr: “Senator, I want to be very careful there. There are laws and procedures with respect to how you…”
Senator Daines: “You can make a recommendation to HR and they can tell you whether or not that’s allowed or not. I’ve been in the corporate world for most of my career. I’ve worked with HR, as is true within the federal government. You can make a recommendation if somebody’s asleep at the wheel and negligent.”
Mr. Barr: “I would be happy to follow up with you, Senator. I promise we will take appropriate action based on the review but I don’t have a definitive answer for you at this moment.”
Senator Daines: “I do find it ridiculous that you’re unwilling to say that if people fail to perform the responsibilities that you might recommend, they be fired. Vice Chair Bar, did you visit the San Francisco Fed in October of last year?”
Mr. Barr: “October last year, what year?”
Senator Daines: “In 22.”
Mr. Barr: “I don’t believe so.”
Senator Daines: “Okay, well, the San Francisco Fed Public Supervision and brief memo stating the top priority you outlined with that visit aligned with their top priorities.”
Mr. Barr: “It may be that I did a virtual seminar for a range of supervisors. And so there the San Francisco Fed folks were in attendance for that. But I don’t believe I was in San Francisco.”
Senator Daines: “So, the regulator’s perspective that came out from the 12th District, the San Francisco Fed, said they were aligned with what was top of mind for the work being done in the 12th District. The first thing it says is ‘financial risks from climate change.’ This is at a time back in October 22 when you saw the discount rate was always up to 3 percent, we were seeing those three-quarter point increases coming out of the Federal Reserve over and over and they were communicating that’s going to probably continue. And that was about the time that also the Richmond Fed in the Fifth District, they had a little different view in terms of prioritizing risks and they thought perhaps a rising rate environment might be the highest risk in terms of priority to look at, versus San Francisco Fed says it’s about climate change was their number one priority, listed stack rank the three that they placed out. It’s clear in hindsight that the Richmond Fed was focused on the clear and present risks of rising interest rates, while the San Francisco Fed was not. My question is, since you were confirmed in July, what percentage of your time have you spent focusing on climate policy and financial inclusion versus how the Federal Reserve’s monetary policy might impact banks like Silicon Valley Bank?”
Mr. Barr: “Senator, I’ve been focused on risks throughout the system both short-term and long-term risks and interest rate risk is a bread-and-butter issue in banking. It’s what our supervisors do all the time. Thanks so much.”
Senator Daines: “The San Francisco Fed said it was climate change risk.”
Last week, Senator Daines and his Banking Committee colleagues sent a letter to Federal Reserve Chairman Jerome Powell demanding answers and seeking records from the Federal Reserve Board of Governors and the Federal Reserve Bank of San Francisco regarding their apparently poor supervision of Silicon Valley Bank in the leadup to its failure.
Daines also slammed President Biden’s bank bailout and poor financial decision-making at a Senate Leadership Conference.