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Fed blames Silicon Valley Bank collapse on management, weak oversight
03:49 - Source: CNN

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

New York CNN  — 

Despite the looming debt ceiling crisis that has taken center stage in Washington in recent weeks, lawmakers haven’t forgotten about the other financial crisis this year: the March bank failures that set off turmoil in the regional banking sector.

The US Senate Committee on Banking, Housing and Urban Affairs is holding three hearings this coming week centered around the collapses of Silicon Valley Bank and Signature Bank in March.

The three hearings will take place from Tuesday through Thursday.

  • Witnesses on Tuesday at 10 a.m. ET: Greg Becker, former chief executive, Silicon Valley Bank; Scott Shay, former chairman and co-founder, Signature Bank and Eric Howell, former president, Signature Bank.
  • Witnesses on Wednesday at 2:30 p.m. ET: Mark Bialek, inspector general, Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau; Paul Kupiec, senior fellow, American Enterprise Institute and more.
  • Witnesses on Thursday at 9:30 a.m. ET: Michael Barr, vice chair for supervision, Board of Governors of the Federal Reserve; Martin Gruenberg, chairman, Board of Directors of the Federal Deposit Insurance Corporation; Adrienne Harris, superintendent, New York State Department of Financial Services and more.

Federal regulators were first called to answer questions about the bank collapses from the Senate Banking Committee and House Financial Services Committee in March.

Since then, the Federal Reserve and Federal Deposit Insurance Corporation have released reports detailing management missteps at SVB and Signature Bank, as well as federal regulators’ own mistakes in properly addressing red flags preceding the banks’ demises.

The Fed recommended a sweeping re-evaluation of its regulatory and supervisory functions in its report, and Barr called on the central bank to strengthen those processes.

Calls for stronger regulation of the banking sector revved up this month after the collapse of First Republic Bank, which was taken into FDIC receivership and sold to JPMorgan Chase on May 1. Republican Senator Kevin Cramer and Democratic Senator Elizabeth Warren on May 9 re-introduced a bill to tackle “regulatory inefficiencies” in banking security.

Warren also called on former First Republic Chief Executive Michael Roffler to answer for the regional lender’s failure and “gross mismanagement.”

Economic and bank sector leaders including Fed Chair Jerome Powell and JPMorgan CEO Jamie Dimon have recently assured the public that the banking sector is stable.

Still, investors are worried that there’s another shoe to drop, and that’s sparked jitters in the market. The SPDR S&P Regional Banking exchange-traded fund, which tracks a range of mid-sized banks, is down over 38% for the year. PacWest Bank is down about 79.5%, Western Alliance has fallen 54.8% and KeyCorp has declined 47.8%.

US consumers are worried about the economy

American consumers are concerned about uncertainty surrounding the economy and a potential default of the US government’s debt.

That’s according to a preliminary report from the University of Michigan on Friday. The survey shows that the university’s consumer-sentiment index fell by 9% this month, with the decline erasing more than half of its gains since rebounding from a record low in June 2022.

A separate report from the Federal Reserve Bank of New York on Friday shows that American households are becoming increasingly frugal. Monthly household spending growth fell to 5.4% from a revised 7.1% in December, according to the New York Fed’s Household Spending Survey, which is fielded every four months.

Meanwhile, expected monthly spending growth slid to 3.4% in April, hovering around levels not seen since December 2020.

There are several daunting headwinds facing the economy and consumers, including tightening credit standards, a looming debt ceiling crisis and the possibility of recession later this year. Those factors have weighed on both consumers’ confidence in the economy and their wallets.

The Conference Board’s sentiment survey signaled that consumer confidence worsened last month on growing fears about the job market: The group’s Consumer Confidence Index, which measures attitudes toward the economy and the job market, slid to its lowest level since last July.

Read more here.

Up Next

Monday: Atlanta Fed’s 2023 financial markets conference.

Tuesday: Atlanta Fed’s 2023 financial markets conference (cont.), April retail sales and home builder confidence index. Earnings report from Home Depot.

Wednesday: April new home starts and building permits. Earnings reports from Target (TGT) and TJ Maxx (TJX).

Thursday: Weekly jobless claims, April existing home sales and mortgage rates. Earnings report from Walmart (WMT).

Friday: FHFA appraisal subcommittee meeting.