The latest on the debt ceiling, banking testimony and economic data

The Silicon Valley Bank branch office in downtown San Francisco, California, U.S., March 13, 2023.
What is a bank run?
01:59 - Source: CNN

What we covered here

  • The Senate Banking Committee grilled executives from failed banks Silicon Valley Bank and Signature Bank.
  • Lawmakers demanded answers about executive compensation, missed red flags and what led to the collapse of the two regional banks. 
  • Meanwhile, markets are also reviewing the latest retail sales data, which showed spending rose in April following two months of declines; and watching for any progress in the debt ceiling crisis.
24 Posts

Dow falls over 300 points on debt ceiling worries and dreary Home Depot outlook

Traders work on the floor of the New York Stock Exchange on May 03 in New York City. 

Stocks fell Tuesday, dropping steeply in the hour leading up to the close as investors grew increasingly worried about the economy’s health.

The Dow Jones Industrial Average and the S&P 500 are on pace to end the week down. The Nasdaq Composite is on pace to rise for the week.

President Joe Biden is meeting with congressional leaders this afternoon on the debt ceiling limit. Republican Speaker Kevin McCarthy said Tuesday that stricter work requirements for some government aid programs are a “red line” in negotiations — a provision Biden sounded guardedly open to on Sunday.

Biden is cancelling part of his upcoming travel to Papua New Guinea and Australia amid the debt ceiling discussions, a source familiar tells CNN.

Meanwhile, shares of Home Depot fell 2.2%, dragging down the stock market as the retail bellwether’s disappointing outlook stoked fears about the economy’s health.

Crude prices also fell on the uncertain economic outlook. West Texas Intermediate crude, the US benchmark, declined to roughly $71 a barrel.

Investors also digested the Senate Banking Committee’s interrogation of former leaders at collapsed lenders Silicon Valley Bank and Signature Bank on Tuesday. The former executives were grilled on their conduct, their response to the banks’ failures and their multimillion-dollar compensation during their tenures.

Regional bank shares fell after rallying earlier in the day. PacWest shares fell 14.6%, New York Community Bank declined about 1.3% and KeyCorp fell 2.3%.

Lawmakers continue their probe into America’s financial system on Wednesday at 2:30 p.m. ET, in an Economic Policy Subcommittee hearing chaired by Democratic Senator Elizabeth Warren on “strengthening accountability” at the Federal Reserve.

Tesla shares rose 0.1% ahead of the electric vehicle maker’s annual shareholders meeting on Tuesday at 4 pm ET.

The Dow fell 336 points, or about 1%.

The S&P 500 declined 0.6%.

The Nasdaq Composite rose 0.2%.

As stocks settle after the trading day, levels might still change slightly.

House hearing on banks underscores divided appetite for tighter regulation

Costumers lining up outside of the Silicon Valley Bank headquarters in Santa Clara, California, on March 13.

Democratic and Republican representatives on the House Financial Services Committee sparred over banking regulation at a hearing on Tuesday.

Tougher restrictions, namely higher capital and liquidity requirements, were front and center during the hearing at which Fed Vice Chair for Supervision Michael Barr testified.

Barr oversaw the Fed’s autopsy report on Silicon Valley Bank’s failure. Per the report’s findings, Barr told lawmakers “there are weaknesses and regulation and supervision that should be addressed.”

Tougher capital and liquidity requirements could have strengthened SVB, but they may not have prevented it from failing, Barr said in the report.

Several Republicans on the Committee said the findings of the report don’t justify imposing tougher regulations on banks. Many, including Republican Rep. French Hill, warned it would “make it harder to have a broad-based, diverse [banking] system.”

While Democratic lawmakers tried to illustrate how rollbacks of Dodd-Frank regulation allowed banks like SVB to go unchecked.

“We passed these strong standards with Dodd-Frank, we weakened those standards precisely when the Republican bill weakened the standards for $100 billion-$250 billion institutions and those are the exact institutions that have this problem,” Democratic Rep. Brad Sherman said, referring to a 2018 banking deregulation law.

Fed, FDIC officials decline to say if anyone will be fired as a result of bank failures

Michael Barr, vice chair for supervision of the board of governors of the Federal Reserve (L), looks on as Martin Gruenberg, chairman of the board of directors of the Federal Deposit Insurance Corporation, testifies during a House Committee on Financial Services hearing on Oversight of Prudential Regulators, today on Capitol Hill.

Fed Vice Chair for Supervision Michael Barr admitted that supervisors at the Fed did not escalate issues they identified at Silicon Valley Bank “promptly enough and forcefully enough.”

“That’s one of the reasons why we need to really look internally at our own system of oversight,” he said in his testimony at the House Financial Services Committee on Tuesday. But Barr declined to answer a Republican lawmaker’s question regarding whether anyone at the Fed would be fired as a result.

Similarly, the Federal Deposit Insurance Corporation admitted supervisory shortcomings on its end with regard to Signature Bank in a recent report on the bank’s failure.

Martin Gruenberg, chairman of the FDIC, said “it’s incumbent on us to do a comprehensive review of our supervision program, including our staffing structure.”

Yellen to meet with Jamie Dimon, Jane Fraser and other bank CEOs on Thursday as debt ceiling crisis looms

With time running out to reach a deal on the debt ceiling, Treasury Secretary Janet Yellen plans to meet with bank CEOs on Thursday afternoon in Washington, sources tell CNN.

JPMorgan Chase CEO Jamie Dimon and Citigroup CEO Jane Fraser plan to attend the Yellen meeting, which will very likely include a focus on the debt ceiling and the banking crisis, according to people familiar with the matter.

The huddle with bank executives is part of an annual meeting held by the Bank Policy Institute, a financial trade group that represents dozens of banks including Goldman Sachs, Wells Fargo and Citigroup.

Bank of America CEO Brian Moynihan also plans to attend the BPI meeting, the company told CNN.

The Treasury Department previously confirmed that Yellen plans to meet this week with the Bank Policy Institute’s board of directors, which is chaired by Dimon and includes the CEOs of BNY Mellon, Citigroup and Truist.

Dimon has been outspoken on the debt ceiling, warning last week in a Bloomberg interview that a default would be “potentially catastrophic” and risks setting off “panic” in financial markets.

As the White House and Republican leaders struggle to reach a deal on the debt ceiling, Yellen has stepped up her warnings about the economic stakes.

“Time is running out,” Yellen said in a speech before the banking industry on Tuesday. “The US economy hangs in the balance. The livelihoods of millions of Americans do too. There is no time to waste.”

Fed's Barkin: "Demand is cooling but not yet cold"

Federal Reserve Bank of Richmond President Thomas Barkin said Tuesday the US economy still has momentum and that he is “comfortable” with raising rates again if necessary.

“I’m still looking to be convinced that demand will come down and then of course, that that will bring inflation down at a pace that won’t erode expectations,” Barkin told Bloomberg in an interview.

Barkin, like some other Fed officials, said Tuesday that a pause or another rate hike ultimately depends on what economic indicators show in the coming weeks, including the impact of the political standoff over raising the government’s debt limit.

“You’ve got questions about the debt ceiling and what impact that might have. You’ve got questions about credit tightening and how significant that might be, so I think it gives you time and optionality to say either there’s still more we need to do so let’s do more, or it’s still OK to wait and we’ll wait a bit,” Barkin said.

Fresh data on the job market and inflation are set to be released in the days before the Fed’s two-day monetary policy meeting in mid-June.

Barkin is not a voting member on the Fed’s monetary policy committee this year.