[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                      OVERSIGHT OF SILICON VALLEY
                        BANK AND SIGNATURE BANK:
                        GAO'S PRELIMINARY REVIEW

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 11, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-21
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________

                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
52-933 PDF                  WASHINGTON : 2023                    
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas                EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota                 JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia            BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia   JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio                JUAN VARGAS, California
JOHN ROSE, Tennessee                 JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina      SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania             STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York           RITCHIE TORRES, New York
YOUNG KIM, California                SYLVIA GARCIA, Texas
BYRON DONALDS, Florida               NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
MIKE LAWLER, New York                BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
              Subcommittee on Oversight and Investigations

                   BILL HUIZENGA, Michigan, Chairman

PETE SESSIONS, Texas                 AL GREEN, Texas, Ranking Member
ANN WAGNER, Missouri                 STEVEN HORSFORD, Nevada
ALEXANDER X. MOONEY, West Virginia   RASHIDA TLAIB, Michigan
JOHN ROSE, Tennessee                 SYLVIA GARCIA, Texas
DAN MEUSER, Pennsylvania             NIKEMA WILLIAMS, Georgia
ANDY OGLES, Tennessee
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 11, 2023.................................................     1
Appendix:
    May 11, 2023.................................................    29

                               WITNESSES
                         Thursday, May 11, 2023

Clements, Michael E., Director, Financial Markets and Community 
  Investment, Government Accountability Office (GAO).............     4

                                APPENDIX

Prepared statements:
    Clements, Michael E..........................................    30

              Additional Material Submitted for the Record

Barr, Hon. Andy:
    Written responses to questions for the record submitted to 
      Michael E. Clements........................................    41
Mooney, Hon. Alexander X.:
    Written responses to questions for the record submitted to 
      Michael E. Clements........................................    42

 
                      OVERSIGHT OF SILICON VALLEY
                        BANK AND SIGNATURE BANK:
                        GAO'S PRELIMINARY REVIEW

                              ----------                              


                         Thursday, May 11, 2023

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                            Committee on Financial Services
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2220, Rayburn House Office Building, Hon. Bill Huizenga 
[chairman of the subcommittee] presiding.
    Members present: Representatives Huizenga, Sessions, 
Wagner, Rose, Meuser, Ogles; Green, Horsford, Tlaib, Garcia, 
and Williams of Georgia.
    Ex officio present: Representative Waters.
    Also present: Representative Barr.
    Chairman Huizenga. Good morning. The Subcommittee on 
Oversight and Investigations will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Today's hearing is entitled, ``Oversight of Silicon Valley 
Bank and Signature Bank: GAO's Preliminary Review.''
    I now recognize myself for 5 minutes for an opening 
statement.
    Congressional oversight is a Constitutional authority used 
to maintain the well-being of our system of government. 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. The first, he called, ``the tyranny of the 
vote.'' It did not matter whom you were with, what you were 
doing, what was happening, or where you were, when they rang 
the bells, we had to go to the House Floor to vote.
    The second was our Constitutional standing, our obligation, 
frankly, of oversight of the Administration, and he was an 
expert at that. It did not matter what the party label was, he 
always fought for the standing of Congress. The Government 
Accountability Office (GAO), is an investigative arm of 
Congress. They provide fact-based, non-partisan 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 you will hear in today's testimony, 
regulators in Washington are attempting to paint a bit of a 
different picture. But the facts are clear: The collapses of 
SVB and Signature Bank were the result of risky business 
strategies, no doubt, and years of failed supervisory action. 
In fact, some of the concerns identified in GAO's April report 
are not new. In 2013, in a report entitled, ``Financial 
Institutions: Causes and Consequences of Recent Bank 
Failures,'' the GAO highlighted that aggressive growth 
strategies, using non-traditional, riskier funding, similar to 
those of SVB and Signature, were key factors in bank failures. 
These uninsured, unstable deposits accounted for much of SVB's 
and Signature Bank's total assets, which the FDIC noted in 
2019, ``could pose risks to regional banks.'' SVB was also 
affected by rising interest rates, which was fueled by reckless 
spending in the Federal Reserve, that was too late to react.
    In 2015, a GAO report on bank failures concluded that the 
regulatory process was not always effective or timely in 
correcting the underlying problems before these banks failed. 
In the 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 regulators to 
mitigate or escalate management concerns proved costly.
    The GAO's report examines Treasury's use of the Systemic 
Risk Exception (SRE), and the establishment of the Bank Term 
Funding Program (BTFP). Particularly, the use of the SRE is a 
powerful emergency tool, and that has not been without 
criticism. As part of our investigation into the government's 
response to these bank failures, the subcommittee hopes to 
better understand how the Federal Reserve and the FDIC 
concluded that recommending use of the SRE was a last resort.
    Again, the GAO reported that the use of the Systemic Risk 
Exception, ``may weaken market participants' incentives to 
properly manage risk.''
    While the Treasury Secretary has warned the public not to 
assume these actions create a guarantee of deposits, it is 
hard, frankly, to think otherwise. Ultimately, losses to the 
Deposit Insurance Fund (DIF) will be passed down to hardworking 
Americans.
    Frankly, any loss of confidence in our banking system is a 
loss of confidence in our regulators. Regulators had the tools 
at their disposal to prevent these bank failures from 
happening, and they missed it, period. And instead of 
concentrating on the basics, the things that they did not get 
right, some of my friends on the other side of the aisle want 
to give our regulators even more complicated rules. As the 
Biden Administration and the Federal Reserve attempt to shift 
the narrative, the GAO's report provides no evidence that the 
failure of either SVB or Signature Bank was the result of 
relaxed regulations.
    I believe it is 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.
    I am committed to making sure this subcommittee does not 
just draw conclusions but bases its findings on evidence. That 
is what oversight is, and as the chairman, that is my 
commitment to our members.
    So, I look forward to hearing from Director Clements, and I 
yield back the balance of my time.
    And with that, the Chair now recognizes the ranking member 
of the subcommittee, the gentleman from Texas, Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, I commend 
the prompt response of President Biden, Full Committee Ranking 
Member Waters, and Federal regulators to the failures of 
Silicon Valley Bank and Signature Bank. This collective 
judicious response, led by President Biden, prevented extensive 
contagion, protected depositors, and preserved the integrity of 
our banking system, among many other things. The rapid collapse 
of these banks revealed 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--N-O-T--the root 
cause of the banks' failures.
    The focus of today's 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 growth between 2018 and 2022. Signature Bank grew from 
approximately $47 billion in total assets in 2018, to $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-
percent uninsured deposits at both banks, far higher than the 
median of 32 percent for comparable banks. The executives at 
both 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 will not 
reinstate stronger regulations on mid-sized banks or promulgate 
needed legislation to enable lawful clawback of ill-gotten 
mismanagement executive compensation. Only legislation can do 
that.
    I want to thank you for the time, and I would like to ask 
Full Committee Ranking Member Waters if she desires any time?
    Ms. Waters. Thank you very much, Mr. Green.
    Mr. Green. I yield to the ranking member.
    Chairman Huizenga. The gentleman yields to Ranking Member 
Waters.
    Ms. Waters. I thank the GAO for the preliminary review it 
issued at my and Chairman McHenry's request on the failure of 
Silicon Valley and Signature Banks. The GAO has clearly 
described how the FDIC and the Fed repeatedly informed these 
banks, as early as 2018, about deficiencies in their liquidity 
and risk management. But instead of taking action, these banks 
ignored the 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 by 
regulators.
    We now need to hold banks and their executives accountable, 
reverse Trump-era deregulation, enhance supervision of banks, 
and reform deposit insurance.
    Thank you, and I yield back.
    Chairman Huizenga. Thank you.
    Today, we welcome the testimony of Mr. Michael Clements. 
Mr. Clements is the Director of GAO's Financial Markets and 
Community Investment Team. He leads GAO's work in overseeing 
the financial markets and the regulators. Mr. Clements led the 
team responsible for preparing the interim report issued by the 
GAO 2 weeks ago, on the March 2023 bank failures.
    Since 1999, Mr. Clements has contributed to GAO's mission 
of supporting Congressional oversight efforts over the 
regulation of the financial banking regulators, and previously, 
the broadband communications and telecommunications industries 
as well.
    We thank you for taking the time to be here today, sir. You 
will be recognized for 5 minutes to give an oral presentation 
of your testimony, and without objection, your written 
statement will be made a part of our permanent record.
    And you are now recognized for 5 minutes.

 STATEMENT OF MICHAEL E. CLEMENTS, DIRECTOR, FINANCIAL MARKETS 
  AND COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE 
                             (GAO)

    Mr. Clements. Good morning, Chairman Huizenga, Ranking 
Member Green, Full Committee Ranking Member Waters, and members 
of the subcommittee. I am pleased to be here today to discuss 
GAO's preliminary work on the March 2023 bank failures, as 
reflected in our April 28th report to the committee.
    As you know, at the time of their failure, Silicon Valley 
Bank, or SVB, and Signature Bank were the 16th- and 29th-
largest banks, respectively, in the country. Their failures 
could impose a $22-billion cost on the Deposit Insurance Fund. 
And while not part of our work, First Republic's recent failure 
could impose another $13-billion cost on the Deposit Insurance 
Fund.
    For today's hearing, I will focus on: one, bank-specific 
factors that contributed to the failures; and two, supervisory 
actions that regulators took leading up to the failures.
    First, the bank failures. We found that risky business 
strategies and weak liquidity and risk management contributed 
to the failures at SVB and Signature Bank. SVB and Signature 
both experienced rapid growth, far exceeding a group of 19 peer 
banks. For example, SVB's assets more than tripled in the 3 
years prior to its failure.
    SVB and Signature also relied heavily on uninsured 
deposits, which are prone to run risks. For example, Signature 
funded 82 percent of assets with uninsured deposits.
    SVB and Signature also exhibited weak liquidity and risk 
management controls. When confronted with external pressures, 
rising interest rates for SVB, and weakening digital asset 
markets for Signature, the risky business strategies and weak 
management contributed to the banks' failures.
    Second, the regulators' supervisory actions. We found that 
the regulators identified problems at SVB and Signature Bank, 
but the regulators did not escalate supervisory actions in time 
to mitigate the risks. Federal Reserve staff who examined SVB, 
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 (MRAs) to SVB for 
liquidity and risk management problems. Likewise, the FDIC 
issued Matters Requiring Board Attention (MRBAs) and other 
supervisory recommendations to Signature for similar problems. 
However, we found that the Federal Reserve and the FDIC did not 
adequately escalate their supervisory actions.
    The Federal Reserve was generally positive in ratings of 
SVB from 2018 through June of 2022, rating SVB's overall 
condition as, ``satisfactory.'' When SVB moved from the Federal 
Reserve's Regional Banking Organization, examiners began 
downgrades. Yet, despite the consistent liquidity and serious 
management problems, the Federal Reserve did not issue an 
enforcement action before the banks failed.
    Likewise, FDIC's ratings of Signature Bank found its 
overall condition was, ``satisfactory,'' from 2018 through 
2021. FDIC staff told us they were considering escalating 
supervisory actions in 2022, including taking enforcement 
actions. However, despite Signature's repeated failures to 
remediate the liquidity and management problems, the FDIC only 
issued enforcement action the day before the bank failed.
    GAO has reported similar findings in the past. In 2015, we 
reported that although regulators often identified risky 
practices, the regulators' process was not always effective or 
timely in correcting the underlying problems at banks.
    Chairman Huizenga. Mr. Clements, I am so sorry. We have 
just gotten notice that they are having a difficult time 
hearing you through the audio, and this is being televised, so 
if you could just pull the microphone a little closer. We can 
hear you fine in the hearing room, but apparently not through 
the television. So, just pick up where you are at; that is 
helpful. Thank you. Sorry about that.
    Mr. Clements. In 2011, following the financial crisis, we 
recommended that regulators consider adding non-capital 
triggers to the prompt corrective action framework to help give 
more advance 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, and members of the 
subcommittee, this completes my prepared statement. I would be 
happy to respond to any questions you may have.
    [The prepared statement of Director Clements can be found 
on page 30 of the appendix.]
    Chairman Huizenga. Thank you, Mr. Clements. We appreciate 
that. We will now turn to Member questions, and the Chair 
recognizes himself for 5 minutes for questioning.
    Again, Mr. Clements, thank you for testifying before our 
subcommittee today. 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, frankly, conducted on 
these bank failures, in my estimation, and I would like to 
start by setting the stage a little bit, starting with how the 
preliminary review was conducted. I understand that you 
conducted interviews with staff from the Federal Reserve, the 
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 or 
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. In follow-up work, which we do tend to complete with 
this, we will be more specific in asking for particular 
individuals with whom to speak.
    In the case of the Federal Reserve, we met with Board staff 
in the Supervision and Regulation Division and also with staff 
from the Federal Reserve Bank of San Francisco.
    Chairman Huizenga. Did you feel like you had full access to 
Agency staff? Were you able to do follow-up with those folks as 
they were getting back with some of these answers? You said you 
had passed those questions along, and they self-identified who 
would be best to answer them. Were you able to interview those 
folks and do some follow-up?
    Mr. Clements. At this point, we just had the one meeting 
with the three agencies. Again, moving forward, we will have 
further meetings with them.
    Chairman Huizenga. Okay. So, were those meetings in person?
    Mr. Clements. They were not. They were virtual.
    Chairman Huizenga. They were virtual, okay. And then, do 
you know if, in the interviews that you conducted, there were 
multiple people on at the same time, or was it with one 
individual at a time?
    Mr. Clements. These were hour-long meetings with the entire 
staff that the agencies had identified for us.
    Chairman Huizenga. Okay. So it was kind of a whirlwind, you 
had everybody on the screen doing this Zoom?
    Mr. Clements. It is what we refer to as an, ``entrance 
conference.''
    Chairman Huizenga. I'm sorry--a what conference?
    Mr. Clements. An entrance conference. It is our 
preliminary, initial meeting with the agencies to go over what 
our work is going to be and some preliminary questions that we 
have for them.
    Chairman Huizenga. So in other words, you were planning on 
doing follow-up?
    Mr. Clements. We do plan additional work once we move 
beyond getting the April 28th report out.
    Chairman Huizenga. This preliminary report, okay. And did 
you feel like the regulators provided you with access to all of 
the documents and the material facts that you had requested in 
a timely manner? What was the turnaround time from when these 
requests were sent in, to when you were actually doing these 
Zoom interviews?
    Mr. Clements. The Agencies were responsive in getting us 
the desired information. We had requested a variety of 
supervisory information--scoping memos, schedules, records of 
exams, supervisory letters. We received all of those, I would 
say, within probably 3 or 4 days. I know the Fed staff was 
working over the weekend to get us that information. So, we 
actually did appreciate the timeliness for this engagement. I 
think they recognized the importance of this work.
    Chairman Huizenga. I am glad to hear they were responsive 
to somebody in this, because we have a number of letters that 
have been out that are lacking that response, frankly.
    Now, I would like to pivot and ask about something specific 
in your report, or rather something that was maybe not in your 
report. GAO is in a position to provide sort of an 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. That is correct. We go back to 1991, or I 
think 1989 might have been our first work, looking at the 
savings and loan community.
    Chairman Huizenga. Savings and loan failures, then. In 
contrast to the GAO report, the report issued by the Federal 
Reserve partially blames the failure of Fed examiners to 
escalate SVB's liquidity and interest rate risk concerns 
quickly on, ``a shift in culture and expectations that changed 
how supervision was executed.''
    From what you saw, was a culture shift referenced in any 
discussions that you had with the Fed staff, or in any of the 
documents that you reviewed over the course of compiling your 
initial report?
    Mr. Clements. I have no basis to say whether there was a 
culture shift one way or the other. Again, we had the single 
meeting with the Fed. The issue of culture was not brought up. 
In fairness, we did not ask it, but they did not bring it up 
either.
    Chairman Huizenga. Okay. But it features prominently in 
their report that there was this culture shift. It seems a 
little odd to me that they would not have brought that up in 
your investigation.
    To your knowledge, was a culture shift mentioned in any 
past GAO work on similar bank supervision issues in 1991 or 
2011 or 2015 or 2019, when you have done some of these other 
reports?
    Mr. Clements. I am not aware of there being a culture 
change. We have previously reported that, in general, examiners 
in the past have taken a cooperative and formal approach with 
agencies, and that has been as early as 1991.
    Chairman Huizenga. Okay. My time has expired. We are going 
to be sending you some additional written questions from me as 
well, regarding the FDIC and trying to make sure that we 
understand the process for both SVB and Signature Bank.
    I now recognize the ranking member of the full Financial 
Services Committee, Ms. Waters, for 5 minutes.
    Ms. Waters. Thank you very much. Mr. Clements, when I 
served as Chair of the Financial Services Committee, I 
investigated the egregious pattern of consumer abuse at Wells 
Fargo and found that regulators failed to use escalating 
enforcement actions to correct the bank's bad behavior, even as 
new and similar abuses emerged. I have legislation that would 
require the bank regulators to impose limits on bank growth, 
divestment, and other penalties for noncompliance. That is why 
I am pleased to hear that regulators like the Consumer 
Financial Protection Bureau (CFPB) and the Office of the 
Comptroller of the Currency (OCC) are beginning to focus on 
ways to ensure that repeat offenders correct their bad 
behavior.
    According to the GAO report, the Federal Reserve and the 
FDIC had been advising Silicon Valley Bank and Signature Bank 
about the weaknesses in their risk management and liquidity 
programs in multiple examinations since 2018.
    Mr. Clements, from your review, did the banks receive 
adequate explanation and information from the regulators to 
know that they had problems, what those problems were, and what 
was needed to fix them?
    Mr. Clements. We certainly saw numerous instances of 
Matters Requiring Attention (MRAs), Matters Requiring Board 
Attention (MRBAs), and Matters Requiring Immediate Attention 
(MRIAs), that laid out issues, and we focused on the liquidity 
and risk management because that was sort of the approximate 
causes of the failures. We did not go on the various other 
consumer angles as well.
    But we have, in the past, reported that the communication, 
the clarity of 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 clarity that 
they do provide to these banks, and their supervisory letters 
are records of this examination.
    Ms. Waters. So Mr. Clements, if the banks had adequate 
information on what the problems were and how to fix them for 5 
years, what were the reasons they offered for not being able to 
correct problems in that time period?
    Mr. Clements. We, in our past work, have seen a couple of 
issues. In some instances, the bank would disagree with the 
finding, and in fact, 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 instances, the bank simply is unable to fix the 
problems, and we certainly saw, in the case of SVB, it agreed 
with the findings, but it was simply taking them a longer time 
than needed to get the problems fixed, and obviously, in the 
interim, the bank failed.
    Ms. Waters. Could you explain a little bit further the 
excuse that the banks were unable to fix the problem, for 
example?
    Mr. Clements. In a number of instances, the bank would 
agree with the problem being cited, but it would simply say it 
was going to take a while to fix the underlying problem. And, 
in fact, in the case of SVB and the San Francisco Fed, they 
agreed that it was going to 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 just raise a question with you that I 
really need to understand further, on the balance sheet. Did 
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? Someone told me that 
for the regionals, it is just a footnote. Can you explain that?
    Mr. Clements. A bank of the size of both SVB and Signature 
is required to mark securities that are considered available 
for sale, mark those to the market value. Any changes in that 
value is an account called, ``other comprehensive income,'' 
where it would be recorded. So, it is being recorded. If the 
securities are held not for sale, then those securities are not 
marked for the market.
    Ms. Waters. Have there been recommendations about how the 
balance sheet should reflect the value of those securities?
    Mr. Clements. I am not aware of any. In our past work, we 
have recommended or reported that it is important to have an 
accurate accounting of the firms, that the bank's financial 
condition be able to have a good sense of its vulnerabilities.
    Ms. Waters. Thank you very much. I yield back.
    Chairman Huizenga. The gentlelady's time has expired.
    The gentleman from Texas, Mr. Sessions, is recognized for 5 
minutes.
    Mr. Sessions. Mr. Chairman, thank you very much. Mr. 
Clements, I would like to continue down the line that the 
ranking member was coming down, and I have the report in front 
of me here and it provides me--and I am sure, other people 
here--a lot of intrinsic information. But it talks about how 
the amount of outstanding shares of advances under the program 
on April 19, 2023, was approximately $74 billion in outstanding 
advances.
    Does that mean that they put all this excessive money that 
they had into a longer-term something that would generate money 
to them, perhaps interest? Is that what you are referring to, 
outstanding advances under the program? It is at the bottom of 
page, I think the first page that I have here says, ``As of 
April 19, 2023, outstanding advances under the program were 
approximately $74 billion.'' Can you describe that to me?
    Mr. Clements. Sure. That is the Federal Reserve's Bank Term 
Funding Program. At the point when SVB and Signature were 
failing, the Treasury made the systemic risk determination, 
which essentially allowed 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 securities 
that they are holding, which would be Treasuries and mortgage-
backed agency securities.
    Mr. Sessions. I am going to keep going here. Maybe, I will 
catch up with myself at some point. But they took an excessive 
amount of money. What did they do with those uninsured risks 
that are being discussed 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 of this money that 
came in?
    Mr. Clements. I think there are two separate issues. There 
is this issue of the Federal program and the $79 billion, which 
it s lending to existing non-failed banks just to help them 
cover their liquidity.
    Mr. Sessions. Whose money was that?
    Mr. Clements. This is the Fed's money.
    Mr. Sessions. The Fed's money. But what about all of this 
money that SVB 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-
2020, SVB grew rapidly, and it grew rapidly through uninsured 
deposits, principally from venture capital-backed firms.
    Mr. Sessions. Right.
    Mr. Clements. It used those funds to purchase what, in 
theory, would be safe securities--
    Mr. Sessions. Long-term Treasuries?
    Mr. Clements. --Treasuries, mortgage-backed securities, 
agency securities.
    Mr. Sessions. And then, they marked those that they were 
going to, over the long run, be getting back money. And they 
got pulled out early to where there was an unrealized--
    Mr. Clements. Correct. So, they held those securities. 
Unfortunately, they had invested in longer-term securities, had 
not hedged the securities, and when the interest rates started 
going up, the value of those securities dropped. About the same 
time, the venture capital tech industry started pulling their 
deposits because they were no longer getting a bunch of 
funding.
    Mr. Sessions. They maybe pulled them out--
    Mr. Clements. The deposit base started falling. The bank 
eventually needed to start selling those securities, and it was 
selling them at a loss. At some point, depositors and other 
investors got spooked.
    Mr. Sessions. But what it would have expected to have 
received.
    Mr. Clements. Correct.
    Mr. Sessions. Are you saying they lost money, or did not 
realize what they thought they were going to get and so they 
booked it as a loss?
    Mr. Clements. They lost money, because the value of the 
securities had dropped as the interest rates--
    Mr. Sessions. They lost money.
    Mr. Clements. Yes.
    Mr. Sessions. Okay. I am clear. This is what I thought 
coming into this, but I did not understand that most of this--
am I at my time, Mr. Chairman?
    Chairman Huizenga. Yes. You can complete your thought.
    Mr. Sessions. My point is--
    Chairman Huizenga. We will have a light gavel today.
    Mr. Sessions. Thank you, because I think the ranking member 
will want to get to this. Who was that held by? Treasury? Most 
of these assets?
    Mr. Clements. The securities were held by the bank, by SVB.
    Mr. Sessions. Right.
    Mr. Clements. So again, it took in money in deposits and 
invested that money in long-dated Treasuries and 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, and sold them at a loss.
    Mr. Sessions. I got it. That is what I thought happened 
too, but you connected it for me. Mr. Chairman, thank you very 
much.
    Chairman Huizenga. Thank you, and we will be mindful of the 
time on both sides.
    Mr. Horsford, you are recognized for 5 minutes.
    Mr. Horsford. Thank you, Mr. Chairman, and thank you to the 
ranking member of the Subcommittee and the ranking member of 
the Full Committee. And thank you to Director Clements for 
taking the time to discuss this important report, and for the 
GAO'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 
insights provided point to serious deficiencies with both 
supervisory practices as well as management's reaction to 
glaring issues. Actually, it would be more fitting to describe 
it as management's inaction to the warning signs that were 
flashing when it came to even the most rudimentary risk 
management.
    And 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 side's unwillingness to 
raise the debt limit, ``a crisis characterized by spiking 
interest rates and plunging equity prices, including home 
equity, would be ignited. Short-term funding markets, which are 
vital for the liquidity backing long-term mortgages would 
likely shut down completely. There would be a rapid and 
complete tightening of credit at regional and community banks, 
which would no longer be able to accurately price their 
Treasury bills or use them as high-quality collateral. Since 
these banks do the bulk of mortgage lending, the mortgage rates 
would 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, and whose financing ability is being 
jeopardized because of Kevin McCarthy and the default on 
America proposal that is holding America ransom in paying its 
bills.
    Mrs. Wagner. --to the Chair.
    Mr. Horsford. Excuse me. I have the floor.
    Mrs. Wagner. I have a parliamentary inquiry.
    Chairman Huizenga. There is a parliamentary inquiry, which 
is appropriate.
    Mrs. Wagner. The gentleman needs to make his remarks to the 
Chair, not to individuals.
    Mr. Horsford. That has nothing to do with this--
    Chairman Huizenga. Just a moment. The Chair did not hear a 
reference to another Member.
    Mr. Horsford. I reclaim my time.
    Chairman Huizenga. Just a moment.
    Mr. Horsford. I reclaim my time.
    Chairman Huizenga. Just a moment. There was not a reference 
to another Member. It was not that. He was talking about the 
Speaker, so the Chair does not see the problem.
    Mrs. Wagner. By name.
    Chairman Huizenga. By name. Correct. So it is noted, and 
the gentleman may continue.
    Mr. Horsford. Clearly, I have hit a nerve, because this is 
about the American people and their finances, which are being 
held hostage because of a ransom note that is being offered by 
Kevin McCarthy and the default on America proposal that they 
have 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 
catastrophe that is weeks away, and we know it. We have a 
responsibility as Congress to manage risk, and we are failing 
to do our job.
    Now, let me make it clear: Republicans are failing to do 
their job. So, I am asking that we use the time of our 
committees to focus on the crisis that is 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.
    Mr. Clements, you primarily focus on the failure of 
regulators to adequately escalate their supervisory concerns, 
and we certainly have some work to do bolstering supervisory 
escalation. However, I found the sections in the report focused 
on management's unwillingness to address repeated shortcomings 
just as alarming. For example, if Silicon Valley Bank's board, 
which I would say is the Congress right now, is unwilling or 
unable to, as you say, ``provide effective oversight of 
implementation of the risk management framework,'' 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 
supervisory letters fall on deaf ears, as we are hearing 
economists tell us today. Specifically for Silicon Valley, I am 
particularly--the other side went for more than a minute the 
last time. I am just using--
    Chairman Huizenga. The Chair is very aware of the timing. I 
am giving you a tap of wrapping it up.
    Mr. Horsford. If the Federal Reserve is correct in their 
report statement that Silicon Valley Bank's management was 
focused on the short-run impact of profits, in this report it 
is mentioned that Silicon Valley Bank did take steps to revise 
its incentive compensation programs, but evidently--
    Chairman Huizenga. The gentleman will suspend.
    Mr. Horsford. --they failed to do so.
    Chairman Huizenga. The gentleman will suspend. If we are 
going to play that game, we will play that game.
    The gentlelady from--
    Mr. Horsford. The only game being played is by the other 
side failing to do its job.
    Chairman Huizenga. The gentleman is not--
    Mrs. Wagner. Order--
    Mr. Horsford. I do not mind being out of order.
    Chairman 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 lines of the ranking member's. 
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--just a moment--as you are 
demanding that Congress act. So, lead by example, everybody.
    Ms. Waters. Parliamentary inquiry.
    Chairman Huizenga. Yes, ma'am.
    Ms. Waters. Parliamentary inquiry. Are you going to afford 
to every member of the committee an additional minute?
    Chairman Huizenga. No, I will not. We will be adhering to 
the exact 5 minutes from now on. It has been even on both 
sides.
    Ms. Waters. Chair--
    Chairman Huizenga. Everyone is--
    Ms. Waters. I would caution you not to imply that--
    Chairman Huizenga. The ranking member is--
    Ms. Waters. --Members are not acting like adults. I do not 
think that is a credible statement.
    Chairman Huizenga. The ranking member will suspend. That 
comment was to all sides, and everybody watching, as we are on 
television. Let us present to the American people that we can 
actually act like adults at this table, everyone.
    Ms. Waters. I think we are, and we do not need you to 
admonish us.
    Chairman Huizenga. Thank you for your commentary.
    Ms. Waters. And thank you.
    Chairman Huizenga. And with that, the gentlelady from 
Missouri, Mrs. Wagner, is recognized for 5 minutes.
    Mrs. Wagner. Thank you. Thank you, Mr. Chairman. And I 
would remind my good friend from Nevada, Mr. Horsford, that 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 the 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 we are 
currently seeing right now.
    So, I would remind us all once again that it is the 
Republican House that passed a debt ceiling. Thank you very 
much.
    Mr. Clements, I want to thank you for appearing before us 
today, and certainly for GAO's very quick work in preparing 
this thorough and independent report on the March 2023 bank 
failures.
    Over the past 2 months, this committee has gathered more 
information about the management failures within these banks 
and the blatant lack of urgency for many years by Federal 
regulators 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 
preventable failures to occur.
    Mr. Clements, on page 23 of your report you note that the 
Federal Reserve Bank of San Francisco did not recommend the 
issuance of a single enforcement action against SVB, despite 
the bank's serious liquidity and management issues. On March 
29th, Vice Chair Barr stated that there were seven supervisory 
determinations raised, but we have now come to learn that since 
2018, there were actually 15 related liquidity and risk 
management issues.
    After 15 MRAs and MRIAs had been issued, did you agree that 
escalating supervisory actions should have happened sooner, 
sir?
    Mr. Clements. Yes.
    Mrs. Wagner. Thank you. What is the GAO's perspective when 
it comes to this slow-to-act pattern we are seeing from Federal 
regulators?
    Mr. Clements. Again, this has been a pattern going back to 
1991. Following the financial crisis in 2011 we had similar 
findings. We have, in the past, recommended trigger mechanisms. 
For example, if a particular measure is hit or if there are 
multiple instances of not resolving a problem, that would force 
an escalation.
    Mrs. Wagner. And enforcement must happen, after so many 
citations having been given out year after year after year 
after year. Mr. Clements, in your work, did the GAO see a 
notable shift in how SVB was supervised, particularly as it 
rapidly grew in size from a bank of approximately $71 billion 
in assets in 2019, to over $200 billion in 2022? What were 
those differences?
    Mr. Clements. There was a shift. Under $100 billion, SVB 
was overseen by the Regional Banking Organization at the Fed. 
Once it passed over that threshold, it moved to the Large and 
Foreign Banking Organization. At that point, the number of 
examiners expanded rapidly; I think it got up to around 20 
examiners looking at the bank, doing very targeted samples--
    Mrs. Wagner. But these liquidity and risk management 
citations that were issued went all the way back to 2018, sir.
    Mr. Clements. That is correct.
    Mrs. Wagner. Okay. In the report, the Fed cited the 
pandemic as one of the factors explaining why the agency failed 
to properly supervise SVB. Yet, according to the Fed's November 
2020 Supervision and Regulation Report, ``Reduced examination 
activity only lasted for 3 months, from late March to mid-June, 
with the greatest reduction occurring at the smallest banks.'' 
Do you think the 3-month pause was a significant contributor to 
the Fed's challenges in escalating SVB's known supervisory 
issues?
    Mr. Clements. I think the pause is separable from the 
decision to escalate. There were a number of warning signs 
along the way. Clearly there was the combination of the 
pandemic and their switch between regulatory divisions causing 
that.
    Mrs. Wagner. Three months only, and mainly the smallest 
banks.
    I have a couple more questions, Mr. Clements, but I am 
going to adhere to the clock and decorum, and I will yield back 
the rest of my time, Mr. Chairman, and I thank you.
    Chairman Huizenga. The gentlelady yields back. The 
gentlewoman from Georgia, Ms. Williams, is recognized for 5 
minutes.
    Ms. Williams of Georgia. Thank you, Mr. Chairman.
    In our Full Committee hearing on the failures of Silicon 
Valley Bank and Signature Bank on March 29th, I reminded 
everyone listening of the regular, hard-working people who are 
impacted by these failures. I want to continue to center on 
these same people that these failures of SVB, Signature Bank, 
and now First Republic bank have affected.
    As the Congresswoman for Atlanta, the City with the largest 
racial wealth gap in the country, I am focused on how we can 
prevent future bank failures that disproportionately impact 
marginalized communities. We have regulators--the OCC, the Fed, 
and the FDIC--to monitor banks' behavior and practices and 
ensure repeat offenders correct their bad behavior. Regulators 
repeatedly warned SVB and Signature Bank about their weak risk 
management and liquidity issues.
    In fact, regulators identified numerous Matters Requiring 
Attention and Matters Requiring Immediate Attention regarding 
the liquidity and risk management of SVB and Signature Bank. 
These warnings were not sufficiently acted upon, and as a 
result, many small business owners, including Black 
entrepreneurs from Atlanta, were faced with the possibility of 
not being able to make payroll. If entrepreneurs of color 
cannot trust that the bank regulators are taking serious action 
to ensure that their banks are safe, then how are they supposed 
to build their businesses and create wealth in communities like 
Atlanta?
    Mr. Clements, how can regulators ensure that Matters 
Requiring Attention and Matters Requiring Immediate Attention 
are appropriately addressed by banks?
    Mr. Clements. Yes, 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. It was our recommendation in 
1991, and then again in 2011, to have some type of trigger 
mechanism so that if the problem is serious enough or if there 
are multiple instances where the problem is not getting 
resolved, it would automatically require enforcement action.
    Ms. Williams of Georgia. How does that impact the 
escalation framework? How can regulators improve their 
escalation framework for regional banks?
    Mr. Clements. Again, I think it takes some of the 
discretion away from the regulator by requiring particular 
enforcement action if a particular trigger has been met.
    Ms. Williams of Georgia. And how could those improvements 
be applied or adapted and then applied to larger banks, 
especially the banks considered too-big-to-fail?
    Mr. Clements. In our work, I think we would apply those 
standards throughout, having a trigger, again, if particular 
conditions are met that would require either an informal or a 
formal enforcement action, or other escalations of supervisory 
actions.
    Ms. Williams of Georgia. GAO's preliminary review states 
that in the years prior to 2023, the Federal Reserve and the 
FDIC identified what turned out to be key drivers of bank 
failures--liquidity and management risk. However, according to 
GAO, neither regulators' actions resulted in the banks' 
management sufficiently mitigating the risks that contributed 
to the banks' failures.
    Mr. Clements, based on the GAO's review, can we determine 
whom is at fault here? I see three potential options, and I 
would like your thoughts on which is the most accurate 
portrayal of fault. Was it the inability of the banks to 
mitigate risk due to the failure of regulatory agency officials 
to adopt examiner recommendations for corrective actions? Was 
it the banks' failure to effectively institute the corrective 
actions directed by the agencies? Or was it the banks' failure 
to effectively institute the corrective actions directed by the 
agencies, combined with the agencies' failure to take strong 
action the when banks' responses were insufficient?
    Mr. Clements. At the end of the day, it is the bank's 
responsibility to manage the organization in a safe and sound 
manner. At the same time, we would expect that if a supervisor 
is seeing problems, and they are repetitive, that more forceful 
action would be taken.
    Ms. Williams of Georgia. As we sit here less than 2 weeks 
after the failure of the First Republic Bank, and 2 months 
after the failures of SVB and Signature Bank, the second-, 
third-, and fourth-largest bank failures in the country's 
history, I am concerned about the possibility of yet another 
bank failure that would impact my constituents, one that could 
have even more disastrous effects.
    I would like you to speak to what Congress should take away 
from the GAO preliminary report.
    Mr. Clements. Again, at the end of the day, it is a bank's 
responsibility to manage the organization. However, we think 
that if there are repeated problems or serious problems, 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 
described illiquidity at SVB, and they said it was going to 
take a while for SVB to fix the problem because it was so big, 
the natural question you ask yourself is, why did it become so 
big?
    Ms. Williams of Georgia. Mr. Clements, my time has expired, 
but I have many more questions that I would like to submit to 
you in writing for the hearing record.
    Chairman Huizenga. The gentlelady is allowed to do so.
    With that, the gentleman from Tennessee, the Vice Chair of 
this subcommittee, Mr. Rose, is recognized for 5 minutes.
    Mr. Rose. Thank you, Chairman Huizenga, and Ranking Member 
Green, for holding this hearing on what is obviously an 
important topic. I want to dive right in.
    Director Clements, in response to a question from Chairman 
Huizenga earlier, you mentioned that there were multiple people 
in the interviews between the GAO, the FDIC, and Fed staff. 
Director Clements, were staff conferring with counsel during 
these interviews?
    Mr. Clements. Traditionally, the agencies would have their 
General Counsel's office there.
    Mr. Rose. So, they were conferring during these particular 
interviews?
    Mr. Clements. The staff spoke freely to us, but it is 
fairly common for somebody from the legal division to be 
present at these meetings.
    Mr. Rose. Okay. Thank you.
    Mr. Clements. Not simply these meetings, but in general.
    Mr. Rose. First Citizens Bank's stock has nearly doubled 
since acquiring Silicon Valley Bank, but the FDIC capped its 
potential gain on First Citizens stock at $500 million, which 
to me seems 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 takes over a bank before making a 
bid, because they can get a better deal once they are in 
conservatorship. Why buy the cow when the milk is free, so to 
speak.
    So Director Clements, did GAO review the terms of the 
offers that were submitted to the FDIC?
    Mr. Clements. We did not have time to get to that level of 
detail. I do know that in the request from the committee, there 
is interest in those topics.
    Mr. Rose. Going forward, would you commit to reviewing that 
issue, these issues of offers that are considered but not 
accepted?
    Mr. Clements. I think, and again, we are working with the 
staff, to sequence with the committee staff, to sequence our 
range of work, so that is certainly something we can consider.
    Mr. Rose. Okay. The FDIC and the Federal Reserve staff told 
the GAO that as SVB and Signature Bank failed, they conducted 
analyses and worked closely together, including exchanging 
drafts of the recommendations to invoke the Systemic Risk 
Exception (SRE) for the two banks. 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 GAO report notes that Treasury staff 
consulted regularly with the FDIC and the 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?
    Mr. Clements. I do not have the specific details on that. 
They certainly told us that there were conversations between 
the three agencies over that weekend, as each were doing their 
own analyses.
    Mr. Rose. Thank you. The GAO report notes that you will be 
moving forward with more work on this issue as we move 
throughout the year. As I am sure you are aware, in the United 
States we have a Financial Stability Oversight Council (FSOC), 
which is charged, by statute, with identifying risks 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 Director Clements, would the GAO commit to conducting a 
review of FSOC's actions during these bank failures?
    Mr. Clements. We actually currently have ongoing work 
looking at FSOC. I am aware that 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 non-binding.
    Mr. Rose. I hope you do continue to look at that. Some have 
argued that Signature Bank's involvement with digital assets 
customers somehow contributed to its subsequent failure. There 
also appear to be competing views from the FDIC and the New 
York State Department of Financial Services in their recent 
reports about the role digital assets played in Signature's 
failure.
    Did GAO review whether Signature Bank's customer base 
contributed to its failure?
    Mr. Clements. We looked at the supervisory letters and 
records of examinations. We certainly saw instances where there 
were large deposits from the digital assets space. But again, 
it was simply holding the deposits in operating accounts for 
those entities. Following some of the turmoil in 2022, in 
particular FTX, some of those deposits did start falling off.
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Rose. I hope you will dig into that issue. Thank you, 
and I yield back.
    Chairman Huizenga. The gentleman's time has expired. The 
gentlewoman from Michigan, Ms. Tlaib, is recognized for 5 
minutes.
    Ms. Tlaib. Thank you so much, Mr. Chairman. And thank you, 
Director Clements, for this report to kind of really dig deeper 
into this. I get a lot of questions regarding the lack of 
transparency of fully understanding this.
    Did you look at the timeline of some of the compensation 
and payouts and things like that, which led up to the failure?
    Mr. Clements. We have not gotten to that. We do know that, 
again--
    Ms. Tlaib. Is that something you would look into?
    Mr. Clements. It is one of the requests that is in the 
letter that we received from Chairman McHenry and Ranking 
Member Waters.
    Ms. Tlaib. That would be wonderful. One of the things that 
my good colleague was talking about is regarding regulators, 
and you said it is not binding. When was the first time the 
regulators said, ``Something is going on, could you call us 
back?'' 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, they tell them whatever. 
Can they go arrest them? Can they fine then? What can they do 
to make them respond?
    Mr. Clements. The recommendations in the annual report are 
nonbinding. They 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 
do not know if you can answer this question, why did the banks 
take on the risks and ignore repeated warnings? Why? Why ignore 
the Federal Government and their warnings?
    Mr. Clements. I do not have a good answer to that.
    Ms. Tlaib. I think bankers know how to manage risks. They 
are not stupid. I just think they are greedy, and senior 
employees promoted unsound practices and ignored risks because 
they stood to benefit from it. Look at the timeline, Director, 
when you do this next follow-up report. SVB offered some of the 
most-generous compensation packages around. Look at it. Compare 
it to other banks.
    In 2022, CEO Greg Becker'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 SVB's net 
income, even when the warnings were coming in.
    This helps explain to me why, during 2022, SVB terminated 
close to $15 million in interest rate swaps that hedge against 
the impact of rising rates. The same bank started in 2023 
almost completely unhedged because, for senior employees, 
higher net income meant higher compensation. Correct?
    Mr. Clements. I am not familiar with their arrangements. 
Again, that would be something we could look at.
    Ms. Tlaib. The timeline is critically important, because 
you can see how it led up, but they still got benefits. They 
still won, even though, again, this is impacting now other 
banks, and really people, the payroll, small businesses, and so 
forth.
    Last year, Signature Bank CEO Joe DePaolo received over $8 
million in total compensation. Mr. Clements, do you think that 
compensation incentives contributed to the poor risk management 
by the banks?
    Mr. Clements. I do not have a basis to answer that at this 
point.
    Ms. Tlaib. I know you can't. I just really love to ask that 
question.
    I think in the report, one of the things in the Dodd-Frank 
Act, and it is something that our committee has been 
wonderfully educating me on, but Section 956--it has been, 
what, 12 years, and they have not implemented it. Can you, in 
your role, Director, look at the impact of not implementing 
Section 956 of the Dodd-Frank Act?
    Mr. Clements. We can certainly take a look at that.
    Ms. Tlaib. Yes, 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, again, hold them accountable, because they 
are just not going to respond. There is 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 basically expose the greed. But unless we give the 
authority and kind of the force and the binding force for our 
regulators to do something about it when folks do not respond, 
other banks are going to do the same; they are just not going 
to respond to us. They are just going to continue doing this 
kind of really crooked, very criminal-like, actually, set up so 
they can benefit and get more compensation. They sold the stock 
when they knew it was--they knew and they never informed us. To 
pick up the phone, and tell us, ``Hey, sorry. Tomorrow, we are 
closing shop.'' Why isn't anybody more mad at the banks? They 
have literally just ignored the American people when they 
ignored the regulators.
    Thank you. I yield back.
    Chairman Huizenga. The gentlelady's time has expired. The 
gentleman from Pennsylvania, Mr. Meuser, is recognized for 5 
minutes.
    Mr. Meuser. Thank you, Mr. Chairman. Mr. Clements, you are 
the Director of GAO's Financial Markets and Community 
Investment team. I want to just ask you first a couple of quick 
questions. In 2021 and 2022, this Congress overspent by over $5 
trillion, with policies that caused huge spikes in energy, 
causing high levels of inflation, and in turn, we got much 
higher interest rate escalation, rattling the economy, and 
crushing pension funds and disposable income.
    Do you think the American people trust Congress with a 
blank check, moving forward, particularly when it is the 
American people who have to pay the bills?
    Mr. Clements. I do not think I am qualified, honestly, to 
answer and to direct that question.
    Mr. Meuser. Okay. Thank you. According to a report, the SVB 
was downgraded on June 30, 2022, by the Federal Reserve Bank of 
San Francisco, due to concerns about its liquidity risk 
management, from a May 22nd review. Your report states that the 
Federal Reserve Board's team was still working on how to 
address this issue when SVB failed in March of 2023.
    Is it not true that the regulators have discretion for 
oversight on such banks, regardless of the S. 2155-set 
thresholds, if there are red flags--they have all kinds of 
discretion?
    Mr. Clements. The regulators have options to do supervisory 
letters, recommendations, information, and formal enforcement 
actions, including civil monetary penalties.
    Mr. Meuser. Okay. So, blaming it on S. 2155 would head us 
down the wrong direction and we would never actually 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 
enhanced prudential standards, so I do not want to prejudge 
where we might come in on that.
    Mr. Meuser. Thank you. GAO also points out in its report 
that the San Francisco Fed gave SVB a 7-month extension to 
address a November 2021 deficiency. A key finding from the 
report was that the regulators did not escalate supervisory 
actions to mitigate key risks associated with the bank failure. 
Specifically, you state that the San Francisco Fed lacked 
urgency, the San Francisco Fed did not recommend the issuance 
of a single enforcement action despite the bank's serious 
liquidity and management issues before the bank's failure. Why 
do you think that is?
    Mr. Clements. Again, this has been a repetitive problem 
going back to the 1990s and the early 2000s, and now the 
regulators, in general, favor an informal, cooperative process. 
It also is a little challenging if a bank is profitable, has 
adequate capital, to then suggest to the bank that it needs to 
stop behaviors that the regulator thinks are potentially risky. 
So, there are a variety of issues that could affect it. Again, 
I think we looked at this environment and saw numerous 
instances where escalation probably was warranted.
    Mr. Meuser. But your report does say the supervisory teams 
blamed tailoring reform under S. 2155 for these failures. We 
know that the Fed and the FDIC have discretion regardless of 
those thresholds, as mentioned earlier, to address, 
investigate, and perceive potential or discovered problems. Why 
didn't they, and why would they blame it on something that 
really did not stand in the way in the first place?
    Mr. Clements. Again, I think it is the standard, what we 
have seen in the past, which is a hesitancy to take more-
aggressive actions.
    Mr. Meuser. Okay. 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 do not 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. No, I am talking about now, and I believe they 
are, based upon my research and knowledge and discussions and 
financial discussions with community banks. You do not feel 
that the community banks would be better managed than these 
banks that have failed, SVB, First Republic, and Signature?
    Mr. Clements. In the case of these two banks, they are 
obviously better managed than the two that failed.
    Mr. Meuser. Okay. What about regional banks? Do you think 
they are managed better?
    Mr. Clements. We have not done any work for me to be able 
to opine on their management.
    Mr. Meuser. Okay. Well, state of affairs then. These banks 
have been rattled by all of this, this bailout that occurred 
with SVB, and now community banks are concerned that they may 
bear the brunt in higher FDIC fees, and that is unnerving some 
of their depositors. Do you think that is undue, unnecessary? 
What are your thoughts?
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Meuser. I yield back, Mr. Chairman. Thank you.
    Chairman Huizenga. And Mr. Clements, you will be able to 
answer that question in writing.
    With that, the gentlewoman from Texas, Ms. Garcia, is 
recognized for 5 minutes.
    Ms. 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, and the first one is that the 
President has lowered the deficit by $1.7 trillion--$1.7 
trillion--in his first 2 years in office. So, 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 were the only ones who have 
passed anything is probably true, but what is not said is that 
it is 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, they would impact our veterans, our 
teachers, and it would create more job losses. That is the 
reason many of us cannot support that.
    There has always been a raise of the debt ceiling, hundreds 
of times. In fact, every year since World War II, it has been 
raised. Only because it is this President and this year do we 
see so many concerns about making cuts before or doing it 
together.
    We do not have any problem with making some cuts. They just 
should not be tied to the raising of the debt ceiling. It 
should be a debt ceiling that is clean, one that has been done 
so many times before, including for former, twice-impeached 
President Trump. Many of the people talking about this issue 
now did that last time, so where were they then, making some of 
these comments?
    Second, I am glad that we are having this hearing, but I 
wonder, Mr. Chairman, when we are going to really focus on the 
root causes of what caused some of these failures, and when we 
are 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 who 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 drawn to the response that you gave 
the ranking member when she asked you about some of the reviews 
that are done by the examiners, and you said that you were told 
that, ``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 audit? I was the City 
Controller of Houston, and I oversaw a $2.3-billion budget. We 
did audits. If somebody told us, ``Oh well, it is going to take 
us a while to fix the problem,'' the first thing we would say 
is, ``What is your timeline for getting it fixed?'' Did we see 
any of that, or did the examiners just kind of say, ``Oh, okay, 
fine. You all fix it?''
    Mr. Clements. That occurred in the 2022 timeframe. As I 
think we mentioned in the report, starting in August, the San 
Francisco Fed and the Federal Reserve itself--
    Ms. Garcia. But let's get to my question, sir. Were they 
given a timeline, something that told management to respond, to 
take corrective action, that we are going to be back? Were 
examiners back to make sure that they did what they promised to 
do, or was it just let go?
    Mr. Clements. In many instances, the supervisory letters 
did detail what needed to be done and the timeframes. But 
again, for some of these larger issues, it appeared that the 
dates were allowed to slip.
    Ms. Garcia. Things were allowed to slip. That is part of 
the root of the problem, is it not, if things were allowed to 
slip? Can you give us an example of what was so major that they 
could not do it immediately and take corrective action that 
would, ``take time to fix a problem?''
    Mr. Clements. A concern was principally about the liquidity 
and the governance of the liquidity and the liquidity controls 
at SVB.
    Ms. Garcia. So, they did not 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. Right. And let me ask you, because there has 
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. There is a mix depending upon, that Signature 
and SVB are a little bit different because they are dealing 
with different States and how they managed those relationships. 
For the most part, the Federal regulators were the ones in 
charge.
    Chairman Huizenga. The gentlelady's time has expired.
    Ms. Garcia. Thank you. I yield back.
    Chairman Huizenga. The gentleman from Tennessee, Mr. Ogles, 
is recognized for 5 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, there is no intent to 
impact Social Security or Medicare, nor are we going to impact 
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, he said it was the normal political order 
of things to do so. So Mr. Chairman, I did want to just set the 
record straight.
    I know we have talked a lot about this, and I do not want 
to beat a dead horse, and we do have the benefit of kind of 
after-action or the rear-view-mirror approach. But as you look 
at some of the high marks, the satisfactory marks that were 
given to SVB, you mentioned the hesitancy and the difficulty it 
is for the regulator to step in, if you will. But, in part, 
isn't that their job?
    Mr. Clements. It is the purpose of supervisory regulation 
to ensure that banks operate in a safe and sound manner.
    Mr. Ogles. As we look forward, and keep in mind that the 
small and mid-sized banks--there are roughly 4,700 doing it 
right, so we do not 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 is, 
quite frankly, preventing them from doing their job in a timely 
fashion?
    Mr. Clements. I think that is where we think triggers come 
into play, that if a particular measure exceeds a threshold or, 
in these cases, where there have been MRAs, MRIAs, MRBAs, 
multiple times, that triggers an action. The regulator would 
then be required to take action, rather than continuing to wait 
and trying to work through a problem.
    Mr. Ogles. And again, I am not going to ask you to second-
guess the regulators in these specific instances, but when you 
look back, all the way going back to, for SVB, 2018, there were 
clear signals and signs that there was a problem. But yet, 
fast-forward 4 years later, and nothing was happening in a 
timely fashion.
    Again, if you were to lay out a roadmap of, how do we 
improve the process, what timelines might you map out for the 
regulators to say, here is a problem, yes, they are profitable, 
however, you have increased liquidity risk. Yes, you are 
profitable. However, you have this flight risk as you move 
forward. What would you see those triggers looking like?
    Mr. Clements. In the past, we have recommended that the 
regulators and industry work together to find out what would be 
the best practices to ensure that there is adequate action, but 
you do not want action for a bank that is healthy, and that the 
regulator thinks, well, perhaps the problem will occur, because 
then you end up imposing unnecessary costs and burdens on that 
institution. So, the regulators and industry working together 
to come up with adequate measures and benchmarks.
    Mr. Ogles. I have said it once, and I will say it again: 
Ronald Reagan said that the scariest phrase in the American 
language, and I will paraphrase it, is, ``I am from the 
government, and I am here to help.'' And I think as we move 
forward, we have to be cautious about 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. When you look at, again, the timeline of 
when the draft is taking place in the previous year, and 6 
months later, the draft is still being drafted, and meanwhile, 
SVB collapses, is that acceptable on the part of the regulators 
to take 6 months to draft a letter? I am no Shakespeare, but I 
can write a letter in a more-timely fashion than 6 months, even 
if I am having to research data points.
    Mr. Clements. I think we had the concern, and again, that 
is why we talked about a lack of urgency and timely action. In 
that case, obviously, 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 
MRIAs and MRAs finding those problems that they could have 
moved forward with more urgency.
    Mr. Ogles. In 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 
recommendations, and formal and informal enforcement actions, 
again, up to and including civil monetary penalties.
    Mr. Ogles. Yes, sir. Mr. Chairman, I yield back.
    Chairman Huizenga. The gentleman yields back. With that, 
the ranking member of the subcommittee, the gentleman from 
Texas, Mr. Green, is recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. Mr. Director, you are 
not here to tell us that the banks are not responsible, are 
you?
    Mr. Clements. The bank management is responsible for 
operating the--
    Mr. Green. The bank management.
    Mr. Clements. --bank in a safe and sound manner.
    Mr. Green. Yes. And you are here to tell us that these bank 
managers mismanaged the banks' business. Is that a fair 
statement?
    Mr. Clements. The records we saw were numerous instances of 
at least liquidity and risk management problems that had been 
identified going back to 2018.
    Mr. Green. You have said that the regulators were calling 
things to their attention that you thought should have been 
dealt with, and you have 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 for resolving the 
problems that the supervisors identify, and that is the bank 
side. The supervisory concern is when nothing happens--
    Mr. Green. Excuse me. Let's 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 did not want to prejudge. You would 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. Now knowing this, that it has plenty 
of authority, you are not saying that they have enough 
authority, are you? Because enough would mean that you would 
not have the time to review.
    Mr. Clements. The committee's request is for us to look at 
enhanced prudential standards and we can do that.
    Mr. Green. Are you saying that the regulators have enough 
authority and that nothing more should be done?
    Mr. Clements. I am not in the position right now to judge 
whether--I am saying they have authority.
    Mr. Green. They have authority. But you are not saying they 
have enough authority, are you?
    Mr. Clements. I think we would need to do additional work 
in that space.
    Mr. Green. To determine?
    Mr. Clements. Correct.
    Mr. Green. So today, you are not saying they have enough 
authority?
    Mr. Clements. We are saying they have authorities. We 
need--
    Mr. Green. But they do not have enough.
    Mr. Clements. --to conduct additional work.
    Mr. Green. You don't know that they have enough.
    Mr. Clements. I cannot, at this point, say that they have 
enough.
    Mr. Green. Okay, that is fair enough. You cannot, at this 
point, say that they have enough. And it is important for you 
to say this, Mr. Director, because the other side is making the 
case for enough authority. They are making the case for the 
status quo. They are making the case for banks to be able to do 
what Silicon Valley did. We are making the case for doing 
something that can have an impact on the people who have the 
responsibility to manage the depositors' money. They are 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 it is an adverse conclusion, can it have an 
impact on their decisions?
    Mr. Clements. It is a factor in the supervision of 
organizations.
    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. Supervisory tests are an important element.
    Mr. Green. I understand, but let's talk about the stress 
test.
    Mr. Clements. Yes.
    Mr. Green. Okay. Thank you.
    Mr. Clements. It is--
    Mr. Green. And 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 who 
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. It is not unusual for us to bring up 
issues that relate to the business of the Congress but do not 
necessarily relate to the business of a given hearing. And I 
thank Mr. Horsford for what he did. He is upset because we may 
be facing a default, that may cause a collapse of our economy.
    I yield back.
    Chairman Huizenga. The gentleman's time has expired. In 
accordance with committee rules, we do allow non-subcommittee 
members to waive on for questioning, and we will be doing so 
with the gentleman from Kentucky, Mr. Barr, who is also the 
Chair of our Subcommittee on Financial Institutions and 
Monetary Policy. So with that, the gentleman from Kentucky has 
5 minutes.
    Mr. Barr. Mr. Chairman, thank you. Thanks for allowing me 
to waive on. I want to start off by thanking the GAO, Mr. 
Clements, and your team for putting out a timely, nonpartisan, 
apolitical report that is external to the self-assessments we 
have seen from the Fed and the FDIC, that do not give a 
complete narrative. I think it is vital that we have an 
unbiased, external report that helps inform the American public 
and the Congress. I also want to thank my good friends, Mr. 
Green and Mr. Horsford, for raising the important, preeminent 
issue facing the Congress, and that is raising the debt limit, 
and avoiding default. And I would just 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 Bank's 
failure, about the large concentration of uninsured deposits in 
a single sector?
    Mr. Clements. There was concern. We certainly saw concerns 
raised.
    Mr. Barr. So, there was evidence that they raised that 
concern?
    Mr. Clements. Correct.
    Mr. Barr. Okay. I believe the Fed report that I have 
reviewed, their self-assessment, they say in here that Silicon 
Valley Bank crossed the Regional Bank Organization portfolio to 
the Large Bank Organization portfolio within the Federal 
Reserve structure in February of 2021. Is that correct? That is 
what the Fed says.
    Mr. Clements. I do not have the specific dates.
    Mr. Barr. Well, that is what the Fed says. The Fed says 
that they crossed that supervisory threshold almost 2 years 
before the bank's failure.
    Mr. Clements. I think it was certainly the case in our 
report. I think we might say June, but it is somewhere in the 
2021 timeframe.
    Mr. Barr. The Fed says they crossed that threshold in 
February 2021. So, in other words, enhanced prudential 
standards applied to this institution, as a large institution, 
according to the Fed's own determination, 2 years before the 
bank failed. Is that correct?
    Mr. Clements. It would have been a Category 4 firm at that 
time.
    Mr. Barr. Right. And that is enhanced prudential standards, 
under Dodd-Frank, as amended by the bipartisan Regulatory 
Relief Law of 2018.
    Mr. Clements. Correct, at that point it is subject--
    Mr. Barr. As implemented by the Fed, that $100-billion 
threshold.
    Mr. Clements. Correct, and then there is tailoring above 
that level.
    Mr. Barr. Sure. But in this case, this bank, under Fed 
regulations implementing Dodd-Frank, 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, 2 years before the bank 
failed.
    Mr. Clements. That is correct. In 2021, it got into that 
group and was subject to large foreign institutions.
    Mr. Barr. The Fed report also says that Board staff, 
meaning Federal Reserve Board staff, provided the San Francisco 
Fed team a waiver to delay the initial set of ratings under the 
Large Financial Institution (LFI) rating system by 6 months, 
until August 2022. In your investigation, do you have any 
insight or visibility as to why the board waived that 
requirement?
    Mr. Clements. That is additional work we will need to do.
    Mr. Barr. Yes, please look into that, because the 
regulators at the Fed are delaying implementation. The law does 
not 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, it is 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 SVB was not doing all required liquidity stress 
testing. Specifically, SVB did not provide liquidity risks for 
a period of 30 days or less, as they were required. But 
examiners continued to give SVB a satisfactory mark for 
liquidity and the highest CAMELS rating for liquidity from 2018 
to 2022.
    In your experience, would it be unusual for an examiner to 
give a bank a high liquidity rating despite some of the 
required testing not being done?
    Mr. Clements. I think that is the concern we had, the high 
ratings, especially for liquidity, and also for management.
    Mr. Barr. Yes. Also, your report describes informal non-
public enforcement action that was taken by the Federal Reserve 
Board staff to address ineffective governance. However, as of 
March 2023, the memorandum of understanding (MOU) was still in 
the drafting process.
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Barr. For the gentleman, for the record maybe, is it 
typical for an--
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Barr. --informal enforcement action like this to take 
more than 6 months?
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Barr. It has expired. I appreciate--
    Chairman Huizenga. And we will allow you to--
    Mr. Barr. --you--
    Chairman Huizenga. Excuse me, ranking member, I have it 
handled. The gentleman will suspend.
    The gentleman from Kentucky can submit his final thoughts 
and final question to the witness for a written response.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    And with that, this hearing is adjourned.
    [Whereupon, at 11:34 a.m., the hearing was adjourned.]

                            A P P E N D I X


                              May 11, 2023
                              
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