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Silicon Valley Bank may not have had a recent test to judge its resilience


Scott referred to the debate over bank regulations that Congress has approved and also changed from time to time. So let's slow that down, give a kind of timeline here. The government started performing those so-called stress tests about a decade ago, after the financial crisis, looking over a bank's books and asking, do they have the resources on hand to survive some bad news? In 2018, then, Congress did tweak which banks got the tests, among other things. Republican Senator Mike Rounds is on the Senate Banking Committee. He's been part of these debates. And he joins us once again. Senator, good morning.

MIKE ROUNDS: Hey. Good morning. I appreciate the opportunity to talk with you today.

INSKEEP: I'm glad you're back with us once again. Is this correct, that Silicon Valley Bank did not receive a recent stress test to make sure that it could handle a setback?

ROUNDS: What we know is, is that they were subject to what we would identify as the periodic stress test. But we don't know when the last stress test was completed. The regulators have the ability in this particular category, from 100 billion to 250 billion, to do periodic stress tests. And that's important to do. They can, at their discretion, ask for more frequent stress tests. We don't know right now whether or not they had asked for that.

INSKEEP: I'm a little baffled that that wouldn't be known. You'd think someone could check their email and tell you.

ROUNDS: Well, and in this particular case, we've asked for a number of different items, including our review of whether or not all of their Form 2052a's, which are the - basically the liquidity monitoring reports, have been delivered, up to date and whether or not those were actually reviewed and if there had been any recommendations made back to the bank itself.

INSKEEP: The Roosevelt Institute, which is a liberal think tank, tries to put together their view of what happened here. And they assert that the Silicon Valley Bank was effectively a smaller bank that you relieved from these regulations in 2018, but then grew very big very rapidly. And it seems that is why they may not have received a stress test, because they had grown big enough for a stress test very quickly. Does that sound like it could be true?

ROUNDS: Possibly, except that this is - back in 2019, they were about a $70 billion bank. They grew to about a $211 billion bank by 2022. So during that time frame, they went to an under $100 billion to over 100 billion. And in doing so, they may very well have been in a position to where the regulators either said, we'll catch it at a different date or we're not worried about it yet. Or perhaps they simply looked at it and said, you know, maybe we're going to do a more comprehensive report at a later time.

The real question for us is, does the Fed think that the regulatory environment that they had established for the bank, was it accurate? Was it the right one? The vice chair for regulatory activity, Michael Barr, along with the Fed chair, Jerome Powell, have both indicated that they want to look objectively at their own analysis. And they'll report back to us. You know, when I say we don't know what it is yet, remember, this occurred last - really, last Thursday and Friday. And now we are just seven days away from that. We think that they will give us a fairly good and accurate report. But let's get all the facts put together first.

INSKEEP: Always fair to wait for the facts. Would you be open to tweaks in the law that you've already tweaked at least once, tweaks in the law if the facts show that there is a gap in the regulations here?

ROUNDS: Oh, most certainly. You know, look; there is no such thing as a perfect regulation. There's no such thing as a perfect law. We can always go back and look at tweaking. The question here is, - and the same thing, I guess I should say, is fair for the regulatory organizations, in this case, the Federal Reserve. They have the ability under this tailored approach to actually make those modifications without changing the law. And so if they believe that these particular institutions that have a really high concentration of depositors in one particular area, and who really know each other and who communicate with each other, when you have that type of a risk opportunity, is it worth looking at different types of regulatory aspects?

INSKEEP: Senator Rounds, some of your fellow Republican senators are using this occasion to make an anti-China point. Some of the depositors in the bank are people or companies from China. They're saying that the U.S. should not restore the savings of depositors from China. In a few seconds, what do you think of that? Should the U.S. make all depositors whole or only some?

ROUNDS: I think the approach that we took to begin with, which said that to begin with, here in the immediacy right afterwards, all of the depositors will be protected. That, to me, was the right thing to do. But long term, when we talk about making all deposits protected, that's where we have to look at whether or not we have a plan in place to be able to pay for that and who should assume that burden, if at all.

INSKEEP: Senator Mike Rounds, always a pleasure. Thank you.

ROUNDS: Thank you. Transcript provided by NPR, Copyright NPR.