The Federal Reserve may be considering deposit stability and other factors beyond asset size when imposing tougher regulations in the wake of recent bank failures, Fed Vice Chair of Supervision Michael Barr said.
The current regulatory framework is delegated by asset size, but that may be under consideration following the collapses of Silicon Valley Bank and Signature Bank, Barr said at a hearing of the House Financial Services Committee on March 29.
"Part of the problem is that that framework, which really depends on asset size, is not sensitive to the kinds of problems we saw here with respect to rapid growth in a concentrated business model," Barr said in answer to a question.
Barr said he agreed with a lawmaker who noted that "the rigor of regulation should depend not only on size but on deposit stability."
Barr reiterated his statement at a March 28 Senate Banking Committee hearing that the Fed is strongly considering heavier regulation for banks with more than $100 billion in assets but noted on March 29 that the government is considering a "tiered approach" within that window. He added that all of the regulation standards put in place in 2019 are "on the table."
In addition to reviewing capital, liquidity and stress-test regulation, the agency is also making interest rate risk "a core topic of supervision," Barr said. Examiners are receiving extra training on this subject, he said, and "it is just a bread and butter supervisory issue. It's not some esoteric problem."
Several lawmakers at the hearing expressed concern about the announcement from Federal Deposit Insurance Corp. Chairman Martin Gruenberg that the FDIC plans to impose "special assessments" on the banking industry to replenish the Deposit Insurance Fund.
Lawmakers said they are hearing from community banks in their districts who are worried the payments will hit them particularly hard, and Gruenberg said the FDIC has some flexibility in this area and is "keenly sensitive" to that issue.
In response to questions related to the nation's deposit insurance system, Gruenberg said the FDIC is working on a comprehensive review and plans to issue a report in May with several policy considerations. However, Barr demurred when asked if the deposit insurance coverage should be increased.
Barr and Gruenberg underwent intense questioning about the way regulators handled the recent bank failures, including whether the agencies did not foresee or handle problems in time to prevent the collapse of Silicon Valley Bank. Barr emphasized that there is an "unflinching" review of that issue underway, due May 1.
The two officials both stressed that the financial system is resilient and in good health.
