Senator Brown Urges Fed to Tighten Bank Regulations, Pause Rate Hikes

(Bloomberg) -- Senate Banking Chairman Sherrod Brown said Tuesday he sees little chance Congress will tighten bank regulations following the collapse of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY), and is urging the Federal Reserve to act unilaterally to impose tougher regulations and pause interest rate hikes.

Brown blamed the bank failures, at least in part, on Republicans and some of his fellow Democrats for rolling back regulations in a 2018 law. He said he has been talking to the Fed about addressing regulation directly. 

“I’m less hopeful that Congress will do that because I’ve seen the influence of the bank lobby and Wall Street, and in the end, Ohio workers always pay for this when they get their way,” Brown said told Bloomberg Television’s “Balance of Power.” 

The US, Brown said, needs stronger capital and liquidity standards. “We clearly need to strengthen the stress tests,” he added. 

Brown, in a later interview, put the blame for inaction on Republicans and said they aren’t interested in strengthening standards. 

“Republicans aren’t going to move anything,” he said, noting that last week they were pressing Powell not to increase bank capital requirements in the days before the banks collapsed.

To address inflation, Brown suggested the Fed keep interest rates where they are, while holding companies accountable for hiking prices.

Brown said he wants hearings on the bank failures “sooner rather than later” but isn’t sure he wants to hear from the failed bank executives yet. “I really want to get the regulators especially to talk about what their plans are so this doesn’t happen again,” he said.

In a break from fellow Democratic Senator Elizabeth Warren, Brown separately stood by Fed Chairman Jerome Powell’s investigation of the crisis, but said his committee and others will also be investigating. Warren has called for Powell to recuse himself. 

“I’m just going to make sure he does it right,” Brown said. 

Silicon Valley Bank was supervised by the Fed and its chief executive Greg Becker was a member of the San Francisco Fed’s board of directors. He departed from that position Friday.

Vice Chair of Supervision Michael Barr will review the supervision and regulation around SVB. “We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” Barr said in a statement this week. The review will be released May 1.

Earlier on Fox Business, Representative Andy Barr, a Kentucky Republican on the Financial Services Committee, shut down talk of Congress enacting more regulations. 

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“The fact that regulators over the weekend had the existing legal and regulatory tools to restore some semblance of market confidence demonstrates existing regulations are all we need,” he said. 

Barr suggested the problem was in part a failure of supervision, and said hearings would be held on that subject. More regulation, he said, “is not the answer.” 

On a private Monday night call with House Republicans, Speaker Kevin McCarthy privately blamed Biden’s fiscal policies, while Financial Services Chairman Patrick McHenry reiterated that social media contributed to a rush on the bank, lawmakers on the call said.