WASHINGTON — Rep. French Hill, R-Ark., who has long been one of Republicans' leading voices on bank policy, played a leading role in Congress as the events of the weekend around the failures unfolded.
Hill and the top Republican on the House Financial Services Committee, Rep. Pat McHenry of North Carolina, briefed the party's lawmakers in a crucial Monday conference, according to multiple sources familiar with the matter, as the GOP figured out how to respond publicly to the failures of Silicon Valley Bank and Signature Bank, and to the extraordinary move by regulators to backstop uninsured depositors at the two institutions. Hill, a former community banker who's considered an expert on financial services policy among his colleagues in Congress, is expected to continue shaping the party's views on the crisis as lawmakers try to figure out what kind of oversight and legislation is warranted in the fallout of the crisis.
In an interview with American Banker Tuesday evening, Hill said that he's still unclear on the broader supervision failures that he said allowed Silicon Valley's collapse, but said that he's open to discussions about a range of topics such as how community banks pay into the Deposit Insurance Fund, and what the implied and explicit limits of deposit insurance should be. The following is a transcript of that conversation, edited for length and clarity.
What are your lessons learned from the bank failures?
On the broader issue in and around Silicon Valley Bank, for example, some bank strategies are ineffective, and some bank supervisors are less than effective. I think both of those were perhaps illustrative in some aspects in the Silicon Valley matter. I think that's something we should have, and we will have hearings on. I was pleased that Chairman Powell said he would direct Vice Chairman Barr to do a thorough investigation of issues around that bank, both on the bank strategy point of view and on the supervisory aspect.
Based on any of your conversations with regulators, do you have any understanding of what was overlooked on the supervisory level?
I don't as of yet, but as you know from covering commercial banking on a regular basis, commercial banks are under particular scrutiny when they have fast growth rate either on the asset or liability side of the balance sheet. And Silicon Valley Bank experienced extraordinary growth between the end of 2019 and early 2023. And that in and of itself would be of heightened supervisory scrutiny. In and around those deposits, the stability and consistency of those deposits. That would be a key element, and then in the CAMEL rating review of the bank, they'd be particularly concerned about interest rate sensitivity. And so that's not been addressed per se in our phone calls, but I think it should be.
Some community bankers right now are saying that they've managed their balance sheets just fine, and we're small banks, so why are we paying for Silicon Valley depositors and Silicon Valley Bank's mistakes here? Is that something that you feel like you want to address or look at further?
We don't know yet how Silicon Valley or Signature will be resolved, so we don't know what the potential cost to the Deposit Insurance Fund will be. The regulators are continuing a robust effort at selling both those institutions. So we'll see how that progresses.
I certainly understand that point, and we certainly all experienced it – you know I was in banking for a long time. I was the CEO of a bank during the financial crisis and certainly dealt with the deposit insurance coverage issue in 2010 and through Dodd-Frank in 2010 to 2012, so I'm very aware of that debate as to how we might consider reforms to the deposit insurance system and do it in a different manner. So I think a review of that and a recognition of that debate will be a result of the Fed and the FDIC decision to expand the FDIC umbrella to all depositors at Silicon Valley Bank and Signature.
One question I'm getting a lot now is around moral hazard and an implied guarantee of deposits above the insurance limit and what that means going forward. Do you think we need to revisit the deposit insurance limit, or expand it, or what reforms do you think need to be done around there?
I think the events surrounding Signature and Silicon Valley will prompt a post-Congressional and financial federal regulatory review of the deposit insurance system. I recall very well that from 2009 to 2010 when the federal government guaranteed all deposits in that period of time, many people suggested that all deposits would go to the large GSIB type banks. I was running a locally owned, very entrepreneurial, much smaller financial institution. We didn't see any evidence of that whatsoever in my company or even in the state of Arkansas at that time. So I don't know if that premise, hypothesis holds true, but maybe it'll be different this time and maybe that merits revisiting.
But I don't know that I support extending the safety net to our financial institutions. I think looking at different premium schemes for covering deposits is always worthwhile. Again, back in 2005 and 2006, the FDIC imposed for the first time, risk-based premiums based on the CAMEL rating history of the bank, and that for the first time did a much better job of tying the risky business profile of a bank to its FDIC insurance level, trying to impose fiscal discipline and reduce moral hazard there. Maybe we need to re-look at those.
One of the big calls, especially among Democrats, has been to roll back the 2018 changes to Dodd-Frank, especially as it relates to mid-sized institutions. Do you think we need to revisit either that rule or anything about oversight as it relates to $100 billion to $250 billion institutions?
I don't see the connection between the 2018 Democrat, Republican bipartisan bill, SB 2155 and any failures in supervision for Silicon Valley Bank or Signature. In my personal view, I mean, I've spent four decades in this industry. I think it gets absolutely back to that individual bank experienced fast growth and as it grew it went from $50 billion to $200 billion, is now subject to all these enhanced supervisory procedures and reports, and it's not clear to me that they performed them or that the San Francisco Federal Reserve Bank conducted them. That's why we want to hear the results of this Fed study.
2155 was an amalgam of some very small consensus bills about tailoring some aspects of Dodd-Frank. I think that's a Democrat talking point, I don't think it's particularly relevant to this case.
