Ten Senate Banking Committee members have called on the Federal Reserve to investigate how
The members — which include every Republican on the committee except ranking member Tim Scott, R-S.C. — sent a letter to Fed Chair Jerome Powell on Sept. 29. In it, they wrote that it was "deeply troubling" that confidential
"Unfortunately, this raises serious questions as to the policies and procedures the [Fed] has in place to protect confidential supervisory information from inappropriate disclosure," the senators wrote. "We do not wish to believe the alternative, that these disclosures were done deliberately in an effort to advance a particular policy agenda."
The letter, which was not publicized by the Banking Committee or any of its members, was sent in response to an Aug. 30 article published by Bloomberg, which notes that a "slew" of private warnings — known as matters requiring attention, or MRAs — have been sent to large banks since the failure of Silicon Valley Bank in March.
The piece also cites specific MRAs sent to Citizens, Fifth Third, M&T, KeyCorp, Huntington Bancshares, Regions Financial Corp. and First Citizens BankShares. Issues raised in the correspondence include liquidity and capital shortcomings as well as deficiencies regarding technology and compliance, according to the Bloomberg report.
All seven banks have more than $100 billion of total assets, putting them in the crosshairs of
In the aftermath of three large bank failures earlier this year, Fed Vice Chair for Supervision Michael Barr has said repeatedly that supervision and regulation of banks between $100 billion and $250 billion of assets has
The Bloomberg report notes an "onslaught" of supervisory actions against similarly sized institutions, a development that Senate Banking Republicans say indicates the Fed has learned the "wrong lessons" from the bank failures earlier this year.
"While adequate supervision cannot occur if Fed examiners fail to act on clear and present threats to safety and soundness, adequate supervision is likewise impaired if attempts to over-correct for past failures result in an over-emphasis on quantitative rather than qualitative metrics for the issuance [of MRAs and MRIAs]," the letter reads. "Likewise, adequate supervision cannot occur should the Fed be seen as an institution willing to leak CSI to advance its own narratives."
The letter was signed by Sens. Thom Tillis, R-N.C.; Bill Hagerty, R-Tenn.; Mike Crapo, R-Idaho; Michael Rounds, R-S.D.; John Kennedy, R-La.; Cynthia Lummis, R-Wyo.; J.D. Vance, R-Ohio; Katie Boyd Britt, R-Ala.; Kevin Cramer, R-N.D.; and Steve Daines, R-Mont.
American Banker obtained a copy of the letter last week and confirmed its authenticity. In it, the senators ask the Fed to initiate an investigation into the leak, provide information about anyone who would have handled the information in question and disclose various information about the types and volumes of MRAs and other notices that have been issued since March 10. They set a response deadline of this Friday, Oct. 13.
A Fed spokesperson confirmed that the central bank received the letter and intended to respond. The spokesperson declined to comment on the letter's contents.
In their letter, the senators argue that the Fed was the likeliest source of the leak, because the only entities that would have had access to the confidential materials were the central bank and the individual institutions.
"Viewed through this lens, it is difficult to believe that all seven institutions named in the article each independently and contemporaneously contacted the same reporters to share highly-sensitive and potentially market-moving information for public consumption, against their interests and in violation of the strict rules protecting such disclosures," the senators wrote. "If the banks are not the source of this information, it stands to reason that their regulators, namely the [Federal Reserve Board], provided it to the press."
But some say the potential source of the leak is not so cut and dry. Jeremy Kress, a law professor at the University of Michigan and a former Fed lawyer, said the banks in question or their representatives could have their own motivations for sharing CSI.
"They suggest there's a potential motive for somebody at the Fed to leak this data because they want to show that the Fed is doing something in response to the SVB and First Republic failures earlier this year, but I don't think that's the only plausible explanation," Kress said after reviewing a copy of the letter supplied by American Banker. "There's an equal, if not greater, motive for the relevant banks to leak this information. Having this information public allows banks to complain about excessive supervision and an overreaction to Silicon Valley Bank."
Kress noted that it was unlikely that the banks all independently went to the same publication to share their supervisory information, but he said it could have been orchestrated through an entity that represented them all, such as a trade group, law firm or other service provider.
Given the uncertainty about the source of the leak and the fact that CSI is protected by law, Kress said an investigation into the source of this disclosure is warranted. But, he said, the scope of the probe should not be limited to the Fed.
"The public ought to know what happened here," he said. "But, at the same time, it would be worthwhile to also take a look at how confidential supervisory information is shared among banks through various trade associations and law firms and other professional service providers. While we're taking a look at the Fed, we should take a look at those other potential conduits as well."
