Chairwoman McClain, Ranking Member Porter and members of the Subcommittee, my name is Jeremy Newell. I am a senior fellow at the Bank Policy Institute and founder and owner of Newell Law Office PLLC, but I am here today in my individual capacity.[1]
The views I share today are informed by a career spent as a bank regulatory attorney, which has included a first- hand view of bank supervision through roles at banks, in private practice and at the Federal Reserve.
1. Introduction
I am very pleased to testify today, as this hearing presents an opportunity to examine an activity that is incredibly important and consequential, but almost always occurs in secret: bank supervision. Because banks play such a crucial role in supporting businesses and consumers and enjoy the privilege of federal deposit insurance, they are subject to an arrangement unique within our federal administrative state – not only to statutes, rules and law enforcement, but also to a standing workforce of federal employees whose principal job is to proactively examine whether they operate in a manner that is safe, sound and compliant with the law.
Bank examiners’ jobs are important ones. While ultimately it is up to bankers alone to properly manage their own banks, and it is not the job of supervisors to prevent every bank from failing, good supervision enables the federal banking agencies to identify and seek correction of unsafe and unsound practices before they lead to a bank’s failure, thereby limiting the number of such failures and their consequences.
Reflecting those goals, the best bank supervision is supervision that is grounded in clear rules, disciplined in its focus on material risks that might lead to a bank’s failure and informed by subject matter expertise and an independent view of those risks amongst examiners. To be clear, it is not an easy job. Individual examiners must contend with dynamic markets and evolving practices, thousands of pages of examination procedures to follow and a range of competing internal priorities and objectives. When supervision is effective, it generally succeeds quietly. When it is not, its failures are public – often spectacularly so.
Today we examine such a case. While responsibility for Silicon Valley Bank’s failure rests first and foremost with its management, understanding where the Federal Reserve’s supervision of SVB may have gone wrong is a rare and important chance to examine its supervisory practices in full public view and to identify potential future improvements. We are aided in this regard by the rapid, preliminary reports issued by both the Government Accountability Office and the Federal Reserve concerning how SVB was supervised, and by the Federal Reserve’s release of some – though certainly not all – of the relevant supervisory materials. These are helpful first steps. But much more is needed if one wishes to get to the bottom of whether SVB was supervised appropriately and to understand all that might be done to make future supervision more effective. Simply put, we don’t have a full picture; what the Federal Reserve has provided to date is both selective and incomplete, omitting many relevant details and materials and glossing over key information about how, why and by whom various supervisory decisions were made.
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[1] Thus, the views I express are my own, and not necessarily those of the Bank Policy Institute, any client or any other organization with which I have been affiliated.
