News Release: Broad, Independent Probe of Fed Failings on Bank Crisis Essential


March 24, 2023

Carter Dougherty

Broad, Independent Probe of Fed Failings on Bank Crisis Essential

A successful independent investigation into the failure of the Federal Reserve to prevent the failure of Silicon Valley Bank and the current banking crisis must have a broad scope and the authority to collect and make public the evidence from the probe, according to Americans for Financial Reform.

“Only a highly credible probe can repair the confidence of the public and policymakers and lead to real and lasting change,” said Renita Marcellin, advocacy and legislative director at Americans for Financial Reform. “We cannot underestimate how institutional pressures, especially at the Fed, could complicate an internal inquiry. The risks of overlooking information or narrowing the scope of a probe are enormous.”

To achieve the necessary credibility, the inquiry needs its independence assured by third-party leadership. It needs to make public key communications, in all forms, from within the Fed. And it needs to take a broad view of the reasons for the crisis, ranging from law and regulation, to supervision, to management. Additionally, it must grapple with how senior Fed officials pushed less oversight, especially — but not limited to — former Vice Chair Randal Quarles.

“It is hard to understand how, or why, the Fed and its regional supervisors did not implement a plan that required the bank to resolve its management failures,” Marcellin said. “If regulators were forced to invoke the systemic risk exception as a result of SVB’s failure, understanding the Fed’s inability to stop it certainly rises to the level of an exceptional inquiry that examines the policy behind the Fed’s failings.”

There are worrisome signs that the current Fed inquiry may not go far enough. Fed Chair Jerome Powell sought to head off any mention of the reasons for this crisis when the government intervened before launching an internal inquiry. The Fed has not laid out the parameters of the probe, while the bank lobby is trying to keep the investigation focused on bank mismanagement and supervision, to the exclusion of policy questions.

This banking crisis has laid bare how a mutually reinforcing combination of policy (law and regulation), Fed implementation and the culture that Fed leadership fostered, especially in wake of congressional approval of S.2155, can lead to grave consequences for our financial system. This crisis deserves a transparent, meaningful investigation that should lead to policy and process changes.