The Hill’s Morning Report — Regulators, no lawmakers, likely to act after SVB failure

by Alexis Simendinger and Kristina Karisch - 03/14/23 6:30 AM ET

An FDIC sign is posted on a window at a Silicon Valley Bank branch in Wellesley, Mass., on Saturday, March 11, 2023. From winemakers in California to startups across the Atlantic Ocean, companies are scrambling to figure out how to manage their finances after their bank, Silicon Valley Bank, suddenly shut down March 10. U.S. customers with less than $250,000 in the bank can count on insurance provided by the FDIC. (AP Photo/Peter Morgan)

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Silicon Valley Bank of California and Signature Bank of New York were not too big to fail. But they were too big not to rescue as their insolvencies threatened the fortunes of small companies and employees, threatening panic and potential runs on other banks.

The surprising weekend events prompted swift intervention by the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp., which jointly pledged that depositors in the two failed banks — and potentially at other vulnerable institutions — would have the government’s 100 percent backstop beyond the FDIC’s $250,000 insurance limit. The resources come from fees paid by all banks into a Deposit Insurance Fund and the Fed’s assurance of liquidity assistance, if needed.

Ahead of an Air Force One flight to California on Monday, President Biden promised Americans “confidence that the banking system is safe. Your deposits will be there when you need them.” And he quickly pointed the finger at the Trump administration for unwinding in 2018 some regulatory strictures imposed by Congress and the executive branch after the financial crisis of 2008-2009.

The Hill: SVB, Signature Bank had lobbied hard to loosen bank rules in 2018.

“I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure will happen again and to protect American jobs and small businesses,” the president said without offering specifics (The Hill).

With Republicans in charge of the House and ahead of the 2024 elections, bipartisan consensus is unlikely.

“There won’t be legislation getting through Congress, and so regulators will be making the big decisions,” Ian Katz, managing director of Capital Alpha Partners, wrote in a note (Reuters).

Investors and analysts spent Monday trying to detect if other banks are in similar straits because of unwise investments, poor management, liquidity troubles or a combination of ills as interest rates continue to rise amid the central bank’s assault on inflation. The Federal Open Market Committee meets March 21-22, and market analysts are gauging whether the central bank will pause rate hikes to let things calm down.

The government this morning will report on the consumer price index in February, data that Fed governors consider important while searching for notable “disinflationary” signs that higher interest rates are lowering prices.

▪ CNBC: The Fed is still expected to go through with rate hikes.

▪ The Wall Street Journal: Bank failures call the Fed’s interest rate path into question.

▪ MarketWatch: Banking industry jitters could mean more pain for stocks by dragging out the Fed’s battle with inflation.

▪ Politico: New headache weighing on Fed Chairman Jerome Powell.

▪ The Hill: What you need to know about the Silicon Valley Bank collapse.

Lawmakers on Monday sprinted to their respective partisan corners to react to the two largest bank collapses since the financial meltdown (The Hill). The events of 2008 and over the weekend have different human causes, but the memories from 15 years ago remain fresh in Washington and nationwide. Americans lost their homes and jobs during the post-crisis recession. The near collapse of the financial system meant taxpayers ended up with a bill for nearly half a trillion dollars in bailouts without punishing any of the financial institutions’ most reckless executives.

▪ The Atlantic: Why Republicans are blaming the bank collapse on wokeness.

▪ The Hill: Here’s who is paying to restore Silicon Valley, Signature Bank deposits.

▪ Bloomberg News: Silicon Valley Bank hit with first shareholder fraud lawsuit over collapse.

The Treasury Department and Democrats on Monday were quick to insist taxpayers were not on the hook for the excesses of Silicon Valley Bank and Signature Bank. Biden said investors in those institutions would not be made whole and noted that bank executives had been fired and were potentially liable under law. Bailout is a pejorative in Washington, and Democrats were quick to shun it.

Experts say SVB collapsed because it failed to manage its portfolio amid rapidly rising interest rates and it had significant uninsured deposits that were pulled out of the bank by its customers when the stress was apparent and communicated on social platforms (Reuters).

Former Rep. Barney Frank (D-Mass.), whose name is on the Dodd-Frank banking law and who until the weekend was a Signature Bank board member, blamed a crypto panic for the New York bank’s collapse on Sunday. Sen. Elizabeth Warren (D-Mass.) blamed former President Trump (Politico).

Frank told The New York Times that he was shocked at the turn of events for Signature, which held deposits of some digital asset companies. He said he believes regulators took control of the bank to send a message to other banks to steer clear of cryptocurrencies. Frank said he favored the bank’s lending to affordable-housing developers. “What had attracted me to it, and still does, is its role as a multifamily housing lender,” he said.

The Wall Street Journal: Frank pushed to ease financial regulations after joining Signature Bank’s board in 2015. He says there is no evidence the change enabled the bank’s failure.

Related Articles

▪ The Hill: Federal Reserve Vice Chairman for Supervision Michael Barr will lead a regulatory review of the insolvent Silicon Valley Bank of California. The Fed promised results by May 1 from “a thorough, transparent and swift review.”

▪ The Guardian: As Tuesday begins, global markets are gripped by the SVB collapse. Bank share sell-off spreads to Asia.

▪ The Wall Street Journal and The New York Times: On Monday, bank stocks dragged down the Dow & S&P 500. Shares of smaller banks took a beating.

▪ The New York Times: Many customers were able to regain access to their money on Monday from the former Silicon Valley Bank, now operated by the government as the Deposit Insurance National Bank of Santa Clara.

▪ The Hill: The tech industry is challenged following the collapse of Silicon Valley Bank.

▪ The Hill: Senate Minority Leader Mitch McConnell (R-Ky.), who suffered a fall last week, is out of hospital while recovering from a concussion. He is not expected at the Capitol this week.

▪ CNN: Former President Jimmy Carter, who in February began hospice care at his home in Georgia at age 98, asked Biden to deliver his eulogy following his death, the president told an audience Monday night.

▪ Politico: Former Rep. Pat Schroeder (D-Colo.), a champion for women’s rights, died Monday night at age 82.

LEADING THE DAY

➤ ADMINISTRATION

Biden took his most aggressive step yet to counter China’s military expansion in the Asia-Pacific region Monday, formally unveiling plans to develop and deploy nuclear-powered attack submarines with Britain and Australia. Speaking in front of the nuclear submarine U.S.S. Missouri, at the Point Loma naval base in San Diego, Biden — flanked by British Prime Minister Rishi Sunak and Australian Prime Minister Anthony Albanese — called the naval partnership a critical means of confronting China at a time of heightened tension. The partnership will create a “nuclear stewardship” among the allies, according to U.S. officials.

“The United States has safeguarded stability in the Indo-Pacific for decades for the enormous benefit of nations throughout the region,” Biden said. “We’re showing again how democracies can deliver our own security and prosperity, and not just for us but for the entire world.”

For the first time in 65 years, the United States will share the technology at the heart of its nuclear submarines, Biden said, allowing Australia to build submarines that will grow into fleets capable of facing off with their Chinese counterparts in the South China Sea. Australia will initially buy three submarines and plans to eventually build a new version, called the AUKUS, with British and American help (The New York Times).

The president on Monday approved a controversial oil project in Alaska, exacerbating tensions with progressives — who have been critical of recent administration moves toward the right (The Hill and The Anchorage Daily News). Along with the approval of the project, Biden will move to protect about 2.8 million acres in the Arctic Ocean from oil and gas extraction, and the Department of the Interior will limit drilling in federal land in Alaska through a separate rule, according to a statement announcing the Willow approval (Roll Call).

▪ The Atlantic: The Alaska oil project will be obsolete before it’s finished. The world might not have enough renewable energy to power everything by 2029, but we’ll have more than enough to keep the lights on without additional drilling.

▪ The New York Times: How Biden got from “no more drilling” to backing a huge project in Alaska.

▪ Roll Call: Biden to announce executive order on gun sale background checks. The action will ask the Justice Department to clarify the definition of who is “engaged in the business” of selling firearms.

➤ POLITICS

Trump returned to Iowa on Monday evening, signaling a determination to trudge forward with his 2024 White House campaign in the face of a possible criminal indictment. As The Hill’s Max Greenwood writes, the former president delivered an address about education in Davenport just days after his would-be rival for the Republican presidential nomination, Florida Gov. Ron DeSantis, made an inaugural swing through the first-in-the-nation caucus state.

The appearance marked Trump’s first trip to Iowa since announcing his 2024 presidential campaign nearly four months ago, but it also comes at an uncertain moment for the former president, as prosecutors in Manhattan have reportedly offered him the chance to testify in a grand jury investigation of an alleged hush money payment made during his 2016 campaign — a move that suggests that criminal charges could be close.

As a possible indictment looms, The Hill’s Niall Stanage looks at the biggest questions surrounding Trump’s candidacy — from his support to how criminal charges could affect his campaign.

▪ CNN: Trump won’t testify before a New York grand jury investigating hush money scheme, lawyer says.

▪ NBC News: Michael Cohen, Trump’s onetime lawyer, testifies to the grand jury as an indictment appears near.

▪ Politico: There was a window when the Republican Party looked like it was ready to move on, but the party is once again “reliving the worst” parts of the Trump presidency.

▪ NBC News: In a momentous shift within the Republican Party, DeSantis says protecting Ukraine is not a “vital” U.S. interest.

▪ The Hill: South Carolina GOP lawmakers propose death penalty for women who have abortions.

▪ The Hill: Rep. George Santos (R-N.Y.) calls for presidents’ cognitive ability to be tested annually.

▪ The Hill: White House press secretary calls on former Vice President Pence to apologize for weekend Buttigieg, postpartum depression jokes.

▪ The Hill: GOP Oversight panel chairman subpoenas Hunter Biden associates’ bank records.

IN FOCUS/SHARP TAKES

➤ INTERNATIONAL

This week marks nine years since the disputed Crimea referendum and Russian annexation of the peninsula from Ukraine. Many countries condemned the vote and have refused to recognize Crimea’s accession to Russia. Meanwhile, the United Nations-brokered deal to export Ukrainian grain safely from Black Sea ports could expire this weekend, as Russia threatens to pull out over complaints the agreement has failed to free up the country’s agricultural exports (NPR).

Following news that Chinese President Xi Jinping is planning to visit Russia next week — and meet with President Vladimir Putin — Xi also plans to speak with Ukrainian President Volodymyr Zelensky, likely after his visit to Moscow. The meetings with Putin and Zelensky, the latter of which is expected to take place virtually, reflect Beijing’s effort to play a more active role in mediating an end to the war in Ukraine, sources told The Wall Street Journal.

The International Criminal Court is planning to seek the arrest of Russian officials for targeting civilian infrastructure and forcibly deporting children from Ukraine, Reuters reports, in what would be the first international war crimes cases arising from Moscow’s invasion. Arrest warrants could include the crime of genocide and were expected to arrive in the “short term” if the court prosecutor’s request was approved by a pretrial judge.

North Korea said it launched two missiles from a submarine in waters off its east coast over the weekend, vowing to take “the toughest counteraction” against the largest joint military drills by the United States and South Korea in years, which kicked off Monday.

The South Korean military said they detected “one unidentified missile fired from North Korea’s submarine vessel near North’s port city of Sinpo” (CNN and ABC News).

▪ Reuters: Ukraine accuses Russian snipers of abusing child, gang raping mother.

▪ The New York Times: “Russia outside Russia”: For the elite, Dubai becomes a wartime harbor.

▪ The Washington Post: Xi promises to build a “great wall of steel” in rivalry with the West.

▪ The New York Times: Cyclone Freddy persists, leaving dozens more dead in Africa, Red Cross says.

▪ Addis Standard: Secretary of State Antony Blinken to visit Ethiopia as progress under Tigray peace deal slows.

OPINION

■ Silicon Valley Bank is gone. We know who is responsible, by Sen. Elizabeth Warren (D-Mass.), guest essayist, The New York Times. https://nyti.ms/3yygdmX

■ Beyond saving Silicon Valley Bank’s depositors, here’s what needs to happen next, by Simon Johnson, opinion contributor, The Los Angeles Times. https://lat.ms/3LoDpf2

WHERE AND WHEN

📲 Ask The Hill: Share a news query tied to an expert journalist’s insights: The Hill launched something new and (we hope) engaging via text with Editor-in-Chief Bob Cusack. Learn more and sign up HERE.

The House will convene at 4 p.m.

The Senate meets at 3 p.m. and will resume consideration of the nomination of Brent Neiman to be a deputy under secretary of the Treasury.

The president begins his day inSan Diego, Calif., with receipt of the President’s Daily Brief at 8:30 a.m. PT. He will travel to Monterey Park, Calif., to announce an executive order to increase background checks conducted before firearm sales by increasing the effective use of “red flag” laws. Biden will speak at the Boys and Girls Club of West San Gabriel Valley at 12:45 p.m. PT. Later he will fly to Las Vegas for an evening Democratic National Committee fundraiser.

Vice President Harris is in Washington and has no public schedule.

Secretary of State Antony Blinken will travel to Ethiopia and then Niger beginning today through Friday.

Economic indicator: The Bureau of Labor Statistics will report at 8:30 a.m. on the consumer price index in February as well as real earnings in February, both watched closely by the Federal Reserve and Wall Street.

Second gentleman Doug Emhoff is in San Antonio, Texas, where he will speak at political fundraisers this afternoon held at two separate residences.

ELSEWHERE

➤ HEALTH & PANDEMIC

In a closely watched case that could decide the future of a widely used abortion drug, afederal judge in Amarillo, Texas, delayed the public notification of an upcoming hearing, citing concerns about public safety and possible demonstrations. U.S. District Court Judge Matthew Kacsmaryk, nominated by Trump, said he planned to delay putting the hearing on the docket until late today to try to minimize disruptions and possible protests. The hearing will provide a space for the Justice Department, the makers of the abortion drug mifepristone, and a conservative group challenging the pill’s approval to present their arguments. The judgecould ultimately decide to temporarily block the Food and Drug Administration’s authorization of the pill, effectively resulting in a nationwide ban on an abortion method that accounts for the majority of terminated pregnancies in the U.S. (The Washington Post and The New York Times).

Vox: No one knows when it is legal to perform medically necessary abortions in Texas.

Nearly a year after a sweeping opioid settlement imposed new requirements on the companies that provide medications to pharmacies, patients across the country are having difficulty obtaining drugs to treat many conditions — including anxiety, ADHD and addiction. The $21 billion settlement was designed in part to correct practices that had flooded the U.S. with prescription painkillers, contributing to the opioid crisis, placed stricter limits on drug supplies to individual pharmacies and heavily scrutinized their dispensing activity. But the oversight is not limited to opioids, which means tens of thousands of drug orders have been canceled, disrupting the flow of medication nationwide as the distributors toe the line between implementing safeguards and making necessary drugs available (The New York Times).

▪ San Francisco Chronicle: Why no one is telling you when to get the next COVID-19 booster shot.

▪ The Atlantic: The next stage of COVID-19 is starting now.

▪ ABC News: The winter COVID-19 wave that wasn’t: Why the US didn’t see a surge.

▪ Vox: The knowns — and known unknowns — of long COVID-19, explained.

Information about the availability of COVID-19 vaccine and booster shots can be found at Vaccines.gov.

Current U.S. COVID-19 deaths are 1,862 for the most recent week, according to the Centers for Disease Control and Prevention. (Data is reported on Fridays.)

THE CLOSER

And finally … 🏀 It’s time for the “Big Dance.” March Madness is upon us, as conference tournaments begin this week, pitting the best of the best against one another for an opportunity to be crowned the NCAA Division I college basketball champions. The tournament, which began in 1939, has become a fixture of the spring sports roster. The women’s edition was added in 1982.

The Alabama Crimson Tide, Houston Cougars, Kansas Jayhawks and Purdue Boilermakers were named as the No. 1 seeds in the men’s NCAA tournament on Sunday. The South Carolina Gamecocks, Indiana Hoosiers, Stanford Cardinal and Virginia Tech Hokies were named the top seeds in the 2023 women’s NCAA tournament.

The opening round of the tournament, known as the “First Four,” begins this week and sees eight low-rated teams battling it out to decide the final spots of the bracket. Once the 64 teams have been decided, the first and second rounds of March Madness take place March 16-19 for the men and March 17-20 for the women (CNN).

CNN has a comprehensive overview of the men’s bracket, and NBC Sports has a full guide for the women’s tournament. For folks who want to create their own bracket, the NCAA has a printable HERE.

▪ Sports Illustrated: First Four teams out of 2023 NCAA tournament, per selection committee.

▪ The Washington Post: The perfect bracket to win your March Madness men’s pool.

▪ ESPN: March Madness 2023: What to know about every team in the men’s NCAA tournament bracket.

▪ The Washington Post: The South Carolina women are the favorites. Here’s who could beat them.

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