During a House Financial Services Committee hearing earlier this month, Rep. Alex Mooney (R-WV) questioned witnesses about the FDIC’s decisions regarding the Silicon Valley Bank collapse and Chairman Gruenberg’s resignation.
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NewsTranscript
00:00The gentleman from West Virginia, Mr. Mooney, is now recognized for five minutes.
00:04In West Virginia, we have a lot of small banks.
00:07I met with some of them last year after the Silicon Valley Bank was given the systemic
00:11risk exception.
00:12Most of them were of the view that no banks in West Virginia would have been given that
00:16exception.
00:17It's my first chance to speak to folks from FDIC since then, so my questions are really
00:21directed at Mr. McKernan and Mr. Hsu about the Silicon—failure of Silicon Valley Bank.
00:27Silicon Valley Bank was a comparatively smaller financial institution, and many policymakers
00:32and politicians were skeptical about invoking the systemic risk exception for Silicon Valley
00:38Bank, while others—particularly those with large ties to interests in the Silicon Valley—supported
00:44making the bank's accounts holders completely whole.
00:48Would you say, isn't it true, that the Silicon Valley Bank was not an obvious candidate for
00:52the invocation of the systemic risk exception, Mr. Hsu?
00:58Um, the board—the FDIC board decided unanimously to invoke the systemic risk exception at that
01:04time, based on a lot of analysis and discussion.
01:07I would certainly agree, Congressman, that it was not an obvious candidate, and that
01:11was probably one of the harder decisions I've had to make in my life, and candidly, I wouldn't
01:16begrudge anyone who wanted to criticize me for it, because depending on what side of
01:19the bed I wake up on, I sometimes wonder if I made the right decision.
01:22I appreciate that.
01:23I know we make the laws here, and you do your best to implement them, and, you know, there's
01:27a lot of gray areas in that, but let me ask a follow-up question.
01:31Isn't it also true that as a part of the analysis regarding the invocation of the systemic
01:35risk exception for Silicon Valley Bank, that an important concern relayed to the FDIC was—a
01:41special decision was made—that it would be important to prevent money from going to
01:45Chinese interests?
01:46So like, what did the FDIC do to analyze whether the FDIC would be funding Chinese interests,
01:52and how did the FDIC go about preventing it, Mr. McKernan?
01:55Congressman, I can't speak to that.
01:57I'm happy to take that question back, but that was certainly not something I was looking
02:01at at the board.
02:02I was looking at the time.
02:03What was central to my decision-making is we had also signature that same weekend, and
02:07although it was not obvious to others at the time, First Republic was right there as well.
02:11I put the three together was really what got me to yes.
02:16Okay.
02:17Sue, any thoughts on that?
02:18I'd have to get back to you as to your question.
02:20All right.
02:22I've also then been alerted to the fact that the FDIC chose to insure certain foreign
02:27euro-dollar sweep accounts for a failed bank, which would be in violation of 12 CFR section
02:3236.8, which expressly states that the insurability of funds associated with sweep accounts maintained
02:39by foreign branches is to be determined as of the end-of-business status of the funds.
02:44Instead, FDIC chose to interrupt the cycle and pay out the accounts as if the money was
02:49stationary in the United States.
02:51Why did the FDIC bend the rules on that?
02:53Congressman, that's another question I'll have to take back.
02:56Okay.
02:57I have time for one more question, changing back to the earlier discussion.
03:03If Mr. Gruenberg were to step down and the current vice chairman becomes the acting chairman,
03:09would the FDIC continue to function and carry out its mission?
03:13Yes or no?
03:14Absolutely.
03:15The FDIC's functioned without a full board for quite some time.
03:18Yeah.
03:20Anybody else want to opine on that one?
03:23Well, let's just say the bylaws clearly state that there's a solution in place.
03:30If Mr. Gruenberg were to step down and resign today, he's already told the staff they need
03:35to prepare for him to stay through the end of the year.
03:38The staff went through, went from hoping for a fresh start to now being stressed about
03:43the future of the agency, defeated and unable to adequately do their jobs.
03:48That would be a good option, I would say.
03:52Mr. Chairman, that's really it for my questions.
03:54I yield back the balance of my time.