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Presented by Intuit: Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | |  | | By Zachary Warmbrodt | | | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Top Federal Reserve and FDIC officials are beginning to preview what the post-SVB banking rulebook will look like. Here’s what we know. Barr’s ambitions
- Michael Barr, the Fed’s vice chair for supervision, will tell senators at a hearing on SVB’s collapse this morning that officials need to “enhance” bank stress testing, consider stronger liquidity requirements and explore “other reforms” to help make the financial system more resilient.
- Barr’s comments matter because he’s the Fed’s pointman on bank regulation. He’s leading the Fed’s review of what went wrong at SVB, and Fed Chair Jerome Powell has pledged to support Barr’s recommendations.
- To help justify tougher rules, Barr will point the finger at steps the Fed took in 2019 to ease banking rules after Congress softened regulations for regional lenders in 2018. (Watchdog group Better Markets argues in a new fact sheet that the law is just one piece of a “sweeping deregulation juggernaut” under Trump and that Powell also deserves blame.)
- According to Barr, SVB at the time of its failure was subject to a less stringent set of rules than would have been applied before 2019, including less frequent stress-testing.
Capital rules loom large
- Barr and FDIC Chair Martin Gruenberg will use this week’s SVB hearings to bang the drum for revamping capital requirements imposed on larger banks. Capital is funding that banks maintain to weather economic downturns.
- Gruenberg will tell senators Tuesday that the regulation of banks with more than $100 billion in assets merits serious attention, including the capital treatment associated with unrealized losses in banks’ securities portfolios — a key factor in the latest bank turmoil.
SVB gives regulators a path through GOP resistance
- Before SVB collapsed, Republicans were getting increasingly critical about the Fed potentially hiking bank capital requirements. They warned Powell that higher capital standards might force banks to retrench and in turn slow the economy.
- Even if Republicans continue to complain at this week’s Senate and House SVB hearings, it will be easier for regulators to brush off.
- “Although there will be continuing GOP pressure to ease pending capital revisions, the banking agencies will toughen the rules they now target knowing that crises dull Congress to fears about macroeconomic impact,” Federal Financial Analytics managing partner Karen Petrou told MM.
- “There will surely be some macroeconomic impact, not to mention continuing transformation of banking to shadow banking,” she added. “But the agencies will do what they want and mostly what they’ll want is to look tough.”
It’s Tuesday — Let us know what you think of today’s SVB hearing. I’m zwarmbrodt@politico.com and Sam is ssutton@politico.com.
| | A message from Intuit, serving more than 100 million customers worldwide with TurboTax, Credit Karma, QuickBooks, and Mailchimp: Intuit TurboTax customers are small business owners, veterans, occupational therapists, and more—and they use TurboTax to save time and money. They also have access to experts who understand their unique tax situations, so they can maximize their refunds and file confidently. We interviewed real customers to find out why they trust TurboTax when filing their taxes. Here's what they said. | | | | | | Gruenberg, Barr and Treasury Under Secretary Nellie Liang testify on SVB’s collapse at the Senate Banking Committee at 10 a.m. … House Small Business holds a hearing on CFPB data collection at 10 a.m. … The Peterson Institute will release an economic outlook showing below-trend growth in the U.S. and EU this year and next at 10 a.m. … CFTC Chair Rostin Behnam will testify at House Appropriations at 1 p.m. … Some eye-popping perspective on SVB’s bailed-out clientele — SVB’s 10 largest deposit accounts held $13.3 billion, Gruenberg will tell lawmakers today, giving a sense of the kinds of clients rescued by the federal government and the degree to which they parked cash at the bank above the $250,000 insured deposit limit. The FDIC's deposit insurance fund is expected to take a record-breaking $20 billion hit from SVB’s collapse, with about $18 billion of that attributable to the cost of uninsured deposits. The FDIC plans to lay out options for updating the deposit insurance system in a report due by May 1, according to Gruenberg. What you’ll hear from Senate Banking Chair Sherrod Brown and Sen. Tim Scott at today’s Senate SVB hearing:
- Brown will say there is “a lot of justified anger” aimed at bank leaders, venture capitalists, federal and state regulators and other policymakers.
- “Wealthy elites do anything to make a quick profit and pocket the rewards,” Brown plans to say in his opening statement. “And when their risky behavior leads to catastrophic failures, they turn to the government asking for bailouts, expecting workers and taxpayers to pay the price.”
- Scott, the committee’s top Republican, will focus on the Fed’s failure to take appropriate supervisory actions to mitigate and prevent the collapse of SVB, according to a spokesperson. You can expect him to call for more transparency around the FDIC’s auction process.
- Scott will focus on what he sees as a three-part failure: bank mismanagement, supervisory neglect and Biden policies that may have stoked inflation and triggered the interest rate hikes that precipitated SVB’s failure.
| | | |   | | | | | | CFTC sues CZ — The CFTC on Monday announced that it charged Binance and CEO Changpeng Zhao with operating illegally in the U.S., in one of the government’s most high-profile crypto cases to date. Binance is the world’s largest digital currency exchange and has been the focus of increasing scrutiny by regulators and lawmakers. The price of bitcoin sank following the news, according to Coindesk.
| | | | GO INSIDE THE 2023 MILKEN INSTITUTE GLOBAL CONFERENCE: POLITICO is proud to partner with the Milken Institute to produce a special edition "Global Insider" newsletter featuring exclusive coverage, insider nuggets and unparalleled insights from the 2023 Global Conference, which will convene leaders in health, finance, politics, philanthropy and entertainment from April 30-May 3. This year’s theme, Advancing a Thriving World, will challenge and inspire attendees to lean into building an optimistic coalition capable of tackling the issues and inequities we collectively face. Don’t miss a thing — subscribe today for a front row seat. | | | | | | | | Scoop: House Republicans plan mid-April Gensler hearing — SEC Chair Gary Gensler is expected to testify before House Financial Services on April 18, according to reporting from our Eleanor Mueller. The hearing is a big deal because committee Republicans have made Gensler’s SEC a top oversight target. They’ve been critical of Gensler’s crypto enforcement and climate disclosure plans. Treasury rethinks controversial shell company rule — Treasury is beginning to respond to complaints from banking groups and transparency advocates who warned that the department screwed up a proposal designed to combat financial crime conducted by anonymous shell companies. At issue is a proposed form that businesses will have to fill out to disclose their owners to the government. Critics said the initial draft form proposed by Treasury’s Financial Crimes Enforcement Network was problematic because it would let businesses say the ownership information is “unknown.” A Treasury official granted anonymity to talk about implementation discussions said the department will ensure the form makes clear that reporting companies have an obligation to submit all beneficial ownership information. The official said it will be implemented in a way that maximizes FinCEN’s ability to conduct compliance and enforcement reviews. “FinCEN is working to issue an updated beneficial ownership information reporting form as soon as possible,” FinCEN Acting Director Him Das said.
| | | | JOIN POLITICO ON 4/5 FOR THE 2023 RECAST POWER LIST: America’s demographics and power dynamics are changing — and POLITICO is recasting how it covers the intersection of race, identity, politics and policy. Join us for a conversation on the themes of the 2023 Recast Power List that will examine America’s decision-making tables, who gets to sit at them, and the challenges that still need to be addressed. REGISTER HERE. | | | | | | | | SVB isn’t alone in interest rate crunch — American Banker: “Dozens of other banks — most of them quite small — are deeply underwater on their bond investments and could hit trouble if they were unexpectedly forced to liquidate the investments. That's according to an American Banker analysis of regulatory filings by the country's more than 4,700 banks.” SVB buyer has scooped up a dozen failed banks since 2008 — Bloomberg: “The acquisition by First Citizens BancShares Inc. from the Federal Deposit Insurance Corp. creates a $143 billion loan portfolio and turns [CEO Frank] Holding’s little-known bank into one of the country’s largest lenders to the venture capital and private equity industries.” EU banks saw deposit flight before turmoil — FT: “Depositors have withdrawn €214bn from eurozone banks over the past five months, with outflows hitting a record level in February, according to data published by the European Central Bank on Monday.”
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