They don't find them, they create them.
LIVE: House hearing on San Francisco Federal Reserve in the wake of recent bank failures — 5/24/23
Ms Judge
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Chairwoman mclean, ranking member, Porter and members of the subcommittee.
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Thank you for the opportunity to be here today.
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On April 13th 2012, JP Morgan, Ceo Jamie Dimon was asked about reports that the bank's chief Investment Office may be facing significant losses because of bets it made using credit derivatives.
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Diamond downplayed the concerns describing the bank as conservative and the situation as a complete tempest in the teapot.
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The supposedly teapot size tempus ultimately cost Jp Morgan more than $6 billion and inspired the Senate permanent subcommittee on investigations under the leadership of Chairman Senator Levin and ranking member, Senator mccain to examine just what had gone wrong inside the bank and why the zero cc, the bank's primary supervisor had not done more to prevent the losses.
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The bipartisan report exposed significant deficiencies internal to Jp Morgan Chase.
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It revealed that internal risk limits have been breached more than 300 times and that the bank had changed how it calculated certain risk limits rather than addressing the underlying problem.
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The report showed chase had mischaracterized the portfolio producing the losses as a risk mitigating hedge when it was not and it further showed that chase had dodged regulatory oversight by omitting data in its reports to the zero cc and failing to respond appropriately to information requests.
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The report also found meaningful shortcomings at the zero cc supervision of the bank.
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It revealed patterns of inconsistent and insufficiently robust follow up when problems were flagged and it were further revealed that supervisors were often too hesitant to challenge the bank.
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Yet, the report recognized that the primary responsibility for the losses lie with JP Morgan.
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This is just one of many examples of Congress usefully using its oversight authority to hold banks, bank executives and bank supervisors accountable following the 2008 financial crisis.
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The permanent investigation subcommittee also undertook a deep bipartisan dive into the causes of the crisis.
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The final report showed how high risk lending by banks inflated credit ratings, investment bank abuses and a troubling tendency by the office of thrift supervision to treat banks as its clients had contributed to the crisis that caused so many to suffer.
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After the stock market crash of 1929 the Senate Banking and Currency Committee launched an investigation into the securities industry with Ferdinand Pecora as le councils and the hearings and report provided valuable insights into troubling Wall Street practices from undisclosed loans to senior officers to conflicts of interest between commercial banks and their affiliated securities dealers.
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Following the 19 oh seven financial panic.
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The House Committee on Banking and Currency under Congresswoman Puo undertook an extensive investigation of the ways financial and economic power had grown more concentrated in the hands of JP Morgan and a small network of other Wall Street firms in revealing troubling practices by large financial firms and showing how often other people suffer.
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These reports helped to spur legislative and regulatory change.
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The PUO hearings contributed to the adoption of the Clayton Antitrust Act of 1914 and the creation of the F T C.
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The hearings helped to motivate and inform the Securities Act of 1933.
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The Exchange Act of 1934 assuring in a new era of an investor protection.
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Thank you, madam.
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Thank you madam chair.
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Excessive spending has consequences.
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Both Republican and Democratic administrations are guilty.
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However, the devastating effects of inflation caused by Uncle Sam not spending within his means has only now caught up with American people in the last few years.
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The reason trillions of dollars given to the public through stimulus checks, enhanced benefits and forgiveness business loans.
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During the COVID-19 response created an excess of dollars in the market in a way that the previous zero interest rate era where printed money just sat in the banks does not resemble.
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But inflation is not the only evil that the fiat money system engenders the downside of being the world's reserve currency and therefore the strongest currency is that foreigners cannot afford goods priced in the strongest currency.
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And the reverse is true.
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Foreign goods priced in cheap currencies are easily affordable to Americans who wield the mighty dollar.
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That is why manufacturing closed to countries with weaker currencies like China, India and India and Mexico goods are cheaper if they are sold to weak currencies.
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And who pays for this?
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Not the big banks like Silicon Valley Bank who are close to the money printing spigots.
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But the middle class working Americans whose jobs have been literally transplanted by China.
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That is why I'm a strong supporter of the Gold Standard Restoration Act introduced by Alex Mooney who would solve the double problem of inflation and job offshoring going back to the gold standard would be the single biggest thing Congress could do to help the middle class in America.
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Questions for both of you, Mr Clements and Mr has the fed's decision to raise its policy rate by 450 basis points between January 2022 March of 2023 created a national banking crisis.
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We hadn't done work to be able to, to justify that clearly, the increase in interest rates caused a decline in the value of the portfolio at Silicon Valley Bank.
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That was yes sir.
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But I would say I'm a bank regulatory expert, not an expert in monetary policy or a financial analyst.
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I guess I would say, I, I think if you look across the banking system, I think the vast majority of banks have have done an admirable job of managing interest rate risk.
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Obviously Silicon Valley Bank did not.
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But I'm afraid that's the most insight I can offer you.
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So now why would anyone keep their money in a bank if they could make a return of 5.6% on one month's treasuries, Mr Clement?
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You answer that and I'd probably go with Mr, I'm, I'm not an expert on I mean, 56% is a pretty good yield, isn't it?
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It's better than what you can get on a, on a typical bank account.
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Do you have any answers?
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I confess.
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I, I did not come prepared to provide AAA full assessment of the merits of relatives to bank deposits.
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I would say that bank deposits have a variety of other advantages including you know, transactional capabilities and so on.
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But I, I'm, I'm afraid other than that, I can't offer any real insights for you.
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So would you say that the fed acted recklessly by this action?
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Yes or no, Mr Clement.
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I, I, I, I'm just not qualified to, to discuss that.
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Yes.
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No, you're not qualified either.
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How about you?
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Miss Judge?
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I think the Fed was pursuing price stability, which is an important mandate and I think banks have the obligation and should be able to as most banks have to be able to handle changes in the interest rate environment as a result of inflation that is global at the moment.
LIVE: House hearing on San Francisco Federal Reserve in the wake of recent bank failures — 5/24/23
Mrs McClain
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Silicon Valley Bank was the second largest bank failure in us history.
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I wanna just make note second largest bank failure in us history.
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So you might expect the causes were complicated.
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But in fact, it was one of the least complicated bank failures in history.
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The bank was invested in some of the safest securities available us, treasuries and agency securities.
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The credit, the credit risk minimal.
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The only real risk these securities to these securities was high inflation risk.
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Then came the rampant inflation inflation brought on by President Biden's unnecessary spending injecting trillions upon trillions into an economy already flushed with cash.
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In response.
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The fed spent months tightening to try and extinguish the rapid rampant inflation.
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Instead of mitigating the risk of rising inflation by hedging with other financial tools.
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Silicon Valley Bank did nothing, did nothing.
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Despite knowing these risks.
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Now, we're forced to, to be hedged by the regulators despite knowing that most of Silicon Valley's bank deposits were in excess of $250,000 of the insured deposit limit.
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Anyone could see that the ingredients for a run on the bank were in place.
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Regulators should have seen it coming from a mile away at the end of the day.
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That is their job to regulate the combination of an unstable deposit base and a plummeting bond portfolio contributed to the evaporation of the $212 billion bank nearly overnight.
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All of these raise serious questions who was overseeing the bank.
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And I want to emphasis on who was overseeing this bank.
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What were the, what, what were they force focused on instead of risk management?
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So what were they taking a look at their job?
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Was the management of risk as at that bank?
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Clearly, they weren't doing that.
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What else were they focused on?
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And why didn't they intervene?
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Did regulators get complacent and buy into the political narrative that Dodd Frank solved all the problems?
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If so, I would argue if they bought into that narrative, why do we need regulation on po upon regulation and regulator and agency upon agency?
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Were the regulators communicating clearly with the bank managers on man on management on matters that needed addressing or did regulators flood management with process questions instead of focusing on the fundamental issues that mattered today, we're gonna, we're going to try and get some answers on where and what and why regulatory supervision failed, but we are not stopping there.
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We are we are going to take a deeper look into the steps regulators took in recent years asking questions.
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Did the fed use all the tools available to prevent this failure?
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Did the Federal deposit insurance corporation or FDIC have the proper early warning signs systems in place?
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Has the FDIC been transparent about the process around the seizure of the Silicon Valley Bank?
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Or is there more to the story?
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Did the fed's post moratorium evaluation pursue a political objective or was it truly a self reflective exercise to uncover the truth?
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This committee is named oversight and accountability and that is exactly what we are pursuing.
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If government officials are to blame and have not been forthcoming, we will hold them accountable.