Barney Frank on SVB and Signature Bank Collapses (Audio)

dissolved by the FDIC. What happened was the fallout? How would you say? I think from Silicon Valley Bank, we got hit although we Signature were in good shape. In fact, given what the FED and the FDIC announced today, if that been announced on Friday, we would have had no problem at all. We began to lose deposits on Friday out of reaction to what happened to Silicon Valley. What you also had was it wasn't because Silicon Valley. It

was a punishment for anybody involved with clipped. This is a and I think in fact what happened was we had gotten into crypto allow in a way that no way put us to risk We facilitated our customers who wanted to deal with each other crypto, but we would not it as someone that was doing crypto, as I said, not in a way that was risky to us. And there was this fleeing of banks that we're seeing to

a crypto now. It was a liquidity issue, not a soaleignty issue, and we had by Sunday actually gotten back to a point where we had to liquidity what I believe the regulators wanted to send a message that crypto is toxic, frankly, and they wanted to tell everybody to get as far away from crypto as they could. When we were signaled out to be the poster child for that message, we Burney, your CEO, Joe to Paolo has actually said the same thing you just said, which is

the exposure was responsibly handled. It was limited exposure. We're Silicon Valley Bank, for example, had a lot more exposure to tech start up to be So, how did crypto lead to the shutdown of signature exactly? Walk us through the details? So two ways. First of all, depositors and like other banks, uh they cater to businesses as we do. We didn't care to high tech. We catered to largely commercial lenders. Were a big housing developer, which is one

of the things I liked about our role. Um what so, we had a lot of large depositors who were uninsured, and they panicked knowing that we were involved with crypto, and we explained to them, but it was crypto in a very responsible way that didn't expose us. They didn't want to hear it. They just wanted to go to

JP Morgan, a Bank of America, just in case. So what the way Crypto heard us was the fact that we are involved with crypto, although as I said, in a way different than s web uh and have large uninsured depositors. They panicked and fled. What the FED did now by announcing they would back up or what I see that they'd back up on each other depositors and

make a liquidity facility open at the FED. That would have kept us from having a pop. And as I said, I think the regulators, knowing that we were involved with crypto, even though in a totally different way, wanted to send a message to get people away from crypto. I think some of the regulators, Uh, we're a little nervous that they've been a little to accommodating the crypto and particularly after FTX, which which is at Parney. You're talking about let me just let me just hop in here. You're

talking about mostly uninsured deposits. Roughly nine deposits for signature were uninsured. Look, you're a co sponsor of a of the DoD FRAMEK Act, which is known for regulation. Why didn't why wasn't this addressed earlier? Because we were defeated. I it's a good point. I wanted to extend deposit insurance for larger businesses. We have a payroll issue. There had been a temporary extension of that two thousand and eight, and I pushed for it in a House version of

the bill. We extended it, but we ran into political opposition, first from the large banks, which frankly don't want people to have that reassurance because that makes it likely for people, as happened now, to pull out of smaller banks to go to be of A or J people of the chase. We had Republican opposition who thought, well, this is interference with the economy. We had some people on the left

who said, oh, don't insure the very rich. Although extending to business accounts that guarantee protects working people because it protects payroll. So the answer is, that's a good question. I tried to get it extended, and I hope that what will happen now is people having learned the backing of the uninsured, raising the insurance level will not be a one off for this crisis, but that former colleagues will take steps to extend it, particularly for payroll accounts. Well,

should there be any limit? I mean shouldn't we? The FED has essentially come out now with its statement and UM assured depositors across the country that there's no more limit, that every every is that okay necessary, that's a necessary temporary America until they work out. And what I think you need to do is to raise the limit. First of all, a business account. We're not talking about rich

individual's pocket money. We're talking about because what do you do if you're a business and you have to have me to payroll that's in the in the hundreds of thousands of millions. I would say, this is all the top of my head. I'm not there to do the research now that you would want to say that an amount that would get you through at least one payroll period and maybe two so you could then make other arrangements. But why why should there be any limit? Nan? Why

should Why does America have the thousands of banks? So why not just have you know, like five or ten big institutions so that we don't have to have these problems all the time. Here's the reason. If you're talking about a personal account of a million dollars, five banks would do it. What if you're a business that has a payroll in the tens of millions, how many banks do you have to do? It would be very inefficient to have them have to have fifty banks. And why

do it? It's to protect not the banks, but to protect working people. That's why there was a lot of pressure from I get that. I just don't understand why there should be a limit any I guess you could vilify rich people. Oh he has a million dollars in that bank account, but who cares? Like, why why should there be any limit? Why not ensure all deposits because there is a potential cost to the federal government, There is a potential moral that there's some too safety to

having people check with that bank. You don't want banks that are irresponsible to have a restricted limit. I would make it pretty high. And I think the need again is and I'm not vilifying rich people. What I'm saying is that no policy need to protect millions of dollars in individual pocketation. There is a policy need to protect an institution that has payroll and not make them go to ten or twenty or forty banks, and to let them put the bank to have a bank which is

sufficient to be stepping through a month's payroll. And that's the specifics I would work for. So what we tried to do in the House in two thousand and eight, we didn't have the votes to do it in the Senate. But I hope now people have learned frankly that we were writing and they will do that. Barney and New York Governor Kathy Hokell said the takeover of Signature Bank by federal regulators on Sunday, quote was not a bailout.

Do you agree who said it wasn't? New York Governor Kathy Hukel, Yeah, Well, I don't see how it's a bailout. What's going to happen is, in fact, I don't think bailed out the depositor Earth. Yeah, but not just a Signature bank. Every depositive was Yeah, I'm sorry, Can I finish a sentence? Please? Please? The fact is nothing was done with regard to depositors at Signature Bank different than any other bank in America. So no, if it was

a bare office signor it was a badhoff for everybody. Secondly, and I think for good policy reasons, you don't want to have people's payrolls going on man and hurting innocent people and the economy. Beyond that, what's going to happen is that the FDIC is going to sell the bank. I predict that they're going to get a pretty good place for it. Confirming that there was no reason endemic to the bank or intrinsic to the bank to shut it down, I think they were just trying to send

an anti crypto message. But they as far as your shareholders are concern, nobody's going to get any money other than what's put in by a say we tax pay of money, and anyway we'll be repaying shareholders. Congressman, I want to ask you a couple questions about what's left of Signature Bank as well. Let's start with their digital payments. On one second, I'm going to hang on one second, so the train announcement stop station. Of course we are happy to wait for that, but of course there's going

to be a lot of more headlines as well. And then the time we have left with you, Congressman, I want to ask you about the digital payments platform is Signette? Is it still online? Yes? I said, go ahead. Is Signette still online? The digital payments platform associated with Signature Bank? What platform Signette? I'm sorry I didn't hear the question. No worries. Let's move on to the next one. You're talking about the big banks and simply the regulation required

for them. Who benefits from what you're seeing on the FDIC front and the FED front. Who benefits? Oh, who benefits from the FDIC Our work people who have to have have to be paid. Sure, but in terms of the shutdown of Signature Bank, where did those funds go? I'm sorry you actually meet different questions you asked me. I thought about who benefits in the first place, where the gudget depositors. Nothing is being done at Signature that isn't being done everywhere else, and the purposes so that

people can meet pay rolls. And I'm along in favor of that. I know that's been out of the demand. As far as funds are concerned, other than yeah, there'll be funds that will bail out the deposits. The FDIC has announced, and again not differently for signature than any other bank, that there will necessarily be an assessment on other banks to build up the FDIC funds, as those payments come out of not general tax revenues, but FDIC

funds that are generated by fees paid by banks. As far as shareholders are concerned, any recompanies, any conversation to shareholders will come from the postseeds when the FDIC sell signature to some other entity and where those gos. That'll

be enough. Hey, Barney Crity and I were initially discussing your legislation this morning because it turns out that m SVB would have been under the scrutiny of regulators had it not been for the twenty eighteen partial repeal or exemption of banks holding less than one hundred billion dollars in assets from scrutiny right away and then one two hundred and fifty billion from scrutiny over the next year and a half exemption from Dodd Frank. Do you think

that that's going to be turned back around. Are these banks Probably not. Here's a response to that. It was not an exemption from regulation. It was an exemption from a particularly stricter regulation, which still applies to the larger banks. I will tell you that signature was in that category of banks that got not the strictest regulation, but there was still serious regulation. And I will tell you that during that period, since two thousand eighteen, the regulators were

very involved with signature. So no, I don't think. I think the problem was Frankly, digital as a new element in the system, and there was regulation or got in digital. I think what happened, Frankie was with ft apps that you scared people so much in digital that you got this deposit runs that weren't anticipated. But it wasn't a lack of regulation. The regulators had the power. They did not have the same strictness that they had, say with the Wells Fargo a city, But it was not a

case of removing regulation. The banks were still subject to regulation. And I can tell you it was a Rodger signature. It was pretty it was pretty serious regulation even after that bill pass. The reason I ask is just that President Biden held a press conference this morning in which He said that he would ask Congress and banking regulators to strengthen the rules for banks to make it less likely that this kind of failure would happen. Do you

see that as necessary with your experience? And yes, I don't see it as necessary. Remember, this is not a widespread set of failures, in part becards to the rules we did put in place so that even banks that were getting hit with deposit bungee still solvent because they were better capitalized thanks to the legislation, and because they were not allowed to get involved thanks to the vocal rule and extensively whisky underplunded delivatives. I think there were

ways of regulations should be tightened. Yes, So I don't think it's you know, I wouldn't say necessary, but I think it would be very beneficial to tighten them in some ways. Congressmen at signature banks specifically, when did the bank know that the federal government was very concerned about it and would in fact take it over today? We heard about it on over the weekend. What happened was on Friday things were okay, and then on Friday afternoon we got hit with a billions and billions of dollars

in with all the deposits. Because we are business oriented and a lot to developers, property owners, housing people, we have large depositors disproportionally to say the average bank, and we began to get these deposit outflows on Friday, began dealing with them. I believe by Sunday we had resolved that finding what capital and the deposit out we stopped.

I believe that the regulators stepped in even after we had managed to stabilize that because of the determination to get people to move away from from crypto, and we were a post a child for that decision. Barney, was there any wrongdoing a Signature break, any fraud anyone? Any fraud any I'm sorry I say any wrongdoing. Did anything wrong happen at Signature Bank? In your opinion? Anything wrong?

Did you say? Yes? I know, I don't think if there hadn't been that run on deposits, um you wouldn't have had the publem And by the way, I just learned this morning the FDIC has removed the Chamans out the board and removed the CEO and advice chair, but as otherwise kept all the people in place, including the people who run the bank. And I think you'll see when they when the sale comes and it's a fundamentally sound bank. And no, they have not pointed to any

specific pattern of longdoing or incompetence. It was, as I said, the run spurred by the combination fd X s BB, and that's wept us. All right. Congressman, thank you so much for your time. We really appreciate. We're gonna let you go and let you get your train. Congressman Barney Frank, former representative for the US House of Representatives for the state of Massachusetts,