GOOD AFTERNOON AND WELCOME TO
OUR OVERSIGHT HEARING FOR THE
STATE SUPERVISION OF SILICON
VALLEY BANK, WHICH FAILED IN
MARCH. I DO WANT TO THANK SENATE
CHAIR LEMON AND HER STAFF AS
WELL AS THE ASSEMBLY BANKING
STAFF FOR HELPING US ORGANIZE
TODAY'S HEARING. PLEASE NOTE
THERE IS A BACKGROUND PAPER
PUBLISHED ON THE COMMITTEE'S
WEBSITES, AND THERE ARE COPIES
HERE IN THE ROOM TODAY. THE
PURPOSE OF TODAY'S HEARING IS TO
INVESTIGATE WHETHER THE
DEPARTMENT OF FINANCIAL
PROTECTION AND INNOVATION
SUPERVISION OF SILICON VALLEY
BANK ALSO CALLED SVB SHORT AND
WHAT CAN BE DONE TO HELP PREVENT
A SIMILAR SITUATION FROM
OCCURRING AGAIN. THIS HEARING
COMES AT AN IMPORTANT TIME. JUST
RECENTLY, WE SAW THE FAILURE OF
FIRST REPUBLIC BANK, ANOTHER
LARGE CALIFORNIA CHARTERED BANK.
WELL FIRST REPUBLIC WILL NOT BE
THE FOCUS OF TODAY'S HEARING.
ITS FAILURE ADDS URGENCY TO
TODAY'S DISCUSSIONS ON APRIL
11TH. THE ASSEMBLY BANKING AND
FINANCE COMMITTEE HELD AN
INFORMATIONAL HEARING ON WHAT
LED TO S S VBS FAILURE. THE
OVERWHELMING TAKE AWAY FROM OUR
EXPERT WITNESSES. WAS THAT SVB
FAILURE WAS A CLEAR CASE OF BANK
MISMANAGEMENT AND SVB S
LEADERSHIP DID NOT ADEQUATELY
MANAGED THE EMERGING RISK TO ITS
BUSINESS MODEL. BUT S VBS
FAILURE ALSO RAISES IMPORTANT
QUESTIONS ABOUT BANKING
REGULATION AND BANK SUPERVISION
. AS A STATE CHARTERED BANK SVB
WAS WAS SUPERVISED BY BOTH THE
FBI AND THE FEDERAL RESERVE THAT
THEY HAVE CONCERNS ABOUT SVB.
DID THEY TAKE ACTION? WE HAVE
SINCE LEARNED THE ANSWERS TO
THOSE QUESTIONS, AND THOSE
ANSWERS ARE YES AND, YES. KIND
OF BOTH FEDERAL AND STATE BANK
SUPERVISORS IDENTIFIED A HOST OF
CONCERNS ABOUT SVB GOVERNANCE
AND RISK MANAGEMENT AND
REGULATORS COMMUNICATED THEIR
CONCERNS TO SVB AND TOOK
SUPERVISORIAL ACTIONS SUCH AS
LETTERS AND EVEN MEETINGS. BUT
THAT SEEMS TO BE AS FAR AS
THINGS WENT. AND ON APRIL THE
28TH THE FEDERAL RESERVE ISSUED
A REPORT EVALUATING ITS OWN. ITS
OWN ROLE IN SUPERVISING SVB IN
THAT REPORT, THE FEDERAL RESERVE
ACKNOWLEDGED THAT SUPERVISORS
DID NOT FULLY APPRECIATE THE
EXTENT OF S V. V S
VULNERABILITIES AND WHEN THEY
DID IN IDENTIFY THOSE ISSUES,
THEY DID NOT TAKE SUFFICIENT
STEPS TO ENSURE THAT THE BANK
FIXED THOSE PROBLEMS AND EARLIER
THIS WEEK THE FBI ISSUED ITS OWN
REPORT, WHICH WILL BE THE FOCUS
OF TODAY'S HEARING. A LINK TO
THAT REPORT CAN BE CAN ALSO BE
FOUND ON THE COMMITTEE'S WEBSITE
. I WANT TO SHARE A FEW OF MY
TAKEAWAYS FROM THE FBI'S REPORT
, AND FIRST I WANT TO COMMEND D
F P I STAFF FOR THEIR THOUGHTFUL
AND THOROUGH ANALYSIS OF THE
DEPARTMENT SUPERVISION OF SVB.
INCLUDING AN ACKNOWLEDGEMENT OF
MAYBE SOME SHORTCOMINGS, AND
THIS REPORT WILL BE A USEFUL
RISK REFERENCE POINT FOR MANY
YEARS TO COME. I BELIEVE SO
SECOND, I STILL HAVE QUESTIONS
ABOUT THE FBI'S ROLE IN
SUPERVISING A BANK AS LARGE AND
AS COMPLEX AS SVB. I BELIEVE
THAT IN THE VALUE OF
CALIFORNIA'S BANKING CHARTER, I
BELIEVE IN THE VALUE OF
CALIFORNIA'S BANKING CHART, AND
I ALSO BELIEVE IT IS ESSENTIAL
TO A HEALTHY BANKING SYSTEM TO
HAVE BANKS REGULATED. BY THOSE
WHO KNOW THE STATE BEST. BUT IN
THIS CASE, THE FEDERAL RESERVE
WAS THE LEAD SUPERVISOR. AND I'M
LESS CERTAIN ABOUT THE ABOUT
EXACTLY WHAT THE FBI'S
CONTRIBUTION IS FOR A BANK SUCH
AS THIS, PERHAPS, UH, IN TODAY'S
HEARING WILL BE ABLE TO LEARN
MORE ABOUT THAT. FINALLY THE
FBI'S REPORT SERVES AS A
REMINDER REMINDER THAT WE HAVE
TO GET THIS RIGHT. THE BANK RUN
THAT LED TO S VBS COLLAPSE WAS
UNPRECEDENTED, BUT WE HAVE TO
ASSUME IT CAN HAPPEN AGAIN.
SOCIAL MEDIA AND THE SPEED OF
MODERN FINANCE. IT MEANS THAT WE
HAVE TO PREPARE FOR KINDS OF
DAYS. THAT WE SAW IN MARCH WHEN
SVB S CUSTOMERS PULLED OUT 42
BILLION WITHIN EIGHT HOURS AND
CONCLUSION. I AM VERY MUCH
LOOKING FORWARD TO THE DATE TO
TODAY'S DISCUSSIONS. AND MY GOAL
FOR THIS IS TO BE CONSTRUCTIVE
AND ALSO TO HELP US LEARN AND TO
HAVE A PATH FORWARD. AND WITH
THAT, I WOULD LIKE TO HAND IT
OVER TO MY COLLEAGUE, CHAIR
LIMÓN. THANK YOU VERY MUCH.
CHAIR. GRAYSON THANK YOU FOR
GETTING US STARTED TODAY. I
WOULD ALSO LIKE TO THANK THE
COMMISSIONER AND HER STAFF FOR
PROVIDING THE REPORT ON SILICON
VALLEY'S BANK'S FAILURE AND FOR
BEING HERE TODAY TO SHARE THEIR
PERSPECTIVE AND ANSWER QUESTIONS
FROM COMMITTEES COMMITTEE
MEMBERS. OFTENTIMES WE TAKE FOR
GRANTED THE SAFETY AND SOUNDNESS
OF OUR BANKS AND THE BANKING
SYSTEM AS A WHOLE. THE SAFETY OF
OUR BANKING SYSTEM IS A BROAD
PUBLIC BENEFIT THAT HELPS US GO
ABOUT OUR LIVES WITHOUT SECOND
GUESSING WHETHER OUR PAYMENTS
ARE GOING TO PROCEED OR WHETHER
OUR SAVINGS WILL BE AVAILABLE TO
PAY OUR BILLS NEXT MONTH, BUT
THROUGHOUT MODERN HISTORY WE SEE
PERIODS. NGUYEN ANXIETY CREEPS
UP ABOUT THE HEALTH OF
PARTICULAR BANKS. AND THIS IS
WHERE WE FIND OURSELVES TODAY.
THE TWO LARGEST STATE CHARTERED
BANKS IN THE STATE OF CALIFORNIA
RECENTLY FAILED DESPITE
RELATIVELY STRONG ECONOMIC
CONDITIONS WITH RECORD LOW
UNEMPLOYMENT AND A POSITIVE GDP
GROWTH. SO HOW DID THIS HAPPEN?
TODAY'S HEARING WILL FOCUS ON
THE FAILURE OF SILICON VALLEY
BANK. WHICH COLLAPSED RAPIDLY IN
MARCH OF THIS YEAR. WHILE WE
WERE NOT WHILE WE WILL HEAR FROM
OUR STATE REGULATOR TODAY, I
WANT TO EMPHASIZE THAT THE
INDIVIDUALS PRIMARILY
RESPONSIBLE FOR THE FAILURE OF
SILICON VALLEY BANK, THE BANK
SPORT OF DIRECTORS AND SENIOR
MANAGEMENT ARE NOT HERE. WE MUST
KEEP IN MIND THAT BANK
REGULATORS ARE NOT BEING
OPERATORS. GOVERNMENT OFFICIALS
ARE NOT THE ONES MAKING EACH
DECISION THAT EITHER INCREASES
OR DECREASES THE RISK THAT
AFFECT A GIVEN BANK. ULTIMATELY
BANK REGULATION AND SUPERVISION
CAN ONLY GO SO FAR. IN
PROTECTING BANKS FROM FAILURE.
THAT SAID, WE KNOW THAT BANK
FAILURES CAN HAVE NEGATIVE
CONSEQUENCES ON THE GENERAL
PUBLIC, WHICH IS WHY OUR LAWS
ARE DESIGNED TO REDUCE THE
FREQUENCY OF AND MITIGATE
FALLOUT FROM BANK FAILURES AFTER
A SERIES OF PANICS AND CRASHES
THROUGHOUT THE 19TH AND 20TH
CENTURIES, THE FEDERAL
GOVERNMENT LED THE WAY IN
DESIGNING IMPORTANT INSTITUTIONS
TO IMPROVE THE STABILITY OF OUR
BANKING SYSTEM. NAMELY THE
FEDERAL RESERVE AND THE FEDERAL
DEPOSIT INSURANCE CORPORATION,
OR F D, I. C. SINCE THEIR
CREATION THAT FED AND THE FDA
HAS PLAYED A LEADING ROLE IN
CREATING AND IMPLEMENTING
POLICIES DESIGNED TO PROTECT
INDIVIDUAL BANKS AND THE BROADER
FINANCIAL SYSTEM FROM TAKING ON
TOO MUCH RISK. IN A SECONDARY
ROLE. THE STATES ALSO HAVE BANK
REGULATORS WHO HAVE OVERSIGHT
OVER FINANCIAL INSTITUTIONS THAT
CHOOSE TO ORGANIZE UNDER A STATE
CHARTER RATHER THAN A NATIONAL
ONE. SIMILAR TO THEIR FEDERAL
PARTNERS. STATE BANK REGULATORS
ARE CHARGED WITH EXAMINING BANKS
FOR COMPLIANCE WITH A VARIETY OF
SAFETY AND SOUNDNESS
REQUIREMENTS. THESE REGULATORS
SERVE AS A SECOND LINE OF
DEFENSE IN THE EVENT THAT THE
BANK'S BOARD AND MANAGEMENT TEAM
FAILED TO APPROPRIATELY MANAGE
RISK, BUT WE SEE FROM THE
EXAMPLE OF SILICON VALLEY BANK
THAT THIS SECOND LINE OF DEFENSE
WAS UNDERPREPARED AND UNDER
EQUIPPED TO COMPEL SVB S
MANAGEMENT TO TAKE REMEDIAL
MEASURES TO ADDRESS GROWING RISK
WITHIN THE BANK. AS CHAIRMAN
GRAYSON MENTIONED IN HIS REMARKS
, BUT THE FEDERAL RESERVE
FEDERAL RESERVE REPORT AND THE D
F THE FBI REPORT ACKNOWLEDGE
SOME OF THESE FAILURES. I LOOK
FORWARD TO HEARING TESTIMONY
FROM THE DEPARTMENT TODAY AND
HOPE THAT WE ALL WALK AWAY WITH
A BETTER UNDERSTANDING OF THE
FACTORS THAT LED TO THE DEMISE
OF SILICON VALLEY BANK AND A
SHARPER FOCUS ON THE POLICY
OPTIONS THAT CAN BE PURSUED TO
PREVENT SUCH FAILURE FROM
HAPPENING AGAIN. WITH THAT. I'D
LIKE TO INTRODUCE COMMISSIONER
CHLOE HEWLETT AND INVITE HER TO
SHARE HER OPENING REMARKS WITH
THE COMMITTEE.
HERE LEMON HERE, GRAYSON. AND
MEMBERS OF THE COMMITTEE. THANK
YOU FOR THE OPPORTUNITY TO BE
HERE TODAY. MY NAME IS CHLOE.
TEAL. HEWLETT AND I HAVE SERVED
AS COMMISSIONER OF THE FBI SINCE
DECEMBER, 2021 LEADING A TEAM OF
DEDICATED PUBLIC SERVANTS
WORKING EVERY DAY TO PROTECT
CONSUMERS AND STRENGTHEN
CALIFORNIA'S ECONOMY. I AM
JOINED TODAY BY DFE EYES.
GENERAL COUNSEL VÆ MALIK AND
DEPUTY COMMISSIONER JEANETTE
QUICK TO ASSIST WITH RESPONDING
TO TECHNICAL QUESTIONS. MY
REMARKS WILL CENTER ON THE
EVENTS LEADING TO THE FAILURE OF
SILICON VALLEY BANK. CURRENT
MEASURES. WE HAVE UNDERTAKEN AN
ADDITIONAL EFFORTS WE CAN PURSUE
TO STRENGTHEN OUR STATES BANKING
SYSTEM IN THE FUTURE. FOLLOWING
A CALL WITH INVESTORS SILICON
VALLEY BANK EXPERIENCED A
REMARKABLY SWIFT ONE THAT LED TO
THE BANKS. RAPID DETERIORATION
PURSUANT TO MY OBLIGATIONS AS
COMMISSIONER OF THE FBI AND DUE
TO S VBS AND SOLVENCY, I MOVED
SWIFTLY AND COORDINATION WITH
FEDERAL REGULATORS THE MORNING
OF MARCH 10TH. 2023 TO PROTECT
THE REMAINING DEPOSITORS AND OUR
STATE'S FINANCIAL SYSTEM BY
TAKING POSSESSION OF THE BANK
AND DESIGNATING THE FEDERAL
DEPOSIT INSURANCE CORPORATION
KNOWN AS THE F D, I C AS
REACHING RECEIVER. IN THE DAYS
AND WEEKS THAT FOLLOWED. THE FBI
CONDUCTED A THOROUGH REVIEW OF
ITS OWN OPERATIONS AND
FORMULATED THE RECOMMENDATIONS
YOU HAVE BEFORE YOU IN OUR
REPORT. AND ASSESSING
CIRCUMSTANCES SURROUNDING THE
DEMISE OF SILICON VALLEY BANK,
AND THE IMPORTANT LESSONS
LEARNED IT IS CRITICAL TO HAVE
THE CONTEXT REGARDING HOW DFE
AYE. OVERSEAS CALIFORNIA'S
FINANCIAL SYSTEM AND PROTECTS
THE PUBLIC. THE FBI IS THE STATE
CHARTERING AUTHORITY FOR
CALIFORNIA'S MANY BANKS AND
CREDIT UNIONS. SO LET ME TAKE A
MOMENT. TO DISCUSS THE DUAL
BANKING SYSTEM IN THE UNITED
STATES AND THE IMPORTANCE OF THE
STATE CHARTERED SYSTEM. THE
UNITED STATES HAS A DUAL BANKING
SYSTEM APPAREL L STATE AND
FEDERAL BANKING SYSTEM THAT
COEXISTS IN OPERATES IN TANDEM.
STATE BANKS AND STATE BANK
REGULATORS PLAY AN INCREDIBLY
IMPORTANT ROLE IN THE DUAL
SYSTEM. NATURALLY STATE
REGULATORS SUPERVISE NEARLY 80%
OF ALL BANKS IN THE UNITED
STATES, WHICH EQUATES TO MORE
THAN 3800 STATE CHARTERED BANKS.
WITH APPROXIMATELY 8.5 TRILLION
IN TOTAL ASSETS. THIS INCLUDES
OVERSEEING TWO THIRDS OF
AGRICULTURAL LENDING AND HALF OF
SMALL BUSINESS LENDING. STATE
REGULATORS ARE WELL EQUIPPED TO
UNDERSTAND THE UNIQUE DEMANDS
FACED BY COMMUNITY AND REGIONAL
BANKS AS THEY ENGAGE IN LOCAL
ECONOMIC DEVELOPMENT. BECAUSE
STATE REGULATORS HAVE A FULLER
UNDERSTANDING OF THE LOCAL
COMMUNITY. THE FEDERAL SYSTEM
INVOLVES NATIONAL BANKS
CHARTERED BY THE OFFICE OF THE
COMPTROLLER OF CURRENCY, ZERO
CC. WHICH ALSO SERVES AS THEIR
PRIMARY REGULATOR. NATIONAL
BANKS ARE TYPICALLY LARGER. IN
TERMS OF GEOGRAPHIC FOOTPRINT
AND ASSET SIZE. WELL STATE
CHARTERED BANKS TEND TO BE
SMALLER, FOCUSING. I'M IN NEEDS
OF THE COMMUNITY OR GEOGRAPHIC
REGION. THE STATE SYSTEM
INVOLVES A STATE BANK CHARTER
PROVIDED UNDER STATE LAW, WITH
OVERSIGHT FROM BOTH STATE AND
FEDERAL SUPERVISORS IN
CALIFORNIA, THE FBI CHARTER
STATE BANKS, ALL BANKS ARE
INSURED BY THE F D I C SHOULD
HAVE BANK FAILED. THE F B D I C
IS AWESOME, RESPONSIBLE FOR THE
ORDERLY RESOLUTION. OF THE BANK
AND X AS RECEIVER. CALIFORNIA
STATE BANKS CAN CHOOSE WHETHER
TO BECOME A MEMBER OF THE
FEDERAL RESERVE SYSTEM ALSO
KNOWN AND WE'LL REFER TO AS THE
FED. AS A MEMBERSHIP IS NOT A
REQUIREMENT. UNDER CALIFORNIA
LAW, SILICON VALLEY BANK ELECTED
TO BECOME A STATE MEMBER BANK OF
THE FED, WHICH MEANT THE FED.
WAS ITS FEDERAL REGULATOR. ON
THE FEDERAL SIDE. THE FED
DESIGNATES DOMESTIC FINANCIAL
INSTITUTIONS WITH TOTAL SALAD
ATED ASSETS OF AT LEAST $100
BILLION AS LARGE BANKS REGULATED
UNDER THE FED'S LARGE AND
FOREIGN BANKING ORGANIZATIONS,
OTHERWISE KNOWN AS A L F B O THE
FED TELL TAILORS ITS
EXPECTATIONS FOR L F. B O S TO
ACCOUNT FOR THEIR SIZE.
COMPLEXITY FOREIGN EXPOSURE,
RISK PROFILE AND FINANCIAL
ACTIVITIES FOR DENTAL
REQUIREMENTS FOR L F. B. O S ARE
SET FORTH IN THE FEDERAL
REGULATIONS AND INCLUDE ENHANCE
HALF IT'LL LIQUIDITY, RISK
MANAGEMENT AND STRESS TESTING
REQUIREMENTS. AS A BANK ROSE AND
GENERALLY RECEIVES INCREASED
FEDERAL REGULATORY SCRUTINY AND
REQUIREMENTS. AT THIS LEVEL, THE
FED IMPLEMENTS AND ENFORCES
FEDERAL REGULATIONS, WHICH
INCLUDE THE DIED FRANK STRESS
TESTING AND EXAMINATIONS
PURSUANT. TO ENHANCED CREDENTIAL
STANDARDS RELATED TO CAPITAL AND
LIQUIDITY. THE FBI SUPERVISORS
AND 99 STATE CHARTERED BANKS
THAT PROVIDES SERVICES TO
BUSINESSES AND INDIVIDUALS
ACROSS THE STATE AND BEYOND.
NEARLY HALF OF THE FBI STATE
CHARTERED BANKS 43 HAVE UNDER
ONE BILLION IN ASSETS. ONLY NINE
DFE. I CHARTERED BANKS HAVE
ASSETS OVER 10 BILLION AVERAGE
ASSETS OF A STATE CHARTERED BANK
IN CALIFORNIA IS A APPROXIMATELY
$4 BILLION SILICON VALLEY BANK.
WAS ONE OF OUR OUTLIERS. AS ONE
OF D F P I S LARGEST BANKS WITH
ASSETS AND EXCESS OF $200
BILLION AT THE TIME LITTLE
APARTMENT TOOK POSSESSION OF THE
BANK. WE'RE NEARLY 40 YEARS.
SILICON VALLEY BANK OFFERED
SERVICES SPECIFICALLY DESIGNED.
TO MEET THE NEEDS OF EMERGING
INDUSTRIES AND SILICON VALLEY
AND ACROSS CALIFORNIA. THE BANK
WAS A CRITICAL PARTNER FOR MANY
OTHER COMPANIES IN CALIFORNIA,
FROM SMALL BUSINESSES TO
NONPROFITS, STARTUPS, BIOTECH
AND HEALTHCARE COMPANIES. IT
PROVIDED FINANCIAL SERVICES TO
MORE THAN 50,000 BUSINESS
CUSTOMERS. LIKE VINNY REGIONAL
BANKS. SILICON VALLEY BANK
PROVIDED SERVICES TO ITS
CUSTOMERS AND COMMUNITY. SINCE
2002. THE BANK INVESTED AND
LOANED MORE THAN $2 BILLION AND
AFFORDABLE HOUSING PROJECTS. THE
D F P. I EXAMINE THE BANK. IN
COORDINATION WITH ITS PRIMARY
FEDERAL REGULATOR. THE SAN
FRANCISCO FEDERAL RESERVE BANK.
ALSO KNOWN AS THE SF YET
EXAMINATION OF SILICON VALLEY
BANK'S COMPLIANCE WITH FEDERAL
REGULATIONS RELATED TO ENHANCE
CREDENTIAL STANDARDS AND STRESS
TESTING. WORD LED BY THE FEDERAL
RESERVE. DFE AYE. TUESDAY HALF
MEMBERS DEDICATED. Tð SVB
SUPERVISION. AND THE SF 20
STAFF. DEDICATED WITH
SIGNIFICANT EXPERTISE. IN THE
SUPERVISION OF A LARGE AND
FOREIGN BANK ORGANIZATIONS.
BEGINNING IN 2020. SPB
EXPERIENCE UNUSUALLY RAPID AND
SIGNIFICANT GROWTH. PRIMARILY
DRIVEN BY INCREASED DEPOSIT
INFLOWS FROM ARISE IN VENTURE
CAPITAL FUNDING OF COMPANIES IN
THE TECHNOLOGY INDUSTRY, WHICH
WERE S V. V S CORE CUSTOMER. THE
INSTITUTION GREW RAPIDLY IN
RECENT YEARS. GOING FROM 50
BILLION. IN 2017 TO OVER 100
BILLION IN 2020 AND OVER 200
BILLION IN TOTAL ASSETS IN 2021
SPV REPORTED IT PROVIDED BANKING
SERVICES TO ROUGHLY 44% OF
VENTURE BACKED TECH. AND
HEALTHCARE I P. O S IN 2022 55%
IN 2021. IN ADDITION TO S VVS
DEPOSIT BASE BEING HIGHLY
CONCENTRATED AND TECHNOLOGY, SPB
HAD A SIGNIFICANT LEVEL OF
UNINSURED DEPOSITS AS OF THE
YEAR IN 2022 SPB HAD 151.6. AND
UNINSURED DEPOSITS REPRESENTING
93.8% OF THE BANKS HOLD ON
DEPOSITS. S VBS RAPID GROWTH SF
FED WORKING WITH THE FBI
IDENTIFIED DEFICIENCIES AND SBB
BANK MANAGEMENT PRACTICES. NO
LITERALLY, THE S F ED AND THE
FBI HAD INITIATED SUPERVISORY
ACTIONS RELATING TO SPB S RISK
MANAGEMENT. QUIT IT. E AND
INTEREST RATES SIMULATIONS.
ALTHOUGH SPV HAD INITIATED SOME
RE MEDIATION EFFORTS, THE BANK
DIDN'T ACT QUICKLY NOR
AGGRESSIVELY ENOUGH TO RE
MEDIATE ITS DEFICIENCIES IN
NOVEMBER OF 2021. SF FED
INFORMALLY RAISED CONCERNS WITH
SVB THAT THEY WERE NOT READY TO
OPERATE UNDER ITS LARGE AND
FOREIGN BANKING ORGANIZATION. LF
VÚI. AND REQUESTED THE SVB. IT'S
BLAME HOW IT INTENDED. JUST SLOW
ITS GROWTH. REGULATORS ALSO
ISSUED A SERIES OF MATTERS
REQUIRING IMMEDIATE ATTENTION
AND THAT IS REQUIRING ATTENTION
IN OUR I A. S AND M R A S
REGARDING S PBS LIQUIDITY RISK
MANAGEMENT. I MAY 31ST 2022 S F
ED IN THE FBI ISSUE A
SUPERVISORY LETTER FINDING S VVS
GOVERNANCE AND RISK MANAGEMENT
PRACTICES WHERE BELOW
SUPERVISORY EXPECTATIONS. THIS
INCLUDED THREE NEW M R I A S
RELATED TO BOARD EFFECTIVENESS
RISK MANAGEMENT PROGRAM AND
INTERNAL AUDIT EFFECTIVENESS. ON
AUGUST 17TH 2022. THE S F ED IN
THE A P. I ISSUED A SUPERVISORY
LETTER THAT INCLUDED SUPERVISORY
RATINGS, NOTING UNRESOLVED M R I
A S AND M R A S FROM THE
NOVEMBER 2021 LETTER. SPB WAS
SUBSEQUENTLY NOTIFIED. BENNETT
MOU WAS BEING INITIATED. AND I
TOBER OF 2022, THE SF FED
EXAMINERS WITH THE FBI
IDENTIFIED CONCERNS REGARDING
THE AMOUNT OF UNREALIZED LOSSES
FOR SVB S AVAILABLE FOR SALE
SECURITIES. A F S A NUMBER
NOVEMBER 15TH 2022 SUPERVISORY
LETTER WAS ISSUED NOTIFYING BANK
LEADERSHIP THE SPV S INTEREST
RATE RISK ASSUMPTIONS FOR ITS
FORECAST MODEL. WERE UNRELIABLE.
SPB NEEDED TO ADDRESS NUMEROUS
ISSUES AS HIGHLIGHTED IN THE
SUPERVISORY LETTERS AND
REGULATORS. SHOULD HAVE BEEN
MORE ACTIVE. AND SETTING
AGGRESSIVE REMEDIATION
TIMELINES, HOWEVER. AS A FED HAS
IN KNOWLEDGE AND ITS OWN REPORT.
IT'S ALSO CLEAR THAT THE RUN ON
SVB WAS TRULY UNPRECEDENTED. ON
MARCH 8TH. THE BANK ANNOUNCED IT
HAD LIQUIDATED A BOND PORTFOLIO
AT A $1.8 BILLION LOSS AND ITS
HOLDING COMPANY ANNOUNCED THAT
IT WAS SEEKING TO RAISE 2.25
BILLION IN CAPITAL. AFTER THE
MARTIN ANNOUNCEMENT WITHIN THE
SPAN OF A FEW HOURS, THE BANK
RUN BEGAN. ON MARCH 9TH 2023 SPB
RECEIVED THE POSIT WITHDRAWAL
REQUEST OF APPROXIMATELY $42
BILLION, REPRESENTING NEARLY 25%
OF SPV S APPROXIMATELY 166
BILLION IN TOTAL DEPOSIT. AS OF
THE CLOSE OF BUSINESS THAT DAY.
THE BANK HAD A NEGATIVE CASH
BALANCE OF APPROXIMATELY 958
MILLION. SPB WAS INSOLVENT ON
MARCH 9TH 2023 AT THE CLOSE OF
BUSINESS. THE FBI COORDINATED
WITH FEDERAL REGULATORS
THROUGHOUT THURSDAY EVENING AND
INTO THE NIGHT AND INTO THE
EARLY MORNING OF THE FOLLOWING
DAY. ON THE MORNING OF MARCH,
10TH. 2023 D F P, I TOOK
POSSESSION OF SILICON VALLEY
BANK AND APPOINTED THE FBI A C
AS RECEIVER. THE BANK FAILED IN
LESS THAN THREE DAYS. LASTLY AS
I WILL DETAIL IN A MINUTE
CHANGES TO OUR SYSTEM AND
PROCESS MUST BE TAKEN SERIOUSLY.
DUE TO A VARIETY OF FACTORS
OTHER INSTITUTIONS FACED
DOWNWARD PRESSURE AFTER SVB S
FAILURE, MOST NOTABLY FIRST
REPUBLIC. WHICH I TOOK
POSSESSION OF LIQUIDATED AND
TRANSFERRED TO THE F D I C AS A
RECEIVER IN THE EARLY HOURS OF
MAY 1ST. JPMORGAN HAS ASSUMED
ALL DEPOSITS, INCLUDING ALL
UNINSURED DEPOSITS. AND
SUBSTANTIALLY OUTSIDES OF FIRST
REPUBLIC THING. THE FBI. HAS
TAKEN A HARD LOOK AT OUR
PROCEDURES, AUTHORITIES AND
PRACTICES AND RECOGNIZES AND
NEED TO MAKE CHANGES. SO THAT
OUR STATE CHARTERED BANKS
OPERATE IN A SAFE AND SOUND
MANNER. DON'T LET ME TURN TO
SOME KEY FINDINGS FROM THE FBI'S
REPORT. THE FBI AND THE SF FED.
IDENTIFIED DEFICIENCIES AND S
BBS RISK MANAGEMENT. LIQUIDITY.
AND INTEREST RATES SIMULATIONS
AND HAD INITIATED SUPERVISORY
ACTIONS IN THOSE AREAS PRIOR TO
THE BANKS COLLAPSE. SVB FAILED
TO RE MEDIATE THESE ISSUES TO
AVERT INSOLVENCY. GOING FORWARD
. THE FBI WILL COORDINATE WITH
FEDERAL REGULATORS TO DEVELOP
STRONGER AND MORE EFFECTIVE
SYSTEMS TO RE MEDIATE.
DEFICIENCIES PROMPTLY. THE FBI
WILL ADD ADDITIONAL LEVELS OF
SUPERVISORY REVIEW. TO ELEVATE
ISSUES IDENTIFIED AND X FOR DIET
ACTIONS AS APPROPRIATE. THE FBI
WILL REVIEW ITS INTERNAL
STAFFING PROCESSES TO ENSURE
THAT ADDITIONAL STAFF ARE
ASSIGNED IN A TIMELY MANNER FOR
BANKS WITH ASSETS OF MORE THAN
50 BILLION DFE. I WILL DEVELOP
LARGE BANK SUPERVISORY PLANS AND
COORDINATION. WITH FEDERAL
REGULATORS FOR ALL BANKS WITH
ASSETS OF MORE THAN 10 BILLION,
WITH INCREASED FOCUS ON
TIMELINES, CORRECTIVE ACTION.
THE FBI WILL INCREASE ITS FOCUS
ON BANKS UNINSURED DEPOSIT
LEVELS. IN ADDITION TO
CONTINUING TO MONITOR KEY
INDICATORS, SUCH AS A BANK'S
CONCENTRATION. ON A PARTICULAR
SECTOR. OF AN INDUSTRY. BANKS
WITH OVER 50 BILLION IN TOTAL
ASSETS WILL BE SO YEAH DID TO
HEIGHTEN EXAMINATION
REQUIREMENTS REGARDING UNINSURED
DEPOSITS TO THE SUPERVISORY
PROCESS. THE FBI WILL REQUIRE
BANKS TO CONSIDER HOW TO
QUANTIFY. INVEST MANAGE EXISTING
AND EMERGING RISKS. THOSE BY
TECHNOLOGY AND NAVAL ACTIVITIES.
SUCH AS SOCIAL MEDIA AND REAL
TIME DEPOSIT WITHDRAWALS. I LOOK
FORWARD TO WORKING WITH OUR
FEDERAL AND WITH YOU, OUR STATE
LEGISLATORS AND FEDERAL
REGULATORY PARTNERS TO
STRENGTHEN AND ENHANCE OUR
SUPERVISION OF STATE CHARTERED
BANKS. I WELCOME ANY QUESTIONS
YOU MAY HAVE. AND THANK YOU
AGAIN FOR THE OPPORTUNITY. YOU
SPEAK TO YOU TODAY? THANK YOU
VERY MUCH. COMMISSIONER FOR YOUR
PRESENTATION IN REMARKS
COLLEAGUES. WE WILL GO AHEAD AND
BEGIN WITH QUESTIONS. WE HAVE
SENATOR CAVALLERO AND SENATOR
MIN. THANK YOU VERY MUCH, MADAM
CHAIR AND THANK YOU FOR YOUR
PRESENTATION TODAY. UM. WE GOT
THE MATERIALS LATE. SO, UM, CRAM
JOB IF I DON'T HAVE ALL THE
TERMINOLOGY, RIGHT, BUT YOU
KNOW, I LOOK AT THE FACT THAT
THIS BANK WAS REGULATED BOTH BY
THE FEDERAL GOVERNMENT AND BY
THE STATE. AND, UM AND I'M I'M
DISTURBED. BY THE FACT THAT TO
ME. THE OVERSIGHT LOOKS LIKE A
DAYS AGO. UM AND, UM, SO THAT'S
THAT'S NUMBER ONE AND I AM
WONDERING IF UM. IF THE STATE
HAS TO BE A LITTLE BIT MORE
AGGRESSIVE IN ASSUMING PRIMARY
UM, OVERSIGHT. WHEN IT'S IN OUR
STATE, AND IT'S PART OF A STATE
CHARTER NUMBER ONE. BUT THE
OTHER THING IS THAT, UM IT
BOTHERS ME THAT WE HAVE
INDIVIDUALS THAT ARE FISCALLY
RESPONSIBLE. FOR THE MONEY. THAT
PEOPLE. I MEAN, IF THERE'S ONE
THING YOU COULD SAY ABOUT OUR
BANKING SYSTEM IS THAT IT'S VERY
SOUND. AND THAT PEOPLE REALLY
DEPEND ON ON BANKS, AND WE WANT
THEM TO PUT THEIR MONEY IN THE
BANK INSTEAD OF IN THEIR
MATTRESS, RIGHT? AND SO, UM, SO
I'M WONDERING IF THERE WERE ANY
REPERCUSSIONS. TO THE BAKED
SUPERVISORS. THEY'RE LISTED AS
SUPERVISORS, BUT THEY'RE REALLY
THE MANAGERS OF THE BANK AND THE
BOARD OF DIRECTORS. THAT SHOULD
HAVE BEEN UM, DOGGING SOME OF
THIS AND HAVING BEEN INVOLVED IN
A IN A BANK STARTUP AND THEN
SITTING AS AS AN ADVISORY BOARD
MEMBER. THERE WERE ALL KINDS OF
THINGS WE HAD TO STUDY AND TO
LEARN ABOUT BANK OPERATIONS IN
ORDER TO BE GOOD STEWARDS OF
PEOPLE'S MONEY, AND I'M
WONDERING IF ANYBODY LOST THEIR
JOB. IF ANYBODY, UM HAS LIABLE
PERSONAL LIABILITY. IF ANYBODY,
UM. YEAH WE'LL LOSE A LICENSE
BECAUSE THEY WERE NEGLIGENT. OR
IF THERE'S ANY REPERCUSSION FOR
THE FACT THAT THE FEDERAL
GOVERNMENT HAD TO COME AND BLOW
UP THE F D I C HAD TO SAY, HEY,
YOU KNOW WHAT? WE'RE GOING TO
COVER EVERYBODY BECAUSE OF NOT
THEN A LOT OF BUSINESSES ARE
GONNA ARE GONNA SUFFER. I'M GLAD
THEY DID. I'M REALLY GLAD THEY
DID. BUT TO LOSE $21 BILLION OR
WHATEVER THE NUMBER IS AS I
DON'T I SOME FOR SOME REASON, I
REMEMBER THAT IS IT'S
UNBELIEVABLE TO ME THAT WE KIND
OF GO. LET'S SEE WHAT WE CAN DO
A BETTER JOB NEXT TIME AND SO
I'M I'M A LITTLE BIT CONCERNED
ABOUT IT, AND I'M WONDERING IF,
UM IF YOU CAN TELL ME. OKAY.
THIS IS WHERE WE WERE THERE. ANY
REPERCUSSIONS TO ANYBODY? AND IS
THERE A NEED FOR THE STATE TO
TAKE? MUCH STRONGER OVERSIGHT,
BECAUSE, UM, WHATEVER WE DID DID
NOT WORK. WELL UH, FIRST AND
FOREMOST, I WOULD SAY. YES.
THERE IS A NEED FOR THE STATE TO
TAKE GREATER OVERSIGHT. THAT'S
WHY WE ARE ENHANCING OUR
EXAMINATION TEAM AS IT RELATES
TO OUR LARGE BANK PORTFOLIO. AND
THAT OVERSIGHT. HAS TO START AT
THE VERY BEGINNING. WE HAD TO
BANK EXAMINERS AGAINST 20 BANK
EXAMINERS. SO IN ORDER TO HAVE A
VOICE WE HAVE TO START AT THE
VERY BEGINNING OF AN EXAM WHEN
THE ROLES IN THE DUTIES OF THE
EXAM OR BEING SCOPED OUT. WE
HAVE TO BE MORE AGGRESSIVE AS A
STATE. WHEN WE OBSERVE
DEFICIENCIES, AND WE ACKNOWLEDGE
THAT AND THAT WILL OCCUR GOING
FORWARD. SAYING THAT WE DON'T
NECESSARILY HAVE TO DUPLICATE.
THE DUTIES AND PROCESS AND
PROCEDURES OF OUR FEDERAL
REGULATORS. SO, FOR INSTANCE, IN
THIS EXAM WE HAD THE ROLE OF
EXAMINING THE MANAGEMENT AND THE
GOVERNANCE AND I T AND WHAT WE
WOULD REFER TO AS THE BANK
SECRECY ACT IN ANTI MONEY LAND
WANDERING AND WE SHOULD STILL
CONTINUE TO DO THAT. BUT IN A
MORE ENHANCE WAY, WHERE WE HAVE
MORE FREQUENT MONITORING AND A
REAL CLEAR DEFINITION OF ROLES,
RIGHT UP FRONT WHERE WE'RE
OUTLINING WHERE WE'RE GOING TO
EXERCISE OUR INDEPENDENT DUTIES
, SO I WOULD SAY THAT FIRST AND
FOREMOST, AND THAT IS ONE LESSON
WE ARE GOING TO UM, IMPLEMENT
GOING FORWARD NOW. THE BEAUTY
ABOUT D F P. I IT IS. THE
LEGISLATURE AND CREATING THIS
DEPARTMENT CREATED IT WITH MANY
DIFFERENT PROGRAMS. YOU HAVE
FINANCIAL INSTITUTIONS. YOU HAVE
THE CALIFORNIA CONSUMER
FINANCIAL PROTECTION LAW. AND
YOU ALSO PUT SECURITIES UNDER
OUR DEPARTMENT, AND THAT GIVES
US SEVERAL DIFFERENT ENFORCEMENT
TOOLS. JUST LIKE THE FEDERAL
GOVERNMENT. HAS THE DEPARTMENT
OF JUSTICE. THEY HAVE, UM, THE
SEC. IN ADDITION TO ENFORCEMENT
UNDER FEDERAL RESERVE ONCE. WE
TURNED THE POSSESSION OF THAT
BANK OVER TO THE F D I C WE NO
LONGER HAVE CONTROL OVER THE
LICENSE, SEE? IN OUR ROLE AS A
FINANCIAL IS TO SHIN WRECK YOU
LATER. BUT THAT DOES NOT MEAN
THAT WE DON'T HAVE CONTROL AND
OTHER AREAS. SO WHEN YOU ASK.
AND WE AS A FINANCIAL
INSTITUTIONS, REGULATOR DO
ANYTHING IN TERMS OF BOARD
MANAGEMENT. IT IS NO LONGER
WITHIN OUR JURY JURISDICTION.
BUT THERE MAY BE OTHER THINGS
THAT ARE WITHIN OUR JURISDICTION
JUST LIKE I'M QUITE SURE THAT
BEFORE THIS IS OVER. UM THERE
WILL BE NUMEROUS INVESTIGATIONS
AND LITIGATIONS AND OTHER AREAS.
SO I CAN'T SAY THAT THERE IS
NOTHING THAT'S GOING TO OCCUR.
AS A RESULT. OF THE
MISMANAGEMENT. IN THE AREAS OF
GOVERNANCE AND IN PARTICULAR
RISK MANAGEMENT. SO I GUESS WHAT
IF I COULD FOLLOW UP WITH THAT?
WHAT WHAT WOULD BE VERY HELPFUL,
AT LEAST FOR SOME OF US IS TO
KNOW IN THE END, WHETHER YOU
NEED MORE AUTHORITY. TO BE ABLE
TO START SOME ACTION. UM BASED
ON THE INFORMATION DO UNCOVERED
AS PART OF THE INVESTIGATION,
BECAUSE WHEN I READ THE FINDINGS
FROM BOTH AH! UM YOUR
ORGANIZATION AND THE FEDERAL
GOVERNMENT. IT'S PRETTY STERILE
, AND MAYBE IT'S INTENDED TO BE
THAT WAY BECAUSE IT'S PART OF A
REGULATORY FRAMEWORK, BUT IT
WOULD BE HELPFUL FOR US TO KNOW
IF THERE ARE SOME, UM, UM,
CHANGES WE CAN MAKE AS A
LEGISLATURE THAT PUT SOME
ACCOUNTABILITY. I WOULD HATE TO
THINK THAT THESE BANK DIRECTORS
OR BANK MANAGERS WOULD GO ON TO
ANOTHER BANK AND GET A JOB AND I
WOULD LIKE TO KNOW HOW MUCH THEY
WERE MAKING. UM IN THIS
POSITION, BECAUSE I KNOW BANK.
PRESIDENTS ETCETERA MAKE A WHOLE
HECK OF A LOT OF MONEY. UM STICK
. HOW MUCH WERE THEY GETTING
PAID TO DO SUCH A POOR JOB? AND
UM, SO IF THERE'S SOME SUGGESTED
, UM, LEGISLATION THAT YOU FEEL
WOULD GIVE, UM. WOULD PUT FOR
LACK OF A BETTER WORD. THE FEAR
OF GOD IN IN, UM PEOPLE WHOSE
BUSINESS IT IS TO PROTECT UM
PEOPLE'S ASSETS. THAT WOULD BE
REALLY HELPFUL BECAUSE I'M I'M
FRUSTRATED BY UM. I'M FRUSTRATED
BY A PROCESS THAT SAID, OH,
WE'LL TAKE OVER WILL WILL WILL
LIQUIDATE YOUR ASSETS. MAKE SURE
EVERYBODY UM, IS TAKEN CARE OF,
AND NOW WE'RE MOVING ON AS
BUSINESSES AS USUAL. UM THERE,
THERE HAVE TO BE CONSEQUENCES.
FOR BAD BEHAVIOR. AND IF THAT
BEHAVIOR AT ITS BEST NEGLIGENT
BEHAVIOR, UM, AT ITS KIND OF
WORST. I GUESS SO. SO I THANK
YOU FOR YOUR ANSWERS. I
APPRECIATE THEM AND WE LOOK
FORWARD TO HAVING FURTHER
DISCUSSIONS WITH YOU, UM, THOSE
ISSUES IN PARTICULAR. THANK YOU,
SENATOR. CAVALLERO UM, I HAVE A
SENATOR MEN FOLLOWED BY SENATOR
LINO. AND THEN AS SOME REMEMBER,
DIXON AH, THANK YOU,
COMMISSIONER. UM SO BEFORE
COMING TO HIS BODY, I ACTUALLY
TAUGHT BANKING LAW AND I'M STILL
WHILE I DON'T HAVE THE TIME TO
REALLY FOLLOW WHAT'S GOING ON? I
I'M ON A NUMBER OF VERY ACTIVE
LIST SERVES AND I CAN TELL YOU,
UM THAT UNTIL SVB S COLLAPSE OR
THE DAYS LEADING UP TO IT.
NOBODY WAS TALKING ABOUT THE
PROBLEM OF UNINSURED DEPOSITS.
AND I THINK THIS REALLY AH TO MY
MIND CREPT UP ON US AND IT IS
SOMETHING WHERE YOU KNOW YOU
KNOW THIS, BUT MAYBE NOT.
EVERYONE IN THE AUDIENCE DOES
THAT THAT YOU KNOW, PRIOR TO
1933. WHEN WE ENACTED THE
FEDERAL DEPOSIT INSURANCE, WE
HAD BANKING RUNS AND PANICS
EVERY 10 TO 20 YEARS THEY
CRIPPLED OUR ECONOMY, AND THAT'S
JUST THE NATURE OF BANKING.
BECAUSE THEY'RE HIGHLY LEVERAGED
FIRMS. THEY HAVE JUST A THIN
SLICE OF CAPITAL. THEY HAVE A
HIGH AMOUNT OF CREDIT RISK. THEY
ALSO HAVE A VERY STEEP MATURITY
MISMATCH BETWEEN THEIR ASSETS,
WHICH ARE TYPICALLY LONGER 5 TO
30 YEAR LOANS TYPICALLY OR BONDS
. UH AND THEIR LIABILITIES
TYPICALLY ARE DEPOSITS, SO
THEY'RE VERY SHORT TERM. AND SO
WE KNOW FROM, YOU KNOW,
COUNTLESS EXPERIENCE THE
LITERATURE THAT ANY BANK. EVEN A
REALLY WELL MANAGED BANK, UH,
CAN BE RENDERED INSOLVENT BY
BANKRUPT AND YOU MAY REMEMBER
IT'S A WONDERFUL LIFE. AND THAT
WAS AN EXAMPLE OF THAT. BUT UM,
I HAVE HEARD FROM A LOT OF
COMPANIES IN MY DISTRICT AND I
KNOW THIS IS A FEDERAL ISSUE,
NOT DIRECTLY RELATED YOU, BUT I
JUST WANT TO STATE THIS. UH I
THINK OUR DEPOSIT INSURANCE
SYSTEM IS COMPLETELY OUTDATED.
FOR THE NEEDS OF THE 21ST
CENTURY. WE ARE NO LONGER AN
ECONOMY THAT'S DOMINATED BY
INDIVIDUALS, OUR DOMINATED BY
ORGANIZED BODIES OF CAPITAL,
WHETHER THEY'RE LLCS. OR
CORPORATIONS OR WHATNOT. AND
THOSE PARTICULAR ENTITIES NEED
PAYMENT SERVICES. THEY NEED A
LOT OF THINGS THAT BANKS OFFER,
BUT THEY DON'T HAVE ANY OTHER
OPTIONS OTHER THAN BANKS, AND
THAT $250,000 DEPOSIT CAP MEANS
THAT THEY'RE FORCED INTO HAVING
A LARGE AMOUNT OF UNINSURED
DEPOSITS. AND I CAN JUST GIVE
YOU ONE EXAMPLE FROM MY
DISTRICT, A COMPANY THAT HAS
ROUGHLY $4.5 BILLION IN CASH
EQUIVALENTS. NOT IN THE BANKING
SYSTEM BECAUSE THEY DON'T WANT
TO PUT THAT MUCH MONEY IN THE
BANKING SYSTEM. SO THOSE ARE IN
THINGS LIKE MONEY MARKET FUNDS
AND OTHER CASH TYPE EQUIVALENCE
, BUT THEY'VE STILL GOT TO HAVE
ABOUT 100 MILLION IN THE BANKING
SYSTEM AND ACTUALLY WAS AT SVB,
UH AND THEY HAD TO HAVE THAT
BECAUSE THEY NEEDED TO HANDLE
THINGS LIKE PAYROLL AND ACCOUNTS
PAYABLE AND THINGS LIKE THAT.
AND SO I THINK WE REALLY NEED TO
UPDATE THAT. SO I GUESS MY FIRST
QUESTION IF YOU HAVE A COUPLE OF
THESE IS JUST WHAT PERCENTAGE IF
YOU'RE AWARE OF THE CALIFORNIA
AS DEPOSITS AMONG CALIFORNIA
CHARTERED BANKS ARE UNINSURED
RIGHT NOW. IF YOU DON'T HAVE
THAT I'D BE INTERESTED IF YOU
COULD GET BACK TO US WITH THAT.
I WOULD WANT TO GIVE YOU, UM IN
ACCURATE NUMBER. I WOULD SAY
THAT, PARTICULARLY IN THE CASE
OF, UM SILICON VALLEY BANK OVER
9 93% IS HIGHLY UNUSUAL. BUT I
GUESS I'M WONDERING HOW BIG A
PROBLEM IS THIS ACROSS THE
SYSTEM OF CALIFORNIA STATE
CHARTERED BANKS AND THEN ALSO,
IF YOU HAVE ACCESS TO THIS DATA,
JUST INTERESTED ON A NATIONAL
LEVEL AMONG ALL BANKS THERE ARE
F D I C INSURED HOW BIG? THAT
IS, BECAUSE I DON'T HAVE ANY
SENSE OF THAT. AND I THINK
THAT'S IMPORTANT. BECAUSE IF YOU
THIS IS A TICKING TIME BOMB, WE
KNOW THAT UNINSURED DEPOSITS
LEAD TO BANK RUNS THEY ALWAYS
HAVE. THEY ALWAYS WILL. AND IF
WE HAVE A LARGE PERCENTAGE OF
UNINSURED DEPOSITS IN OUR
SYSTEM, WHETHER IN CALIFORNIA OR
FEDERALLY, I SEE THAT AS A HUGE
PROBLEM, SOMETHING WE NEED TO
GET A HANDLE ON. SO A SECOND
RELATED QUESTION IS IN THE STATE
LEGISLATURE ACTUALLY DO ANYTHING
ABOUT THIS, OR IS THIS PURELY A
FEDERAL MATTER THAT PREEMPTS ANY
ACTION THAT WE CAN TAKE? I THINK
IT'S WELL, FIRST AND FOREMOST, I
THINK IT'S VERY IMPORTANT.
TAKING TO CONSIDERATION. THERE
WASN'T JUST ONE FACTOR OR ONE
THING THAT LED TO THIS BANK RUN.
THERE WAS SEVERAL DIFFERENT
FACTORS THAT ALL CAME TOGETHER
AT THE SAME TIME. TO CREATE THE
PERFECT STORM. YOU HAD A HIGH
PERCENTAGE OF GUN. ENSURE
POSITIVE. YOU HAD BOARD
MANAGEMENT THAT FAILED TO TAKE
INTO CONSIDERATION. RISK
MANAGEMENT. INTEREST RATE RISK.
YOU HAVE THE RISING OF INTEREST
RATES, WHICH HAD A DIRECT
IMPACT. ON INVESTMENT PORTFOLIOS
THAT WERE LIKE SILICON VALLEY
BANK INVESTED IN PRIMARILY
MORTGAGE AND TREASURY BACK
SECURITIES. AND THEN YOU ALSO
HAD COMBINED WITH ALL OF THIS.
HOW SWIFTLY IN THIS DIGITAL AGE.
ONE CAN WITHDRAW DEPOSITS FROM A
BANK AND HOW FEAR CAN BE SPREAD
THROUGH SOCIAL MEDIA. SO ALL OF
THESE FACTORS CAME TOGETHER. AT
THE SAME TIME. AND IT'S
DIFFICULT TO SAY WHETHER ONE
FACTOR IN AND OF ITSELF WOULD
HAVE LED TO IT, BUT DEFINITELY
WITH THEM ALL HUMMING TOGETHER
HAPPENED, UM AT THE SAME TIME
NOW IN TERMS OF FEDERAL
LEGISLATION VERSUS STATE
LEGISLATION AND LET ME CLARIFY
JUST REAL QUICKLY. UH
COMMISSIONER ALSO WHETHER YOUR
EXAMINERS HAVE THE ABILITY UNDER
THE EXISTING PRUDENTIAL
AUTHORITY TO, YOU KNOW, FORCE A
BANK LIKE SVB TO WEAN ITSELF OFF
OF UNINSURED DEPOSITS. I DON'T
KNOW IF THAT'S IN YOUR AUTHORITY
OR NOT, AND I'M CURIOUS ABOUT
THAT. AND AGAIN IF YOU CAN. IF
YOU WANT TO GET BACK TO US
LATER, I'D JUST BE CURIOUS. YES.
AND I WOULD JUST SAY FIRST IN
FOR MOST, I THINK ANY STATE
LEGISLATION UM, WE HAVE TO TAKE
INTO CONSIDERATION THE IMPACT.
WHEN I INDICATE THE IMPACT. THE
IMPACT ON OUR STATE BECAUSE WE
DON'T WANT TO CREATE A SITUATION
WHERE WE HAVE CERTAIN
LEGISLATION IN OUR STATE. AND
IT'S NOT IN OTHER STATES. AND IT
LEADS BANKS TO GO FOREIGN
SHOPPING. AND GO TO OTHER STATES
. THAT MIGHT BE A LITTLE BIT
MORE LENIENT. SO IT'S IN SOME
AREAS. IT'S IMPORTANT THAT
WHATEVER IS SET AS THE
LEGISLATIVE BAR THAT IT IS
NATIONWIDE. AND THAT EACH STATE
IS HELD TO THE SAME STANDARD.
AND. THAT'S WHAT MORE THAN
ANYTHING I BELIEVE REQUIRES
INTENSE. UH DISCUSSION AND ONE
OTHER AREA THAT I THINK IT'S
LEFT OUT OF THIS. IS THAT OUR
COMMUNITY BANKS? AND OUR
REGIONAL BANKS ARE ABSOLUTELY
ESSENTIAL. TO OUR STATE'S
ECONOMY. IT IS THE COMMUNITY AND
REGIONAL BANKS, WHOSE AVERAGE
ASSET SIZE IS FOUR BILLION. THAT
ARE LENDING TO OUR SMALL
BUSINESSES. THAT ARE PROVIDING
FINANCIAL SERVICES TO OUR WORLD
COMMUNITIES WHO MIGHT NOT
OTHERWISE BE ABLE TO RECEIVE
THESE SERVICES. AND OUR THE
ENTITIES ON THE GROUND. THAT ARE
LENDING TO OUR UNDERSERVED
COMMUNITIES. SO WHAT WE MIGHT
APPLY TO A LARGE FINANCIAL
INSTITUTION WITH ASSETS OF 100
BILLION AND OVER. MAY NOT BE THE
SAME STANDARDS YOU WANT TO APPLY
TO THE COMMUNITY AND REGIONAL. I
DO WANT TO GET TO THAT IN A
MOMENT. I JUST WANTED TO TOUCH
ON UNINSURED DEPOSITS, AND I'LL
JUST STATE FOR THE RECORD MY
VIEW THAT UNINSURED DEPOSITS ARE
A PROBLEM. I WORRY RIGHT NOW
THAT THEY'RE DRIVING
CONSOLIDATION IN THE BIGGER
BANKS AND IN THE BANKS THAT HAVE
SIZABLE NON BANK BALANCE SHEETS,
LIKE JPMORGAN, WHICH HAS A LOT
OF FINANCIAL ACTIVITIES. WE
LEARNED? NO, WAIT. YOU DON'T
WANT TO HAVE THOSE TOO BIG TO
FAIL. CONGLOMERATES PART OF DODD
. FRANK WAS GETTING OUT OF THAT.
BUT I THINK RIGHT NOW THE
INCENTIVES ARE HEY, YOU'VE GOT
TO HAVE A BIG NON BANK BALANCE
SHEET. UM THAT GETS ME TO MY
NEXT POINT, WHICH IS YOU TALKED
ABOUT THE $50,000,000,100
BILLION THRESHOLD. I THINK THOSE
ARE TOO BIG TO FAIL. I THINK
WE'VE SEEN THAT. AND OF COURSE S
SENATE BILL 21 55 AT THE FEDERAL
LEVEL IN 2018. GOT RID OF THAT
$50 BILLION THRESHOLD. I JUST
WANT TO STATE MY VIEW THAT THAT
AT THE FEDERAL LEVEL, I THINK
THE ADDITIONAL STRESS TESTING
LIQUIDITY TESTING THAT WOULD
HAVE ACCOMPANIED THAT MIGHT HAVE
PREVENTED SOME OF THE FAILURES
THAT WE SAW HERE AND MIGHT HAVE
CO PREVENTED SVB FROM FAILING.
BUT I JUST WANT TO CLOSE BY
ASKING YOU YOU TALKED ABOUT THE
DUEL BANKING SYSTEM. AS YOU
KNOW, DUAL BANKING IS KIND OF AN
ACCIDENT. VERY UNIQUE TO THIS
COUNTRY. THE 1918 63 NATIONAL
BANKING ACT WAS ACTUALLY MEANT
TO KILL OFF STATE BANKS. IT WAS
UNSUCCESSFUL FOR A NUMBER OF
REASONS WE DON'T NEED TO GET
INTO BUT, UH, YOU KNOW, A LOT OF
FOLKS BELIEVE THAT DUAL BANKING
IS PAST HIS PRIME THAT STATE
CHARTERED BANKS. UH THEY THEY
SERVE ONLY THE PURPOSE OF
REGULATORY ARBITRAGE, CHOOSING
REGULATORS. AND I GUESS I'M JUST
CURIOUS. UM YOU KNOW, I LOOK AT
THE REPORT HERE. YOU HAD TWO
EXAMINERS. THE FED HAD 24. UM
YOU KNOW WHAT? WHAT VALUE DOES
THE STATE WHAT IS WHAT MAKES THE
CASE TO ME AND ONE RELATED
QUESTION. I WANT TO ASK YOU
FIRST BEFORE YOU GET INTO THAT
IS WHAT DO OUR EXAMINERS GET
PAID? AND I THINK SENATOR
CAVALLERO ASKED THAT AS WELL.
AND HOW DOES THAT COMPARE TO THE
FEDERAL SCALE? BECAUSE OUR OUR
EXAMINERS AT THE SAME LEVEL AS
THE FEDERAL EXAMINERS FIRST AS
TO YOUR FIRST QUESTION. STATE
BANK REGULATORS. PROVIDE A VERY
, VERY VALUABLE INPUT. INTO
EXAMINATIONS. IT IS THE
DIVERSITY OF THE VOICES. THAT IS
ABSOLUTELY SIGNIFICANT. AND
STATE BANK REGULATORS. LIKE
SMALLER COMMUNITY AND REGIONAL
BANKS. ARE THE FEET ON THE
GROUND. THE UNDERSTAND THE
VALUES OF THAT COMMUNITY. AND
IT'S VERY IMPORTANT. AT THE
VALUES OF THAT COMMUNITY OR
HEARD IN THAT EXAMINATION. YEAH.
AND SO WHEN WE'RE LOOKING AT
AREAS OF MANAGEMENT AND
GOVERNANCE. WHEN WE'RE LOOKING
AT SOME OF THE AREAS THAT WE DO.
DIRECTLY REGULATE. WE WANT TO
MAKE SURE THAT OUR COMMUNITY AND
REGIONAL BANKS OR DOING WHAT
THEY ARE TAILORED TO DO. PROVIDE
THE SUPPORT AND THE SERVICE. TO
THE COMMUNITY. SUCH AS WE ALL
THE VOICE TO MAKE SURE THAT THE
SMALL BUSINESS COMMUNITY
RECEIVES THE LENDING FAKE
DESERVE. THE UNDERSERVED THE
RURAL COMMUNITY. AND IT'S VERY
DIFFICULT. FOR FEDERAL REGULATOR
WHO HAS THOUSANDS OF LOCAL
COMMUNITIES JUST STAND UP. FOR
THAT LOCAL AND REGIONAL
COMMUNITY. AND IN THE CASE OF
THE STATE REFLECT THE VALUES OF
THE STATE, AND WE WILL PROVIDE
YOU INFORMATION ABOUT THE
SALARIES. BUT YOU DID HIT ON A
VERY IMPORTANT POINT STATE.
BANKING REGULATORS, FOR THE MOST
PART, MAKE LESS THAN FEDERAL. I
APPRECIATE YOUR COMMENTS, AND I
CERTAINLY RESPECT THE WORK
YOU'RE DOING, BUT YOU KNOW,
WE'RE IN THE SITTING HERE IN THE
CONTEXT OF TWO MAJOR, MASSIVE
TWO OF THE THREE LARGEST OR TO
THE FOUR LARGEST BANK FAILURES
IN HISTORY. AND SO, YOU KNOW,
CLEARLY SOMETHING WENT WRONG
HERE. UM AND THESE WERE STATE
CHARTERED BANKS AND YOU KEEP
SAYING, AND I MEAN, IT'S
RESPECTFULLY COMMUNITY, SMALLER
COMMUNITY AND REGIONAL BANKS.
AND I THINK I'M THERE WITH YOU
ON THE FIRST ONE. I JUST I'M
WONDERING, AND I DON'T KNOW IF I
SPEAK FOR MY COLLEAGUES. I JUST
SPEAK FOR MYSELF WHETHER IT'S
APPROPRIATE FOR THE STATE. TO BE
PLAYING A MAJOR ROLE ON ON A
BANK THAT HAS OVER 10 BILLION OR
50,000,000,100 BILLION IN ASSETS
, BECAUSE, UM, YOU KNOW THIS AT
THAT POINT, YOU LOSE THAT
COMMUNITY FLAVOR YOU'RE TALKING
ABOUT, UH, BANKS THAT THAT
REALLY ARE TOO BIG TO FAIL.
YOU'RE TALKING ABOUT BANKS,
WHERE THE PRIMARY RESPONSIBILITY
. REGULATORS LIKE YOURSELF IS
SAFETY AND SOUNDNESS, AND
CLEARLY WE DID NOT DO THE JOB
HERE, AND IT'S NOT YOU
PRIMARILY, BUT I'M JUST I'M JUST
WONDERING, YOU KNOW IF THERE ARE
A LOT OF FAILURES AT THE FEDERAL
LEVEL. WHETHER IT IS TIME TO
THINK ABOUT RETOOLING CALIFORNIA
STATE BANKING, BUT I'LL JUST
CLOSE WITH THAT. THANK YOU. ONE
THING I THINK I SHOULD POINT OUT
EVEN IN BANKS LIKE SILICON
VALLEY BANK. THEY SERVE A
PARTICULAR PURPOSE. THAT MAYBE
YOU'RE VERY, VERY LARGE BANK. IT
DOESN'T FEEL IN THIS CASE. THE
SILICON VALLEY BANK WAS THE BANK
OF EARLY STARTUPS. AND IN
CALIFORNIA, THEY DID REFLECT THE
VALUE. THAT WE FIND IN SILICON
VALLEY, WHICH HAS BEEN, UH
INNOVATOR. AND. PRODUCING. DRUGS
THAT FIGHT CANCER COMBAT STROKES
THAT ARE THE FOUNDATION OF THE
INTERNET. AND THAT IS A PART OF
CALIFORNIA'S VALUES AS WELL. SO
I DO BELIEVE, EVEN IN THE LARGER
BANK SITUATION WHERE IT IS
FULFILLING A CERTAIN NICHE. SH
CALIFORNIA TO DO EVERYTHING THE
HOLD ON TO THAT STATE BANK. THAT
MAY REFLECT PART OF THE
CALIFORNIA VALUE. THANK YOU,
COMMISSIONER IN THE INTEREST OF
TIME. I DO WANT TO GET TO OTHER
QUESTIONS AND COMMENTS. UM AND,
UH, YEAH, WE DO HAVE SENATOR
NEAL OH, FOLLOWED BY
ASSEMBLYMEMBER'S DIXON AND I
WILL POINT OUT THAT TO SENATOR
MEANS QUESTION. THE PUBLIC
REPORT THAT'S BEEN GIVEN TO US
DOES HAVE SOME INFORMATION ON
ONE OF THE QUESTIONS YOU ASKED
ON PAGE 22. THANK YOU, MADAM
CHAIR. UM MY COMMENTS THERE
COULD BE SOMEWHAT REDUNDANT BUT
MORE SPECIFIC TO ISSUES THAT ARE
BEING BROUGHT UP. UH REGULATORY
TOOLS CAN BE USEFUL, BUT ONLY IF
THEY'RE UTILIZED AND ACTED UPON
GIVEN FACTUAL SITUATIONS. YOU
MADE REFERENCE TO RISK
MANAGEMENT AND, UH AND, UH,
INTEREST RATE BRISK. MORE
SPECIFICALLY MY UNDERSTANDING OF
THE SITUATION WITH SVB IS THAT
THEY HAD A RISK MANAGEMENT
POSITION THAT WAS UNFILLED. AND
THE OFFICE OF THE CEO HAD TAKEN
ESSENTIALLY RESPONSIBILITY FOR,
UH, RISK MANAGEMENT THAT IN
ITSELF. CRIES OUT OF A POTENTIAL
PROBLEM. THEN WITH THAT
FRAMEWORK OF RISK MANAGEMENT.
THE BANK BET ON. A COINCIDENCE
OF AN INVERTED YIELD CURVE. WITH
THEIR EXCESS ASSETS. AND
ESSENTIALLY BET IT ALL. ON AN
ASSUMPTION BECAUSE OF THE
INVERTED YIELD CURVE. THAT
INTEREST RATES WOULD STAY THE
SAME OR GO DOWN. AND AH! WHEN IT
BECAME OBVIOUS THAT THE FED WAS
GOING TO REACT TO EMERGING
INFLATION, THOUGH THEY REACTED
TOO SLOWLY. AH THE ALMOST ALWAYS
INDICATION OF A FED'S PLAN TO
RAISE INTEREST RATES DOES INDEED
INCREASE INTEREST RATES, SO
THERE WAS AN ACTION ON A
SOMETIMES ACCURATE PHENOMENA. IN
THE FACE OF AN ALWAYS ACCURATE
PHENOMENA, AND THEY WENT IN THE
ABSOLUTELY WRONG DIRECTION. AND
THIS WAS A FACTUAL SITUATION
THAT ANYBODY LOOKING AT THE BANK
COULD SEE NUMBER ONE
INSUFFICIENT, ARGUABLY
INCOMPETENT RISK MANAGEMENT,
WHICH LED TO A DISASTROUSLY
INCORRECT GUESTS ON INTEREST
RATES, NOT JUST PARTIALLY, BUT
ESSENTIALLY, IF I UNDERSTAND
CORRECTLY BETTING THE FARM AND
THE OTHER CIRCUMSTANCES THAT YOU
MENTIONED CERTAINLY CONTRIBUTED
TO THE PERFECT STORM IF YOU WILL
, BUT I WOULD SUGGEST THAT GIVEN
THE DIRECTION THEY WERE GOING IN
THE DIRECTION THAT RATES WERE
GOING, THAT WAS THAT PROBLEM WAS
BOUND TO HAPPEN, IRRESPECTIVE OF
ANY SOCIAL MEDIA. WILDFIRE THAT
SPREAD IT SO QUICKLY. SO WHAT
WAS IN ALL OF THAT FACT
SITUATION THAT NEITHER STATE NOR
FEDERAL REGULATORS ACTED ON IT.
OR IS IT JUST MANAGEMENT
INCOMPETENCE THAT YOU DON'T HAVE
THE CAPABILITY TO COUNTER MAN? I
THINK THERE ARE MANY THINGS. UM
. I THINK THAT IN THIS SITUATION
THERE WAS TOO MUCH OF A FOCUS.
AND WORKING IN CONSENSUS. WITH
OUR FEDERAL REGULATORS BECAUSE
WE DID NOT HAVE THE RESOURCES
NOR THE EXPERTISE TO DO BE
HIGHER LEVEL. DODD FRANK
LIQUIDITY STRESS TESTING. I
THINK THERE WAS ALSO A CULTURE
THAT IS MIGHT BE APPROPRIATE FOR
A SMALLER COMMUNITY. AND
REGIONAL BANK AND WHICH YOU WANT
TO WORK WITH THEM TO HELP THEM
RE MEDIATE DEFICIENCIES, BUT
THAT IS NOT APPROPRIATE. FOR A
REGIONAL BANK OF THIS ASSETS
SIZE, SO I DO AGREE WITH
EVERYTHING THAT YOU HAVE SAID,
AND I DO KNOW ALSO HOW DIFFICULT
IT IS. TO TAKE AGGRESSIVE
ACTION. WHEN YOU DON'T KNOW IF
IT'S GOING TO TURN OUT WELL. AND
THAT AGGRESSIVE ACTION COULD
COME IN THE FORM OF A SEASON
DESIST THAT COULD COME IN THE
FORM OF A CONSENT DECREE THAT
COULD ALSO. RESULT IN A RUN ON
THE BANK AND HEIGHTEN THE FEARS
OF THE PUBLIC. BUT SOMETIMES YOU
HAVE TO TAKE AGGRESSIVE ACTION
EVEN IF YOU DON'T KNOW. WHAT
WILL BE THE END RESULT OR
WHETHER YOU WILL BE BLAMED OR
NOT? JUST ONE FOLLOW UP COMMENT
. ONE DIDN'T NEED TO PERFORM A
STRESS TEST ON SVB IN 2022. UH
OR LATE 2021. SEE THE
CIRCUMSTANCE OF THE INCONGRUOUS
NATURE OF THE BET ON INTEREST
RATES VERGING THE EMERGING
REALITY OF WHERE THEY WERE
GOING. YOU DIDN'T NEED A STRESS
TEST TO SEE THAT PLUS THE FACT
THAT THERE WAS INCOMPETENCE AT
THE TOP RELATIVE TO MANAGING
THAT PARTICULAR SITUATION. SO
UM, JUST AGREE TO ME THAT THE,
UH THE PROBLEM WAS PROBABLY
OBVIOUS. AND EITHER NOBODY ELSE
SAW IT EITHER OR THERE WASN'T
ANYTHING THAT YOU COULD DO ABOUT
IT, REGARDLESS OF THE TOOLS.
THANK YOU, SENATOR LENA NILO.
NEXT WE HAVE ASSEMBLYMEMBER'S
DIXON. THANK YOU. CHAIR AND
THANK YOU, COMMISSIONER. UM
BASICALLY SOME FOLLOW UP
QUESTIONS TO THIS SO WE KNOW THE
FED FEDERAL RESERVE IS INVOLVED
AND OUR OWN. LOCAL STATE
REGULATOR. HOW WELL LET ME JUST
ASK THEM. OPERATING QUESTIONS.
ASK THIS QUESTIONS. HOW WELL DO
YOU WORK TOGETHER? DO YOU TALK
TO ONE ANOTHER? DO YOU COMPARE
NOTES ON AH, POTENTIALLY
PROBLEMATIC SITUATIONS. YES WE
WORK TOGETHER VERY WELL.
HOWEVER. UH IN THIS PARTICULAR
SITUATION. THERE WERE. TWO
ENTITIES OF THE FEDERAL RESERVE.
WHICH FURTHER DELAYED A LOT OF
IMPLEMENTATION. SO FIRST I
MENTIONED THERE WAS SF BED WHICH
WE WORK TOGETHER WITH THEM ON A
REGULAR ROUTINE BASIS. WHEN THIS
BANK WENT TO THE 100 BILLION
MARK. IT WAS THEN TRANSFERRED
INTO THE FEDERAL RESERVE'S L. F
B O PROGRAM, WHICH WAS A
DIFFERENT TEAM, HIGHLY TRAINED
TEAM IN D. C. THE TRANSITION
BETWEEN THE REGIONAL. AND THE D.
C HIGHLY TRAINED TEAM DID NOT GO
AS QUICKLY AS EFFICIENTLY AS
EFFECTIVELY AS ONE WOULD DESIRE
AND ONE OF THE REASONS WHY IS
BECAUSE THIS WAS THE FIRST
REGIONAL BANK. THAT CAME UNDER
THE PROGRAM. AND PROCESSING
PROCEDURES. WEREN'T AS CLEARLY
IN PLACE FOR RAMPING UP. SO EVEN
THOUGH WE WORKED VERY CLOSELY
WITH THE REGIONAL THERE WAS
ANOTHER ELEMENT IN THIS
PARTICULAR EXAM THAT HAS NOT
BEEN IN. OUR OTHER EXAMS BECAUSE
THE ASSETS SIZE OF OUR BANKS IS
ON AN AVERAGE FOUR BILLION. SO
OKAY AGAIN PROCESS HERE, SO
YOU'RE ALL YOU'RE ALSO SMART,
INTELLIGENT BANKING EXPERTS,
SUBJECT MATTER EXPERTS SO YOU
SEE A BANK THAT HAD BEEN ASSETS
GOT GROWING FROM 50 MILLION TO
100 MILLION TO 200 MILLION IN A
PERIOD OF 2 TO 3 YEARS. UM IS
THAT TYPICAL OR IS THAT AN
UNUSUAL IS HIGHLY ALRIGHT. SO
THAT WAS THAT'S HOW I THOUGHT
YOUR ANSWER WOULD BE SO IT
DOESN'T THIS TRIGGER CERTAIN
STRESS ALARMS TO SAY IN THIS
TRANSITION. THAT GOVERNMENT
BEING GOVERNMENT TAKES A LITTLE
LONGER THAN ANYBODY EXPECTED.
WHO IS REALLY THE, UH. OWNER OF
THE RESPONSIBILITY DURING THIS
TRANSITION PROCESS, DOING THE
TRANSITION PROCESS WHEN IT GOES
UP TO WHAT WE CALL THE L. F B O
PROGRAM. IT IS THE FEDERAL
RESERVE THAT'S IN THE LEAD FOR
THE PURPOSES OF WHAT WE CALL THE
DODD. FRANK STRESS TESTING.
HOWEVER. AS HAS BEEN POINTED
OUT. EVEN BEFORE THE LIQUIDITY
STRESS TESTING. WE D F P. I HAD
SEEN DEFICIENCIES. BUT DID YOU
TRANSFER THOSE CONCERNS ON TWO?
THEY WERE TRANSFERRED ON. OKAY
ALRIGHT. I WANT I KNOW IN THE
INTEREST OF TIME. I WANT TO TRY
TO GET TO A COUPLE OF QUESTIONS
HERE JUST TO FOLLOW UP. ON THE
SENATOR'S COMMENTS ABOUT THE
RISING INTEREST RATES. ISN'T
THAT THE ROLE OF THE FEDERAL
RESERVE BOARD TO BE
COMMUNICATING WITH THE BANK, THE
FEDERAL BANKING SYSTEM THAT HEY,
WATCH OUT RATES ARE GOING UP.
THE ASSET VALUES ARE GOING TO BE
SHIFTING. BETTER CHECK. UH UH,
CREDITWORTHINESS AND THE
STABILITY OF ALL THESE FINANCIAL
INSTITUTIONS. ISN'T THAT AN
AUTOMATIC REGULATORY MONITORING
PROCESS. YES AND THAT WAS
COMMUNICATED TO SILICON VALLEY
BANK AND MORE THAN ONE OCCASION.
BUT THEY DIDN'T RESPOND. THEY
DIDN'T ANSWER BECAUSE IN THE
REPORT IS INDICATED A NUMBER OF
APPROACHES ON THE RISK
MANAGEMENT SIDE ON PERHAPS AS
YOU STAY ON THIS SIDE, DID THEY
JUST THE FACT THAT THEY DIDN'T
CHANGE THEIR WAYS OR PROCEDURES
? THEY JUST KEPT DOING BUSINESS
THE OLD FASHIONED WAY THE WAY
THEY'VE BEEN DOING AND IT WASN'T
ANYBODY SAYING HALT! STOP THIS
IS A SERIOUS SITUATION, AND IT'S
LEADING TO, UH RUNNING OFF THE
CLIFF. I BELIEVE THE BANK WAS
MORE CONCENTRATED ON EARNINGS,
PROFIT AND GAME THAN THEY WERE
ON RISK MANAGEMENT. WELL, I
THINK THAT'S APPARENT WELL, WE
CLEARLY ARE SEEING WHERE THERE'S
SOME FLAWS AND THAT THAT THE
STRUCTURE OF HOW THIS WORKS, I
GUESS I'M JUST SHOCKED THAT
SILICON VALLEY BANK REALLY KIND
OF ACTED ON AS WELL AS A NO ONE
WAS TELLING HIM WHAT TO DO AND
WHAT TO STOP. ONE OTHER FINAL
QUESTION. IT'S IN OUR MINDS THAT
WERE IN BUDGETARY TIME. AND YOU
MENTIONED THAT YOU ONLY HAVE THE
TWO UH MEMBERS OF YOUR STAFF
THAT ARE IN THIS ROLE COMPARED
TO 20 AT THE FEDERAL LEVEL. HAVE
YOU PUT IN FOR ADDITIONAL
RESOURCES? HUMAN RESOURCES? HAVE
YOU BEEN REBUFFED? HAVE YOU
ASKED FOR 10? MORE PRIOR TO
THIS? I MEAN, PRIOR TO MARCH,
HAD YOU BEEN SEEKING MORE HUMAN
RESOURCES TO ASSIST YOU IN THIS
EXAMINATION PROCESS? PRIOR. TO
UM, THE RUN ON THIS BANK. IN MY
OPINION, THERE WASN'T AS MUCH OF
A FOCUS ON THE NEED TO ADD
ADDITIONAL STAFF. BECAUSE OF.
THE NUMBER OF FEDERAL RESOURCE
IS AND THE TRAINING AND
SPECIALIZED TEEN. THAT THE
FEDERAL REGULATORS HAD TO OFFER.
SUBSEQUENT TO THIS. AND THROUGH
OUR REVIEW WITHIN OUR EXISTING
RESOURCES. WE HAVE ADDED
ADDITIONAL STAFF. AND ALL OF OUR
REMAINING BANKS THAT WOULD FALL.
10 BILLION AND ABOVE. AND IN
PARTICULAR ANY BANK THAT HAD A
HIGH LEVEL OF UNINSURED DEPOSITS
. THANKS THAT, UM, ARE
CONCENTRATED IN THEIR DEPOSITORS
IN A PARTICULAR SECTOR. ARE ANA.
EARLY WARNING SYSTEM HIGH
PRIORITY LISTS THAT ARE
MONITORED ON A DAILY BASIS. THAT
NOW IS THAT NEW? IS THAT WHAT
YOU'RE SAYING? IT'S NOT TO THE
EXTENT THAT WE HAVE ENHANCED OUR
MONITORING. AND TAKING IN ALL
THE LESSONS LEARNED FROM THE
SILICON VALLEY BANK FAILED.
OKAY, ONE FINAL QUESTION. ROLES
OR RESPONSIBILITIES BEING
BETWEEN YOUR OFFICE AND THE FEDS
. I SAID CLAIRE, WHO DOES WHAT?
OR WHAT? HOW DOES THIS GET LOST
SOMETHING LIKE THIS? GET LOST. I
THINK PART OF AS WE'RE MOVING
FORWARD, AND ANY BANK
EXAMINATION AND HAVING ENHANCED
TEAM WITH ADDITIONAL LEVELS OF
SUPERVISION FROM THE STATE LEVEL
, THE SPARK THIS AND ENSURE THAT
THERE ARE AGGRESSIVE ACTION THAT
IN THE BEGINNING OF ANY EXAM
FROM NOW ON IT'S GOING TO BE
VERY, VERY CLEAR IN THE SCOPING
AND PLANNING FOR THE EXAM. WHAT
OUR ROLES ARE GONNA BE. AND
WHERE. IF NECESSARY, WE WILL
EXERCISE INDEPENDENT ACTION. ALL
RIGHT. THANK YOU. NO FURTHER
QUESTIONS. THANK YOU. THANK YOU
, UH, SEE NO FURTHER QUESTIONS.
I HAVE A COUPLE QUESTIONS AND
THEN SOME COMMENTS. JUST
GENERALLY ONE OF THE
RECOMMENDATIONS IS TO DEVELOP
STRONGER, MORE EFFECTIVE SYSTEMS
TO REMEDIATE DEFICIENCIES.
PROMPTLY UM THE FEDERAL RESERVE
REPORT, HOWEVER, DISCUSSES THAT
THERE'S CHALLENGES FOR
REGULATORS AND TAKING AGGRESSIVE
ACTION. UM AGAINST A BANK THAT
IS PROFITABLE AND AT LEAST
APPEARS TO BE IN A HEALTHY
FINANCIAL CONDITION. CAN YOU
DISCUSS SPECIFICALLY HOW D F P I
WILL IMPLEMENT THIS SUGGESTED
CHANGE. AND HOW D F B I PLANS TO
COMPEL IN A SITUATION VERSUS
ENFORCE RIGHT BECAUSE IT LOOKS
LIKE IT'S DOING OKAY. BUT YOU
HAVE TO GET THEM TO COMPEL. UH
YOU GET YOU HAVE TO GET THEM TO
THE ARGUMENT HAS TO BE
COMPELLING ENOUGH FOR THEM TO
MAKE THE CHANGES TO RESPOND
PROMPTLY, UM TO SOME OF THE
PROBLEMS IDENTIFIED BY THE BANK
EXAMINERS. WELL, I THINK FIRST
IN FOR MOST. AH TIMELINES HAVE
TO BE ADHERED TO, AND THERE HAS
TO BE CONSEQUENCES IF THERE IS
NOT RE MEDIATION WITHIN BOTH
TIMELINES. THAT'S THE FIRST
THING. SO THAT'S WHERE THE
ENHANCED MONITORING COMES IN. I
ALSO. BELIEVE IN HINDSIGHT. NOT
JUST. CALIFORNIA BUT ALL OTHER
STATE BANKS AND OUR PHOTO
REGULATORS. HAVE THE REALIZATION
THAT WHAT WAS OKAY UNDER THE
TRADITIONAL MODELS IS NOT OKAY
NOW. SO PRIOR TO THIS DAY. IF A
BANK. AND A CERTAIN NUMBER OF
THE POSITS COVERED ACCORDING TO
THE TRADITIONAL FORMULA. THEN
THEY RECEIVED ONE RATING
SATISFACTORY. IF A BANK SHOW.
SIGNIFICANT GAINS. THEY WERE
PERCEIVED TO DO. OKAY? BUT NOW I
BELIEVE THAT THERE IS A
HEIGHTENED AWARENESS THAT YOU
HAVE TO LOOK BEYOND THE
TRADITIONAL FORMULA. DO YOU HAVE
TO LOOK BEYOND THE GAMES? AND
YOU HAVE TO ALSO IS SURE. THAT
YOUR SIMULATIONS TAKE INTO
CONSIDERATION. THINGS THAT COULD
HAPPEN IN THE FUTURE. AS WHAT
HAPPENED WITH SILICON VALLEY
BANK. SO BABY UNDER THE
TRADITIONAL FORMULA YOU MIGHT
HAVE LOOKED AT MORTGAGE BACK AND
TREASURY SECURITIES AS BEING THE
SAFEST INVESTMENT. BUT THAT'S
FOR A LONG TERM. IN THE SHORT
TERM WITH RISING INTEREST RATES
CAN HAVE A DRAMATIC IMPACT.
LESSONS LEARNED. IT WILL CHANGE
THE FORMULA NATIONWIDE. I
BELIEVE AND HOW BANKS ARE
EVALUATED AND MORE EMPHASIS WILL
BE PLACED ON. SOLID RISK
MANAGEMENT, WHICH IS BASIC
BANKING. IN THE AREAS OF SAFETY
AND SOUNDNESS. THEN WHAT HAS
BEEN. MORE OF AN EMPHASIS ON
EARNINGS AND GAINS. THANK YOU
ALONG THE LINES OF TIMELINESS.
UM I WAS CONCERNED TO LEARN THAT
IT TOOK SEVEN MONTHS TO DEVELOP
AN MOU AS AN INFORMAL, NOT
FORMAL BUT INFORMAL ENFORCEMENT
ACTION RELATED TO THE GOVERNANCE
AND CONTROL ISSUES AND THAT THE
MOU WAS STILL NOT EVEN
COMPLETED. BY THE TIME THAT SVB
FAILED. CAN YOU HELP ME
UNDERSTAND WHAT FACTORS AND
CONDITIONS CAUSE SUCH A DELAY
FOR AN MOU TO BE FINALIZED? I
THINK THERE WERE SEVERAL THINGS
IN THIS CASE. UM AND I MENTIONED
SOME OF THEM. UH ONE WAS THE
TRANSITION FROM THE REGIONAL.
BED UP UNTIL THE MORE
SPECIALIZED TEAM IN D. C. I
DON'T THINK THERE WAS A DESIRE
TO MOVE FORWARD UNTIL THERE WAS
MORE ENHANCED TESTING. TO
PRESENT A FULL PICTURE. OF. THE
ENTIRE EXAMINATION. IN MY
OPINION. THERE SHOULD HAVE BEEN
AN MOU ISSUED MUCH MUCH EARLIER
AND IT WAS NOT. AND AS I
MENTIONED PREVIOUSLY. THERE IS A
RELUCTANCE. WHICH AFTER THIS
RELUCTANCE IS DEFINITELY GOING
TO CHANGE. TO DO EVEN MORE
PUBLIC ACTION, WHICH MIGHT BE A
CONSENT DECREE. OR A CEASE AND
DESIST. FOR FEAR OF BEING THE
ONE WHO STARTED THE RUN. AND
THAT'S WHY IN MANY CASES, IT'S
VERY DIFFICULT. FOR MANY BANKS.
REGULATORS JUST DOWNGRADE. A
BANK, KNOWING WHAT THE IMPACT
MIGHT HAVE BEEN INVESTORS. BUT
NOW WHEN YOU SEE THE OTHER END
OF IT OF WHAT HAPPENS WHEN YOU
DON'T AND DON'T GET IN THERE
EARLY AND MOVE AGGRESSIVELY.
MOVING FORWARD. AT LEAST I CAN
SAY FOR THE FBI, WE WILL MOVE
MORE AGGRESSIVELY. IN THIS CASE
WAS, I SAID ONE SIZE DOESN'T FIT
ALL. SO WHAT WE MIGHT APPLY TO A
SMALLER COMMUNITY BANK AND A ONE
OF OUR LARGER BANKS, 50 BILLION
AND OVER. MIGHT NOT BE THE SAME
EXACT PRACTICE, BUT. WE HAVE TO
BE IN AN ATMOSPHERE AND A
CULTURE. CUT THROUGH ALL THE
GOVERNMENT. BUREAUCRACY,
SOMETIMES. AND DO WHAT NEEDS TO
BE DONE. THANK YOU, AND I
APPRECIATE THAT DELICATE BALANCE
BETWEEN BEING TOO AGGRESSIVE AND
BEING THE YOU KNOW, AT FAULT OF
A BANK RUN, BUT ALSO
UNDERSTANDING THAT, UM, YOU KNOW
, A LOT CAN CHANGE IN AN ECONOMY
IN SEVEN MONTHS. AND I THINK AS
LEGISLATORS, WE ALL SEE THAT WE
ALL FEEL THAT WE KNOW VERY
QUICKLY. UM HOW? HOW THAT CAN
CHANGE. AND SO WHEN WE HEAR OF M
O U S, UM, THAT TAKE THAT LONG
IN A SITUATION WHERE THERE'S AN
APPEARANCE OF A HEALTHY
FINANCIAL STATE. HOWEVER THERE
ARE INDICATORS THAT KEEP COMING
UP. AND CERTAINLY THROUGH THIS
TESTIMONY. WE'VE HEARD THE WORD
UNUSUAL, UM, MULTIPLE TIMES. YOU
KNOW HOW WE FIND A FINE BALANCE
TO RECOGNIZE THE UNUSUAL THE
UNCOMMON UM BIÂU NO PRECISE IN
OUR ACTION, YOU KNOW, NOT TOO
AGGRESSIVE, BUT NOT UNDER
AGGRESSION, AGGRESSIVE AND ALSO
UNDERSTAND THAT YOU KNOW TIME
MATTERS, SO I APPRECIATE HEARING
THAT, I THINK GENERALLY AS UM WE
THINK ABOUT WHAT'S HAPPENED, AND
CERTAINLY WITH THE EVIDENCE, UM
, THAT IS SHARED TO US BY THE
BOTH THE FED REPORT AND R D F P.
I REPORT I THINK THAT, UH, AT
LEAST FOR ME, I RECOGNIZE THAT
THERE ARE SUBSTANTIAL
DIFFERENCES BETWEEN THE ROLE OF
THE FED. UM AND THE STATE FOR
ONE. IT WAS NOT LOST ON ME. UM,
THE RECOGNITION THAT THE FEDS
SPENT 25,000 STAFF HOURS. UM IN
JUST 2022 EXAMINING SILICON
VALLEY BANK WHILE THE STATE
SPENT UM, 3000 HOURS. UM FOR A
LOT OF FOLKS THAT ARE LISTENING
THAT ARE, YOU KNOW, EVERYDAY
FOLKS. THAT'S A LOT OF HOURS.
THAT'S A LOT OF FULL TIME JOBS,
UM, JUST TO HAVE THE LENS ON
THIS AND SO I THINK WE ASK
OURSELVES UM WHAT THIS LOOKS
LIKE IN THE FUTURE, BUT IT'S
ALSO AN IMPORTANT RECOGNITION
THAT THE FEDERAL RESOURCES UM,
ARE FOCUSED ON A BANK THIS SIZE
, UM AND, UH, THAT IT'S
EXPERIENCING THIS IN A WAY THAT
THE STATE ARE NOT. UM AND I'M
NOT SURE UM, THAT IT IS THE
INTENTION OF THE LEGISLATURE TO
MAKE THE STATE ROLE IDENTICAL TO
THE FED BECAUSE IT IS NOT
NECESSARILY ALLOWED, RIGHT. I
THINK THAT IT'S ALSO IMPORTANT.
I MEAN FOR ME, UM, TO RECOGNIZE
THAT, UH, NOW THAT OUR TWO
LARGEST STATE CHARTERED BANKS,
UM HAVE, UH FAILED THAT WE MAY
NOT HAVE THE SAME LEVEL OF
OVERSIGHT, PARTICULARLY BECAUSE
THERE ARE COSTS RELATED TO BANK
OVERSIGHTS THAT ARE PAID BY THE
BANKS THEMSELVES. THIS DOES NOT
COME AT A GENERAL FUND. THIS IS
THE BANKS THEMSELVES. AND SO
WHEN YOU LOSE, UM YOU KNOW SOME
OF THESE BIG BANKS. THAT MEANS
THAT SOME OF THAT IS GOING TO BE
SPREAD OUT ON SMALLER BANKS, UM
, TO BE ABLE TO HAVE YOU KNOW
THE BANK EXAMINER COST UM, AND
THAT'S SOMETHING THAT IS JUST AN
IMPORTANT RECOGNITION IN THIS
ENTIRE DISCUSSION. I CERTAINLY
FEEL THAT, AS HAS BEEN STATED BY
MY CASINO, MY COLLEAGUES, UM
THAT WE RECOGNIZE THAT THE
FEDERAL GOVERNMENT HAS A GREATER
ROLE IN THIS HAS HAD WILL ALWAYS
HAVE A GREATER ROLE THAN THE
STATES. UM AND DESPITE BEING A
STATE CHARTERED BANK, IT REALLY
WAS THE FEDERAL OVER FEDERAL
EXAMINERS THAT HAD MORE
OVERSIGHT. I THINK IT'S ALSO, UM
YOU KNOW, SOMETHING THAT'S
IMPORTANT FOR ME IS AT LEAST
THAT, UH, THE OAN FEDERAL
RESERVES REPORT, UH, TAKES
RESPONSIBILITY. PRIMARY
RESPONSIBILITY FOR THE FAILURE
OF SUPERVISION, NOT FOR THE
FAILURE OF MANAGEMENT, AND I
THINK THAT THAT HAS BEEN SHARED
AMONGST COLLEAGUES RELATED TO
SVB. SO THERE'S CERTAINLY MORE
DISCUSSIONS. I APPRECIATE THE
RECOMMENDATIONS THAT YOU HAVE
BROUGHT FORWARD BECAUSE EVEN IF
, UM THERE IS SHARED
RESPONSIBILITY, I THINK IT IS
ALWAYS OUR JOB TO LOOK AT WHERE
WE CAN DO BETTER. AND I WILL
TELL YOU THAT, AS YOU KNOW, A
REPRESENTATIVE OF THE PEOPLE OF
CALIFORNIA IN THOSE HOURS WHERE
WE SAW WHAT WAS HAPPENING WITH
SILICON VALLEY BANK IN OUR
STATE. THE NUMBER ONE THING I
HEARD FROM LEGISLATORS. WHO
SERVE ON THIS COMMITTEE WHO
DON'T SERVE ON THIS COMMITTEE IS
HERO. HOW ARE WE GOING TO ENSURE
THAT PEOPLE IN THIS STATE WHO
ARE WORKING GET PAID? AND SO I
SAY THAT BECAUSE WHEN WE
TRANSLATE SOME OF THESE
REGULATORY CONVERSATIONS, THESE
CONVERSATIONS ABOUT WHERE THE
RESPONSIBILITY MIGHT BE, YOU
KNOW, PLACED AND WHO HAS MORE
AUTHORITY THAN OTHER AND WHAT'S
PREEMPTED AND WHAT IS NOT. FOR
EVERY DAY CALIFORNIANS. THIS WAS
ABOUT THE MONEY. UM THAT EITHER
WAS GETTING TO BE PAID FOR THEM
. THAT WAS PUT IN A BANK THAT WE
ALL, UM, YOU KNOW, BELIEVE AND
TRUST IN THE SYSTEM THAT WE
BELIEVE IN TRUST IN AND THAT WAS
WHAT'S AT STAKE, AND WHEN YOU
ARE LOOKING AT THE WELFARE OF
YOUR EVERYDAY YOU KNOW, LIVING
IN THIS STATE IT IS. I THINK
SOMETHING THAT'S VERY BIG, AND I
DON'T WANT THAT TO GET LOST IN
SOME OF THIS DISCUSSION THAT I
THINK UM, YOU KNOW, IS AIMED AT
OF COURSE, ENSURING THAT THE
PEOPLE THAT WE REPRESENT, UM
STILL FEEL CONFIDENT AND SECURE
THAT IF THEY HAVE TO GO PULL OUT
MONEY, THEIR MONEY IS GOING TO
BE THERE THAT THERAPY PAYCHECK
IS GOING TO BE A PAYCHECK THAT
WILL HAVE CASH FUNDS TO RECEIVE
IT. AND THOSE ARE REALLY
CRITICAL THING. SO I THANK YOU
FOR YOUR WORK AND THE
INFORMATION AND FOR ALL THE
DEPARTMENTS INFORMATION. YOU ARE
HEAD AND LEAD HERE IN THE STATE,
BUT I KNOW THAT THE INTERVIEW
DEPARTMENT AS A WHOLE HAS BEEN
ENGAGED IN THIS, SO THANK YOU
AND I WILL HAND IT OFF TO CHAIR
GRAYSON. THANK YOU. CHAIR LIMÓN
AND THANK YOU, COMMISSIONER FOR
BEING HERE AND TESTIFYING,
ANSWERING QUESTIONS JUST BEFORE
WE GO TO PUBLIC COMMENT. IT
WOULD, UM, JUST AGAIN, A
REMINDER THAT SVB FAILURE WAS ON
THE PART OF, UH ABOARD AND BANK
MANAGEMENT. THAT THAT FAILED US
THAT FAILED CALIFORNIA'S AND
FAILED THE BANKING SYSTEM. THEY
WERE GIVEN. THEY WERE GIVEN
WARNINGS AND THEY WERE GIVEN THE
OPPORTUNITY TO FIX AND TO ALIGN
AND GET RIGHT IN POLICY AND
FAILED TO DO SO. SO THE FAILURE
OF THIS BANK IS ON THE
SHOULDERS. OF THE MANAGEMENT AND
THE BOARD OF THAT BANK. HAVING
SAID THAT IT WOULD BE REMISS FOR
ME THE TO NOT ACKNOWLEDGE THE
FACT THAT THE PAIN OF SVB
FAILING HAS NOT GONE AWAY AND
REMAINS WITH US AS A COMMUNITY
AS A CALIFORNIA FAMILY AND
COMMUNITY. HAVING LOST $9
BILLION IN COMMUNITY BENEFITS.
MUCH OF WHAT WOULD HAVE GONE
TOWARD AFFORDABLE HOUSING AND
OTHER GREAT NEEDS THAT WE HAVE
HERE IN OUR COMMUNITY. HAVING
SAID THAT, AND I DO WANT TO BE,
UH, EXPEDITIOUS HERE. IS THERE
ANYTHING ON THE FEDERAL LEVEL
THAT INHIBITS OR PROHIBITS THE
STATE FROM PROVIDING GREATER
OVERSIGHT? LET ME POSSIBLY
REPHRASE THAT COMPARED TO THE
SUPERVISION POLICIES OF THE
FEDERAL RESERVE OR THE F D I C
DOES THE D F P. I REQUEST ANY
UNIQUE INFORMATION, OR DO YOU
HAVE THE ABILITY TO REQUEST
UNIQUE INFORMATION OR ASK ANY
UNIQUE QUESTIONS OF BANKS
PURSUANT? TO THE DEPARTMENT
SUPERVISOR, SUPERVISORY
ACTIVITIES. THERE IS NOTHING
THAT PROHIBITS US. FROM DOING?
AND IN DEPTH INVESTIGATION AND
REQUESTING INFORMATION FROM THE
BANK. UH, IN TERMS OF CONDUCTING
OUR DUTIES UNDER AN EXAMINATION.
AND IN SOME AREAS AS I MENTIONED
WE HAVE THE FINANCIAL
INSTITUTION AREA AND WHICH WE
HAVE A FOUR D TO DO AN
INVESTIGATION. WE ALSO HAVE
AUTHORITY UNDER THE SECURITIES
AREA OVER ANY INDIVIDUAL. SO
UNDER FINANCIAL INSTITUTIONS ARE
AUTHORITY IS OVER THE LICENSE.
SEE, WHICH IS THE CHARTER. IN
THE SECURITY AREA. WE HAVE THE
AUTHORITY OVER ANY INDIVIDUAL
THAT COULD BE INVOLVED IN ANY
SECURITY. UM VIOLATION AND WE
HAVE FULL AUTHORITY THERE AS
WELL. SO THAT'S A PERFECT SEGUE
INTO THE LAST POINT QUESTION. I
WANT TO ASK. IT'S MORE OF A WELL
QUESTIONS STATEMENT. WE CAN GET
BACK TOGETHER AFTERWARD ON IT.
UH AND I DO APPRECIATE, UH, THE
HYPERSENSITIVITY YOU HAVE IN THE
RESPONSIBILITY AS A FINANCIAL
REGULATOR. IN WHO YOU'RE DEALING
WITH. AND THE FACT IS, THIS IS
THE MONEY OF CALIFORNIANS, UH,
IN IN LARGE PART WHEN IT COMES
TO STATE CHARTERED BANKS,
ADMITTEDLY, RED FLAGS WERE
POPPING UP FOR MONTHS PRIOR. ADD
TO THE TO S S VBS COLLAPSE OR
INSOLVENCY. REGULATORY ACTIONS
WERE TAKEN. THANK YOU VERY MUCH
, BUT THE BANK'S MANAGEMENT
RESPONSE IF I MAY TAKE THE
LIBERTY AS, UH, AS AN
OBSERVATION WAS SEEMINGLY
IRREVERENT TO BOTH THE STATE AND
FEDERAL REGULATORY AGENCIES WHAT
COULD HAVE WHAT COULD HAVE BEEN
DONE OR WHAT SHOULD HAVE BEEN
DONE TO ADDRESS. THE TIMELINESS
OR THE LACK OF TIMELINESS ON SVB
IS PART. IN OTHER WORDS, THE
QUESTION IS DOES THE AGENCY HAVE
THE TOOLS? TO DEAL WITH A
FINANCIAL INSTITUTION THAT SEEMS
TO BE NON RESPONSIVE OR NOT
RESPONSIVE ENOUGH. OR BEING
RESPONSIVE IN A TIMELY MANNER TO
ACTIONS THAT ARE BEING TAKEN BY
A REGULATORY AGENCY.
RESTRICTIONS AND CONDITIONS
COULD HAVE BEEN PLACED. UM UPON
THAT BANK THROUGH A CONSENT
DECREE. THAT WOULD BE PUBLIC.
YES UM, IT'S DIFFICULT. IN THAT
TYPE OF SITUATION. IF THERE'S
NOT AGREEMENT. UM WITH YOUR
FEDERAL REGULATORY PARTNER.
PARTICULARLY WHEN YOU'RE JUST
TWO EXAMINERS, HOWEVER. UM
TECHNICALLY, UH, THE FBI COULD
TAKE INDEPENDENT ACTION. UM
SEPARATE AND DISTINCT IN THE
FORM OF A CONSENT DECREE OR CAN
JUST DO IT OUT AND OUT SEASON
TWO CYSTS. I APPRECIATE THAT.
AND AGAIN. I JUST WANNA THANK
YOU FOR COMING TODAY AND
TESTIFYING BEFORE THE JOINT
COMMITTEE AND I WANT TO THANK
SHERRY LEMON AND THE SENATE
COMMITTEE AS WELL FOR JOINING
WITH THAT IT IS TIME TO GO TO
PUBLIC COMMENT. UH IF WE DON'T
HAVE ANY OTHER QUESTIONS, I SEE
NONE. I WOULD LIKE TO GO TO
PUBLIC COMMENT AS A REMINDER,
PLEASE STATE YOUR NAME YOUR
ORGANIZATION AND PLEASE KEEP
YOUR COMMENTS BRIEF MEANING TO
ABOUT A HALF MINUTE. IF YOU
WILL, PLEASE. IS THERE ANYBODY?
YES, PLEASE GO AHEAD. GOOD
AFTERNOON. UH MADAM CHAIR, MR
CHAIR AND MEMBERS ROBERT
HORRELL. I'M THE EXECUTIVE
DIRECTOR OF THE CONSUMER
FEDERATION OF CALIFORNIA. I WANT
TO THANK THE COMMITTEES FOR THE
HEARING. GOOD BACKGROUND PAPER.
I WOULD NOTE THAT I THINK IT
WOULD BE HELPFUL. ACTUALLY
THERE'S A NUMBER OF QUESTIONS OF
A COUPLE OF WHICH HAVE COME UP
DURING THE HEARING. IT WOULD BE
GREAT TO GET THE FBI'S WRITTEN
ANSWERS. TO THOSE QUESTIONS.
PERHAPS THE COMMITTEE COULD ASK
FOR THAT. I THINK THAT WOULD BE
HELPFUL TO SEE IN WRITING SOME
OF THEIR RESPONSES. UM ALSO
APPRECIATE THE QUESTIONS BY THE
MEMBERS OF THE VARIOUS
COMMITTEES. UM, SENATOR NILO TO
YOUR POINT. IT LOOKS LIKE THEY
DIDN'T REALLY HAVE A GOOD RISK
MANAGEMENT PLAN, EVEN WHEN THEY
WERE AT 50 BILLION, LET ALONE
WHEN THEY GREW RAPIDLY AFTER
THAT. UH THAT'S POINTED OUT IN
IN IN THE BACKGROUND AND SOME OF
THE OTHER MATERIALS THERE SO FOR
CFC, WHAT IT REALLY DOES IS IT
CALLS INTO QUESTION THE UTILITY
OF A STATE CHARTERED BANKING
SYSTEM, ESPECIALLY WHEN YOU
START GETTING BEYOND AND I DON'T
KNOW WHAT THE MAGIC NUMBER IS.
50 BILLION OR 100 BILLION, SO I
THINK THAT'S AN AN ISSUE. THE
LEGISLATURE HOW TO TAKE A
SERIOUS LOOK AT THANK YOU. THANK
YOU SO MUCH. ANY OTHER. PERSONS
WANTING TO MAKE PUBLIC COMMENT.
SEE NONE. SEEING NONE. AH I WANT
TO THANK EVERYONE FOR
PARTICIPATING IN TODAY'S
HEARING, AND YOU CAN FIND THE
MATERIALS RELATED TO TODAY'S
TOPICS ON THE COMMITTEES. BOTH
COMMITTEES WEBSITES AND I LOOK
FORWARD TO CONTINUING TO WORK ON
THIS ISSUE AND PARTNER WITH THE
FBI COMMISSIONER. THANK YOU SO
VERY MUCH IN THIS MEETING IS
DONE ADJOURNED. THANK YOU.