WASHINGTON, D.C. – U.S. Representative Ritchie Torres (NY-15), as a member of the House Financial Services Committee, today participated in a hearing where federal banking regulators from the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, and the U.S. Treasury Department testified about their joint emergency response to the recent and historic failures of Silicon Valley Bank in California and Signature Bank in his home state of New York – the second and third largest in our nation’s history respectively – and the efforts underway to continue providing stability to America’s financial institutions and to maintain confidence among consumers and depositors.

VIDEO of Rep. Torres’s five minutes of questioning can be found here.

VIDEO of the full hearing can be found here.

A RUSH TRANSCRIPT of Rep. Torres’s remarks and questioning is below, as delivered:

REP. TORRES: Thank you. When interest rates rise, long-term securities become less valuable, but deposits become more valuable. If you have a stable deposit base, the gains from the deposits can offset the losses of the long-term securities. But, if you have an unstable deposit base like Silicon Valley Bank, there’s no built-in offset. Silicon Valley Bank had a uniquely uninsured, unstable deposit base that made it singularly susceptible to a bank run in the age of social media. So, Vice Chair Barr, should a bank with an unstable uninsured deposit base like SVB be subject to a higher standard of regulation than a bank with a stable and insured deposit base?

THE HON. MICHAEL S. BARR, Vice Chairman of Supervision, Board of Governors of the Federal Reserve System: Representative Torres, I couldn’t have said it better myself. I think you described the situation exactly correctly.

REP. TORRES: Flattery will win you no points.

BARR: It’s just the truth. I wish I had said it that way. But no, I think that there are unique risks to this kind of heavy uninsured deposit base. For most banks in the country, as you just described, they handle their interest rates properly, and they have stable deposits. All of you, when you talk to your banks, when you go back home across the country, they’re doing okay.

REP. TORRES: But you agree that we should, the rigor of regulation should depend not only on size but deposit stability, yes?

BARR: I do.

REP. TORRES: Regarding commercial real estate, the rapid rise in work from home during COVID has driven down office property values, and the rapid rise in interest rates has driven up financing cost, creating a perfect storm. Office buildings with declining property values are said to be refinanced at far higher interest rates. There’s reportedly $2.5 trillion dollars in commercial real estate debt coming over for the next five years – a substantial share of which is office debt. Chair Gruenberg, to what extent do you worry about the office loan portfolio, representing a ticking time bond in the banking industry?

THE HON. MARTIN J. GRUENBERG, Chairman, Federal Deposit Insurance Corporation: It presents a risk. It’s one the FDIC has talked about and identified publicly.

REP. TORRES: And Signature was the largest commercial real estate investor in New York City. How much of Signature’s commercial activity consists of office real estate?

GRUENBERG: That’s a good question. Let me get you the exact number. It’s a substantial portion.

REP. TORRES: Can you get me back the exact number in writing?

GRUENBERG: I can get that for you.

REP. TORRES: More importantly to me locally, residential real estate. Signature Bridge Bank has a housing portfolio of 3,000 properties consisting of 80,000 units in New York City. The portfolio includes 479 properties consisting of 19,000 units in the Bronx, where I serve as a congressman. I have two questions for the FDIC. As you go through the process of seeking a buyer for Signature’s residential real estate debt, to what extent will you seek the input of New York State and New York City housing officials who have an obvious stake in preserving the affordability of these properties and units? To what extent will you prioritize affordable housing preservation in your selection of a purchaser?

GRUENBERG: Thank you, Congressman, and just to be clear, we have sold Signature to New York
Community…

REP. TORRES: You’ve sold everything but the real estate portfolio as I understand. That’s been publicly reported.

GRUENBERG: I take your point. We’ll be glad to work with you and other local officials in New York in regard to the disposition.

REP. TORRES: I appreciate that commitment. I’m not advocating the following cause of action, but I want to provide you with a hypothetical that the banking system is reportedly issitting on more than $600 billion dollars in unrealized losses from securities, and those losses will only rise with rising interest rates. Since the problem with these assets is one of asset duration rather than asset quality,should the Federal Reserve consider purchasing these securities? Unlike a bank, which needs liquidity to honor our obligations to depositors. The Federal Reserve has the ability to hold these assets to a maturity without realizing those unrealized losses. Wouldn’t that solve the problem?

BARR: You raise an excellent point. Under existing law, we cannot take asset purchases, but what we do do is provide ample liquidity to the financial system on the basis of…

REP. TORRES: But the losses remain even with the emergency liquidity. The losses remain on the balance sheet. Those losses are arguably undercutting public confidence in the banking system, and as you know, banking is as much about psychology as it is about finance. Why not just remove the losses?

BARR: I’d go back to the first point you made in your earlier question, which is that for most banks their managing this well. They’re doing fine. They have stable deposits, and they don’t need to sell the assets they have on their balance sheet. Those assets can stay there and be held to maturity. If institutions need liquidity, they can access that from the discount window and from the program we establish – the bank term funding program – gives longer-term stability at par for those very assets.

REP. TORRES: I want to squeeze in one more question. Did the bank supervisor at the San Francisco Fed have the supervisory authority to prevent Silicon Valley Bank from investing in unhedged, long-term securities? Did you have that authority? Because the problem, the lack of authority or fear to exercise the authority you had?

BARR: The bank examiners cited them for not behaving properly with respect…

REP. TORRES: Did they have the authority to prevent it?

REP. BRYAN STEIL: The gentleman’s time has expired.

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