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1 1 (July 21, 2023)

handle is hein.crs/govemgw0001 and id is 1 raw text is: Congressional Research Service informing the IegsIlative debate since 1914 Bank Failures and Congressional Oversight The failures of three large banks in spring 2023-Silicon Valley Bank (SVB), Signature, and First Republic-has resulted in congressional attention on how the federal banking agencies-the Federal Reserve (the Fed), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC)-supervise, resolve, and provide banks with assistance during financial turmoil. Some Members have asserted that because supervisory information is confidential, there is insufficient transparency, and that hampers effective oversight. The Senate and House committees of jurisdiction have already conducted hearings with the regulators that brought to light new information about the supervision and failures of SVB and Signature. On May 24, 2023, the House Financial Services Committee ordered H.R. 3556 to be reported in the nature of a substitute. It includes provisions that would enhance reporting requirements, testimony requirements, and transparency for the banking agencies. On June 22, 2023, the Senate Banking Committee reported S. 2190, which would, among other things, enhance reporting requirements and inspector general (IG) oversight of large bank failures and supervision. This In Focus examines current practices and discusses policy options. Background Despite the banking agencies' relative independence, Congress seeks to conduct effective oversight to determine whether the agencies are accomplishing their statutory mandates. Some say too much congressional involvement and disclosure could undermine regulators' independence and effectiveness, however. Oversight can take the form of hearings, investigations, and reporting requirements. Congress also relies on investigations by the agencies' IGs and the Government Accountability Office (GAO) to assist with oversight. Effective oversight depends on agency transparency, which can take the form of public or congressional access to relevant agency and company information. The Freedom of Information Act (FOIA; 5 U.S.C. §552) ensures that agencies make information accessible to the public but allows agencies to keep records confidential if they meet any of the statutory exemptions to public disclosure. Congressional oversight has focused on two aspects of the 2023 bank failures: (1) what caused the failures and (2) what emergency actions regulators took in response to the failures. Oversight can shed light on whether regulators' authority was insufficient, supervision was inadequate, and the banks violated any laws or regulatory requirements. Legislative proposals have included extending FOIA to the Federal Reserve regional banks. (The Board is already covered.) Congress has also proposed requiring regulators to give congressional requests for information greater priority and provide congressional access to specific confidential information for oversight purposes. Such access could risk the improper exposure of confidential information. To address similar concerns, Congress has created guardrails surrounding congressional access to other types of sensitive information (e.g., classified intelligence). Oversight of Su pervison Regulators supervise banks to verify compliance with regulatory and legal requirements, including that they operate in a safe and sound manner. (For background on supervisory terms and concepts discussed in this section, see CRS Report R46648, Bank Supervision by Federal Regulators: Overview and Policy Issues.) They require banks to periodically report extensive data on their financial conditions in call reports, which are publicly released. If a bank is publicly listed-as was the case with the three banks that failed-it must disclose more information in its public filings about its operations and material risks. Some of the factors that led to the banks' failures, such as unrealized losses on their assets, were reported in these call reports, while others could have been gleaned only from more detailed information that only regulators could have accessed. That information is confidential under FOIA due to its sensitive nature. For example, publicizing information about a bank's operations could affect its financial viability or make the banking system less stable. (Some confidential information can be released after the bank's failure, as the bank is no longer an ongoing concern.) Supervisory decisions about a bank's financial health-such as its exam ratings (called CAMELS ratings), prompt corrective action (PCA) status, and whether matters requiring attention (MRAs) have been issued-are not public. The need for sensitive information to be confidential is balanced against the desire for transparency and effective oversight of supervision. Without access to this information, it is difficult for an outside observer to judge whether supervisors erred and a failure was preventable. The agencies publish limited aggregate data on supervisory actions. The FDIC reports the number of problem banks and their assets quarterly. In its annual report, the FDIC reports how many banks have poor CAMELS ratings and the number of MRAs by subject. The Fed sometimes-but not consistently-provides data on supervisory ratings and MRAs in its semi-annual regulation report, but it did not provide any such data in May 2023. The OCC semi- annually identifies the share of MRAs by subject but not the total number. Formal enforcement actions, which contain penalties and/or requirements for remedial actions, are made public when issued. July 21, 2023

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