US House Financial Services chair: too early to tell if new laws needed after bank failures

By Kanishka Singh

WASHINGTON (Reuters) – U.S. House of Representatives Financial Services Committee Chairman Patrick McHenry said on Wednesday it was too early to tell if new legislation is necessary after the recent failure of Signature Bank (NASDAQ:) and Silicon Valley Bank.

“Too often, as legislators, we walk around and assume the answer is legislation,” McHenry, a Republican, said at an American Bankers Association event.

“It is too early to tell whether new legislation is necessary. It is important to note that we cannot legislate confidence.”

Some prominent U.S. lawmakers on banking matters said over the weekend they would consider whether a higher federal insurance limit on bank deposits was needed to stem a financial crisis marked by a drain of large, uninsured deposits away from smaller and regional banks.

Government officials have also discussed increasing deposit insurance without obtaining approval from Congress as they brainstormed various approaches to solving the banking turmoil, two sources familiar with the talks told Reuters on Tuesday.

McHenry said on Wednesday that raising deposit insurance limits may produce “serious consequences for the financial system” that could range from “moral hazard to fueling more bank consolidation.”

Silicon Valley Bank was taken over by federal regulators on March 10, followed by Signature Bank a few days later. Multiple federal agencies, including the U.S. Department of Justice and the Securities and Exchange Commission, are probing SVB. Global banking markets have been skittish and investors remain fearful of wider economic repercussions.

President Joe Biden said on Friday the banking crisis has calmed down, and promised Americans that their deposits are safe.

McHenry said regulators needed to stop the spread of the crisis but noted that capitalism entails risks.

“Without failure, you cannot have capitalism. So firms need to be able to fail,” McHenry said.