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FEDERAL DEPOSIT INSURANCE CORPORATION 

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SYSTEMIC RESOLUTION ADVISORY COMMITTEE 

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MEETING 

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TUESDAY, 

DECEMBER 5, 2023 

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The Advisory Committee convened at 9:00 

a.m. EST in the Federal Deposit Insurance 

Corporation Cafeteria at 550 17th Street NW, 

Washington, DC, Martin J. Gruenberg, Chairman, 

presiding. 

PRESENT: 

SHEILA BAIR, Former Chairman, Federal Deposit 

Insurance Corporation

BEN S. BERNANKE, Distinguished Fellow in 

Residence with the Economic Studies Program at 

the Brookings Institution

SHELLEY C. CHAPMAN, Senior Counsel, Willkie Farr 

& Gallagher, Former United States Bankruptcy

Judge, Southern District of New York* 

JAY CLAYTON, Former Chairman, U.S. Securities and 

Exchange Commission (SEC)

JON CUNLIFFE, Former Deputy Governor of Financial 

Stability for the Bank of England 

H. RODGIN COHEN, Senior Chairman, Sullivan & 

Cromwell LLP 

GARY COHN, Former Assistant to the President 

Economic Policy and Director of the National 

Economic Council 

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ROBERT DRAIN, United States Bankruptcy Judge, 

Southern District of New York 

RICHARD J. HERRING, Co-Director, The Wharton 

Financial Institutions Center and Professor of 

Finance, The Wharton School, University of 

Pennsylvania

DONALD KOHN, Former Vice Chairman, Board of 

Governors of the Federal Reserve System and, 

Senior Fellow, Economic Studies Program, 

Brookings Institution

ELKE KÖNIG, Former Chair of the Single Resolution 

Board 

FRANK LA SALLA, President and Chief Executive 

Officer, DTCC, President and Chief Executive 

Officer of DTC, FICC and NCSS 

TIMOTHY J. MAYOPOULOS, President of Blend, Former 

President and Chief Executive Officer of Fannie 

Mae 

SANDIE O'CONNOR, Former Chief Regulatory Affairs 

Officer, JPMorgan Chase & Co. 

DOUGLAS L. PETERSON, President and Chief 

Executive Officer, S&P Global 

JOHN S. REED, Former Chairman and CEO of 

Citigroup and Former Chairman, Corporation of 

Massachusetts Institute of Technology 

MEG E. TAHYAR, Partner and Co-head of Financial 

Institutions, Davis Polk LLP 

ALSO PRESENT: 

MARTIN J. GRUENBERG, Director, Federal Deposit 

Insurance Corporation, Chairman

TRAVIS HILL, Director, Federal Deposit Insurance 

Corporation, Vice Chairman 

ROHIT CHOPRA, Director, Consumer Financial 

Protection Bureau 

MICHAEL J. HSU, Acting Comptroller of the 

Currency

RAE-ANN MILLER, Senior Deputy Director, 

Supervisory Examinations 

SUSAN BAKER, Division of Complex Institution 

Supervision and Resolution 

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ELIZABETH FALLOON, Office of General Counsel 

ANDREW FELTON, Deputy Director, Systemic Risk 

BRUCE HICKEY, Senior Counsel 

ARTHUR J. MURTON, Deputy to the Chairman for 

Financial Stability

DENA KESSLER, Acting Senior Counsel 

SHAWN KHANI, Deputy Director, Division of 

Resolutions & Receiverships 

JON POGACH, Senior Economic Researcher, Center 

for Financial Research 

ALFRED SEIVOLD, Deputy Director, Institution 

Risk, CISR 

R. PENFIELD STARKE, Acting Deputy General 

Counsel, Legal Division 

RYAN TETRICK, Deputy Director, Resolution 

Readiness, Division of Complex Institution 

Supervision and Resolution 

JENNY TRAILLE, Division of Complex Institution 

Supervision and Resolution 

*Present via video teleconference 

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CONTENTS 

Welcome and Introduction 

by Chairman Martin J. Gruenberg ............... 5 

Session 1A: Spring Bank Failures ............. 20 

Session 1B: Stabilizing the Bridge

Banks........................................ 74 

Session 2: International Perspective 

and Lessons Learned on G-SIBs 

and Regional Banks.......................... 135 

Session 3: Large Bank Strategy 

and Resolution Options...................... 194 

Session 4: Large Bank Policy

Considerations.............................. 237 

Closing Remarks 

by Chairman Martin J. Gruenberg ............. 304 

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P-R-O-C-E-E-D-I-N-G-S 

(9:03 a.m.) 

CHAIRMAN GRUENBERG: Well, good 

morning, everybody. And let me welcome you to 

this 2023 meeting of our Systemic Resolution 

Advisory Committee. 

We are really delighted to have such 

a large group today, almost 100 percent 

attendance. As I mentioned to a couple of people, 

it really shows what three bank failures can do 

for you in terms of participation in this 

committee. 

I am told that during the events of 

the spring Meg Taylor actually sent us an email 

saying this is going to make for a great SRAC 

meeting. 

(Laughter.) 

CHAIRMAN GRUENBERG: And there's 

something to that. 

All things considered, I think we 

could have had an interesting meeting without the 

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bank failures. But that being said, I do think 

the program for today will be of exceptional 

interest, and want to thank you all for being 

here. 

The Systemic Resolution Advisory 

Committee provides advice and recommendations to 

the FDIC on a broad range of policy issues 

regarding the resolution of systemically 

important financial institutions, pursuant to 

FDIC authority under both the Dodd-Frank Act and 

the Federal Deposit Insurance Act. 

If I may, I'd like to start today by 

welcoming our newest members who have joined the 

committee. 

Elke Konig, the former Chair of the 

Single Resolution Board for the European Banking 

Union. Also, former President of the German 

Federal Financial Supervisory Authority, or 

BaFin, as it's called. 

And also Sir Jon Cunliffe, who 

recently stepped down as Deputy Governor for 

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Financial Stability at the Bank of England. 

Also former U.K. Permanent 

Representative to the European Union, former 

international economic advisor to the Prime 

Minister, and served as Chair of the Committee on 

Payments and Market Infrastructure at the Bank 

for International Settlements. 

We, we could not have done much 

better, I think, in terms of gaining an 

international perspective of resolution than 

having Elke and John join the committee. So, 

thank you to both. 

And thank you to all of you for the 

advice and counsel that you provide. 

At last year's SRAC meeting, some of 

you may remember, one topic of discussion was the 

resolution of large regional bank and the 

particular issues they present in resolution. We 

discussed the challenges, the range of 

strategies, and the advancement of the proposed 

rulemaking that was outstanding at the time, 

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related to a long-term debt requirement for large 

regional banks. 

These issues have, obviously, become 

even more relevant after the FDIC was called on 

to resolve three large regional banks this 

spring. 

Given that experience, we are going to 

start today's meeting with a review of what 

happened earlier this year when two banks failed 

over the course of a weekend, and a third was 

severely impaired and would go on to fail a number 

of weeks later. 

Staff from the FDIC who were directly 

involved in those resolutions will discuss the 

reasons behind the failures and the complexities 

involved in resolving those banks. 

In addition to the FDIC staff, we are 

very fortunate to have two guest speakers today 

to talk about the regional bank failures. They 

are Tim Mayopoulos and Michael Shepherd, who will 

share their experiences when the FDIC called on 

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them to lead our bridge banks: Silicon Valley in 

the case of Tim. 

I should say Mike was prepared to lead 

the bridge institution for First Republic but, 

fortunately, it turned out it didn't have to come 

to that and we were able to sell First Republic 

out of resolution. And Mike will be able to 

discuss his experience in terms of preparing to 

take over the bridge bank for First Republic. 

As you may know, Tim is a member of 

this committee. He is a former President and CEO 

of Fannie Mae, and served as General Counsel of 

Bank of America prior to that. 

Mike is a former Chairman and CEO of 

Bank of the West, Chairman of BNP Paribas USA, 

served as General Counsel to the Bank of New York. 

And he also had a distinguished career in public 

service, I might add, as Senior Deputy Controller 

of the Currency, Deputy Assistant Attorney 

General, and Associate Counsel to the President. 

I would like to note that Greg 

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Carmichael, who is the former CEO of Fifth Third 

Bank, and led our bridge institution for 

Signature, and did a remarkable job, really 

remarkable, unfortunately couldn't be here today. 

But I think Tim and Mike will be well-positioned 

to talk about their experience in dealing with 

our bridge institutions. 

Following the regional bank failure 

discussion this morning we will have another 

panel to talk about the failure of Credit Suisse 

earlier this year, the first failure of a 

globally systemically important bank, or G-SIB. 

And we have two guests who are wellpositioned to discuss that: Eva Hupkes and 

Sebastiano Laviola. 

Eva was recently appointed as 

Secretary General of the International 

Association of Deposit Insurers. She previously 

was the head of Regulatory and Supervisory 

Policies at the Secretariat of the Financial 

Stability Board. And Eva was appointed by the 

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Swiss Government as a member of the expert panel 

that reviewed the failure of Credit Suisse. 

And Sebastiano is a member of the 

Single Resolution Board for Europe, Director of 

Resolution Strategy and Cooperation for the SRB. 

And he also serves as Chair of the FSB's Bank 

Cross Border Crisis Management Working Group. 

And in that role Sebastiano oversaw the FSB's 

recently published report titled "The 2023 Bank 

Failures: Preliminary Lessons Learned for 

Resolution," in which a discussion of Credit 

Suisse was prominently featured. 

So, that's our morning. 

And after lunch we will turn to a 

forward-looking discussion on addressing large 

bank resolution challenges. The first session 

after lunch we'll discuss key operational 

challenges that we faced this spring and that 

remain for resolving large banks. 

And then, the final session of the day 

will touch on some key policy issues. 

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So, I think this is going to be a very 

interesting discussion. And let me note that our 

agenda, not surprisingly, places a lot of 

attention on regional bank resolution because of 

the events of the spring. I want to let you know 

we have not forgotten about G-SIB resolution at 

the FDIC. It obviously remains a key priority 

for us. 

And I wanted to let you know that the 

FDIC is close to releasing a new paper that will 

provide the most detailed explanation that we've 

yet given as to how we are thinking about and 

planning to use the FDIC's orderly liquidation 

authority under Title II of Dodd-Frank to resolve 

a G-SIB. And that paper and G-SIB resolution 

will be a significant area of discussion at the 

next meeting of this committee. 

So, we want you to, we want to keep 

you coming back if at all, if at all possible. 

Needless to say, we welcome your 

questions, reactions, and input throughout 

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today's meeting. It's meant to be a discussion, 

and we are very grateful for your thoughtful 

participation. 

Let me note that today's meeting is 

being webcast to the public. That's a 

requirement of the Federal Advisory Committee 

Act, just so you should all be aware. 

And let me note that in addition to 

our SRAC members, we are joined today by a number 

of the members of the board of the FDIC. And if 

I may, let me turn to them if they have a comment. 

VICE CHAIR HILL: Thank you, Chairman. 

I'll just briefly echo the chairman's 

remarks, and I guess Meg's remark, too, about 

this being an interesting time to have an SRAC 

meeting. 

I want to thank everyone for 

participating today and look forward to hearing 

from everyone. I especially would like to hear 

any feedback people have for things the FDIC did 

well, things the FDIC could have done better. 

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And, as the Chairman noted, I think we have a lot 

of interest and reactions to what happened in 

Switzerland as well. 

So, thanks again to everyone, and look 

forward to the discussion. 

CHAIRMAN GRUENBERG: Michael. 

DIRECTOR HSU: Just looking forward to 

the discussion, thanks. 

DIRECTOR CHOPRA: I'll make it quick. 

I think if I reflect on last year, we 

had a number of discussions about uninsured 

deposits. And, of course, for me, many of the 

banks that are heavily involved in consumer and 

retail have very high dependence on uninsured 

deposits. 

And I think we now have a real life 

example about whether people perceive that 

uninsured deposits at some of these institutions 

are actually insured, and what do we do to correct 

that. 

I think the chairman has already 

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mentioned we have proposed some reforms to 

address that, particularly to give us more time 

when it comes to resolution options. In each of 

the cases of the past year we ended up selling it 

to a very large institution. And I don't know if 

that's necessarily always something we want to 

do. 

You know, the vice chairman mentioned 

Credit Suisse. I think that's also very 

important for us to understand here in the U.S. 

And the only thing that hasn't been 

mentioned that I think we also still need to 

consider is the undesignated non-bank SIFIs. So, 

to date there is a total in the U.S. of zero 

systemically important financial institutions 

designated by the Financial Stability Oversight 

Council. The Treasury Secretary has made some 

important changes this year to, I think, course 

correct on that. But to me that remains also a 

place this group needs to be thinking about. 

So, thank you again. 

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CHAIRMAN GRUENBERG: Thank you. 

Let me turn it over to the staff. Let 

me acknowledge at the outset that staff has done 

a remarkable job in terms of preparing the agenda 

for today. I think it will be a very satisfying 

discussion. 

Let me turn it over first to Art 

Murton, who is Deputy to the Chairman for 

Financial Stability and former Director of our 

Division of Complex Institution Supervision and 

Resolution. 

And also to Jenny Traille, who is the 

Senior Deputy Director of the Division. 

Art and Jenny. 

MR. MURTON: Great. Thank you, 

Chairman Gruenberg. And good morning, everyone, 

and thank you for being here. Very much looking 

forward to your feedback on what happened this 

spring. 

So, let me turn it over to Jenny, who 

is going to introduce and moderate the panels 

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today. 

MS. TRAILLE: Good morning. Thank you. 

And thank you all for joining us today. 

Before we get started we do need to 

make two announcements concerning the FDIC's 

obligations under the Government in the Sunshine 

Act and the Administrative Procedure Act. 

The Government in the Sunshine Act 

imposes notices and access requirements whenever 

a quorum of the FDIC's board of directors meets 

to conduct or determine agency business. Today's 

SRAC meeting is not held for that purpose and 

does not constitute a meeting under the act. 

The board members present will only 

engage in general or preliminary discussions that 

do not relate to specific proposals for actions 

pending before the FDIC. Any specific issues for 

official board resolution remain open for full 

consideration by the board following the 

conclusion of the meeting. 

Additionally, for the Administrative 

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Procedures Act there are currently pending a 

number of notices of proposed rulemakings, or 

NPRs, regarding various topics that are expected 

to arise during today's meeting. 

These NPRs include a proposal to 

require certain financial institutions to 

maintain certain amounts of long-term debt; 

proposed revisions to the FDIC's Resolution 

Planning Rule for insured depository 

institutions; proposed guidance to Category 2 and 

3 covered companies regarding their Title I 

resolution plans; proposed revisions to the 

capital rules for certain large and certain other 

banking organizations; and, finally, proposed 

corporate governance and risk management 

guidelines that would apply to certain FDICsupervised depository institutions. 

The FDIC is in the process of 

collecting and/or reviewing comments associated 

with these NPRs, and will consider all comments 

before the board finalizes any of these 

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proposals. 

Staff will give presentations today on 

some of the proposals based on publicly available 

information. The staff is not able to indicate 

the direction the FDIC or any of the other 

agencies involved in these NPRs is likely to take 

with respect to final proposals. 

And in accordance with FDIC practice, 

we will publish on the FDIC website a summary of 

this meeting. The summary will generally include 

a list of participants and a high level summary 

of the discussion that we have today. 

If there are any questions on either 

of those announcements, we do have FDIC's staff 

present who will be happy to answer. 

Otherwise, I'll move on to some 

technical notes. 

When you would like to speak, please 

just use the button on the microphone. And for 

anyone participating remotely, you can use the 

raised hand function or chime in directly. 

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And with that, I think we'll move on 

to our first session and get started for the day. 

The first session is on the spring bank failures. 

I am joined at the table by our FDIC panelists. 

In addition to Director Art Murton, we 

have Deputy Directors Alfred Seivold, Ryan 

Tetrick, Associated Director Dave Kiddney, and 

Acting Deputy General Counsel Pen Starke. 

We will also hear from two of our 

guest speakers that the chairman introduced 

previously, Tim Mayopoulos and Michael Shepherd, 

about their respective experiences with SVB and 

First Republic. 

So, with that, we will get started 

with the discussion for today. And I will turn 

it over to Alfred to lead us off. 

MR. SEIVOLD: Thank you, Jenny. 

As Jenny indicated, my name is Alfred 

Seivold. I am the Deputy Director of 

Institutional Risk in the FDIC's Division of 

Complex Institution Resolution. 

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As Chairman Gruenberg pointed out, 

today's program we're going to talk a lot about 

the spring failures, detailing some of the root 

causes, the timeline of events, discuss lessons 

learned, highlight regulatory developments, and 

provide insights on how the FDIC is proceeding. 

In this first slide I will briefly 

highlight a few of the relevant factors and 

specific vulnerabilities leading into the spring 

of 2023. 

First, the use of social media evolved 

during the COVID period as a tool for market 

participants to promote a view or a position to 

millions of followers with just a click. Think 

Reddit's WallStreetBets. 

The instantaneous spread of 

information via social media, as observed on 

March 9th, may have fundamentally changed how 

bankers and regulators must think about and 

prepare for future bank runs. 

Another element, and beginning in 

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2022, the federal funds rate would increase from 

near zero to more than 4.25 percent by year-end, 

which was the steepest increase in more than a 

generation. The dramatic change in rates put 

pressure on firms' balance sheets, especially 

those that invested in long, longer-term, or 

duration assets. 

While interest rate risk is not new, 

the March failures have highlighted important 

questions about how banks currently manage their 

interest rate risk. It also raises questions 

about the appropriate treatment of unrealized 

losses for capital purposes. 

At risk of oversimplifying the root 

causes of the failures, the three banks did share 

some common characteristics that made them more 

vulnerable to a run. And a detailed accounting 

of this can be, can be read of investigated more 

in the Federal Reserve and FDIC's post-failure 

reports. 

First, the three banks grew rapidly 

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and relied heavily on uninsured deposits for 

funding. Two of them had uninsured deposits 

approximating 90 percent of their funding; the 

third, roughly 70 percent. 

Additionally, Silicon Valley Bank and 

First Republic had elevated levels of unrealized 

losses on securities and low yield loan 

portfolios relative to their capital base that 

caused customers and market participants to 

question their solvency. 

Lastly, and most importantly, Silicon 

Valley Bank and Signature Bank, specifically, 

were poorly managed and not responsive to 

supervisory feedback. 

As an examiner for 30 years, we 

learned one thing as a supervisor: banks can't 

have enough capital liquidity for bad management. 

These characteristics proved to be a toxic 

combination. 

Now I will turn it over to Ryan 

Tetrick to discuss more on the timeline of 

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events, and be happy to take any of your 

questions. 

MR. TETRICK: Thanks, Alfred. 

Good morning, everyone. I'm Ryan 

Tetrick, Deputy Director for Resolution Readiness 

in our Complex Institutions Group. 

We can turn to Slide 6. 

The goal for the next few slides is to 

run through events of that first weekend when SVB 

failed, provide some insight into how we were 

navigating those events within the FDIC, and then 

offer some observations on what they teach us 

about large bank resolution. 

Alfred set the scene well. There were 

vulnerabilities in the system, but it wasn't yet 

a systemic environment. That said, you can see 

from the timeline here, SVB didn't fail entirely 

in a vacuum. 

On March 8th, the day before SVB 

failed on Wednesday, Silvergate -- or the day 

before SVB had its massive run, Silvergate 

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announced that it would wind down, selfliquidate. That same day, SVB also announced a 

large loss on a securities sale that it had made 

to generate liquidity for itself. 

We were attentive to these issues, but 

we were not yet mobilized for resolution, we 

weren't preparing to take any of these 

institutions into resolution the way we get to at 

later, later stages in our process. 

You could compare these bank failures 

to past bank failures. Take Washington Mutual. 

In the case of Washington Mutual there had been 

a significant deposit run on that bank. It was 

about $16.7 billion over the course of nine days. 

The case of SVB, $42 billion left the bank in 

about six hours. 

So, you might have heard that a 

million dollars was leaving the bank per second 

that day, and the math checks out on that. 

So, it really wasn't till the end of 

the day on Thursday that we at the FDIC learned 

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of the severity of the bank run at SVB, and that 

it was likely to fail. So, we worked throughout 

the night with our colleagues at the Federal 

Reserve Board and the California Department of 

Financial Protection and Innovation to assess and 

respond to the situation. 

We worked through the FDIC's Division 

of Resolutions and Receiverships which led to 

standing up a closing team. 

We roused staff out of bed to deploy 

onsite to branches of SVB and perform other 

resolution functions. 

And then as we were assessing the 

situation that night, the most immediate and 

pressing question was that of strategy: what 

strategies were used to handle the resolution of 

SVB, and what would the impact be on depositors. 

Alfred's noted the extraordinarily 

high level of uninsured depositors at SVB. And 

the flip side of that, of course, is that there 

was a low level of insured deposits and, 

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therefore, a low exposure of the deposit 

insurance fund to this bank. And if you couple 

that fact with the high level of unrealized 

losses in SVB's securities portfolio, and the 

fact that it didn't have any real meaningful 

unsecured debt to absorb losses before the 

depositor class that meant that there would be 

significant losses to uninsured depositors. 

It was immediately very clear that 

there was no path to protecting uninsured 

depositors that would meet the least cost test 

that we have to abide by. 

This is, of course, one of the largest 

bank failures in U.S. history. But, also, 

without the systemic risk exception would have 

represented one of the largest haircuts that 

uninsured -- or the largest haircut, by a pretty 

wide margin, that uninsured depositors have 

experienced. 

We were, of course, very focused on 

the impact on depositors as we were assessing the 

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situation. Consider two decisions that we made 

that evening that I want to highlight. 

One was to form what we call a deposit 

insurance national bank, or a DINB, which is 

simply a tool that we have to make the payment of 

insured deposits easy. It allows insured 

depositors to show up at the bank branch, 

withdraw their insured funds. It's really just 

a vehicle for us to help insured depositors. 

The other decision that we made was 

that we would announce an advance dividend to 

ease the impact of uninsured depositors. So this 

is a, you know, based on a conservative estimate 

of the recoveries that we'll ultimately make on 

the bank's assets, we make a portion of the 

recoveries that we expect available to uninsured 

depositors upfront. 

We were assessing how much we could 

provide to uninsured depositors at this time, but 

we knew that we would be able to provide a 

significant portion, so we decided to announce 

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that when we took the bank in receivership. 

So, with these points decided, it was 

on Friday morning just, it was actually just 

shortly after open in California, that the bank 

was, that SVB was placed into receivership. 

It's, obviously, it's unusual for a bank to close 

on a Friday morning, but it just shows the 

severity and suddenness of the issues that SVB 

was facing. 

We were focused that Friday, March 

10th, on addressing customer inquiries of the 

bank, valuing assets so that we could more 

precisely size the advance dividend that we would 

provide, and preparing to initiate a marketing 

process for Silicon Valley Bank. 

And then, again, at the end of the day 

on Friday we learned of the severity of the 

deposit run at Signature Bank. And that 

Signature Bank was also having trouble meeting 

its liquidity needs. It was having trouble 

mobilizing collateral to place at the Federal 

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Reserve to borrow against the discount window. 

In the end, Signature Bank very 

narrowly avoided defaulting that evening. But it 

was very clear going into the weekend that it 

would likely fail. 

With that, we can turn to Slide 7. 

And deposit outpours continued to 

mount over the weekend. There were outgoing 

wires that continued to queue both at Signature 

Bank and SVB. And we grew concerned about deposit 

outflows that we were running right across the 

system, in particular at First Republic Bank, 

which we learned had also had a massive deposit 

run and was on the brink of failure as well that 

first weekend. 

With this activity in the backdrop, we 

started a formal bidding process for Silicon 

Valley Bank. We started that on Saturday, so, 

the bid deadline for the following day. This was 

obviously a dramatically truncated timeline for 

marketing a bank. 

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We ordinarily have two to three months 

that we use to gather information to build up a 

due diligence data room to allow bidders to 

conduct due diligence. You know, then, you know, 

also I think we should keep in mind comparing 

again to Washington Mutual where there had been 

significant private sector due diligence before 

that bank failed. SVB was really getting on 

everybody's radar screen once it failed. There 

hadn't been a lot of prior interest in acquiring 

the bank. 

Still, given that Silicon Valley Bank 

occupied a really unique niche in the marketplace 

in serving the innovation economy, there was some 

immediate interest expressed to the FDIC in 

potentially acquiring that bank. So, we took 

steps to do what we could to market it quickly. 

The data room that we could make 

available to bidders was, of course, far from 

complete at this time. We were working 

diligently over the weekend with staff at SVB, 

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who were very cooperative in helping us to gather 

the information our advisors, that prospective 

bidders were telling us was going to be most 

important to allow banks to formulate bids. 

In the end, when the bid deadline 

arrived that Sunday, some of the bidders that had 

first appeared most promising declined to bid. 

And then those that did ultimately submit bids, 

they were very few and they were very far from 

acceptable compared to the estimated cost of just 

liquidating the bank's assets and paying out 

insured deposits. 

I can't stress enough, therefore, the 

very scant portion of the bank's assets, and that 

had a very steep discount or otherwise just 

involved extraordinarily high costs to the 

Deposit Insurance Fund. 

It's not surprising, given the limited 

time that folks had here, the uncertainties on 

the balance sheet, both on the losses on the 

securities side and some of the unique asset 

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pools that SVB had, and the fact that a 

transaction might involve haircutting on insured 

depositors. But, but ultimately there were not 

very good bids received that first weekend. 

At the same time, over these two days 

over the weekend we were activating our bridge 

bank playbook to be prepared to stand up bridge 

banks by Monday for Signature Bank, Silicon 

Valley Bank, and First Republic Bank. 

We ultimately stood down those efforts 

for First Republic Bank later on Sunday when it 

became clear that they would be able to secure 

their borrowing needs going into the beginning of 

the week but were preparing for after that first 

weekend. 

And we'll talk more about the bridge 

banks and that process in the segment just ahead 

of us. 

On Sunday, authorities took decisive 

steps to address the contagion that was spreading 

broadly throughout the banking system. 

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First, we should note the importance 

of the Bank Term Funding Program, which was a 

temporary program that the Federal Reserve 

launched on that Sunday which allowed banks to 

borrow against securities collateral for up to 

one year that provided an important source of 

liquidity for banks that were going to experience 

a deposit run at that time, and just reassurance 

to the system broadly that such a facility was 

available to the banking system. 

And then turning to the system of risk 

exceptions for Signature Bank and Silicon Valley 

Bank that were passed by unanimous votes of the 

Federal Reserve and FDIC boards and, ultimately 

acted on by the Treasury Secretary, the analysis 

supporting those really focused on the macro 

effects across the banking system. 

It's true that Silicon Valley Bank had 

a unique place in the market in supporting the 

innovation economy in the United States. And 

that was important. There was also a lot of 

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concern from us and from others about the impact 

on uninsured depositors, particularly companies 

that had large uninsured deposits at these banks 

and were concerned about making payroll in the 

coming week. 

But of even greater concern was a 

series of bank failures that was in motion and 

spreading, and outflows of deposits across the 

system, and the consequence effects that that 

turmoil might have on the availability of credit 

and on economic performance. 

So, the systemic risk exceptions, of 

course, not a decision made lightly by the 

authorities. But it allowed us to protect all 

depositors of the failed banks, transfer those to 

fully-operational bridge banks, and provided some 

assistance -- or some assurance to the system 

broadly. 

So, we can turn to Slide 8. And here 

we'll welcome the committee's views on lessons to 

draw from this first weekend. And I'll offer 

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some observations to start. 

First, you know, it's very desirable 

to have a nice long runway before a resolution, 

and land conveniently on a 5:01 p.m. appointment 

on a Friday. But it's clear from these events 

that we need to just anticipate atypical 

timelines and operate around them. 

Also, it was important that we were 

able to adapt to the situation as it evolved over 

the weekend and adjust our approach as needed. 

But also created challenges because a lot of 

stakeholders had to adapt with us, whether it was 

customers and counterparties of the banks, 

personnel of the banks. And so, that involved 

some of its own messaging challenges. 

On operational readiness I say that 

even though we were deploying novel processes, 

something that we hadn't done before, if we had 

practiced it, it went pretty well. So, standing 

up the bridge banks is a good example of that. 

And we'll talk more about that. 

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Standing up a data room to market a 

bank in one day is a good example of something we 

didn't anticipate, and that was much more of a 

challenge. 

And then the last point here, we'll 

talk about that afterward. But there's obviously 

significant challenges that remain in large bank 

resolution. And we'll talk throughout the day 

about some of the things we're doing to address 

those. 

So, with that, you know, welcome views 

from the committee on lessons to draw from this 

first weekend or any questions that you have. 

CHAIRMAN GRUENBERG: Don. 

MEMBER KOHN: So, I want to push a 

little bit on the Fed discount window issue. 

Both in perhaps buying you guys some 

time, if banks had been prepared to use -- better 

prepared to use the discount window to set up the 

bridge banks, et cetera, I don't know whether it 

would have gotten through Friday night or not. 

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So, what -- and Michael Barr made, I think, a 

very important speech a week ago, I guess, or 

last week, about the discount, better use of the 

discount window preparing banks to use the 

discount window as part of their liquidity 

planning. And he noted the issue with stigma. 

And one of the groups he, he cited as 

working to reduce working -- that the Fed needs 

to work on to reduce stigma was the supervisors. 

So, I wondered, maybe this part of the 

question for Michael as well, what are the 

regulators doing to get, or supervisors doing to 

get the banks better prepared to use the discount 

window? 

Are supervisors more open to using the 

discount window as part of liquidity planning and 

liquidity stress tests, et cetera? 

Thank you. 

MR. SEIVOLD: Don, thank you for the 

question. I mean, I think it's a really important 

question because I think the perception in the 

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industry is that there is a stigma. 

But, I mean, there it's, it's 

absolutely critical and important for bank 

resilience that the banks are prepared to use 

whatever means they need to obtain the liquidity, 

if necessary. 

And so, you know, I think, you know, 

the supervisors had been putting pressure on, on 

the banks to test their capabilities, to monetize 

their HQLA. And so, so that's, I mean, we've 

been going through that process. And I think 

Mike can attest to that, that it's been a big 

part of our, the work that we've done over the 

summer and fall. 

DIRECTOR HSU: I think, Don, you raise 

a really good question. And there's a difference 

between readiness and over reliance. 

And think this is kind of a big policy 

question is how do you differentiate between 

making sure that banks are ready to use the 

discount window but are not over reliant on it as 

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a funding source and, essentially, committing the 

Fed to lending in situations that the Fed may not 

be ready to lend in. 

I think this is part of the policy 

trade-off discussion that we're going to have to 

address because stigma then attaches to one or 

the other. And, you know, I think this is, this 

is, I think Vice Chair Barr rightfully kind of 

put this front and center out there for 

discussion. And I’d be really interested to hear 

your thoughts and others' thoughts on how to, how 

to thread that needle. 

CHAIRMAN GRUENBERG: And if I can add, 

I agree with Mike's points. I think all of the 

banking agencies are very focused on liquidity 

issues, frankly, coming out of the experience of 

this spring in particular. 

I think front and center to that is 

managing access to the discount window and the 

issue of prepositioning collateral at the 

discount window to assure access particularly in 

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times of stress. 

And I think managing that 

appropriately is going to be one of the key things 

we'll, we'll be focusing on. 

MEMBER HERRING: I'd like to pose a 

perhaps very naive question. But it's rooted in 

the fact that the two banks that failed over that 

weekend were, and it's clear since, outliers. 

They were hugely more dependent on uninsured 

deposits than most others. 

And they were visibly, if you read the 

10-Ks or reports, insolvent if you were to mark 

from the market, which was true of a number of 

banks. But the difference was reliance on 

uninsured deposits. 

Was any, any thought given to trying 

to avoid using your systemic risk exception and 

simply saying, look, we've had these two 

failures, we're going to make a very aggressive 

payout in advance so that we won't have to worry 

about payrolls? Because as I understand it, you 

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could have paid out as much as 90 percent of the 

deposits. 

And so, you've removed that. 

But also have the Fed facility to make 

it very clear that there will be ample liquidity 

to support anybody else who gets in trouble. 

So, you could have preserved the idea 

that uninsured depositors actually are uninsured 

and there is a risk involved in having uninsured 

deposits. Yet, you could have, I think, removed 

the contagion problem. 

Because it should have been very clear 

that these institutions -- and it really wasn't 

until we dug through the data later, that these 

were very unusual institutions in terms of both 

the interest rate risk they had taken, maybe not 

so much in that regard, but especially due to 

their reliance on uninsured deposits. 

I realize that it was a very stressful 

weekend, but I, I'm curious if that was seriously 

considered? 

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CHAIRMAN GRUENBERG: The answer to that 

is yes. 

And if I may respond. As Ryan pointed 

out, we did not move to exercise a systemic risk 

exception after the failure of Silicon Valley 

Bank on Friday morning, March 10th. And, in fact, 

we, being the FDIC, put out a public notice, as 

Ryan indicated, that we were setting up a deposit 

insurance national bank on Monday morning. 

Indicated in the public release that insured 

depositors could come and get their money. 

And indicated that uninsured 

depositors would be eligible for an advance 

dividend, which meant that they could get a 

portion of their deposits, but a portion would be 

held back. And depending on the losses of the 

failed institution, those depositors might not 

receive all of their deposits. That's what it 

meant to be uninsured. 

I think that's where we were on Friday 

morning after the failure of Silicon Valley. 

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I think what changed the perspective 

was the report on Signature at the end of business 

on Friday evening. And it was quite clear that 

the run on Signature was a reaction to the failure 

of Silicon Valley Bank, and clear contagion 

effect. 

And we also had reports, as Ryan 

indicated, that First Republic Bank was under 

severe stress and also experiencing a serious 

run, and was at risk of failure. And that really 

changed, I think the perception of things, that 

we did not have an idiosyncratic failure of an 

institution with an unusual business model, but 

we really had a contagion effect that was 

impacting the banking system more broadly. 

And I take the point, and we obviously 

gave serious consideration to it. And it's true 

with an advance dividend, depositors could get 

back 90 percent or maybe more of their deposits. 

I think the judgment was at the time that anything 

less than 100 percent really had the potential to 

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perpetuate and exacerbate the contagion effect. 

And we had pretty clear evidence of that. 

So, it was a tough judgment call. I, 

you know, I take the point that you make. I think 

that, ultimately, the collective judgment of the 

board of the FDIC and the board of the Fed to 

make the recommendation to the Treasury Secretary 

in consultation with the President, I think it 

was the collective judgment of all the 

responsible principals at that time that that was 

the appropriate call to make. 

It was a tough call. You can second 

guess it. Although I will say it's one of the 

great second guesses of the world. I have not 

spent a lot of time second guessing that judgment 

because, in retrospect, I think we could well 

have been in a more difficult situation if we had 

not done that. 

Ryan, or any of the staff, did you 

want to answer that? 

MR. TETRICK: No. I think you've 

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covered the points well, and actually had a lot 

of -- or maybe Alfred. 

MR. SEIVOLD: No. No, I take the 

point. 

The only, I guess, question would be 

could we have been more explicit about what the 

advance dividend would be, what amount we would 

have provided and when, and whether that would 

have had a different impact. I don't know. It's 

a question, I think. 

DIRECTOR CHOPRA: Dick, can I just add 

there was also, I mean, and the timeline that was 

mentioned was also the same day of that weird SVB 

release about the losses on securities, was also 

the announcement of Silvergate winding down, 

self-liquidating. 

So, there was also this dimension of 

was this something the market was perceiving as 

just adjacent to crypto and digital assets? 

Because you'll recall this was also just a few 

months after the FTX and other meltdowns. So, 

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Signature, of course, did have some, they had a, 

they had a, you know, a multi-family business, 

others. But they also had that digital asset 

business. 

I think it was a pretty gut-wrenching 

decision to do the system risk exception. But I 

think once there was indicia that this was 

leading to contagion in banks that had no 

exposure to that, and also were well known, you 

know, regional banks, you saw it in the data that 

there was a lot of movement in the system. And 

the fear was that were there going to be many 

more dominoes that fell? 

So, I will just share there was a lot 

of thought to avoiding the system risk exception. 

MEMBER HERRING: That's interesting 

because it had managed its liquidity so 

carefully. But even though it had I think until 

that time the largest outflow ever, it was able 

to self-liquidate. It didn't have to rely on 

public resources. 

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CHAIRMAN GRUENBERG: Ben? 

MR. BERNANKE: A question of fact. Did 

any of the banks have FHLB advances? And if they 

had, how would that have affected the resolution 

strategy? 

Oh, he's laughing at it. 

MR. TETRICK: So, they, they did have 

FHLB advances, as banks often do when they're 

taken into resolution. And often, you know, one 

of the first things we do is we pay off the FHLB 

advances, and then we have the collateral to sell 

or liquidate. 

In these cases when we stood up 

bridges, some of those advances moved to the 

bridge. Actually, during the bridge period 

Silicon Valley Bank paid off its FHLB advances 

during that period and moved to discount window 

borrowing. But it didn't have a big impact on 

the resolution strategy. 

CHAIRMAN GRUENBERG: Jon? 

MR. CUNLIFFE: So, just a question 

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about what happens before 8 March. So, you've 

got a bank that has a fairly lopsided business 

model, very high proportion of uninsureds, 

connection to the crypto world, which was 

certainly reputationally risky at that point, and 

is unhedged on its government securities program. 

So, just how is that treated in the 

supervisory framework when those, when those 

risks are there? 

It's a kind of business model question 

I guess, and the risk question. How much of this 

is due -- and I read some of the back papers that 

you provided -- is due to actually supervisory 

issues before you got there? 

I mean, hindsight's a wonderful thing, 

I know but, and was anything happening before 8 

March, I guess is the question? 

MR. SEIVOLD: Yeah, thank you for the 

question. 

I mean, there was a lot going on 

before March 8th on the supervisory side. A lot 

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of, a lot of discussions, a lot of criticisms, 

matters requiring board attention. 

I think if you look at the postfailure reports, I mean, the reports are, are 

very transparent that we should have been a 

little bit more forceful in supervisory, you 

know, taking maybe more actions because, because 

the management teams were not, you know, moving, 

moving things fast enough. 

But, but there was certainly 

discussions and feedback, the interest rate risk 

that the Silicon Valley had taken was observed 

and was, you know, was a criticism of the firm. 

MR. TETRICK: Now I'll just jump in. 

From a resolution planning 

perspective, you know, if different banks had 

failed I would be telling you about their unique 

problems. But these banks failed, and they 

definitely had unique problems that we were 

concerned about if they were to fail. 

We were concerned in particular that 

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they, because they had these high concentrations, 

extremely high concentrations of uninsured 

deposits they would be particularly unstable in 

resolution. And so, given the vulnerabilities in 

the system we were concerned about that. 

I'll say, though, you know, we're 

resolution planners and so we're worried about 

everything all the time. And so, what we need is 

a way to organize that, that concern. And these 

banks weren't elevated to the level, as I said 

earlier, we were mobilizing for resolution. 

They just, there hadn't been 

deterioration prior to that point. There had 

been vulnerabilities identified but not 

deterioration that put us on a mobilization 

footing. 

CHAIRMAN GRUENBERG: Elke. 

MS. KONIG: I would like to build a bit 

on Jon's comment. 

Looking at lessons learned, 

liquidity, were there any considerations prior to 

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the failure to say, well, with such a unique 

business model, with so many high volume 

uninsured deposits you need to have a different, 

a more stringent liquidity requirements? 

And the same, which always strikes me 

a bit as a former accountant, to have a bank where 

you have a hot maturity portfolio on your asset 

side to back liquid liabilities sounds a bit 

counterintuitive. 

So, were these discussions that were 

really upfront and, or to do it differently, were 

these topics that you could have addressed with 

hindsight? 

MR. SEIVOLD: Well, I think, I think 

hindsight is beautiful, absolutely. 

I think, you know, my personal opinion 

is I think there was a lack of appreciation of 

the ease and speed in which these deposits would 

leave the bank, you know, given certain events. 

I mean, Silicon Valley did not have a 

very high loan-to-asset ratio. I mean, they had 

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a huge securities book. That security book was 

impaired by its unrealized losses till -- I mean, 

I think everyone is aware of that. 

You know, so is there more that, you 

know, we, we could have done? Probably so. But, 

you know, I, you know, the bank was not very well 

managed. I mean, they were without a chief risk 

officer for roughly eight months. 

I mean, there's a lot that we can look 

back to and say, hey, you know, what could we 

have done here and there? 

MS. KONIG: Yeah, I think hindsight is 

always beautiful. But the question is also was 

there a legal hook to do more or was it more the 

moral persuasion to push the bank? 

MR. SEIVOLD: Well, I think our 

supervisory toolkit provides us, you know, with, 

with tools where we could have done more. 

You know, arguably, in hindsight we 

could have said unsafe and unsound banking 

practices; right? You know, so, you know, I 

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think, and I think we'll learn from this and we'll 

try to do better in the future from, from the 

supervisory side. 

MEMBER COHEN: Thanks. 

If I could offer just three quick 

comments. 

One, you know, maybe I'm not the only 

one who when you hear "operational risk" your 

eyes glaze over. But it was very real. And I 

think the vice chair is absolutely right to call 

that out with respect to access to the Fed. 

Prepositioning is only part of it. 

The fact that the wires shut down and there are 

big blocks of time where you can't transfer 

securities is a huge problem. 

Trying to deal with the FHLB is a big 

problem because there's a lot of excess 

collateral there that can't be moved. 

So, these were very real problems. 

And I think the focus is right. 

Second, on stigma I hope that the 

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system can overcome what stigma applied to 

primary credit. But I don't think anybody will 

ever overcome the stigma of secondary credit. 

And so, I think the Federal Reserve is going to 

have to be willing to exercise its discretion to 

not classify borrowing as secondary, because then 

the accounts are going to take you down in a day. 

They're going to say, we're no longer a going 

concern. 

And, third, while understanding that 

it was a wrenching decision, I don't think you 

should second guess yourself for a moment. 

think had you not invoked the systemic risk 

exception you would have had multiple banks fail 

within days. And who knows after that. 

CHAIRMAN GRUENBERG: Gary. 

MEMBER COHN: Well, the senior Mr. 

Cohen said the things I was going to say. 

So, so on the stigma, I completely 

agree. Having been on the other side, the stigma 

is real. There's a view you can walk in but you 

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come out in a body bag. 

And Roddy and I have had this 

discussion numerous times on the Fed window. 

So, let me, let me go to another point 

that I think is equally important. 

I understand why we fixate on insured 

deposits. I mean, this is a deposit insurance 

organization. But at the end of the day, a bank 

run is a bank run. And it may make it more 

interesting or more problematic for you, if you 

have insured deposits or uninsured deposits, you 

look at it differently. 

The retail banking world and the 

banking world does not really look at it that 

much differently in many respects. They look at 

bank safety and soundness as bank safety and 

soundness. So, we can split hairs up here, but 

you have to understand that bank safety and 

soundness is bank safety and soundness. 

So, I think that if you want less 

insured deposits and you were not getting in 

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force the systemic resolution authority, you 

would change the course of history dramatically. 

Corporates have the ability to pull money out of 

banks every night. They can go in the repo 

market, they can go in the reverse repo market. 

There's a lot of activity that corporate 

treasurers could do if they wanted to pull 

uninsured deposits out of banks every night. 

They choose not to because they 

believe banks are relatively safe, relatively 

sound. My company meets payroll every other 

week, which is over a billion dollars. So, at 

some point I have to put that billion dollars 

into a bank, even if for 24 or 48 hours. 

If I can't think of a bank to put 

payroll into for 24 hours, and you tell me I'd 

have to put my payroll into a thousand different 

banks, we really have a problem. 

And so, I'm with Rodg, you shouldn't 

be sweating this decision. I think you should 

applaud yourself in having kept the U.S. economy 

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sort of intact, and kept corporate businesses 

trusting the institutions. 

But I get back to where I started. 

You know, we, we had a bank run. And you 

mentioned social media. We had a very prominent 

figure in the community that SVB served who was 

on a conference call with the CEO of the bank, 

who basically told everyone to -- and we were all 

on the conference, we were all on the conference 

call -- basically told everyone, you better get 

your money out, because I am, while the bank's 

sitting, while the bank's CEO is sitting there 

and saying, as long as everyone acts rationally 

we will be fine. 

That was a basic billboard flashing, 

please don't act rationally. 

Banks are built on rational behavior. 

CHAIRMAN GRUENBERG: Doug. 

MEMBER PETERSON: I have a couple of 

comments on the supervisory oversight. And I 

guess one question relates to the coordination 

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across the multiple supervisors: California, 

FDIC, the Fed, et cetera. 

But one of the comments I'd like to 

make. When I, when I've looked at this case very 

carefully, it looks to me like SVB was not a bank. 

It was much more like a securities company. They 

were not making loans. Their balance sheet was 

almost all in securities. They should have been, 

instead of taking deposits, they should have been 

selling securities. 

Their clients should have been coming 

to them and they should have been saying, we're 

going to sell you the actual bonds that were on 

their balance sheet. Those should have been 

owned directly by their customers. 

So, in your supervisory oversight, two 

questions. First, about coordination across 

different regulators. 

And, second, did you ever think, and 

are there any banks that shouldn't be banks, that 

should just be the business model should shift 

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and they should be basically take their license 

away and make them do a different business model, 

make them into securities companies? 

MR. TETRICK: So, you maybe touch on 

the coordination on supervisors. I mean, there's 

a fair amount of coordination in this case with 

the FDIC involving backup supervision, the Fed, 

the consolidated supervisors and, of course, the 

California Department of Financial Protection and 

Innovation. 

I think, I don't know that there's a 

case to say that this bank wasn't in the business 

of banking entirely. It was a very atypical bank. 

It had a banking charter. 

The securities portfolio was really 

what they were doing with a lot of excess 

liquidity that came in during the COVID period. 

And they chose to put that in bonds that became 

hard to liquidate without realizing losses when 

they needed to. 

The other part of the business that 

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was very atypical for a bank, one -- they had two 

loan portfolios. One that they were making loans 

to venture capital firms, which wasn't that 

atypical. But then they were also making direct 

loans to start-ups. And that was very not banklike. 

So, there were certainly things that 

nobody could say they weren't in the business of 

banking, but it was an outlier in the industry 

for sure. 

MEMBER COHN: They were mostly buying 

assets with zero risk rate. I mean, go figure. 

MR. TETRICK: That's, that's fair. 

MEMBER COHN: Go figure. 

MR. TETRICK: No, that's fair. 

CHAIRMAN GRUENBERG: I'm sorry. Frank? 

MEMBER LA SALLA: Marty, thank you. 

Just if I can get two questions, and 

you can maybe answer them after I go through it. 

First of all, thanks for your candor 

in terms of hindsight, would have, could have, 

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should have. It's refreshing and really 

appreciate it. 

I guess one of the things that I am 

intrigued about and have been, and we've been 

circling around it here, is this idea of a run on 

a business model. 

Now, I think the point that there was 

going to be contagion, and you probably did the 

right thing, but one question I would have is how 

does this idea of a notion of this run on a 

particular business model inform the way you 

think about future preparedness for an event like 

this? 

Do we bucket organizations like that 

in a different way? Maybe not formerly, but may 

be in a way you think about how you approach these 

things. 

Just, just something I've been sort of 

thinking about since the events of the spring. 

The second question I have is I have 

a pretty vivid recollection that at last year's 

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63 

advisory meeting we opened up -- the FDIC folks 

opened up with this some commentary around how 

the FDIC plays vis-a-vis other regulators. 

And getting back to this would have, 

should have, could have, do you feel there was 

anything in the regulatory structure as we know 

it, writ large, that impeded, or prevented you, 

or made you second guess certain decisions that 

you otherwise might have made during the event? 

Sorry, that was a lot. But just we've 

been thinking about it. 

MR. TETRICK: So your point about run 

on a business model is an interesting one. The 

three banks that failed that we noted they had 

some commonalities, particularly the high levels 

of uninsured. So they were catering to the tech 

industry largely. But they were different. 

I mean, SVB was more startup 

community. Silicon Valley Bank was really New 

York CRE and then explored the crypto space and 

then right up to their failure. And First 

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Republic had a really unique business model based 

on high service kind of to serving the West Coast. 

But they had some commonalities. But 

they were each different. I think we do look at 

if there's in any crisis situation where's the 

contagion going to be and are there like business 

models that's a concern for. 

And then we talked about regional 

banks last year. We do bucket them into different 

groups. And these banks were in one category. 

There's a lot of model line consumer lenders. 

There's the more diversified models. 

And so we look at what are the right tools and 

strategies for different types of banks. And 

when they've got a focused business model, a 

concern is that it has to be that part of their 

business that was in trouble when they failed. 

And that means our options for 

preserving value and resolving them might be 

limited. And then I'll start on your second 

question and maybe Alfred can pick up. I don't 

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think there was anything that was a particular 

impediment about the regulatory structure. 

I mean, we were quite active in 

dynamic in engaging with our counterparts at the 

Federal Reserve, at the OCC, at both New York and 

California. Everybody was extremely hands on and 

knew each other before these events. So I don't 

think there were particular impediments that come 

to mind. We'll talk about the international case 

too with, I think, the same message. 

MR. SEIVOLD: Yeah, Frank. And just 

to add, I mean, my teams provide backup, like, 

supervision at the 26 firms, over 100 billion. 

We have a very good relationships with the PFRs, 

Federal Reserve, and OCC. 

I mean, a free flow of information. 

There was no impediment that I've observed that 

we didn't have the right information at the right 

time. This was such a unique failure to some 

degree and the speed. I don't know that they 

could've given us anything else. Would've made 

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us prepare differently as far as that goes. 

DIRECTOR HSU: Just one quick comment 

on your question on the run on a business model. 

I think there's, at the risk of oversimplifying, 

maybe two ways to think about contagion. One is 

the risk of exposure to loss, and I think that's 

kind of the classic. 

And here it's the risk of what I would 

call guilt by association. And the question is 

what is the association? And so it could be a 

business model. 

I think in this particular case, it 

was uninsured deposits more broadly. If you go 

back to '08, you had a bunch of investment banks 

who were not banks prior to '08 where that guilt 

by association was either through repo, through 

prime brokerage, through others, which banks also 

had. And so I think for us as supervisors, 

regulators, it really behooves us to say, well, 

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67 

captured. 

That's part of this ongoing project 

because the business model one is slippery to 

classify over time. But I think it's the right 

way to approach this. What are other avenues for 

contagion that don't naturally lend themselves to 

the usual kind of exposure measurements which is 

our typical toolbox. 

DIRECTOR CHOPRA: Let me comment 

briefly on the regulatory structure part. I'll 

just speak for myself, a few additional 

reflections where that some of these institutions 

did not have a holding company. There were 

certainly cases where we didn't even cover the GSIB deposit into First Republic which is its own 

set of dynamics. 

I've reflected a lot on certainly the 

FDIC Board can self-appoint itself as receiver. 

That's a very rarely used, if ever, tool. I think 

there's probably some reflection to be done on 

when that should be used. And then certainly 

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68 

there's a lot of other, I think, issues about 

where are there more automatic triggers, either 

in law or regulation when it comes to -- and I 

take Gary's point. But it's the dependence on 

uninsured deposits that I think that the high 

percentage or growth, what triggers should there 

be in statute or regulation that might contain 

some of the risks on that. 

CHAIRMAN GRUENBERG: Doug? 

MEMBER PETERSON: Maybe something 

we'll get into later. But the beneficiaries of 

the outflow of deposit were the G-SIBs. And you 

can see it in aggregate statistics of the size of 

the deposit pools. So what are the implications 

of the JPMorgans and Wells Fargos having picked 

up so much more additional liquidity? Anything 

that changes your analysis of the G-SIBs and what 

would happen when there's stress in the system. 

CHAIRMAN GRUENBERG: (Speaking off 

mic) on that point, because we followed this and 

tracked it in our quarterly banking profile. The 

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actual evidence of deposit flows from regional 

banks to the so-called G-SIBs was very limited at 

the end of the first quarter. It was not 

sustained in the second quarter. 

And actually in the second quarter, GSIBs lost uninsured deposits. The principle 

beneficiaries were the money market mutual funds. 

So I think there was some of that but perhaps 

overstated in terms of the impact. Gary? 

MEMBER COHN: So I just think there's 

an important point that maybe we have this all 

wrong. So when you say dependence on uninsured 

deposits, if they were dependent on them, they 

would've lent them out. It feels like they were 

not dependent on them. 

Therefore, they bought treasury 

securities because they had nothing to do with 

the money. I don't think those banks were 

dependent on uninsured deposits. They were 

flooded with money they didn't know what to do 

with it. 

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So as a guy who ran a bank, what would 

I do with money I didn't know what to do with? 

I'd go by zero risk rated assets. That's how I'd 

manage my balance sheet, and I'd buy relatively 

short duration. I probably would've hedged the 

interest rate risk. 

(Laughter.) 

MEMBER COHN: Let's be honest. 

would've hedged the interest rate risk. But I 

didn't need those deposits. If I needed them, 

they've would been lent out. 

So I think this is a big issue. And 

we should be careful saying they're dependent on 

these uninsured deposits. Uninsured deposits, 

these things, like I said, my uninsured deposits 

move in the billion dollar tranches on an hourly 

basis. 

CHAIRMAN GRUENBERG: Jon? 

MR. CUNLIFFE: Just wanted to come 

back on this common factors point, and it goes a 

little bit to business models and uninsured 

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71 

deposits. I don't know whether uninsured deposit 

is more likely to run than insured. Well, our 

evidence is probably they move faster. 

But the common factor, there's another 

common factor here which is that interest rates 

have gone up very sharply over the past year. 

And everybody was looking in the banking system 

but also in the nonbanking system for where the 

stress would show and what would crack first. So 

this problem plays out in an environment where 

people are worried, investors and others are 

worried that actually there are losses to be 

taken in the financial system for the very sharp 

increase in rates but haven't yet materialized. 

And given social media and given the 

speed with which these things travel, I think one 

of the insights potentially is that on the 

supervisory side you can't afford the tolerance 

that you could afford before because there are 

things that will tie banks together in a way that 

probably wouldn't have happened before. And I 

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can illustrate that with the UK examples. So 

this is not a U.S. problem. 

And everything I say is in the public 

domain. So I'm okay with being webcast or 

whatever is happening to us. We had a bank that 

got into -- had a business model run. Actually 

it was a run to do with perception of management 

failure back 2017, 2018. 

They misreported their capital. They 

got it wrong. The run started on a Saturday with 

a tweet, I think, and developed in about 20, 25 

minutes. 

So we already have this issue of 

things moving very quickly. In the end, the bank 

had to raise more equity which it managed to do. 

But we were faced at that point with how quickly 

could we get to a bridge bank. 

And we discovered we couldn't get to 

a bridge bank quite as quickly as we assumed we 

could. That institution got into trouble again 

after Silicon Valley or whatever because some of 

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the contagion came across the Atlantic but also 

due to their interaction with a supervisor. And 

again, they had to raise capital in a hurry. 

If they'd have failed back in 2017, 

2018, then I think we could've managed the issue 

with the uninsured or whatever. If they'd have 

failed in 2023 after Silicon Valley or whatever, 

it would've been a completely different ball 

game. So how contagion operates now and the way 

that -- an event that is idiosyncratic in one 

situation can be absolutely contagious in 

another, particularly given the speed is very 

different. And I think one of the lessons from 

that is that where you have outliers in the way 

risk is being managed or in a business model, in 

a supervisory sense, you can have less tolerance 

for them because actually their ability to create 

contagion is just much greater now that it was 

before. 

CHAIRMAN GRUENBERG: Just for the 

record, insured deposits did not decline at any 

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74 

point during this process. In fact, they 

increased. So we had no instability, at least in 

the U.S. context with insured deposits. But that 

was not the case with uninsured. 

MS. TRAILLE: I think seeing that I 

don't think there are any other cards up, we can 

move on to the second half of this first session 

where we're going to look at stabilizing the 

bridge bank. And I'll turn it over to Dave 

Kiddney to kick that off. 

MR. KIDDNEY: Good morning. I'm Dave 

Kiddney. I'm the associate director for 

operational readiness in the complex institutions 

group. And what I want to do during this portion 

of the agenda is focus a little bit more on 

operating and stabilizing the bridge banks. 

So let me start by briefly discussing 

some of the actions that we were taking that 

weekend as we prepared to form both bridges. As 

Ryan mentioned, it was Saturday, March 11th that 

we really started in earnest preparing for at 

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least two and possibly three bridge banks. Given 

the limited buyer pool for large banks and their 

risk for liquidity events, our planning efforts 

internally have focused on bridge banks. 

We didn't have nearly the time that we 

had anticipated. We were clear on some of the 

critical steps that needed to occur. So that 

weekend, the mobilization really started. 

And again, what would've occurred 

normally over -- or ideally over weeks occurred 

in mere hours here. We needed staff on site at 

the locations. We needed to charter the bridge 

banks. 

We needed to be prepared to work with 

bank staff to open both bridge banks on Monday 

morning. And we needed to identify leadership 

for these bridge banks. Identification of 

leadership for the bridge banks has been a focus 

of a program that we've been running internally 

at the FDIC to support this need. 

It's an important part of the 

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resolution toolkit, and it's designed both for 

short term bridges like we saw with Signature and 

with SVB. It's also designed for longer term 

bridge banks. The two leadership roles that we 

immediately focused on were that of the bridge 

bank board and the identification of CEO. 

Starting with the board, our planning 

had anticipated using an outside board for the 

bridge banks. To charter any bridge, just one 

bridge, we need a minimum of five board members. 

And the context of that weekend, we were 

potentially looking for up to 15 individuals for 

these boards. 

Given the time constraints that we 

were faced with, we utilized FDIC executives as 

board members. And then in pretty short order, 

we had marketing under way. And our view was 

that there was a likelihood that we'd be able to 

exit in the relatively near term. 

And for those reasons, we kept FDIC 

executives in place. But had those bridges gone 

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on for a longer period of time, we likely would've 

replaced the FDIC staff serving as board members 

with outside individuals. And we would've used 

the program that I previously referred to 

Shifting to CEO and placing a new CEO 

as a top operational priority for us because we 

can all appreciate it's important to bring 

stability to the bank. It's important to 

engender confidence and customers and depositors 

and in the public. Here too we had planned for 

some runway. 

We had anticipated giving prospective 

leaders 24 hours to weigh the decision. We 

anticipated giving them access to supervisory 

staff to be able to talk about the bank in greater 

detail. And there too events didn't follow the 

playbook. 

But the work that we had undertaken 

paid off. So shifting to Sunday morning, that's 

when the outreach calls began. And Greg 

Carmichael, Tim Mayopoulos, and Michael Shepherd 

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78 

all answered the call and we're grateful for the 

service they performed over those weeks. 

As the chairman mentioned previously, 

Greg couldn't make today's meeting due to 

scheduling conflicts. But we do have both Tim 

and Michael here to share their experiences. So 

at this point, I'd like to turn the floor over to 

Tim to share some of his experiences with SVB. 

MEMBER MAYOPOULOS: Thank you, Dave. 

And let me say first at the outset that I'm really 

grateful to the FDIC for giving me the 

opportunity to serve as the CEO of Silicon Valley 

Bridge Bank in the wake of the failure of Silicon 

Valley Bank. I really do appreciate the 

confidence that the FDIC placed in me to fulfill 

that role. 

I'm also grateful for the opportunity 

today to be able to share some of my experiences 

and insights at SVB with this committee. I want 

to say at the outset here I'm not a policy maker. 

And I've never been a Prudential regulator. 

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79 

I'm really a financial services 

operator. And so the perspectives I bring are 

really from that vantage point. I do think that 

by any reasonable measure the decision to create 

and operate the Silicon Valley Bridge Bank was a 

success. 

It enabled the public to be reassured 

about the stability of the banking system. It 

enabled much of the value of the franchise to be 

preserved, not all of it but much of it. It 

facilitated an extended and orderly sale process 

that ultimately resulted in a successful 

transaction with a qualified acquirer which as 

was previously discussed was something very 

difficult to pull off in a weekend immediately 

after the failure of Silicon Valley. 

And it mitigated the negative affect 

of the failure on both uninsured depositors and 

on the deposit insurance fund. There were many 

things about the bridge bank experience that 

worked well, and there were obviously some things 

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that could have worked better. And I'll talk 

about both of those. 

But let me start with what worked 

well. First, I think the FDIC was very forward 

thinking in its decision to create the standby 

pool of seasoned banking executives well in 

advance of actually needing to deploy those 

executives. The FDIC successfully identified 

people who would be willing and able to respond 

to a call quickly. 

I don't think any of us thought the 

call was going to come that quickly and we'd have 

to make a decision on the spur of the moment. 

But it was really that advanced planning that 

made all that possible. And I know that I 

personally would've been reluctant, maybe even 

unwilling to serve as the CEO of the bridge bank 

if I hadn't had years of experience dealing with 

the FDIC staff and knowing that a lot of thought 

had been given to could a bridge bank enabled 

resolution actually work. 

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And I knew that a lot of thought had 

gone into that and a lot of preparation had been 

done. Second, I'd say that the government's 

decision to protect all of the deposits at 

Silicon Valley Bank regardless of the nature or 

size of those deposits was absolutely essential. 

As was previously noted by Ryan, on the first day 

of the run at Silicon Valley, deposits were 

leaving the bank at the pace of a million dollars 

a second. 

Hard to imagine, nothing like that had 

ever happened before in the American banking 

system. Hard to imagine that we could've 

eventually stemmed that bank run without 

protection of all the deposits. We were 

eventually able to stem that bank run. 

It took us well into the first week of 

the bridge bank. But by the end of the first 

week, we were able to get to something. It was 

roughly approximated, equal flows in and out of 

the bank. That would not have been possible 

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without protecting all the deposits. 

As has been noted, many of the 

depositors were businesses that desperately 

needed those deposits to make their payroll. 

These are not people who are, like, just 

depositing money into a checking account and 

leaving it there unattended. These are people 

who have real business needs for it. 

They really could not risk leaving 

their deposits at Silicon Valley Bridge Bank 

without an explicit, credible assurance from the 

government that those deposits were going to be 

safe. They just weren't going to leave that money 

there. Third, I think one of the things that 

made this a success was that the FDIC gave me and 

Greg over at Signature broad discretion to make 

decisions and take action with respect to dayto-day operations. 

We were not figureheads. We were 

actually charged with running the institutions as 

best as we could. So there were many operational 

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issues that we were facing that required very 

quick decision making, people literally lined up 

outside my office with issues to ultimately be 

resolved. 

And the FDIC, I think, made a very 

prudent decision to delegate that authority and 

latitude to the CEOs to be able to do that. Of 

course, I knew and I'm sure Greg knew and know 

that Mike knew that there would be issues that 

the FDIC might want to have input into. There 

were potentially sensitive issues or things that 

need to be carefully thought through. 

And the FDIC I think appropriately 

relied on us to identify and raise those issues 

which we did. Fourth, and I think this was 

critically important, the FDIC gave us broad 

latitude to communicate directly with the bank's 

employees and with the bank's clients, their 

customers. In order to operate the bridge bank 

effectively, we needed really the full engagement 

of our employees. 

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In the wake of Silicon Valley's 

failure, the employees there were understandably 

desperate for reliable information about what had 

happened and what was likely to happen going 

forward. They knew the bank had failed on Friday. 

There had been discussion over the weekend about 

certain kinds of resolution approaches. 

Those decisions got changed. 

Ultimately, the bridge bank got created. So 

there was a need for a lot of information for 

people to understand what was happening and what 

was likely to happen to them. 

My experience in life mostly coming 

out of the mergers and acquisitions space, not 

bank failures, is that the number one question 

that most employees have in the wake of big events 

like an acquisition or maybe in the case of a 

bank failure is what's going to happen to me. 

That's what people want to know. And being able 

to answer that question was really important. 

With respect to customers, in order to 

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stem the outflow of deposits and retain the 

customer relationships, we needed to be able to 

clearly communicate that Silicon Valley Bridge 

Bank was open for business, that we were 

operating on a business as usual basis. We 

continued to make loans. 

We continued to extend credit. We 

continued to give people access to all of our 

services to the greatest extent possible. And we 

also needed to assure them that their deposits 

were safe regardless of amount. 

We distributed written updates to our 

customers on a daily basis, and we held multiple 

video calls in that first week that thousands of 

customer representatives attended. So it was 

absolutely essential for us to be able to 

communicate freely. And the FDIC gave us the 

latitude to do that. 

Here, I'd say the FDIC really helped 

us a lot by engaging a sophisticated and 

knowledgeable outside communications firm to 

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assist us with those communications. That team 

had deep experience not only in these kinds of 

stressful situations but also with the FDIC 

itself and understood what would be sensitive 

issues for the agency. And it was really very 

effective in helping us vet those issues with the 

FDIC staff. 

Next, I'd say while the FDIC obviously 

acted decisively at Silicon Valley Bank by 

dismissing the CEO and the CFO, the FDIC also 

made a very prudent decision to keep the rest of 

the executive leadership team in place. It would 

not have been possible frankly for me to open up 

the Silicon Valley Bridge Bank without that 

executive leadership team. It was a daunting 

task despite their presence. 

It was really hard for us to get the 

bank up and running in a safe and sound manner. 

Doing so without executives who understood the 

bank's business, the bank's clients, its 

products, its technology, its systems, its 

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processes would've presented a very substantial 

risk of operational failure which at that point 

was the major risk remaining. We knew that the 

bank had already failed, but the real worry was 

would the bank operationally fail? 

Would we have some massive data 

breach? Would we have some massive fraud event? 

Would we actually be able to execute transactions 

on behalf of clients effectively? 

Without that executive leadership 

team and without the employees being engaged, we 

wouldn't have been able to do that. I will say 

that perhaps the thing that most impressed me 

about this assignment was really the dedication 

of the remaining Silicon Valley Bank executives, 

their commitment to their clients and to their 

colleagues. Even though they themselves were 

experiencing very severe professional and 

personal loss, most of their personal wealth was 

tied up in the equity of the bank which is now 

worth zero. 

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They were highly committed to the 

success of the bridge bank. They were very 

committed to serving the clients. And they were 

committed to ensuring the reliability of our 

operations. 

Next, I'd say the FDIC provided us and 

the management team with active assistance and 

support. The senior FDIC folks on the ground, we 

had people physically present who had been 

deployed there over the course of the weekend. 

They were absolutely terrific. 

We had literally constant 

communication, people walking back and forth 

across the hall to talk to each other about what 

was happening, what problems existed, what 

solutions could be implemented. That all 

happened without any kind of ceremony or pretense 

whatsoever. And that was really terrific to see. 

The FDIC also engaged directly in 

reaching out to other regulators, both domestic 

and foreign, other financial institutions and 

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I 

third parties to help resolve issues in a timely 

fashion as to which there were a number. And 

I'll get into a couple of those in a second. 

also had regular access to direct reports to the 

chairman. 

We met every day at the same appointed 

hour which was a really valuable forum for us to 

talk about what was the state of circumstances 

and to identify issues that needed to get 

resolved and get them resolved. And then I also 

want to personally thank Dave Kiddney who was 

available to me basically 24/7 on a moment's 

notice and helped me navigate lots of things 

about the situation. So I think he played a 

really instrumental role in all of this. 

So finally, the FDIC was able to 

maintain public confidence in the banking system 

and achieve a successful sale of most of the 

assets and liabilities of the bridge bank to a 

qualified buyer. The fact that we could actually 

open up this bridge bank and successfully operate 

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it for two weeks and meet most customer needs, 

not all customer needs but most customer needs, 

I think did reinforce that public confidence. It 

also enabled the FDIC to achieve a successful 

resolution of Silicon Valley. 

And there's no doubt -- and I think 

it's been confirmed here today. There's no doubt 

that without a couple of weeks to actually market 

the institution and its assets, the FDIC would 

not have been able to get a reasonable outcome. 

So that's all what worked pretty well. 

So what could've worked better? 

think many of the challenging operational aspects 

related to the response of third parties to the 

creation of a bridge bank. So when the FDIC 

creates a bridge bank, of course, it's creating 

a new legal entity. 

It's creating a new bank. And some of 

the domestic counterparties including other banks 

declined to recognize the bridge bank as standing 

in the shoes of Silicon Valley. And they insisted 

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on vetting SVBB. 

We came to be known as SVBB, not just 

SVB but Silicon Valley Bridge Bank, as a new 

counterparty. They wanted to establish new 

contracts and agreements with us. And they often 

declined to execute transactions that have been 

initiated by Silicon Valley Bank. 

And this disrupted our ability to 

serve our clients, caused lots of operational 

challenges, made it difficult to do things in 

real time. Similarly as I noted, much of the 

uninsured deposits at the bank were payroll 

deposits, deposits that were there to make 

payroll for our clients. And some of the payroll 

providers, people who provide information to 

actually help process that payroll declined to 

work with Silicon Valley Bridge Bank to meet the 

payroll needs of our clients. 

And this caused a lot of consternation 

among our clients understandably and ultimately 

required the FDIC to intervene and get those 

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folks into line. We experienced similar 

challenges with foreign financial institutions 

and counterparties. And this significantly 

impaired our ability to execute foreign exchange 

transactions in particular. 

This was a chronic problem and 

persisted throughout the entire two weeks that we 

operated the bridge bank. So those were some of 

the external challenges. There were other issues 

that created internal challenges. 

For example, it's typical for senior 

executives in major U.S. corporations to receive 

indemnification agreements and to have director 

and officer liability insurance protection from 

their employer. And these two forms of 

protection ensure that executives will not face 

personal liabilities that they undertake in their 

corporate capacity unless they act wrongfully and 

in an intentional or reckless manner. And 

because Silicon Valley Bridge Bank was a new 

legal entity, our insurance coverages from SVB 

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terminated. 

And we needed to put in place new 

indemnification agreements and new D&O insurance 

and took a considerable period of time for this 

to get done at the bridge bank. I think there 

was some debate, some misapprehension at the FDIC 

staff level about whether those protections were 

really necessary, because in their view all these 

executives were just following the instructions 

at the FDIC. And it took some time to persuade 

the staff that we really did need this 

indemnification agreement. 

We really did need the D&O insurance 

and that absent those protections, executives 

simply were not going to go execute on the 

instructions that were being given to them. This 

was not really a baseless concern. I mean, there 

was a holding company at Silicon Valley. And the 

holding company was not part of the ultimate bank 

resolution. 

Of course, it filed for bankruptcy. 

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And the FDIC not inappropriately was telling the 

bank not to remit funds back to the holding 

company. So understandably, there was a real 

dispute going on that executives who refused to 

deliver that money might've been swept up in. So 

that was one key challenge. 

Another key challenge, there was no 

compensation plan in place for the senior 

executives for their service to the bridge bank. 

The FDIC's position was that any compensation for 

the executive team should come from the acquirer 

of the bridge bank or its assets on a going 

forward basis. However, the executives being 

pretty sophisticated about these things, they 

knew that most potential acquirers would likely 

decide that they even didn't want those 

executives or that they didn't need those 

executives. 

And they weren't going to offer them 

any compensation going forward. They just 

weren't going to be part of the team of the go 

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forward institution. So we operated as a 

management team. Obviously, I was -- the FDIC 

understood. 

They decided to pay me. I had the 

kind of indemnification in D&O protections. 

had compensation. But the rest of the executive 

team, we're basically relying on their 

professionalism to show up and continue to 

operate. 

That worked for two weeks. But I 

think in my personal view as an operator, I think 

it's highly unlikely that we were able to operate 

this bridge bank for much longer absent some 

resolution of these key issues. So I think these 

kinds of issue around protecting executives as 

they step into these roles from a liability 

perspective and providing for some compensation 

for them to continue to be engaged. 

It raises a question as to how long 

you can actually operate a bridge bank. I think 

collectively we were fortunate that the two 

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bridge banks that were created operated for one 

week in the case of Signature and two weeks in 

the case of Silicon Valley. But I think the 

concept is that at least potentially we might 

want to operate bridge banks for a period of 

months. 

And I think from my perspective in 

order to be able to do that, be able to 

successfully execute a long-term bridge bank 

strategy, one needs to give both customers and 

key employees clear and credible reasons to think 

that they should want to be part of a long-term 

strategy for the bank that gets articulated 

pretty early. So despite the creation of the 

bridge bank and the extension of the deposit 

protection to all deposits which was extremely 

valuable, obviously Silicon Valley's clients were 

actively considering whether they should take 

their business elsewhere. And understandably, 

some of them actually did that. 

Similarly, key employees, this 

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included executives but also included lots of 

other people who are responsible for maintaining 

customer relationships and generating revenue. 

They were being actively recruited away by 

competitors. And so like the executives, these 

folks had seen the value of their Silicon Valley 

stock disappear overnight. 

And I'm sure many of them were 

wondering, what's going to happen to me? What's 

going to happen to my career? What's going to 

happen to my ability to actually take care of my 

family? 

And so by the end of the two weeks 

during which we ran the bridge bank, we started 

to see a number of key personnel accept positions 

elsewhere. To effectuate a longer term bridge 

bank strategy, I think we would need to show both 

clients and key employees that it's in their 

interest to stick with the bridge bank over the 

longer term. And that would require showing them 

a credible path for recovery, including interim 

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steps towards recapitalization and future success 

of the company. 

So they think that it makes sense for 

them to keep their fortunes tied to the 

institution as opposed to finding safe harbors 

someplace else. I would suggest in the case of 

Silicon Valley Bank there was an opportunity to 

leverage some unique strengths of Silicon 

Valley's customer base which understandably one 

could argue it actually caused the bank run. But 

it also was a source of potential strength for 

the institution. 

That was the venture capital 

community. And there were clearly venture 

capital firms who in the wake of the failure 

understood what they had wrought and wanted to do 

something to try to preserve this institution 

that so capably helped them sustain the 

innovation economy in which they operate. And a 

number of them indicated to me that they were 

willing to invest alongside the FDIC as passive 

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minority shareholders until a full 

recapitalization of the bank could be achieved. 

And that's obviously not something 

that we ended up pursuing. But those kinds of 

investments had they been made would've been a 

very strong signal to the market that customers 

were standing by at the bank. Also it would've 

been a very strong signal to employees and 

executives that they should stick with the bank 

because there actually was a long-term future for 

it. 

I'm not saying that would've been the 

right strategy here. I'm just saying that if one 

wants to think about running a bridge bank for a 

period of months as opposed to a period of a week 

or two, one would need to think about these kinds 

of somewhat risky propositions about are you 

willing to actually entertain novel approaches to 

these kinds of issues. So at the risk of kind of 

going on too long here, I would suggest just 

several possible regulatory enhancements for 

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consideration by policymakers. 

And again, I'm not a policymaker. So 

I'll leave this in the hands of other people. 

But first, I think it would be very useful for 

the FDIC to issue clear written guidance the very 

same day that it creates a bridge bank that 

domestic financial institutions and other 

counterparties expect to deal with that bridge 

bank as if it were standing in the shoes of its 

predecessor. 

I think if we had been able to point 

to that kind of explicit public guidance to other 

financial institutions and to counterparties, we 

could've resolved many of the operational issues 

that we face much faster. And so I would 

encourage the FDIC to think about that in the 

event that you ever create a bridge bank again 

going forward. I think it may also likewise be 

useful for the FDIC to work with foreign 

regulators to achieve the same result in foreign 

jurisdictions. 

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As I said, we had many foreign 

counterparties that were reluctant or confused 

about who or what Silicon Valley Bridge Bank was 

and were understandably very cautious about 

executing transactions with us. As I mentioned 

earlier, the FDIC's decision over the number of 

authorities involved in this decision to protect 

all the deposits was critical to enabling us to 

stem the bank run. And I recognize this is a 

topic there probably is not unanimity about or 

even consensus about. 

But I would recommend that 

policymakers evaluate whether offering full 

insurance for all deposits, including commercial 

deposits as Gary was pointing out earlier, if you 

were a business, you have to put your payroll in 

a bank on a day in order to write your payroll 

checks. You have to have confidence that those 

deposits are going to be protected. If we could 

offer that kind of insurance, not for free, but 

instead for a risk-based insurance fee to be paid 

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by the depositor to the insurance fund, I think 

it eliminates this prospect of potential panic 

because people worry about what's insured and 

what's not insured. 

And if the answer to people worrying 

about what to do with their uninsured deposits is 

to move them to money market mutual funds, I'm 

not sure that's a great outcome. Maybe we'd be 

better off keeping all those deposits in the 

banking system, insured but insured at a price, 

not for free. I will say that there's a sense 

that depositors should be able to figure this out 

for themselves. 

I've run some businesses. We've 

deposited money in places like Silicon Valley. 

Even large depositors are not that well equipped 

to evaluate which banks are likely to suffer bank 

runs or failure any more than other market 

participants or maybe even regulators. 

And there's no reason to think that I 

think most depositors are any better position to 

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be able to do that than anybody else. I'd also 

say that offering large deposit insurance for a 

few would level the playing field between the too 

big to fail banks, the so called too big to fail 

banks, and smaller institutions. And absent a 

uniform approach, it may be that depositors 

choose to put their money with the G-SIBs as 

opposed to regional or community banks. 

And obviously if this kind of 

insurance were made optional, then it's available 

only for a fee. There should be no sympathy for 

any depositor that chooses not to pay the fee for 

the insurance. If their deposits get wiped out, 

they made that conscious decision. 

So those are some thoughts. 

Obviously, a lot worked well in this situation. 

Some things could've worked better. I think it 

was a great learning experience. 

I'm grateful for the opportunity to 

have been a part of it. And I'm happy to answer 

questions. But first, I want to turn things over 

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to Mike for his observations if that's the way 

you want to go, Dave. 

MR. KIDDNEY: I think that's -- so 

maybe let me just start with just a couple kind 

of quick reactions. First and foremost, thank 

you for the commentary and thank you again for 

your service. With respect to bridge banks, that 

is something that is continually front of mind 

for us in our planning efforts, long-term 

bridges. 

They can go on for up to five years. 

We don't think we would ever get to that point. 

But they can potentially extend up to five years. 

So thinking about things like retention, that's 

front of mind in a lot of what we do. 

In the cases of these two bridge 

banks, we did put in retention plans for the 

majority of employees. But Tim, as you point 

out, the executive committee did not receive 

retention plans. And there's attention there in 

terms of identification of culpability, timing. 

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But then again as you point out 

knowing the operational complexities and being 

able to continue those bridges is important. 

With respect to communication to some of the 

other counterparties and parties transacting with 

the bridge banks and letting them know that the 

bank is continuing to operate the same way it did 

the previous week and the week before that, that 

it can enter into trades, that it can make loans. 

The Financial Institution Letter, the FIL that we 

put out on Tuesday, I think went a long way in 

helping to provide some clarity there. 

And importantly, it gave bank staff 

something to point to and feel as though they had 

cover in making the decision. So items like those 

were important lessons learned. And we were 

really learning those on the fly in some 

instances as we went through those bridges. 

And we were incorporating them in real 

time in our planning for First Republic Bank. 

Early on that weekend, we had been in touch with 

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Michael Shepherd and discussed the possibility as 

serving as CEO should that need arise. And we 

remained in active communication over those next 

couple of weeks and again kind of filtering in 

some of these lessons in real time. So perhaps 

with that, maybe you'd like to turn to Michael to 

ask him to share a little bit of his experience. 

MR. SHEPHERD: Thank you, Dave. And 

thank you for this opportunity. I'm pleased to 

be here and report to the Committee. I've gotten 

to know quite a few of you over the years, and 

it's an honor to be with you today and to be a 

member of the standby pool. 

I think the standby pool does provide 

a credible alternative for the FDIC and other 

national decision makers to reinforce confidence 

and stability and contribute to the best 

resolution. And I think as Tim just said, it 

certainly has shown that capability now. I can 

speak -- obviously, I'm not -- I'm the physical 

manifestation of why they call it the standby 

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pool. 

(Laughter.) 

MR. SHEPHERD: It is a thing, though, 

for the members of the pool to -- I think we first 

started recruiting people -- well, I know years 

ago, I think 2018 or so. And I want to say that 

I think people want to join the pool because they 

welcome the opportunity to do public service. 

And as I wanted to say too or plan to say to the 

executive team and all employees at First 

Republic Bank in a time of trouble, we're 

fortunate to have the training and experience to 

serve our customers, our communities, minimize 

losses and do that public service. 

And I'm not sure it would last for 

more than a couple weeks as Tim says without 

compensation. But I do think that's an 

opportunity for us all and for the members of the 

pool. It's also we welcome the opportunity to 

receive some affirmation from the regulators 

about their confidence in the members of the 

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team. 

As Dave said and as the chairman 

mentioned, I was notified that I might be the --

or that I would be designated as the CEO of the 

bridge bank on that same Sunday, March 12th. The 

situation was very fluid and I guess for 

everybody but also for First Republic. In fact, 

while I was on the phone from the airport to Dave, 

he was telling that my name -- I was going to be 

announced with Greg and Tim as bridge bank CEO. 

And he said, oh, wait a minute. Some 

new funds are coming in to First Republic. We're 

going to stand down for a moment for that, and as 

I say, the experience of being in the standby 

pool. Over the weeks, the First Republic efforts 

to continue in operation, I had the opportunity 

to meet with leaders and the closing officers 

from the FDIC with two separate resolution teams 

over that time period. 

We had video and telephonic 

conferences with other officials and frequent and 

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close consultations and engagement for the first 

ten days or so, maybe a week. Things went a 

little slow then for a while. It looked like 

there was substantial deposits by large financial 

institutions came into the bank. 

But then things heated up again as 

concerns increased and run up to the announcement 

of earnings. And we were prepared for additional 

deployment as necessary. Tim and Greg had actual 

big game experience. 

I only threw hard in the bull pen. 

But I did for about six weeks. And so I thought 

maybe although it's fortunate we weren't needed, 

the relevance of my experience for this 

Committee's purposes, what we learned during that 

effort. As Dave just mentioned, we had the direct 

experience of Signature and Silicon Valley Bank 

that had been wrapped up by the time the second 

round of run up to the earnings release. 

We had more time to think and plan. 

But the potential of the failure was sufficiently 

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imminent that we remained very focused. So I 

can't call it Standby Pool 2.0 but maybe 1.1 from 

that experience. 

First, the important nuts and bolts 

details have been collected by the FDIC for the 

standby pool members, including information about 

closing process and establishment of the bridge, 

draft internal and external communications, 

deposit insurance letters as Dave mentioned a few 

minutes ago for both financial and nonfinancial 

counterparties. Other crucial pieces were 

communications for all employees, members of the 

executive committee and for customers. Guidance 

on what can and cannot be said is quite useful in 

that situation. 

It's in everyone's interest for the 

CEO of the bridge to be able to speak with some 

authority. As Tim was saying and as you all know, 

one of the principle purposes of this appointment 

is to assure people and give stability to the 

situation. And it's therefore important not to 

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have to walk back well-intentioned but inaccurate 

comments which you are making to people who are 

under great stress, be they customers or 

employees. 

As chairman and CEO of Bank of the 

West, I'd worked about two blocks away from First 

Republic for almost 20 years. I knew many of 

those people. And I had a feeling for the 

community, of course. 

I wanted to say, I've admired your 

bank and its commitment to outstanding client 

service for years. Let's maintain that 

commitment to our clients and our communities and 

to each other. I'm not here to assign blame. 

I may be a caretaker. But with your 

help, we'll take good care. Third, I think the 

information packages that have been discussed are 

quite important, especially if there's a lag in 

the time between the designation of the 

assignment from the standby pool and actual 

deployment. 

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As Chairman Gruenberg mentioned in his 

remarks last August at the Brookings Institution 

and I think there are parts in the proposed 

rulemaking, I recommend the packages be provided 

to pool members as soon as they're assigned to a 

specific institution or perhaps some other 

appropriate triggering event. But that time in 

the run up when you're eager to gather 

information and it's more easily available once 

you're there. But at the time, your appointment 

is quite confidential. 

I was, of course, scouring the 

internet. But there's other information that 

would be easily obtained at the bank or perhaps 

from the regulators. But the regulators are 

quite busy at that time too. 

Those packages could include the 

living will, lists of top vendors and 

counterparties, major customers, recent FCC 

filings which as I say can easily be found, 

perhaps summaries of current year, strategic 

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plans. And not so much to see the big ambitions 

of the company but to think more about how the 

units fit together and how they operate the 

business. And related to that, organization 

charts, not just of senior executives but key 

operations, treasury, and information on security 

executives whose engagement and retention will be 

critical to the ongoing operations. 

I don't think a bridge bank CEO -- I 

can certainly defer to Tim on this -- needs to 

see that much confidential supervisory 

information as they prepare for deployment. But 

it's useful to learn of recent communications and 

to get a sense of examiner reviews of key 

executives in problem areas. Tim mentioned 

preparation for a longer bridge, and I wanted to 

close with comments about that. 

It's important at least as you're 

planning and taking initial actions that those 

steps are taken with the possibility that the 

operation of the bridge will last for many 

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months. I certainly have no regrets, decisions 

there. Later, steps will include the addition of 

independent directors. 

The FDIC is obviously completely in 

charge. It's the appointed receiver. It owns 

all the shares and its funds are on the line. 

But at the same time, it's good that the FDIC 

sees that an empowered, reliable executive team 

of pool members will help it achieve its goals 

and preserve value. As I say, I appreciate the 

opportunity to be with you, and thank you, Mr. 

Chairman. 

MEMBER TAHYAR: Thank you, Mr. 

Chairman. I was honored to be the counsel to 

both of the bridge banks, an emergency assignment 

that came out of nowhere, there's no standby 

pool. I first want to say absolute compliments 

to the FDIC staff, both those at headquarters and 

those on the ground and I was on the ground. 

Extraordinary hard work, great job, 

quick responses available 24/7, taking hard 

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decisions. And I know that many of them did at 

great personal sacrifice. I think there are a 

few -- with the beauty of hindsight, there are a 

few lessons learned. 

There's some low hanging fruit, some 

of which had been mentioned. My own personal 

belief is we're in a new world. We are going to 

face deposit runs despite the specialness of 

these two banks. The ability for uninsured funds 

to move quickly is with us now forever. 

So a couple of suggestions, that FIL 

announcement which came out on Tuesday at 4:48 

next time should come out on Sunday evening 

because the problem wasn't the CEOs. I know FDIC 

staff were calling the CEOs of all the major 

banks, and the CEOs were saying, we're willing to 

deal, willing to deal. Which one of my 200,000 

employees is the problem? I need to go there 

now, right? 

And it's the guy or the gal in the 

wire room who is told, let 10 million dollars go 

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and thinks I'm going to lose my job. So the FIL 

is really, really important on Sunday night. The 

indemnities and the D&O were a huge distraction, 

and they were a distraction for the executive 

management. 

I think we can work those out in 

advance. Low hanging fruit, in other words, 

decisions will be made about the executive team. 

But as part of advanced planning, we can take 

care of that. 

I'm a lawyer, so I think there's a 

need for the FDIC to update its key 

documentation. It's been a long time since 

bridge banks have been used. Muscle memory was 

a little bit not in place. 

So the last time the charter has been 

updated is the '80s. The last time the bylaws 

have been updated is the '80s. The last time the 

purchase and assumption agreement has been 

updated is the '80s. 

I think we could get a group together 

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and work on those updating. It caused some grit 

in the gears as we were working. Another surprise 

was the world of syndicated lending and the world 

of bank resolution had not talked to each other. 

And so there hadn't really been a 

previous situation where an administrative agent 

was in default. So at law firms and banks all 

across the country, there were folks from the 

finance side who were about to take a bunch of 

actions and got really surprised when they 

learned that, no, you can't do that because the 

FDIA doesn't let you do that. So I think updating 

the FDIC's resolution handbook and making these 

things clear, lots of low hanging fruit that 

could be helpful for when this happens the next 

time. 

CHAIRMAN GRUENBERG: Thank you. 

Sebastiano? 

MR. LAVIOLA: Thank you. Just a 

question I had. I appreciate very much the 

experience that was provided here. I wanted to 

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ask about some requirements that a bridge bank 

should respect. 

For example, solvency and liquidity 

requirements, I understand that with the creation 

of the bridge bank would be automatically given 

a license to operate as a bank. What about the 

requirement? This is the discussion we are 

having now in the banking union, if there is a 

bridge bank to be created. 

And what is the timing? What happens, 

et cetera, et cetera? Or if they are waived from 

this requirement until under the pages of the 

FDIC. Thank you. 

MR. STARKE: So if I could respond to 

that. The statute is clear that there are no 

capital requirements for a bridge bank. The 

bridge bank is backed by the FDIC and its deposit 

insurance fund and its obligations which are 

backed by the full faith and credit of the United 

States. 

And the DIF has been able to provide 

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119 

liquidity. So there are no mandates. There are 

some policy thoughts that it would be better to 

have capital. But it's not required by the 

statute. 

MEMBER LA SALLA: This would be the 

case even if the selling would happen not in two 

weeks but in five months or one year. 

MR. STARKE: From a legal standpoint, 

that's correct. And policy judgment will have to 

be made as to what kind of parties are comfortable 

with. But as I say, the obligations of the FDIC 

are backed by the full faith and credit of the 

United States government. So it's expected that 

a bridge bank will be able to perform on all its 

obligations. 

CHAIRMAN GRUENBERG: Rodgin? 

MEMBER COHEN: I wanted to pick up 

with what I thought was a very important point. 

It was sounded by both of our speakers and that 

is information that is critical to the new CEO. 

And I just wonder if that wouldn't be low hanging 

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fruit. 

Could not there be an appendix to the 

resolution plans which simply list all that 

information? It's nothing new. It's just 

derived out of the plans. So the new CEO could 

immediately see that. 

MEMBER MAYOPOULOS: I think that'd be 

very useful. Sitting on the airplane on my way 

to Palo Alto, I didn't have any of that material. 

And of course, I just hung up the phone with Dave 

a few hours earlier. 

But it would've been valuable 

information to have to at least know, what are 

the legal entities in this structure? What's the 

organizational chart? Like, what's the relative 

size of the assets? Like, those were, like, basic 

things that one would want to know and there was 

no time for it. And it was kind of catch-ascatch-can once I landed. 

MR. TETRICK: I think in these cases, 

it really was. I mean, that first weekend, it 

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was a matter of immediate deployment. I mean, 

there was no space between the call and the 

deployment and needing to stand up the bridge 

banks. 

And we had just learned that day that 

there would be a systemic risk exception and that 

we formed the bridge banks. Part of what we were 

-- we had the benefit of for First Republic and 

glad we didn't have to bridge First Republic --

but it would've been a great bridge if we had to 

do it -- was that with Michael we had the time to 

get a lot of that information. Things like the 

FIL were ready to go. 

Some of that grit in the gears on the 

legal documents, although we have updated those 

recently. There's a difference between updating 

them internally, going through them with the OCC, 

and actually road testing all of those things 

that you need to put in place. And this is a 

road test, and we discovered new things when we 

did that. But it was a really different position 

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when we had -- the difference between zero days 

and seven weeks is a lot. And we have a lot more 

time to prepare for the next one. 

CHAIRMAN GRUENBERG: Anyone else? Let 

me thank both Tim and Mike really for a superb 

presentations and for your service. Tim 

expressed his gratitude to us, although I will 

say I think perhaps the first day or two running 

the bridge, I'm not sure. 

(Laughter.) 

CHAIRMAN GRUENBERG: But after that, 

it got better. 

MEMBER MAYOPOULOS: I will say it was 

fun. I have a very perverse sense of fun. Just 

ask anybody who knows me well. But I got to say 

it was a -- Mike put it properly. This was an 

opportunity for public service. 

And I'm drawn to challenging 

situations. And this was clearly that. And just 

I'm very appreciative of the opportunity to be 

able to do that. And I know Mike and Greg are 

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too. 

MS. TRAILLE: Okay. With that, we 

will take a break and return at 11:15 for the 

next session. Thank you, everyone. 

(Whereupon, the above-entitled matter 

went off the record at 11:01 a.m. and resumed at 

11:18 a.m.) 

CHAIRMAN GRUENBERG: Welcome back. I 

thought that was a terrific discussion this 

morning. 

And, let me turn it back over to 

Jenny. We have two additional guest speakers to 

talk about the experience with credit squeeze, 

which is of considerable interest to us. 

So, Jenny? 

MS. TRAILLE: Sure. Thank you. Yes, 

so, we're pleased to welcome Eva and Sebastiano. 

Eva Hupkes, as previously mentioned, is the 

Secretary General of IADI and was previously the 

head of regulatory and supervisory policies at 

the SS -- Secretary of the FSB. 

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Prior to that, she served as head of 

policy and regulation at the Swiss Financial 

Markets Advisory Authority, or FINMA, and, 

FINMA's predecessor organization, the Swiss 

Federal Banking Commission. 

She was recently a member of the Swiss 

Experts Group commissioned by the Federal 

Department of Finance of Switzerland to evaluate 

the stability of the Swiss financial center. 

And, she is going to speak to us today about the 

report produced by that group. 

And, we will also hear from Sebastiano 

Laviola, a member of the SRB and Director of the 

Resolution Strategy and Cooperation. 

Prior to this, he was the Central 

Director at Bank of Italia, the central bank of 

Italy. And, he currently chairs the SSB's Bank 

Cross Border Crisis Management Group, which is 

part of the resolution steering group. 

And, in this capacity and as the 

Chairman mentioned earlier, this group has 

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published the 2023 Bank Failures Report on 

Lessons Learned for Resolution. And, he will 

speak more about that today. 

So, I -- oh, and then I should say, 

we are joined by our FDIC panelists, Director Art 

Murton, Deputy Director Ryan Tetrick, Corporate 

Expert Susan Baker, and our Legal Counsel, Bruce 

Hickey. 

So, welcome again Eva and Sebastiano. 

And, Eva, I will turn it over to you. 

MS. HUPKES: Well, thank you very 

much, Jenny. It's a great honor to be here. 

Thank you, Chairman Gruenberg for inviting me. 

I am very happy to share some insights 

from the review of Credit Suisse having been 

involved, actually both in the preparation of the 

FSB Report as well as the Independent Expert 

Group set up by the Swiss Federal Council, which 

actually included also bankers, besides the 

academics as well as former FINMA and FSB 

officials. 

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So, this gives you a bit of background 

if you read the Report. I think I can safely 

say, we are fairly aligned, both Sebastiano and 

I, what we are saying. 

So, I'll mainly focus on the Swiss 

framework. But, let me maybe briefly recall the 

facts. 

So, the Credit Suisse failure was 

different, I think, from the U.S. banks we just 

discussed. 

It was a slow burn scenario, 

idiosyncratic that evolved over years on this 

erosion of confidence in Credit Suisse Bank from 

a combination of issues, including the weakness 

of the business model and governance reflecting 

a lack of an effective risk contract and 

controls. 

And, Credit Suisse is also not being 

very responsive to supervisory action. And, 

there has been many changes in risk and 

compliance leadership and a fast turnover of 

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senior management in the past years. Went 

through three different Chairmen over three 

years. And, four CEOs over seven years. 

The announcement of a revised strategy 

which included raising 4 billion Swiss francs in 

2022 to fund a restructuring, actually didn't 

restore confidence. And, Credit Suisse did not 

have the strength and ability to manage a 

turnaround in the summer of 2022, despite the 

report of solid group capital and liquidity 

figures. 

The market started to question 

financial strengths and viability already in late 

2020 and substantially lost confidence then in 

the early fall of 2022 as reflected in the 

significant outflows of Swiss francs like in the 

fourth quarter. 

And then, on the 15th of March 2023, 

FINMA and the FSB confirmed actually that Credit 

Suisse was still meeting capital and liquidity 

requirements and that the SNB was ready to 

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provide emergency liquidity assistance to Credit 

Suisse. 

Credit Suisse then announced it was 

drawing 50 billion Swiss francs, which again, 

very modest in size, but did not reassure the 

markets. 

And then, on the 19th of March, UBS 

and Credit Suisse concluded the merger contract, 

maybe you can use -- move to the next side --

which was fully executed in June. And, FINMA 

approved the takeover in view of the competition 

authority. 

The actions were taken based on a 

provision in the Swiss Federal Constitution that 

grants power to the government to act and provide 

credit to safeguard the public interest. The 

same constitutional basis was used to take the 

restrictive measures that were imposed during the 

COVID pandemic actually. 

The government emergency regulation 

enabled the conservation of the Swiss state to 

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enter into a contract with the Swiss National 

Bank regarding liquidity assistance and to 

provide a default guarantee covering 100 billion 

Swiss francs. And, that contract was terminated 

in August of this year. 

The emergency regulation also enabled 

the government to enter into a loss protection 

agreement with UBS. 

So, the state would have had -- would 

have borne 9 billion of any definitive loss 

arising from the sale of certain assets after UBS 

took -- would have taken 5 billion of any losses. 

This loss protection agreement also 

was terminated in August. And, the emergency 

regulation also enabled the Swiss National Bank 

to provide additional emergency liquidity, the 

so-called ELA plus. 

Up to 100 billion was priority in the 

creditor hierarchy, but otherwise 

uncollateralized. And, it allowed for the merger 

to go ahead with approval of the UBS, and without 

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the approval of UBS and Credit Suisse 

shareholders and without other requirements 

otherwise provided for in the merger, such as 

preparation of interim balance sheets, et cetera. 

And, the old emergency ledger 

regulation also authorized FINMA to order Credit 

Suisse to write down the AT1 bonds. 

So, the -- maybe go to the next slide. 

The Swiss authorities chose not to execute the 

resolution plan that had been prepared jointly 

with the members of the crisis management groups 

and which included the FDIC. 

The execution of that resolution 

strategy, which was a single point of entry open 

bank resolution strategy, would have entailed the 

full write down of capital, the full write down 

of AT1 bonds, the conversion of bail-in bonds 

issued by the holding company, which would have 

then generated 57 billion fresh capital. 

And, that strategy was deemed 

executable by FINMA, a conclusion that was shared 

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by the expert group and also the members of the 

crisis management groups. 

It would obviously not been without, 

entirely without risk. Probably no resolution is 

fully smoothly. 

Bond holders could have claimed lack 

of proportionality, given the intact capital 

base, or the way it was, had been communicated. 

The execution of bail-in could have 

given rise to operational and legal challenges in 

light of the application of securities laws in 

the U.S. and also other jurisdictions. 

It seemed that those factors weren't 

the ones that were really decisive. The Swiss 

public actually reacted quite negatively to the 

merger since it increased the dominance of UBS. 

And, they would have apparently preferred the 

creation of a standalone and much smaller bank. 

However, the authorities stressed 

that this was the best solution under the 

circumstances. The alternative being 

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nationalization or irresolution. 

And, I think the resolution concept 

maybe wasn't well communicated. It sounded more 

like a bankruptcy that could have severe systemic 

consequences. 

The conversation that the expert group 

had with market participants actually resulted in 

the view that there would not have been major 

systemic consequences as a result of the bail-in 

for instance. 

So, resolution wasn't executed. There 

nevertheless a number of lessons to be drawn both 

for supervision and resolution. 

And, let me maybe start with three 

points on supervision. First, capital liquidity 

metrics clearly weren't transparent in that they 

did not provide a good view of the health of the 

bank and actually available resources. 

So, capital liquidity resources were 

trapped in entities, be it in host jurisdiction, 

but also in the bank's subsidiary in Switzerland. 

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And, they weren't freely usable and could not be 

moved where they were actually needed. 

And second, the Swiss Banking Act 

provides a legal basis for early intervention 

that is fairly broad. And, provides wide 

discretion. 

The question is -- that we asked, was 

whether that discretion is too wide and therefore 

resulted in FINMA not acting early enough out of 

fear of legal challenge. 

So, from a Swiss perspective, it could 

be helpful to have specific quantitative but also 

qualitative sort of prompt proactive action 

triggers. 

For example, looking at, also at other 

factors like profitability, market value, a 

business model, so to enable the supervisor to 

intervene early and mitigate a forbearance. 

And then thirdly, recommendations 

have to be made to strengthen FINMA's enforcement 

powers and strengthen individual accountability 

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at senior management levels through a regime 

actually similar to that in the UK, the senior 

manager's regime. 

But, now let me turn to resolution. 

And again, make three points. One key finding 

relates to flexibility and optionality in 

resolution. 

FINMA had only prepared for a single 

resolution strategy, so a single point of entry 

bail-in strategy. 

The Swiss banking law gives FINMA 

actually quite a range of resolution powers. 

Also, the power to set up a bridge bank or do the 

transfers. 

And, they could have allowed FINMA to 

implement the merger in resolution. However, 

without preparation, this would have been 

difficult in this very short period of time. 

So, it's clearly not possible to 

prepare for all possible scenarios. But, 

considering in what scenario, different 

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resolution tools could be applied and albeit 

combined, certainly could help authorities to be 

better prepared. This is also for the types of 

liquidity scenarios. 

The Credit Suisse case, in my view, 

also demonstrated the challenges associated with 

an open bank bail-in strategy where actually the 

debt-to-equity conversion has to be essentially 

executed over a weekend. 

So, with leaving very little time to 

meet the various SEC requirements regarding 

exemptions and also disclosures, given that the 

Credit Suisse TLAC bonds were traded in 

particular here in the U.S. 

So, the question arose whether 

actually the use of a bridge would have allowed 

more time. And, as you know, that was a strategy 

chosen for US G-SIBs. It might present its own 

regulatory challenges. 

And, I think we just heard about this, 

the discontinuity of the legal entity, because 

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the bridge would assume operations which would 

then probably in particular, and also in foreign 

jurisdictions, require approval from host 

regulators regarding change of controls. 

But, it would have promptly allowed 

for a bit more time also in the preparation of 

the post restructuring options, transferring 

operations to other market participants and 

finding a buyer. 

Another key finding relates to the 

public liquidity backstop. And, I mean, that it 

was clear that it is critical for an effective 

resolution and for its credibility. 

And, there is already a legislative 

proposal now put out. Which actually would also 

include an advantage fee to -- that systemically 

important banks would have to pay advantage to 

compensation the state. 

And, there are lessons relating to 

access to liquidity and, I mean, the stigma was 

also an issue that was widely discussed. 

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Banks, from supervisors, need to be 

able to make sure that banks are better prepared 

to access liquidity, preposition collateral. 

That was a key recommendation. 

And then finally, one point, it 

identified a bonded Swiss expert group relates to 

the triggering of resolutions. By law, FINMA has 

the sole authority to place a bank into 

resolution. 

And, for the expert group, it was 

difficult to see how FINMA could exercise this 

power with respect to a global systemic important 

bank that would need massive amounts of liquidity 

from the Central Bank. And, the failure of which 

could have also had significant economic 

repercussions. 

So, it would be natural that both the 

lender of last resort as well as the executive 

government have a voice. And, I think that is 

sort of the three keys approach here in the U.S. 

as I understand it. 

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And, so an ex -- the Swiss expert 

group made a recommendation to review this 

decision making process. 

And then, maybe let me conclude by 

highlighting two points that are relevant. 

Probably both for supervision and for resolution. 

And, one relates to cross border 

cooperation and the operation of the supervisory 

and crisis management groups. 

As you may recall, the Swiss 

authorities held a press conference to 

communicate the assisted merger plan to the 

public at 7:30 p.m. Swiss time on Sunday. 

And, that was actually 7:30 a.m. in 

the morning in Japan. And, the Japanese 

authorities had actually been working all weekend 

preparing orders to, well, refinance Credit 

Suisse. 

And, they only found out a few hours 

before that press release. So, a few hours also 

before the opening of the markets in Japan, what 

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the outcome of the crisis management board. 

So, maybe we do need to rethink how 

crisis management groups operate in crisis times. 

Also, the compositions of these bodies and 

communicating -- communication with authorities 

taking into account the time zones on different. 

The Swiss clearly had been working 

very closely within the core college, the UK 

authorities, the U.S. authorities. 

But, I think, the Europeans as well as 

the, yeah, Asian, the Japanese were not close to 

the planning process. 

And, then finally, the second point 

has to do with resources. Clearly this is a 

significant need for resources and standard staff 

with the relevant know how and expertise. 

And FINMA is extremely lean as 

compared to other authorities in other 

jurisdictions. And, the reliance on external 

auditors contracted by the banks, really doesn't 

compensate for its own resources. 

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So, there is clearly a need to give 

thought on how to augment available resources 

quickly and particularly in times of stress, but 

also in business as usual in supervision. 

So, let me stop here and turn over to 

Sebastiano. 

MR. LAVIOLA: Thank you. And, first 

of all, let me thank the FDIC and Chairman 

Gruenberg for inviting me today. It's a great 

honor and a pleasure. 

And, I as my capacity as Chairman of 

the Working Group on Cross Border Crisis 

Management under the ReSG Group and Chairmanship 

of BaFin Committee, I was tasked with a group to 

assess the implication for international 

resolution framework of the recent crisis events, 

and then, to identify initial lessons learned. 

So, what I will tell today is strongly 

based on the evidence of the reports. And, what 

I have to say has been thoroughly reviewed and 

approved by the ReSG not only, but also by the 

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141 

entire FSB membership. 

So, I would say here, and you will not 

be surprised, that there are various aspects that 

will come back. 

And, that we're, as Eva said, in the 

end, I mean, what she said on the initial lessons 

is really aligned only on the super -- on the 

resolution part. 

And, the report doesn't deal with the 

supervisory part for which there has been already 

also a report from the BaFin Committee on initial 

lessons learned. And so, some aspects will come 

back. 

First of all, I would say that after 

the great financial crisis, this was a big real 

test of the international resolution framework. 

In terms of just to give you an idea, and this 

was already numbers that have already been used 

in the private domain. 

Essentially, the amount of the crisis, 

including U.S. and Credit Suisse, were more than 

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$1.1 trillion in total assets. If you relate in 

European Union to the GDP, which is how we, of 

course, stops and flows, it's not the same thing. 

But, I mean, it is really a big 

amount. Much higher than the GDPs of several 

member states. And therefore, this was really a 

big difference from the great financial crisis. 

But, clearly in the international 

domain, among the international regulators, 

called into question essentially the 

applicability of the international resolution 

framework. 

And now, the review that has been 

done, and in reality upholds and confirms the 

appropriateness and feasibility of the framework. 

Identifying at the same time, as Eva said, the 

number of implication issues both for the G-SIBs, 

but also for other systemically important banks. 

And, this is what we discussed a 

little while ago regarding banks that can be 

systemic or critical in failure. 

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Let me give you just the -- first, the 

positive aspects that we found. That's to say 

that the decade long work now done on resolution 

planning and capability, and the build up of LAC, 

so that the LAC proved very useful. 

And, in the case of Credit Suisse, 

provided an executable alternative to the 

solution that then the authorities chose to put 

in place, because they preferred the debt. 

And, this is a very important element. 

Without all this preparation in terms of building 

up on operational continuity, on access to 

financial infrastructure, on cooperation and 

coordination, what Eva said, on cross border 

cooperation and crisis communication within the 

core management group, even though the story is 

not finished there, worked very well. 

Because the authorities in FINMA 

started in October after the first strong 

liquidity crisis to build the preparation for 

resolution in the restrictive group of 

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authorities that included, as Eva said, the 

Swiss, the U.S., and the UK essentially, various 

types of authorities in part of these three 

jurisdictions. 

Another important point is that both 

in the U.S. and in Switzerland, the financial 

stability was preserved and the contingent 

effects were prevented. But, we already 

discussed that. 

If you can go to the other slides. I 

point the attention here to the first point. This 

is not in the order that you find in the report. 

But, I think therefore the crisis, it 

is very important, both business time and in 

crisis time, to have very good communication and 

coordination among authorities, and also with the 

firm, because we have seen it. 

In the case of Credit Suisse 

particularly, some unwarranted declaration of one 

shareholder, I mean, how it precipitated the 

situation. And, instead among the authorities, 

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as I said, the work between home and host, both 

supervisor and resolution authorities. 

Now here, an important point. We 

found out that you have to go in certain dedicated 

cases beyond the CMG, the core, the crisis 

management groups' jurisdictions. 

Because it is also important to pay 

attention to indirect effects. Which can be the 

same entire effects, difficult to say. 

But, if you look at the press releases 

that were issued immediately after the decision 

on Credit Suisse, for example by the Bank of 

England, by the SRB, by the home core monetary 

authority regarding the AT1, because there was a 

surprise in the way in which they were addressed, 

even though started early incorrect, et cetera, 

this was essentially a measure to stem the panic 

that clearly hit the market of AT1 holders after 

the announcement. 

And, this means that in certain cases, 

it is important to have for the main jurisdiction 

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where there could be indirect effect, to be in 

the loop of the decision making, a certain point 

or an appropriate or need to know basis at 

probably only a certain level. 

But, the guidance that we have from 

the FSB on CMGs, on information where the entity 

is not part of CMG, the authority of the entity 

is not part of CMG, can be systemic in other local 

markets, may be subject to be reassessed and 

reconsidered, because for example, there were 

subsidiaries over Credit Suisse, which were not 

relevant, even systemically in the local markets. 

But, the problem was not the legal 

entities. The problem was, for example, in this 

case, related to the activities. 

And therefore, or if you think 

derivatives, was very difficult to assess the 

second round, the third round effects. But, in 

certain cases, it is important to take those into 

account. 

On the resolution strategy in 

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particular on tools, as it was said by Eva, we 

found out that first of all, authorities would 

learn to put again, to have greater awareness and 

visibility of the potential impact of bail-in on 

financial markets. 

As on the other hand, these are 

already detailed on the key attributes, annexes 

over the guidance issued by the FSB. 

And, they should, they could be ready 

to use eventually in certain cases, even more 

than one resolution tool or calibrate the use 

according to the different scenarios, including 

the liquidity ones. 

So, in this case, the usefulness of 

transfer tools, I mean, is stressed. And, 

therefore, in the work program of the ReSG, there 

is the consideration of resolvability resolution 

preparedness to preserve optionality of 

resolution tools. 

Which doesn't mean that this has to be 

to the detriment of the preferred resolution 

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strategy. 

But, the situation may change, may 

evolve over time. And, therefore, some 

preparation is in order. 

Another aspect that comes out from the 

report very strongly is to have the availability 

of an effective public sector bank, funding 

backstop. 

And, here there will be also work 

ongoing, because as it has just been shown, the 

amount of funds that have been deployed, and the 

fact that the emergency legislation had to be 

used and likely enough because there was 

preparation to have it in ordinary legislation, 

but was not yet ready. 

But, there was the possibility to 

enact it in an emergency legislation, because in 

a situation where you have a resolved bank, in 

this case was a merger, outside of resolution. 

But, nonetheless, there was a strong need 

probably for liquidity. 

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And, therefore, even though you have 

enough capital to regain the trust of market 

counter-parties, it may be necessary to have this 

funding available. 

The other aspect that came out, and 

again, linked to the experience with Credit 

Suisse, is the one of the working on resolution 

preparedness for cross border recognition and 

execution of the cross border bail-in. Because 

clearly there are securities laws that have to be 

respected. 

Normally, if there is a subscription 

in, so issuances in foreign countries, or 

subscription by foreign investors, according to 

the securities laws, this situation may be 

different in the case of the U.S. in the SEC, any 

conversion of the bail-in bonds into shares, is 

assimilated to a sale, the first requires either 

registration in any prospectus essentially, or an 

exemption. 

And, there are conditions for the 

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exemptions. In other legislation, there are not 

even conditions for the exemptions. 

But, that's associated to debt that 

maybe also disclosure requirements that have to 

be followed. 

This means that we want to work more 

on the resolution preparedness for these cases in 

case of cross border banks. 

So, how one can qualify for the 

exemption in these cases and also on pro forma 

disclosures of some statements, because this is 

also required by the security laws. 

And, there is work ongoing in the FSB 

to this regard even today. I have to say, in 

Basel, there is a workshop to this regard. 

Also, related to that, there is also 

the need that to prepare for the credible 

restructuring plan. That's to say, to resolve 

the bank, it is not enough. 

But, particularly one, the way they 

are following the resolution, the authorities 

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have to be able to communicate a credible 

restructuring plan to the market to regain 

confidence of the market. And then, monitor the 

restructuring. 

So, this has also to be done in 

preparedness, in resolution preparedness. This 

is not mentioned in the key attributes, because 

it is post-resolution. But, it is clearly 

important, particularly if you have an open bank 

bail-in. 

The other two aspects if they're here, 

I would not speak that much about that, because 

it is the aspects that came out from the 

experience in the U.S., that's to say banks that 

can be systemic in failure for various reasons, 

as detailed in the slides, and therefore, here 

one has to decide what type of features, in terms 

of resolution requirements are necessary for 

these banks in terms of preparation, in terms of 

explicit requirement. 

One of the requirement that comes to 

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the attention in a proportionate way, is, of 

course, to have enough amount of loss of solvency 

instruments, so the LAC or TLAC. 

I can tell you that in Europe, we have 

a longstanding requirement, because it is in the 

legislation, European legislation that all the 

banks above 100 billion total assets have 

subordinated requirements. 

Which is not the issuance of a 

mandatory long term debt, but since of 

subordination to qualify for TLAC or in-bail, our 

LAC in Europe has to be above one year maturity. 

It is essentially similar to that. It 

is lower than the 18 percent of the GSIBs. But, 

it is a requirement that mid-sized banks have to 

have. 

And then, there is all the -- an area 

of work regarding the interaction between deposit 

insurance and resolution that have been reported 

in the U.S. here regarding level of coverage, 

type of coverage, regarding the benefits of 

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having a layer of subordination that of course 

sustains unsecured deposits from absorbing losses 

and could, in principal, have mitigated the 

effects of the runs. 

And then, there are other 

interactions, of course, between deposit 

insurance and resolution, particularly when you 

have a high amount of uninsured deposits, because 

clearly if they run all together, this has an 

impact also on the franchise value of the bank if 

you have then to resolve the bank. 

I would end with the last slides on 

some initial, my initial lessons then for the 

banking union. 

The banking union banks were not 

significantly affected by this volatility in the 

banking sectors and by the turmoil. 

However, there is no reason for 

complacency here. Because first of all, I would 

say the bounds of pre-implementation has to be 

finalized and it seems to me that really today or 

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tomorrow there will be the final decision of the 

co-legislators for the implementation of the 

Basel III. 

And, the other element which I will 

mention in a moment, at the end of the slides, 

the review of the crisis management framework, 

which is currently ongoing. 

And, to fix the shortcomings of the 

current framework regarding mid-sized banks. 

But, I will mention it in a moment. 

The other elements, as you see, are 

very much aligned with the report, communication 

and confidence, liquidity and resolution. 

We have in particular a single 

resolution fund and a backstop of the European 

system mechanism. But, when you have a G-SIB, 

the amounts at stake may be very, very big. 

And, therefore, all the authorities, 

including Central Banks, has to work in order to 

confirm the credibility of resolution. 

And, the crisis, they're quoting here 

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CMDI, it means crisis management -- or, it is 

mentioned correctly there. 

Your crisis management and deposit 

insurance framework to review what it does, 

essentially tries to fix the problem that emerged 

regarding mid-sized banks. 

Mid-sized here, the size is different 

from the regional banks. And, for us, it would 

be banks that would merit subordination 

requirements. When we speak of mid-size banks, 

are banks between 10 billion and 60, 70, maximum 

100 billion. 

And, some of these banks, particularly 

the smaller ones, are too big for liquidation. 

But, may have also problems and be dealt with in 

resolution. 

Therefore, in the past we have seen 

that rather than using the framework, the 

organized framework, there were other types of 

solution, a border line solution for certain 

cases. 

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And therefore, the proposal tries to 

fix this problem in this way, increasing the 

toolkit, providing that the national DGS, since 

we do not have yet the common deposit insurance 

system, the national DGS may intervene to bridge 

in terms of funds, to cover the losses 

essentially of the bank after the absorption of 

the LAC, until you reach the possibility to use 

the single resolution fund. 

In Europe, we have a threshold that 

has to be respected. It is the 8 percent in terms 

of total all funds of liability that has to be 

respected to access the single resolution funds, 

which is a fund made by contribution of the banks. 

And therefore, there is this 

possibility to use the national DGS to arrive at 

the single resolution fund when needed. And, 

after that, then the loss absorption of the 

instruments as they're taking place, if the loss 

is higher, of course. 

After that, the bank exits the system. 

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So, there is the use of transfer tools. The bank 

has to be sold to somebody else. And, this would 

facilitate the transfer in resolution. 

To deal with the crisis of mid-sized 

banks, essentially the DGS use would allow the 

transfer of the book of deposits. It is only 

used to avoid that the deposits would be bind-in 

where necessary. 

And, this would allow access to 

deposits and shield these depositors from losses 

where needed. It is on a case by case system 

decided by the competent authorities. 

And, in this case, this would allow it 

to prevent contention and maintain financial 

stability. 

Thank you very much. 

CHAIRMAN GRUENBERG: Dick? 

MEMBER HERRING: Thank you. Thank you 

very much for the FSB report. It was really very 

helpful in understanding a lot of very confusing 

news reports. 

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There were, I guess, three aspects 

that concern me. First of all was the direct 

opposite of the conclusion that the Swiss 

Minister of Finance is rather reported to have 

said at press conference that the kind of 

resolution thought of with regard to the whole 

set of principles, just wasn't workable. 

And, it may be that she was very new 

to the job and didn't understand it. But, it's 

obviously in complete variance with the report. 

And, I'm happy that the report 

concluded that. But, I'm also curious about how 

you squared the circle. 

I'm also interested in the extent to 

which they worried a lot -- worried at all about 

the too big to fail problem. This was a trick 

that Switzerland could play once, and they 

already had two large, too big to fail banks 

arguably. 

Now, there is one that is 

incontrovertibly too big to fail, and you don't 

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know what the next solution could possibly be. 

And then finally, the idea that you 

have to produce a restructuring plan immediately 

when you open a bridge bank, strikes me as overly 

ambitious. 

The bank itself tried to present a 

restructuring plan in January to encourage the 

market to believe they had a future. I think it 

was widely disparaged as not the convincing path 

too anywhere. 

And, it's asking an awful lot of the 

authorities to come up with a better plan the 

very day they take over the bank. 

So, I'm wondering if there isn't some 

other alternative way. Because I think, that's 

very, very ambitious. 

Actually, a final point if I may make 

it. Is the role of the SEC was rumored in the 

newspapers, you actually explained it very well, 

I think. 

But, it does call into question the 

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huge reliance we're placing on TLAC, if in fact 

it hasn't been pre-cleared with regulators, 

securities regulators around the world. 

If every time we use TLAC we have to 

renegotiate exemptions or prospectuses with 

securities regulators, it raises questions about 

how useful that TLAC tool actually is. 

MS. HUPKES: Yeah, okay, maybe on the 

credibility of the too big to fail framework, and 

I would agree that it was most unfortunate that 

the statement by the Swiss, or as it was reported 

in particular in the Financial Times, that the 

resolution didn't work, and up to today, I'm not 

sure, you know, how well the resolution plan had 

been explained and its execution to the Finance 

Ministry. 

I think subsequently, when the 

authorities have come back to this, in particular 

FINMA, stressing that it was, they were prepared, 

they had, they were ready to pull the trigger, 

everything was prepared, and I think key host 

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authorities also had been -- I mean, the U.S. and 

the UK had been working towards the resolution. 

They also confirmed that the mere 

availability of that resolution option helped to 

come to the, to facilitate actually to what they 

described as the preferred solution, namely the 

assisted merger, which in their view -- and, I 

mean, to be fair, it did preserve financial 

stability, and in that respect had been 

successful. 

However, I mean, there was clearly a 

cost to it in terms of more hazard and the 

credibility, I think, of the Swiss framework, and 

the question now is how credible is it with 

respect to UBS given that this domestic merger 

option will no longer be available? 

And just, I mean, on the restructuring 

plan and the credibility, I wonder, I mean, if 

you had done the, implemented the resolution 

strategy, you would have had recapitalized the 

Credit Suisse to 44 percent, so, and then had a 

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restructuring, maybe changed management or put in 

place a new CEO and -- I mean, even then this 

restructuring plan that had previously been 

envisaged, namely, you know, winding down the 

investment banking, coming up with -- I'm not 

sure why. 

I mean, it could -- why it shouldn't 

have been credible to Credit Suisse customers. 

So, I think the narrative was there and it was 

maybe a matter of communicating, quoting it 

effectively in connection with the resolution. 

MR. LAVIOLA: I would add that this 

was timely mentioned also in the report. So, it 

is difficult, clearly, ex post to assess the 

extent of the potential impact of bail-in of the 

bond holders. 

Some interviews that have been made, 

both in the context of this report and in the 

context of the Swiss expert group report said 

that, for example, many market participants 

thought that this was an idiosyncratic crisis and 

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that they expected a resolution. 

At the same time, while the Swiss 

authorities emphasized the risk of, you know, 

knock-on effects and uncertainty about, as it was 

said, market acceptance of standalone 

recapitalized entities, other authorities and 

private institution considered this potential 

risk to be much less serious. 

That's why I mentioned at the outset 

that in order to better, or to work better to 

understand the impact and the implication of 

potential bail-in in financial markets, one 

should also, according to the type of scenarios, 

work on greater optionality in resolution tools, 

which doesn't mean a tool to avoid the bail-in, 

clearly, because there are certain banks that 

have no other options, because otherwise you 

classify it too big to fail. 

And I would say on restructuring plan, 

you have to consider that some loss of some amount 

is also useful in a liquidity-driven crisis to 

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164 

make the coverage of losses during restructuring 

credible. 

And the Swiss authority, I think, when 

they mention if we had the full open bank bailin, we would have had a 73 billion conversion, 

essentially a 44 percent of AT1, which one says, 

but this is an enormous amount. You didn't need 

that, but they said well, but is the reason the 

restructuring, we try to factor in also potential 

losses coming out from the selling of certain 

legal entities, downsizing the investment bank or 

so on and so forth. 

So, you know, I think that to consider 

in certain cases, not necessarily always, but in 

certain cases, a greater availability of using 

tools also in combination, and I have to say it 

seems to me that in the case of the FDIC, when 

you use the bridge tool, which is classified in 

our jargon as a transfer tool, this doesn't mean 

that nobody loses anything, but on the contrary, 

all liability (audio interference) and so I'm 

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sure credit also, if there are losses, they pay 

the full. I mean, that with the transfer tool, 

you have no losses, this is not true, absolutely. 

On the SEC, here, you know, the 

agreement is there. Clearly, there are guidances 

of the FSB regarding also this aspect, you know, 

and also mentioned in reporting, in the 

reporting, but it is also true that when the case 

happens, you are confronted with a different 

situation. 

And before, we believed that more work 

has to be done in terms of increasing the 

awareness, both of the banks and of the 

resolution authorities, to be able to be sure 

that you qualify for the exemptions, or in any 

case, that you decrease the legal risk to an 

extent tolerable. 

I have to say that any legal actions 

that would be started by any clients that would 

feel, I mean, discriminated or not properly 

informed would not stop the legality of the 

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situation. So, this is not that you have a wind 

back of the operation. However, if there is a 

big uncertainty, this has an impact on the 

credibility of the situation. 

CHAIRMAN GRUENBERG: Thank you. Jon? 

MR. CUNLIFFE: Thanks so much, and 

thanks for both the report and the presentation, 

and I can say for the UK, we were ready to go and 

confident that this would have been very messy 

because no resolution is immaculate when you come 

to a G-SIB, and what happened in the end was 

pretty messy anyway. 

I very much agree with the statement 

that we have as yet had no convincing explanation 

of what the general risks were, and I've seen the 

FSB report, which Marty chaired. So, there is a 

kind of black hole there about what it was that 

changed the view over the weekend. I guess we'll 

never find out, secrecy being what it is in 

Switzerland. 

(Laughter.) 

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MR. CUNLIFFE: I had two questions. 

One is just a link back to the earlier discussion. 

So, Credit Suisse was solvent. It looks as if it 

was solvent now. I mean, the guarantee hasn't 

been called on the assets, and it was liquid. It 

has sufficient liquidity in terms of the 

regulatory requirements. 

What brought it down was a number of 

reputational hits over a period and a failed 

business model, because unlike many other 

European banks, after the financial crisis, they 

never actually managed to solve the investment 

bank problem and they went back to their 

shareholders several times, and the shareholders 

paid up, but nothing happened, and then one 

shareholder was unfortunately unwise enough to 

say we won't pay anymore, and that's what started 

it. 

But that link between the business 

model and a slow drain of profitability, 

investability, and a run, I think, is relatively 

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new. So, in the financial crisis, we saw the 

share price of banks really crash, but that was, 

I think, because of worries about, not about 

profitability, but about losses in capital. 

Here, you see the share price go down 

because of just worries about whether the bank 

will ever be profitable and sort itself out, and 

then the wealth management business in 

particular, the high net worth individuals 

started to move and move quickly, and I just 

wondered whether, when you looked at that, is 

that completely idiosyncratic, or are we now in 

a rather different world? 

It comes back to today's discussion, 

and this is not to do with interest rates because 

this has been going on for a number of years, but 

where actually the kind of slow bleed of 

credibility in a bank's business model can spark 

a liquidity run, and that, to me, was a kind of 

new thing about this, and then that goes to the 

supervision, back to supervision again, which is, 

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you know, we're used to looking at capital and 

liquidity. Maybe we need to look more at 

investability if I can put it that way. 

And the question, the second question 

is more technical. The disenfranchisement of UBS 

shareholders, was that simply an operational 

thing because there wasn't -- it would have taken 

a number of months to have the shareholder vote 

and they didn't have the time, and they wanted 

certain, or was there a real resistance there on 

UBS shareholders? 

One heard rumors that there were cross 

shareholdings, that some shareholders were both 

in Credit Suisse and in UBS, and were threatened 

to basically derail the transfer unless they got 

a better deal for Credit Suisse, so -- because 

that's -- I don't know about the U.S. but in the 

UK, I think emergency legislation to remove 

shareholders' rights -- to force somebody to buy 

a bank would be rather difficult in Parliament, 

so, but --

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(Laughter.) 

MR. LAVIOLA: Well, I will address the 

first question because to the second one, I'm not 

sure I have the answer. On the risk that brought 

Credit Suisse down, I think I would agree with 

you, Jon, that --

I mean, the main thing, and this is 

linked to the idiosyncratic aspects, I think, is 

that their business model, notwithstanding the 

efforts made over the years, was not convincing. 

That's why you have seen in the chart that there 

was three years that the shares was going down. 

And before, at a certain point, you 

know, when you have not addressed since a long 

time this fundamental issue, it is enough a 

volatility like that one that was created in the 

U.S. crisis, that at a certain point starts a 

panic-driven behavior. Now, is this bank run a 

new paradigm that you have to look more at 

profitability and sustainability of the business 

model rather than capital only or liquidity? 

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I think that we will have to address, 

both from the supervisory and resolution point of 

view, the impact of this digitalization and 

social media, et cetera, but I think that these 

are certainly factors complicating the issue, you 

know, but they were not the root cause of the 

crisis. 

So, that started the crisis, but the 

crisis was underlying there since some time, I 

would say, and so this was the trigger. So, I'm 

not so sure that it is only the fault of this 

coordinated behavior and this type of factors, 

that in the end, that caused this event. 

So, we will have to see, and certainly 

something in the case an uninsured deposit has to 

be done in terms of monitoring concentrations. 

There are various proposals going around, but I 

think that essentially you have to address the 

business model, and before the work of 

supervisors, particularly in terms of, I mean, 

addressing the governance of the bank and the 

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credibility of the business model, so kind of a 

more holistic approach and not only look at the 

standard rules is here. 

MR. CUNLIFFE: I would only say they 

were idiosyncratic, but not that idiosyncratic. 

There are a number of banks with, you look at 

price to book values, and a number of banks try 

to resolve problems around investment banks and 

the like. This is not -- I mean, it's not the 

only example of that sort of thing. 

CHAIRMAN GRUENBERG: Rodgin? 

MEMBER COHEN: Just a word on this 

securities law issue, which seems to be so 

pervasive. I think it is close to, if not the 

unanimous view of the securities law bar that 

bail-in is not a second sale or issuance of a 

security. 

But if the Commission is not prepared 

to go there because of precedent or whatever, 

there are two quite simple solutions. One, they 

can issue an exemption, or second, they can do a 

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no-action letter, and what you do is attach to 

the exemption or no-action letter a form of 

disclosure, which would be the typical 

disclosure, and say if the disclosure is 

consistent with this, then you're entitled to the 

exemption, and if there isn't a further worry 

about secondary market trading in the future, you 

could simply say look, the security can be 

delisted unless there is a filing within X 

amounts of pro forma financial statements. So, 

I don't think this -- I realize this was a very 

serious issue, but I don't think it's a very 

serious issue to resolve. 

CHAIRMAN GRUENBERG: Thank you. Elke? 

MS. KONIG: Let me build a bridge on 

Richard's comments. I think by my short take, 

the Swiss have resolved a problem remarkably 

fast, quite weird, and created a bigger problem, 

now having a giant bank in their country. And to 

reflect on the European Union, now the emergency 

regulation, you said you would have an issue with 

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Parliament. I think it just doesn't exist. So, 

this would not work. 

Second, I'm not sure whether we should 

really wish for preparing for a merger of a GSIB with whom? Now they merge the two G-SIBs 

within one fairly small country. In most other 

cases, there's one G-SIB and you need to find a 

neighboring country G-SIB to acquire. 

I'm not sure now to take Company A in 

Country A that Company B in Country B will be 

very much excited to lend their shoulder to a 

failing giant. So, I think we really need to 

work on the idea of open bank bail-in, not for 

resurrection, but for then having the time to 

slice and dice. 

And then that gets me to another 

argument which came out. The FT was very good in 

keeping us informed on what was going on Credit 

Suisse, but they also kept us informed in summer 

that the white knight made excessive profits. 

And I think there that at least the 

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presumption that such an orchestrated acquisition 

creates an option for excessive profits compared 

to a proper auction process is a given statement. 

So, I think this also needs to be considered, and 

my short take would therefore be not to be 

repeated. 

(Laughter.) 

CHAIRMAN GRUENBERG: Thank you. 

MS. KONIG: So, it was more a 

statement than a comment, but I think the white 

knight, we still need to look into, and to see -

- well, you will find out in ten or 15 years 

whether it was really a profitable deal or not, 

but it is at least a topic also to be addressed. 

MS. BAKER: So, yeah, I would agree it 

should not be repeated. This is probably as much 

a comment as a question, but I'd love your 

reaction because I'm getting this question a lot 

as I talk with folks about what happened last 

spring. 

It seemed to be that if resolution 

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planning and new resolution authority should have 

worked, it should have worked here. I mean, this 

was a slow, very slow train wreck. It was 

idiosyncratic in the sense this was a mismanaged 

bank. There are other banks that have the same 

issue, but still there is not some widespread 

market meltdown that the regulators were dealing 

with. 

And some in the FSB, both of you had 

excellent presentations, but some of the problems 

that they ran into should have been anticipated 

and resolved far ago, long ago. And I just 

wonder, you know -- I think we owe it to the 

public. Are we serious about this? Do we want 

to end too big to fail? Because it's getting 

worse, not better. 

All the hard work that's gone into 

this is not panning out the way we thought, 

including with, you know, a classic systemic 

institution, that if anything should have worked, 

it should have worked here. So, will it ever 

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work, right? So, we solve the SEC problem, we 

solve this problem. 

With that, is there some five more 

things that are going to come up the next time 

this happens? Then we have to go and explain to 

the public oh, I'm sorry, we just made banks 

bigger again because we couldn't figure out how 

to do it on a standalone basis. 

I just don't think that's fair to the 

public, and it's not -- it puts us all, and I was 

one that strongly supported new resolution powers 

and Dodd-Frank in Europe because I believe they 

can work. I still believe in them, but people 

have to take them seriously, and do the 

preparation work, and be willing to execute on 

that. 

And if we're not going to do that, we 

need to think of other strategies to deal with 

too big to fail, and maybe we do that in 

conjunction. Tim talked about the competitive 

disparity we're seeing now with uninsured 

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deposits between too big to fail institutions and 

regionals. It's squeezing the regionals. 

You know, maybe we -- because, see, 

too big to fail is bad for a lot of reasons, but 

the competitive distortions is one that is quite 

serious and getting worse now. So, again, that 

was a comment but also a question. Is it ever 

going to work and how do we explain this to the 

public, I guess? 

MR. LAVIOLA: It is true that maybe 

some of the problems should have been 

anticipated. It is also true, I would say, that 

when you are confronted with the real situation, 

it is always difficult. Even the speed of this 

crisis was a surprise. 

And as was said today by the 

colleagues of the FDIC, I mean, even though the 

procedures worked, I mean, they knew in principle 

what to do, but it had to be done in a very 

compressed time for banks that were a threat to 

stability, but were not a G-SIB. 

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My perception is the work done until 

now has been a good one, so a profitable one. 

Clearly, I think that it works and it can work if 

it's put in practice. The issue of the securities 

laws, I agree with what was said, saying that I 

think that it is solvable, so it can be addressed. 

It is also true that, as detailed in 

the report, you know how it works, that the staff 

of the SEC contacted because of that, because 

Credit Suisse had, of course, a lot of 

instruments in the U.S., was made part of the 

crisis management group, but the exemption, the 

opinion on the exemption was given by the 

counselor, by the lawyer of the bank, not by the 

SEC. They don't say yes or no. They assess it. 

I suppose they can suggest, advise, et cetera, 

but they said if you don't prepare beforehand, 

this is going to be an issue. 

And then there is a certain amount of 

disclosure concerning the anti-fraud regulation 

has to be in any case observed, which was 

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something that I'm not sure that everybody across 

the world was aware, I have to say, to be fair, 

and for this regard, a certain debate and work. 

In Europe, a lot of work had already 

been done for this, also with the help of a law 

firm, and before, we were relatively sure that 

there was no problem. Now, of course, we are 

doubling the efforts in order to be double sure 

that it will work, and this is where we are. 

MS. BAKER: It shouldn't count as TLAC 

if it doesn't work, right? So, maybe that would 

provide a strong incentive for the banks 

themselves to get engaged with the SEC and get 

this problem solved, because it shouldn't count 

as TLAC. If it's not real, then it shouldn't be 

in. 

MS. HUPKES: That's what our TLAC term 

should actually say, that it has to be shown that 

it is executable. And I would agree, it's not 

just the exemption, but also the disclosure 

requirements and the risks that inaccurate 

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disclosures could have, I mean, criminal 

sanctions that are somewhat a deterrent there. 

But, I mean, I couldn't agree more 

with Sheila that actually the reason we invented 

bail-in after the global financial crisis was to 

avoid the, not having any choice but to merge 

banks and resolve crisis in that way, and since 

then, I would think also having --

I think being involved in the work at 

the resolution steering committee, I think at 

times it's not easy to keep up the momentum to 

keep actually the focus on resolution planning. 

It's not something that happens, you know, all of 

the time, so, I mean, how do you keep prepared 

and keep -- make sure that you have the resources 

available, and actually the training and 

practice? 

So, we -- I think that's why it's been 

-- it's good that more and more focus is on doing 

simulations and fire drills to test and do that 

also with foreign regulators, and including also 

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at a domestic, in a domestic setting. 

I mean, that was also a finding that 

in Switzerland, maybe the communication amongst 

the domestic authorities hadn't been tested, and 

now we know that everything has to go even faster. 

And so, you know, ex ante simulations, testing 

are critical to remain prepared. 

CHAIRMAN GRUENBERG: Dick? 

MEMBER HERRING: I wanted to try to 

make a link between this discussion and the 

discussion in the first session, and that is that 

in each of these cases, the banks that failed or 

that needed to be merged were highly capitalized 

as far as the regulators were concerned, had very 

strong liquidity ratios, were, in fact, signed 

off on by their accountants, in the case of the 

U.S. just a week before, saying they were just 

fine, yet they weren't. 

And I think it goes back to a 

fundamental problem, A, in the way we measure 

capital, but I won't go there, but it does result 

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in a fundamental problem with the flimsy way 

we've tried to avoid defining non-viability. 

These were all kind of cases of non-viability 

that would have warranted earlier intervention. 

In a way, waiting until you've had a 

vast liquidity run, it's just too late. There 

really are no good options at that time, but if 

you can intervene earlier, which would require a 

better definition of non-viability, we might make 

more progress with the problem. 

CHAIRMAN GRUENBERG: Anyone else? 

MR. LAVIOLA: I think in the 

supervisory report of the Basel Committee is that 

the reason mentioned is this thing, that rather 

than -- I mean, in addition to, of course, to 

looking at the ratios of capital and liquidity, 

and all the various other indicators which are 

objective measures, but are also backward looking 

if you want, a number of other not necessarily -

-

I mean, already measurable indicators 

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184 

have to be developed in terms of a holistic 

intervention in order to fix maybe problems in 

the business model, because in certain cases, 

there was clearly a problem of the business model 

even though the ratios were respected, as you 

said. 

On the other hand, there is clearly an 

issue of the boundary with the legality of the 

intervention, so to structure earlier invention 

is clearly, I mean, what should be done, but the 

legality of the intervention where the bank 

respects all of the former requirements is, of 

course, at stake. 

And before, you have to probably use 

more persuasion, persuasive measures, but also to 

take other measure that are not only to increase 

capital or other things, because in certain 

cases, this doesn't fix the problem. 

If you have to change a process to 

have more capital, it's a punishment, but if the 

bank doesn't want to change the process, it 

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185 

doesn't change it, so there is nothing that makes 

this change into possible, and to use all the 

battery of tools that the supervisors in reality 

have. This is what also is discussed in the 

supervisory report. 

CHAIRMAN GRUENBERG: Yeah, Don? 

(Off-mic comments.) 

PARTICIPANT: That was a great segue. 

MEMBER KOHN: The implications for 

U.S. G-SIB, it would be really great to hear what 

you guys think about that. And I want to in 

particular, drawing on this discussion, think 

about the last two bullets. 

One is the criticality of effective 

restructuring planned to address the cause of 

failure. As Jon has emphasized, the cause of 

failure has been bad business plans, so that 

implies a huge restructuring. I mean, it's not 

clear if your -- if the whole business model isn't 

working, the restructuring is going to be major. 

And then the risk of negative market 

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reaction must be anticipated and managed, and 

obviously, there is all of this risk of negative 

market reaction to TLAC, bail-in, and the 

circumstances under which, so how are you 

thinking about anticipating and managing that? 

MR. TETRICK: Well, I'll pick up from 

there, and thanks for that invitation, and I'm 

going to actually -- I think the first point is 

the most important one, so I'm going to end on 

that point actually and go through the others 

first. 

So, and some of these things have been 

observed already. You know, Credit Suisse was in 

many ways an interesting counterpoint in terms of 

the cause and speed of failure to the U.S. bank 

failures. There was a very sudden failure in the 

case of the regional banks. 

In Credit Suisse, I think we had as 

long of a runway as you could hope for. I mean, 

we started preparing in the fall. We were, you 

know, prepared to support the resolution in the 

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187 

fall and you had until the spring, so it was, you 

know, more than six months. That's as much as 

you could hope for in a G-SIB resolution. 

And then I think it is interesting the 

points about, you know, the core metrics that we 

typically look at. Their CET1 ratio was healthy. 

Their liquidity coverage ratio was good compared 

to other banks, and so it just shows that 

institutions can fail in a variety of ways. 

I will say the preparation that we 

did, I think the two reports accurately describe 

that that was pretty effective preparation that 

the Swiss authorities led. There was an ability 

to, you know, organize across jurisdictions, to 

address both, you know, strategic issues, 

technical issues throughout the process, and, you 

know, I think Jon Cunliffe noted that in the UK, 

they were prepared to support the resolution. 

We were of a similar view in the U.S. 

and expected to support a resolution both in the 

fall and again in the spring. Maybe there were 

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some issues about non-CMG members that are 

lessons learned, but I bet there's an effective 

way to manage a crisis management group in an 

actual crisis. 

The point about the restructuring 

plan, you know, this ties back into the way in 

which they failed, that the sort of overriding 

point is that bail-in of the TLAC debt isn't 

enough. That's just a starting point. So, in 

this case, there wasn't an underlying capital 

issue, so bailing-in the TLAC wasn't going to 

address that issue. 

I take your point earlier that, you 

know, announcing a complete restructuring plan 

that's got everything sewn up at the time of 

initiating the resolution might be a lot to ask, 

but there needed to be some longer term, and I 

think the Swiss authorities were cognizant of 

this, way to address the underlying business 

model and risk management issues here if there 

was going to be some piece of this that survived 

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189 

and operated over the longer term, and that might 

have just been following through more 

aggressively with the restructuring plan that the 

firm had already announced and taking some other 

actions. 

It's a reason why we in the U.S. place 

a lot of importance in the Title I plans on 

separable components and objects of sale, so that 

we have a variety of options that are more readily 

available when an institution fails. 

And then the last point, I'm going to 

borrow Jon Cunliffe's phrase because it was 

great, there's no such thing as an immaculate 

resolution. The resolutions involve costs. They 

involve uncertainties, and those need to be 

anticipated and managed. 

And so, in this case, the costs would 

have been borne by TLAC holders, and any single 

point of entry resolution, the costs should be 

borne by TLAC holders that are in a position to 

do that. 

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We think that you can bail in TLAC 

holders and that market can continue to function 

otherwise, and there might be some uncertainty 

around other G-SIBs. The goal of a resolution is 

to make sure that that's contained, and 

temporary, and managed so that there's not knockon effects. 

And so, just with that, returning to 

the first point, I mean, to be clear, we don't 

think that there are other good options available 

to us for G-SIB resolution in the U.S., and single 

point of entry very much remains our focus, both 

under bankruptcy and under Title II. 

You know, we think that we have all of 

the key pieces in place to carry out a resolution 

of a G-SIB under Title II. And as the Chairman 

noted at the top of the session today, we'll be 

publishing a paper in short order that goes into 

considerable detail on how we expect that to 

work. 

CHAIRMAN GRUENBERG: If I can add to 

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the conversation here, Credit Suisse was the 

first G-SIB since the 2008 crisis effectively to 

fail, and there's no way around it, the Swiss 

blinked, and that's a source of considerable 

frustration to the other key jurisdictions that 

have been working for ten-plus years on this, and 

my colleagues here to my right from the UK, from 

the Europe, as well as the U.S. share that. 

You know, we've -- and I think Ryan 

made the point we think we've put the pieces in 

place to execute an orderly resolution of a GSIB, and the frustration here in part is that to 

a significant degree, the Swiss had also, but 

they were not willing to pull the trigger, and 

that really goes to the Swiss, frankly, the Swiss 

officials and authorities and the judgments they 

made, which we probably wouldn't agree with in 

all candor. 

But it's problematic because it's 

created the first precedent since the 2008 crisis 

and that's, frankly, something that we in the 

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U.S., as well as the UK and Europe, are going to 

have to deal with going forward. It creates --

and the questions are fair and reasonable to ask 

in light of the Swiss experience. 

And I think we're just going to have 

to deal with it and, you know, Ryan mentioned the 

paper we're going to be coming out with to try to 

add more granularity as to how we might approach 

this, but there's a consequence for the first 

example since the 2008 crisis to have gotten this 

way, and I think going forward, we're simply 

going to have to deal with that. I don't think 

there's any way around that. 

MEMBER REED: If I could just suggest 

a tool, and for all I know, it is used. It's 

obviously confidential, but the one thing that 

could cause a bank to recognize that even its 

statistical measures look great, there's question 

of other dimensions, is the board of directors. 

Now, I don't know to what extent 

regulators meet and have serious, I don't mean 

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perfunctory, talks with boards, but it seems to 

me in my experience running a bank that that is 

where, if the management is off track, the board 

is there to sort of, if necessary, change them, 

but to at least be there. 

And I don't know if it's a tool that 

could be publicly broadcast, could be written 

into legislation in any way because it would be 

impossible to describe it, but I could assure you 

that in my experience, had regulators come to my 

board and said hey, we really think you guys are 

going in the wrong direction, it would have 

caused a very serious reaction. 

And so, I don't know if this is a tool 

that exists, doesn't exist. The Bank of England 

was famous for exercising that kind of judgment, 

and I have occasions where I heard from them, and 

it strikes me that it is a tool that people should 

be cognizant of, even if you can't write it down 

on a piece of paper. 

CHAIRMAN GRUENBERG: Any other 

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comments? In that case, I think we'll break for 

lunch. Thank you all, and thanks to Ava and 

Sebastiano. 

(Whereupon, the above-entitled matter 

went off the record at 12:37 p.m. and resumed at 

1:52 p.m.) 

CHAIRMAN GRUENBERG: Jenny, let me 

turn it back over to you. 

MS. TRAILLE: Sure. Thank you, 

everyone. Our next session is focused on large 

bank strategy and resolution options. 

We have our FDIC panelists rejoining 

us here, and then also Deputy Director Shawn 

Khani, to speak to the session. And to start it 

off, I will turn it over to Ryan. 

MR. TETRICK: Hopefully, you'll just 

here me once. No, that's twice. 

(Off mic comments.) 

MR. TETRICK: So, we're going to turn 

back to large banks we discussed earlier today, 

how we got into resolution, ran the bridge banks, 

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and the sessions about how we got out of 

resolution, or are still getting out of 

resolution. 

So, we can turn to slide 28 here. We 

discussed in the last meeting of this committee 

some of the challenges that we anticipated in 

marketing large regional banks. And then we were 

confronted with those challenges this spring. 

Some of those challenges are listed 

here. They were compounded by the significantly 

truncated timeline that we experienced, and one 

of the messages of this session is that while 

these challenges were ultimately overcome, and 

that we were able to sell each of these banks, we 

don't think the lesson from that should be that 

we can rely on large bank sales as an exit from 

a regional bank resolution. That's something 

that is possible, but an uncertain prospect. 

There was significant interest 

expressed to the FDIC. And considering bidding 

on these banks from institutions of a range of 

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196 

sizes, as well as from non-banks, but ultimately, 

there were few bidders that were able to submit 

strong bids that were able to compete with the 

costs of liquidating the banks. 

We were also confronted with the 

challenge of balancing the need to provide 

sufficient time for due diligence for the bidders 

to formulate their bids, with the goal of exiting 

quickly, before value deteriorated and 

compromised the opportunity. 

These banks occupy unique niches and 

had some unique asset portfolios, which also made 

it a challenge for bidders to evaluate the 

acquisition opportunity, both from a valuation 

perspective, and to assess whether they were good 

strategic fits for a merger. 

And then we really needed to look for 

ways to shrink the size of the transaction, so 

that more banks could compete and participate in 

the bidding process, which meant that we had to 

leave behind significant pools of assets in order 

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to undertake these resolutions. 

In fact, turning to the next slide, 

part of the message that'll come through here is 

that our job was hardly, if even half-finished 

when we completed each of these bank 

transactions. 

I'll go through the top few rows here, 

and just touch on the bank sales. And then Shawn 

Khani's going to go through the bottom two rows 

and talk about the work that we've been doing on 

asset dispositions out of the receiverships. 

We won't go through all the detail 

here, just touch on a few points overall and a 

few highlights for each of the transactions. 

First, I'll note that while in each 

instance there's what we call a holding bid that 

won, and that, effectively, all the deposits were 

assumed and most of the assets were acquired. 

We were express in welcoming nonconforming bids. We were looking for whole-bank 

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198 

conforming bids, to maximize the likelihood of a 

sale. 

And similarly, we were not encouraging 

or discouraging bidders of any particular type, 

whether it was midsized banks, G-SIBS, non-banks. 

What we wanted was competition, and as much of it 

as possible. 

I'll say that at the end of the day 

for each transaction, of course, cost was the 

determinative factor. We were looking at a range 

of bids that we received, and simply assessing 

those, and obliged to pick the one that resulted 

in the least cost to Deposit Insurance Fund. 

And another sort of interesting 

feature, generally, is that depositors were 

ultimately attractive to the winning bidders in 

all cases, both insured and uninsured depositors. 

That's not too surprising, given how 

important that the uninsured depositors were to 

these particular banks and how connected those 

depositors were to particular lines of business. 

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But it's a noteworthy outcome in each instance. 

For Signature Bank, which is the first 

bank that we sold, the acquiror, New York 

Community Bank, and their subsidiary, Flagstar, 

was a good strategic fit for that bank in that 

they were sort of crosstown rivals. 

But a consequence of that was that as 

part of the reason why a large portion of the 

loan portfolio was left behind in the 

receivership, because it would have been 

problematic for Flagstar to then have a huge 

increased concentration in the same market. And 

so, that resulted in the significant loan 

portfolio that we've been handling in the 

receivership for that bank. 

With Silicon Valley Bank, we were 

particularly aggressive in expanding the 

marketing of that institution. 

So, we solicited not just whole bank 

bids, but also bids on SVB Private, their wealth 

management line of business, and then also bids 

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on pools of assets. So, we segmented their loan 

portfolio into fifteen different tranches, and 

were seeking asset bids at the same time we were 

seeking bids on the whole bank and on the wealth 

management business. 

This was important given the relative 

complexity of Silicon Valley's business and the 

fact that we wanted to do everything we could to 

arrive at a positive outcome. 

It also made, once we actually 

received bids, our job more complex over that 

week in comparing a variety of different types of 

whole-bank bids and asset bids, and bids for 

lines of business. 

Ultimately First Citizens was the 

winning bidder with a whole bank acquisition, and 

as anticipated in any transaction with that bank, 

the left behind the large underwater securities 

portfolio that was part of the cause of that 

bank's failure. 

And then with First Republic, it might 

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at first look like what happened there was 

something a lot more like an ordinary FDIC bank 

marketing process, in that the announcement that 

the FDIC was appointed as receiver, and of the 

winning bidder, was made at the same time. 

And it's true, we had a lot more time 

to -- we talked about time to prepare for the 

bridge for First Republic if we needed it. We 

had a lot more time to market this institution, 

to pull together the full set of ordinary 

information that we get to build a data room to 

update that a couple of times. 

However, because there had just been 

this significant turmoil in the banking sector 

and there was a tremendous amount of attention on 

First Republic, and that bank was in a 

particularly fragile condition, it made advance 

marketing of that institution, the way that we 

ordinarily do it, quite risky. 

Because there was a real concern about 

leak risk and precipitating a failure earlier 

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than it might otherwise occur. 

And while we now know the bank failed 

on May 1st, it wasn't clear during this period 

when it might fail. There was a lot of 

uncertainty about whether it would zombie march 

on just for a couple of weeks, or a couple of 

months, or a couple of quarters. 

And then I'll also note in that 

transaction, that JPMorgan acquired essentially 

all of the assets of the bank. But they were 

competing bids that would have left behind huge 

pools of the loan portfolio. And so, it just 

underscores that even though it wasn't the 

outcome in this transaction for regional banks, 

asset disposition is really a big part of the 

job. 

And so, with that, I'll hand it off to 

Shawn to go through some of the work we've been 

doing on that front. 

MR. KHANI: Thanks, Ryan. So, my name 

is Shawn Khani, Deputy Director, Asset Marketing 

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Management. So, I'll start with that. 

So, actually, a lot of numbers here on 

this screen. I'm not going to hit every point, 

but I'm just going to highlight some of the key 

transactions that had occurred. 

I'll also highlight that when this was 

all occurring, March 9th was also my anniversary, 

so the shock-and-awe was also felt by my wife 

that night. 

But a couple of real highlights. If 

you look at the securities retained, when 

combined, it's $114 billion face of securities. 

That's between the two major retained portfolios 

from Signature and SVB. 

In addition, we had about a 

$33 billion CRE portfolio from Signature, that 

was essentially concentrated in New York City. 

So, very unique challenges. We also 

had additional exposures from SVB in various 

foreign jurisdictions. So, the scope of the work 

that was upon us was very significant. 

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And it was a lot of discussion earlier 

today about communication and operational 

strategy. The communication does not end once we 

basically pass resolution weekend. 

So, a case in point is the securities 

portfolio had significant concerns for markets, 

both from a standpoint of the various asset 

classes, which in this case across ten different 

asset classes, but just the markets clearly 

realizing that this is one of the reasons why the 

banks were under stress, or had a run. 

And so, how we were to essentially 

resolve these assets had to be orderly, in order 

to not cause further disruption or knock-on 

effects. 

So, how do we do that? One is clearly 

from a communication standpoint. We had to put 

out a press release. This is something that we 

typically would not do. But at this scale that 

we were operating, we had to make sure that people 

knew what the game plan was, essentially. 

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The second thing that we had to focus 

on was the fact that we had to make sure that 

everyone was not only aware of the game plan, but 

that we really had a gradual and orderly pace. 

What we did not want to do is any sort 

of a fire sale of any kind, which there was a lot 

of speculation, the fact that some of these 

subsectors ceased trading altogether, in 

anticipation of our move. So, that was 

troubling. 

We also didn't want to rush anything, 

because, again, with that many securities, 

operationally, you have to set up sort of a backoffice, middle-office, front-office operation, 

in a matter of weeks. 

So, we could not rush that process. 

We don't want to fail trades, we don't want to be 

necessarily utilizing a custodian of the bank 

that had failed. 

While we have an interim service 

relationship with Flagstar, there's a tremendous 

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amount of operational challenges. We had to kind 

of centralize that operation first, and then 

start moving with our financial advisor. 

We also did this with close 

coordination -- this gets back to the 

communication again -- with our U.S. Treasury, 

Federal Reserve, FHFA, along with market 

participants that wanted to discuss our plans. 

We even consulted with our bridge bank 

CEO. So, Tim and, of course, Greg Carmichael. 

So, with that, a lot of communication, 

just to reflect on the strategy, that it will be 

gradual, that we did not want to disrupt markets, 

and then we also wanted to have robust 

competition. So, we put out information to how 

someone would register. 

We wanted to make sure that given that 

most of these securities are electronically 

traded, we wanted to make sure that we operate 

under standard market practices. So, we traded 

the way it's expected to be traded. 

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So, we don't take a discount as a 

result of that, or, again, kind of fall out sort 

of off-the-run-type process that is not conducive 

to liquidity, where we take a deep discount. 

So, one of the things we did was, we 

had to also make sure that we were getting 

independent pricing and color constantly. Like, 

daily, or within the day, just to make sure that 

we weren't disrupting any markets and were 

keeping sort of our ears to the ground while this 

process is rolling. 

So, took a few weeks to get it 

operational. And after that, we had 

26 consecutive weeks of sales between two to 

three auctions a week. 

And somebody mentioned zero risk. 

think Gary Cohn mentioned it. So, these are zerorisk-weighted assets. But the liquidity is 

challenging with this size. Right? 

So, we tried to target between four to 

eight percent of daily trading volume. So, that 

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208 

was dependent upon the week -- the day, 

literally -- of how these things were trading. 

We had to go out slow in the 

beginning. Because, again, a lot of people were 

just not trading at all, once they realized we're 

not going to fire-sale it and we're just going to 

kind of move forward in a gradual pace, orderly 

pace, and we were able to see that the market 

started to actually pick back up, demand started 

to increase as well. 

And we ended up, through the course of 

that operation, we sold nearly $99 billion. 

That's over 5,900 trades. So, that was a 

significant operation that occurred. 

And the fact that it didn't make the 

headlines, other than maybe early on in the 

process, was kind of the point. Right? We didn't 

want disruption. 

The one area that we did have to pivot 

a bit -- so, this gets into liquidity -- was the 

Ginnie Mae project loan securities. 

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It's a significant portfolio. 

Essentially, it's a buy-and-hold bank paper. 

Again, it's zero-risk-weighted, but very thinly 

traded. So, we had about a year's worth of 

trading of volume on our balance sheet. 

So, how do we avoid that? We actually 

pivoted to doing a securitization with an FDIC 

guarantee. That takes it out of that market and 

allows that market to kind of function again, 

recognizing that it won't enter that market in 

the same form that people were expecting. 

So, we had to do some pivoting there. 

But ultimately, that encompasses the large 

majority of that securities portfolio that we had 

to manage through. 

Now, as receiver, so we have a bunch 

of obligations under statute. There's maximizing 

recoveries, minimizing losses, ensuring adequate 

competition, prohibiting discrimination, but 

also maximizing preservation of the availability 

and affordability of low- and middle-income 

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affordable housing. So, this is on the 

residential side. 

So, the reason I'm mentioning that one 

more prominently, because that came into 

significant play with the CRE portfolio. 

And this CRE portfolio is still in 

process of closing. It's actually closing this 

month. So, I can't speak to some of the details 

around it. 

But I can tell you that $15 billion of 

which were rent-controlled, rent-stabilized, as 

well as Section 8 housing. 

So, that needed an additional hightouch approach. First, it's very concentrated in 

New York City, so just a sheer market 

concentration is a challenge. 

Second is just doing the due 

diligence. So, a lot of people said that there 

wasn't enough time for anyone to have enough 

runway to bid on these institutions. 

We have the same issue. Post-closing, 

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we didn't have a lot of information. It took us 

weeks to just get our arms around the data. We 

even partnered with city and state officials, 

through information sharing agreements, to see 

what data they have. 

Just to decipher the portfolio. To 

get the understanding of where it's at. And of 

course, we're going to leverage the staff and the 

data that the failed bank has. But you still 

have to do your own homework. And that was 

important. 

The second thing we didn't want to do 

was rush it. We didn't want to have a misstep. 

Similar to a securities portfolio, we don't want 

to rush out there to market and suddenly have to 

pivot, re-message all that stuff. That would not 

instill confidence. 

So, we need to make sure, how do we 

address all these statutes, including the one I 

mentioned on affordability? 

And so, we landed on a couple of 

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things strategically. Well, really three things. 

One was to leverage our ability to do 

joint ventures. So, this is a partnership where 

we can hold a majority ownership stake, 

particularly with this portfolio. 

The second thing was really to focus 

on the fact that we had to have a stringent sort 

of oversight of these things, post-close. Even 

though we're holding an ownership stake, people 

might want to know, what's your game plan for 

seeing it through? 

And then, of course, we need to have 

an appropriate operating agreement. So, that 

takes several months. We didn't have one that 

particularly addressed this type of portfolio and 

these unique challenges. So, we had to take some 

time. And it took several months to kind of get 

it all together, in terms of the data and so on. 

And there was a lot of outreach, 

similar to when we said communication. I 

mentioned city and state officials, met with the 

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attorney general, the comptroller, we had 

attended town halls. 

And I literally met personally with 

every single tenant association that wanted to 

meet with the FDIC. 

So, the point of that was we wanted to 

make sure we're not missing anything. But also, 

we wanted to make sure that people got the same 

message at the ground level, because there was a 

lot of speculation about what our intent was, or 

what's going to happen, what the outcome would 

be. 

So, that required a very different 

process than securities. But nevertheless, 

communication was a big component, but also being 

thoughtful about the approach. 

Now, this transaction is closing this 

month, like I mentioned. But those principles 

are where we feel we had enough thoughtful 

approach to basically getting it right, so to 

speak, at the end, making sure that all 

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214 

constituents are, I don't want to say satisfied, 

but at least aware that we did our best to address 

all of our statutes. 

And then I will say another similar 

piece of the puzzle was really within our 

international operation. I just want to 

highlight one quick thing is the German 

operation. 

So, we were talking about, with 

respect to some of the operations that occur, 

even though they're not significant in terms of 

what we would think about in a G-SIB and the types 

of operations where we worry about shared 

services, operational continuity -- we still had 

to think about operational continuity from our 

perspective. Right? 

And that's working with regulators at 

BaFin, to recognize our receivership resolution 

process, and also to work with employee 

retention, working with employee laws which are 

different, getting a financial advisor that can 

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operate in this area, to conduct sales. 

It was a significant operation for us, 

given that it was overseas, and I'm not 

mentioning the other areas. 

But that's another example of making 

sure that we coordinate with our regulators 

overseas to get that process correct. 

So, I'm trying to go as fast as I can 

on this. But that's basically some of the 

highlights from the asset sales and dispositions 

that we've done to date. 

MR. TETRICK: So, we'll turn to 

slide 30, and then we'll take some questions on 

this session. So, as Shawn has gone through, we 

had a considerable job to do out of the 

receiverships. The large bank sales was 

ultimately achieved, but a pretty uncertain 

prospect for a period. 

So, we've talked about some of the 

challenges. What can we do about those 

challenges? Some of the things that we're 

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focused on here in the opportunities column on 

the right-hand side. 

But I think the main message here is 

that there's still a significant strategy problem 

for large regional banks. 

It's possible to sell large banks, but 

not always going to be an option that's available 

to us and not one that's going to be available to 

us with a high degree of confidence. 

The alternative of liquidating a large 

bank is going to be highly disruptive and value 

destructive, and is unattractive for a large 

number of reasons. And there's just not 

currently other reliable good options that are 

available to us for banks in this category. 

It's probably the case that for 

regional banks there's not going to be a onesize-fits-all solution. So, unlike for G-SIBS 

with single point-of-entry, for regional banks 

strategy's probably going to be more dependent on 

the particular bank and the particular scenario 

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in which it fails. 

But we do want to do the things that 

we can to make a large bank sale more likely, 

more likely to occur at a lower cost, and a wider 

range of scenarios. 

I'll run through some of the things 

that we're doing here, and would be interested in 

the committee's views on improving the strategic 

options for these banks. 

Obviously, we'll talk more in the next 

segment about the proposed long-term debt 

requirement. But that can play an important role 

in internalizing the costs of a bank failure, and 

increase in the possibility that more strategies 

meet the least-cost test. 

Some of the transaction structures 

that Shawn's talked about to market assets out of 

the receivership, Shawn and others have been 

looking at ways to make those types of 

transactions more available up front when we're 

originally marketing a bank, so that we can 

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market assets to a wider group of parties. That 

can be particularly valuable to non-banks, to be 

able to compete up front and just reduce the 

overall size of the transaction for another 

acquirer who might be bidding for the whole bank 

at the same time. 

In terms of the time pressure that we 

faced, we're placing a lot of emphasis in 

resolution planning on data room capabilities, so 

that we can stand that up quickly, and also 

continue to build out our bridge capabilities, so 

that if we need more time, we can take it. 

And then on financial constraints, 

because there are capital financing liquidity 

issues that acquirers need to navigate in 

participating in a large bank transaction, it's 

clear that we need to continue to develop the 

tools that we have to address that, whether it's 

loss share or seller financing, or other options 

for enabling banks to participate in large 

transactions, if that's what we need to do. 

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And then also, in part with that in 

resolution planning for the IDI plans for the 

regional banks, we're very focused on 

separability and having franchise components. 

Not ones that are imaginary, but 

identifying those parts of the business that are 

readily actionable, that you could carve out at 

the time of a bank failure, to, again, reduce the 

overall size of the transaction. 

What comes with that is that we need 

to anticipate the asset marketing strategies up 

front. That needs to be incorporated as part of 

our resolution planning, and to be something that 

we're looking at when a particular bank is 

failing a particular scenario, thinking about as 

we're marketing the bank what our asset 

disposition strategy, so we can stay ahead of 

that at the same time. 

So, those are some of the things that 

we're focused on, and would welcome views on how 

to solve the large bank strategy problem, or any 

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questions that you have. 

CHAIRMAN GRUENBERG: John? 

MEMBER REED: I'm interested that you 

didn't mention customers. It would seem to me 

that if you had a good sense of who the customers 

were, what relationship they had with the 

institution and so forth, that acquirers are not 

only looking at the assets, but that's not going 

to be the real reason. They have to look at the 

franchise value. And I always used to say, who's 

your customers, what role do you play in their 

life, and why did they choose to be with you. 

And if you could answer those 

questions with regard to the customers that are 

represented in some of these banks, it would seem 

to me that you'd have acquirers who were looking 

beyond the immediate asset value. 

MR. TETRICK: I think that's a great 

point and something to focus on the resolution 

plan submissions to. It's worth thinking about 

how to market an institution. And who's next? 

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MEMBER HERRING: Thank you. I have 

two questions about the whole-bank outcomes. 

First was with regard to the sale to Citizens 

Bank. 

My recollection is that Citizens Bank 

market value went up by a huge amount -- maybe as 

much as 40 percent -- just after the transaction, 

which suggested that maybe the FDIC didn't drive 

as hard a bargain as one might wish if you were 

going to maximize returns to the Deposit 

Insurance Fund. 

And the second question was the extent 

to which you worried about too-big-to-fail 

aspects when you thought about bids. 

J. P. Morgan ended up with First 

Republic, and if I look around for the safest 

hands, that's where I would go, but it's also the 

largest bank. And if you worry about too-bigto-fail, you've just made one even bigger. 

MR. TETRICK: So, really good points 

on both of those. And it was First Citizens, and 

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First Citizens, clearly the market viewed that as 

a very favorable deal for them. 

And as I noted, we were as aggressive 

as I think we could be in the time period that we 

had and how we marketed that institution. We 

were innovative, compared to past marketing 

processes. 

It wasn't just the whole banks. We 

were looking at ways to maximize the value. At 

the end of the day, we were looking at piecing 

together the range of asset bids that we got with 

whole bank bids, other permutations, and there 

was just a lot of uncertainty around that bank 

and we didn't get better bids. 

And so, I think there was a judgment 

as to whether attempting to prolong the marketing 

process to seek a better outcome would have 

resulted in that, or would have resulted in 

further deterioration of value. 

And our view was we were better off 

exiting, that a better deal wasn't coming down 

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the pike. 

MR. STARKE: Yeah, and I would also 

add -- didn't show up on the slide -- but part of 

the transaction involved the issuance of warrants 

by First Citizens that the FDIC cashed in on the 

week after the failure. So, there was some upside 

for us as well in the transaction. 

MR. TETRICK: And then on the sale to 

J. P. Morgan, the G-SIB point, the concentration 

point, I mean, that's clearly a concern. 

And I'll first note that in the case 

of Signature and SVB, were first at first 

criticized for a perception that we didn't want 

to sell to a G-SIB, when in fact we were just 

seeking the value-maximizing outcome. We were 

hoping a G-SIB bids there too. 

Here, J. P. Morgan I think was clear, 

was the least-cost bid. It was fairly decisive 

and we felt bound by the least-cost test to pursue 

that option. 

That said, I think some of the things 

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that we're looking at doing can help make 

regional banks more competitive. 

A big challenge here for regional 

banks bidding on a large bank that's comparable 

in size, is that they needed to solve for their 

post-acquisition capital, which meant they had to 

increase their asset discounts in order to 

maintain what they thought were healthy capital 

ratios. 

The long-term debt can help with that 

by absorbing some of the costs. And focusing on 

separable components to reduce the size of the 

transaction could also potentially help with that 

and make smaller banks more competitive. 

MR. STARKE: And when you say, we felt 

bound by the least-cost test, the statute's very 

clear that to the extent the bidder's approved by 

its regulator, it was less costly than 

liquidation, and less costly than any other bids. 

The statute gave us no choice, other than to 

accept the JP bid. 

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CHAIRMAN GRUENBERG: Meg? 

MEMBER TAHYAR: Thanks, Chairman. 

I've got to comments and a question. One comment 

goes just to make sure that it doesn't escape 

folks here on slide 29. Flagstar, five bids, 

four bidders, Silicon Valley Bank, 31 bids, 

20 bidders. First Republic, twelve bids, four 

bidders. 

Having been on the other side of that 

process, what that tells you is that the FDIC 

staff, going overnight, is acting just the way it 

happens in a private M&A. They're coming back to 

the bidder saying, couldn't you do better here? 

Couldn't you do better there? Don't you want to 

make it better? 

They are tough negotiators. And this 

makes it clear that they are working hard to get 

that least-cost by going back just the way a 

private sector actor would go back. 

The second comment is on the virtual 

data rooms. That was really grit in the system. 

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And it's really quite clear that having the 

private sector have the capabilities to have 

those virtual data rooms in place will be a lot 

faster than relying on FDIC staff to run around 

and do it. 

But one of the things that's really 

good about the IDI rule, is it's not requiring 

that the private sector banks have that virtual 

data room at all times in all places. It requires 

capabilities to show that you can put it in place 

really quickly. 

And that's very important because 

there's a lot of confidential data there, and the 

idea, in my view, is not to create a honeypot for 

cyberstalkers to come in and say, what could I 

get at that, but to show that any bank that's 

subject to the IDI rule can populate that IDI 

room within 24 hours. In my mind, that's very 

good policy. 

And here's my question. Shawn, 

looking at the dispositions afterwards, so at the 

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moment of failure, the FDIC puts out a very 

specific press release that estimates the loss to 

the Deposit Insurance Fund from that failure. 

Does that estimated number at that 

time include or not include the results from the 

later sales? I mean, does it have an estimate of 

them, or is it just basically pre-that, and then 

later on you're going to update the cost to the 

DIF and the specialist fee assessment? 

MR. KHANI: Yeah, so at closing 

they're projected, based on whether it's markto-market, in the case of securities, as well as 

expected dispositions. 

Now, you're sort of beholden to as 

good as the data is at failure. Subsequent, as 

we move through the resolution process postclosing, then those numbers would be revised over 

time. And it can go in either direction, 

improving or getting worse, depending on how 

things go. 

MR. STARKE: So, in this case, we made 

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estimates at the time. Some of those losses now 

crystallized, as we've been able to dispose of 

some of those assets. And I think we've come in 

pretty close to where we estimated. 

MR. TETRICK: And if you don't mind, 

I'll just mention on the virtual data room. It 

was particularly tough for SVB, and there was 

perhaps some correlation here in that the bank's 

data itself was not in very good shape and it was 

difficult to pull together data that was of high 

quality. 

MEMBER TAHYAR: Felt tough at 

Signature as well. 

MR. KHANI: We also wanted to note 

that some of these transactions are longer 

duration too, so shared loss can go across a 

number of years. 

So, how that plays out is a function 

of how they manage their assets that they retain 

with our coverage or relationship there. Also, 

in these joint ventures that are created, that 

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also has a longer runway too. 

So, the numbers can change over a 

matter of years, versus, like, selling things 

outright. 

CHAIRMAN GRUENBERG: Sandy? 

MEMBER O'CONNOR: Thank you. And a 

great report out. Much, much appreciated. 

Two comments and a question. I just 

think it's important to note, which is a little 

bit different with First Republic, you did have 

some of the largest banks, I believe, infuse 

$30 billion in deposits to sort of, thinking of 

First Republic was a bit different than some of 

the other pieces. 

And I think that was a good 

demonstration by some of those organizations, to 

try to instill some confidence. I think that's 

of note. 

On the too-big-to-fail comment, I 

think we need to continue to be careful with 

painting everything in sort of the same way, in 

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the sense that I think the teams here and across 

the agencies have done an extraordinary job with 

liquidity rules that didn't exist before, with 

increases in capital requirements, with 

resolution plans, which I do believe can be very, 

very viable, and to make everyone sort of feel a 

little bit better. This goes back to the stress 

testing that does go on with CCAR, and many of 

the individual organizations right now on their 

own carry enough resources, as demonstrated 

through CCAR results, by themselves, to cover all 

the losses that occurred in 2008. 

Now, you can't go back and trade the 

last thing. But I think, take a breath on that. 

That's really important. So, more may or may not 

be better. 

And I think therein is my next 

question. You talked about, for zero-riskweighted assets, notably treasuries. 

Market depth is actually not what it 

needs to be. And that's driven by a few things, 

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one of them being the size of the deficit, another 

one being the shift in how primary dealers think 

about taking on those assets. And, by the way, 

the primary dealer size relative to the treasury 

market. 

So, how are you thinking about the 

fact that we need to tend to the functioning of 

all of our markets, but most notably these, in 

the context of different players, bigger size, 

and ongoing increases in requirements for capital 

and liquidity that target these particular 

assets? 

Because these are vital in order to 

make resolution plans functional and preserve 

asset values. 

MR. TETRICK: So, I think that's a 

problem we're probably not entirely in a position 

to solve. But it's a concern. And it's dynamic 

that we've absolutely observed. 

And as you rightly point out, there's 

an assumption and a range of uses that there's 

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deep liquidity in those markets, including for 

resolution purposes. And so, we need to examine 

if those assumptions hold. 

But it's not the depth of that market. 

And some of the questions about the functioning 

in the treasury market or securities market is 

something we're attentive to, but just not in a 

position to address ourselves. 

MR. KHANI: Yeah. Also, the 

securities portfolio we happen to retain at very 

low treasuries, actually. It was mostly agency 

paper that add to the complexity. 

And like I mentioned, some of the 

sectors, or subsectors, are incredibly illiquid, 

despite the zero-risk-weighting. 

MEMBER O'CONNOR: Yeah, and I anchored 

in on treasuries, because you had lots of 

mortgages here, when you think of everyone's 

holding treasuries for the same reason, whether 

it's HQLA and big banks, whether it's that margin 

at CCPs, whether it's as liquidity buffers in 

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asset management portfolios. So, something that 

can carry on, making sure we're tending to. 

CHAIRMAN GRUENBERG: Tim? 

MEMBER MAYOPOULOS: Thank you. I just 

wanted to offer a little bit more kind of market 

color on this question about whether First 

Citizens got too attractive a deal from the FDIC. 

First, I wasn't involved in evaluating 

the deal, and so I'm not talking my own book here. 

But there are a couple of things about the 

circumstances of SVB that made it especially 

complicated, over and above what the FDIC staff 

I think has very well described. 

One was you had multiple institutions 

expected to be on the market at the same time. 

And I think it's fair to say that First Republic 

was probably regarded as the most attractive of 

these three sets of assets. 

And so, for Signature and SVB in 

particular, institutions like J. P. Morgan were 

not particularly interested in bidding for SVB, 

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knowing that First Republic is likely to come on 

the market at some point. So, it just limited 

the number of kind of larger institutions that 

might be interested. 

And second, something that didn't 

become apparent to me until about halfway through 

the marketing process, was that Silicon Valley 

Bank was a state-chartered bank and that probably 

wasn't by accident. 

Like, its business model involved 

making loans to venture capital-backed portfolio 

companies, sometimes to a point where they didn't 

even have revenue, let alone profitability. 

So, the OCC was not likely to actually 

approve any national bank buying that 

institution, because the loans it was originating 

would have been criticized assets at the moment 

they originated. 

So, the number of state-chartered 

institutions in the United States that were big 

enough to actually absorb SVB, and actually had 

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an interest in its fairly idiosyncratic business 

model focused on the innovation economy, I think 

was pretty limited. 

So, I think under all the 

circumstances, the fact that the FDIC was able to 

get a whole institution sale done at some 

reasonable price, as opposed to, like, breaking 

it all up and just selling off asset portfolios, 

I think was actually pretty impressive. 

And First Citizens ended up being kind 

of the beneficiary of that. Because it was one 

of very few market participants who could 

actually step up and make that bid. 

CHAIRMAN GRUENBERG: Jon? 

MR. EINBERG: Thanks. Was there any 

difficulties on AML and CTF regulation or 

conduct? 

So, I notice you kept the cryptorelated deposits. And was that because actually 

nobody wanted to take them because of concern 

about what might be behind them? 

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And to any extent, did you have to 

give safe harbors? Because I remember after the 

financial crisis a number of banks who bought 

other banks actually had to pick up the tab for 

those sorts of failures. Was that an issue at 

all in this? 

MR. TETRICK: So -- and follow up if 

I'm not understanding the questions right. But 

it's very much as you described for the cryptorelated parts of the business in both Signature 

and SVB. 

You just had FTX, Silvergate, and then 

these banks, that had, at least, particularly, 

Signature, had been in that crypto space, and so 

there was just a paint-by-association that others 

didn't want to take on. 

And so, it wasn't something that we 

were leaving out of these transactions. It was 

that Flagstar didn't want to have any of that 

associated with them as part of this acquisition. 

It was a relatively small part of the 

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bank by the time we were marketing it, but there 

was just not a desire to take that on. 

And then there wasn't, that I'm aware 

of, any particular safe harbor that we provided. 

There were loss-share agreements to protect 

acquirers from the worst possible downside risks, 

but not -- yeah. 

(Off mic comments.) 

CHAIRMAN GRUENBERG: Gary? 

MEMBER COHN: So, quick clarification. 

On the bidders, did you have to have a bank 

charter, to be considered to get to the finals? 

MR. TETRICK: So, in order to assume 

deposits, you had to have a bank charter. 

MEMBER COHN: So, you weren't willing 

to grant anyone a bank charter, even if they were 

a better bid. 

MR. TETRICK: So, we don't grant bank 

charters at the FDIC, unless it's in the context 

of a G-SIB failure, I guess. 

MEMBER COHN: Well, they became G-SIBS 

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when they got a big --

(Simultaneous speaking.) 

MR. TETRICK: Well, maybe so. 

MEMBER COHN: It was an interesting 

weekend. Some of us went through that. Some of 

us were there. 

MR. STARKE: Yeah, we work on the 

resolution, but we rely on the supervisor of the 

acquirer to make the decision on whether they 

should make acquisitions. 

And yeah, I think there were some 

shelf charters back in 2008. I'm not aware of 

any of those now. But as you probably know, you 

don't create a bank overnight. There's a fair 

amount of due diligence that the regulator does. 

MEMBER COHN: A couple were created 

overnight. 

MR. STARKE: Okay. 

MEMBER COHN: I ran one that was 

created overnight. 

MR. STARKE: Well, it's hard to do. 

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MEMBER COHN: It's hard to do. It was 

extenuating circumstances. No, I ask the 

question because as these banks get larger and 

larger, and some of the alternative pools of 

capital get larger and larger, you draw the venndiagram, you have to start thinking about it. 

Could you create a bank relatively 

quickly, to solve one of these problems, in lieu 

of creating a bigger G-SIB? That may be a track 

that you might want to consider. 

MR. KHANI: You mean a bridge bank? 

No, I'm just kidding. 

MEMBER COHN: Well, no. I mean a nonFDIC bridge bank. A bank where a third-party 

risk capital is put up. Real third-party risk 

capital is put up day one. 

It may look like a structured bridge 

bank where the first tranche of loss of capital 

is outside capital. 

MR. TETRICK: Well, I think we asked 

for solutions. So, that's welcome. We should be 

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getting things to think about here. 

And when we did welcome non-banks to 

participate in this process, they did 

participate. They did submit bids in tandem with 

banks putting in capital. But it was a bank that 

we were going to be facing in the transaction. 

And if there had been compelling 

opportunities with non-banks, I don't know if we 

would have been able to consider those in a timely 

way, but it would have been a matter of, could we 

have done it in a timely way? 

MR. STARKE: And I would suggest 

there's a third option to selling to a bank or 

having a new bank created, which is if we create 

the bridge bank, and particularly if we can 

recapitalize it through long-term debt if that 

road's adopted, we would be able to potentially 

sell the bridge bank and have that return to the 

market, undoubtedly smaller through the bridge 

bank process, but without any consolidation of 

the industry. 

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CHAIRMAN GRUENBERG: Doug? 

MEMBER PETERSON: What Gary just 

described is how some of the banks in Japan 

resolve. Like, Shinsei Bank and Lone Star, etc. 

My question was about incentives. 

Your incentives as managers and as people working 

in the organization, I'm sure you have some sort 

of cost-of-funding that you look at. 

But how do you balance speed versus 

value? Do you have incentives? Do you think 

about this? Do you track? Do you have KPIs that 

you measure your performance against? And how do 

you balance speed versus value capture, loss 

capture, etc.? 

MR. TETRICK: And others can jump in. 

If the question's simply about, like, how we 

measure that in terms of --

MEMBER PETERSON: So, like, how does 

Marty measure how well you do at the end of the 

year? 

MR. TETRICK: I'll have to talk to him 

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about that. But on bank transactions --

CHAIRMAN GRUENBERG: He does pretty 

well, I have to confess. 

MR. TETRICK: I mean, it all comes 

down to value. So, when we're thinking about 

time and exiting quickly, that's about are we 

doing that in order to preserve value? 

So, there's the possibility that value 

will attrit over time. There's cost to the FDIC 

in running an institution. But our bottom line 

is it's a near-religion at the FDIC. It's costto-deposit insurance fund. And so, every 

decision is made on that basis. 

CHAIRMAN GRUENBERG: Sheila? 

MEMBER BAIR: Thank you. I just had 

a couple of follow up questions. One was on the 

crypto question. 

There were several billion of cryptorelated assets at Silicon Valley too, weren't 

there? I assume the bidders didn't want deposits 

that were tied to crypto, so it was paid out. 

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Well, Coinbase had a reserves back in 

their stable coins, so maybe they weren't 

directly connected. 

MR. TETRICK: Yeah, I don't think 

there were any crypto-related. I don't recall 

any crypto assets. 

MEMBER BAIR: Oh, not crypto assets, 

which always tied --

MR. TETRICK: Deposit-related 

through --

(Simultaneous speaking.) 

MEMBER BAIR: -- deposits that were 

backing crypto assets. So, you just paid those 

out, I assume? I was just curious of the result. 

Oh, it's okay. 

MR. TETRICK: I don't think there were 

any deposits that were associated with crypto in 

that bank that were carved out. I think all the 

deposits were assumed. 

MEMBER BAIR: All of the deposits were 

assumed? 

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MR. TETRICK: Yeah. 

MEMBER BAIR: Okay. Really? Oh, 

okay. 

MR. KHANI: Yeah, in Signature, that 

was the case. Those were not assumed by Flagstar. 

MEMBER BAIR: But the stablecoin 

reserves at Silicon Valley were purchased as part 

of the whole-bank transaction? 

MR. TETRICK: Just don't recall that 

being a part of the bank, or being an issue. 

MEMBER BAIR: Oh, okay. Well, that's 

fine. The other question, to Gary's point, and 

maybe this guidance is still out there. We had 

this issue of -- and Pen, I think you helped draft 

it; Art probably too -- private equity wanted to 

come in and they wanted to bid on whole banks and 

Asia bank charter. 

And so, some of the charter in the 

agencies were accommodating the add-in. Some of 

those were fine, and so it just made us a little 

nervous. 

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So, we set out some guidance saying, 

okay, we'll do this, but we're going to give you 

lock-up periods and higher capital, etc. 

I mean, that seemed to provide -- a 

lot of them didn't like it, but at least provided 

clarity about what they needed to do to be a new 

bank charter and bid in a whole bank of 

acquisition-only securities. Is that still 

there, or is that even thought about, maybe? 

(Simultaneous speaking.) 

MR. STARKE: It's still there. There 

seems to be less interest at this time. 

It seemed to me anyway -- and Ryan or 

Shawn, jump in -- but the non-banks, the private 

equity firms, were interested in partnering with 

the banks. 

And that could be very effective, 

because buying assets for a bank has a huge 

capital cost and if the PE firms can take the 

assets, that helps them. So, none were 

successful, but we had several --

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MEMBER BAIR: So, they were backing 

the regional banks, or interested in investing in 

the regional banks. 

MR. STARKE: Exactly. 

MEMBER BAIR: Yeah, that makes a lot 

of sense. Thank you. 

MR. KHANI: Yeah, there was definitely 

a lot more interest also just in the structure, 

or the assets themselves. Specific asset 

classes. 

MEMBER O'CONNOR: Just a follow-on 

question to what Sheila asked. How many new bank 

charters do we issue on a twelve-month basis? 

Because my intuition is there are probably a lot 

of people that want to become banks that might 

step in here. Really, just, I want to balance 

it. 

MR. STARKE: We're a little stovepiped at the FDIC. And so, obviously, we have to 

approve deposit insurance for new banks. 

Chairman, do you have a better sense? 

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CHAIRMAN GRUENBERG: I'd want to check the 

numbers to be sure. I think over the last five 

years there have been 50 or 60 de novo 

institutions, and other Christmas or community 

banks. 

MEMBER O'CONNOR: Thank you. 

CHAIRMAN GRUENBERG: Matt, if I may 

just add one comment. The asset disposition 

function of the FDIC after a failure is probably 

under-appreciated responsibility that we have 

that's really quite consequential and can have 

real market consequence. 

And in particular, I really want to -

- and you can see that from the slide here -- in 

particular, in New York City as a result of the 

Signature failure, we came into ownership of 

4,000 multi-family housing properties, with 

80,000 units of rental housing. 

And even in New York City, 80,000 

units of rental housing, most of it rentcontrolled and rent-stabilized, is a remarkably 

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large resource, particularly in current market 

conditions, where affordability of rental housing 

is one of the key challenges. 

And the FDIC, under statute, has an 

obligation to maximize the preservation of 

affordable housing in the disposition of these 

properties. 

And I will say Shawn and his team just 

did a remarkable job. And any of you who -- I'm 

a New Yorker, so I have some appreciation of 

this -- anyone who has any familiarity with doing 

business in New York City, particularly in 

apartment buildings in New York City, really 

would appreciate the skill with which this was 

done, working in partnership with the city, the 

state, and community organizations across New 

York. 

I mean, everybody likes the FDIC right 

now in New York City. And that's just not the 

way things generally work, I just have to tell 

you. 

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And Shawn mentioned there were 

numerous tenant associations. And Shawn met with 

literally everyone that asked to meet with him. 

And the value of that and the return on that, in 

terms of the cooperation we received and the 

goodwill, was really quite remarkable. And I 

think we're going to execute on this, complete 

the sales I think by the end of the year. 

But the arrangement here will be for 

the FDIC to retain an ownership interest, 

particularly in these affordable housing 

properties, to assure a basic quality of 

management to benefit the tenants here. 

So, I think we're doing the 

responsible thing from a financial standpoint, 

and really executing on a broader responsibility 

that the FDIC came into here. 

So, I just wanted to acknowledge that 

and the fact that one of the apartment buildings 

in the Signature portfolio happened to be the one 

in the Bronx that I grew up in. Did not affect 

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250 

my perspective here whatsoever. Just for the 

record, 2766 University Avenue. 

Any other comments or questions on --

MS. TRAILLE: So, we're running a 

little out of schedule, but I think we can use it 

very easily in our final session today. So, let's 

take a fifteen-minute break and come back at 

three o'clock. Thank you. 

(Whereupon, the above-entitled matter 

went off the record at 2:45 p.m. and 

resumed at 3:01 p.m.) 

CHAIRMAN GRUENBERG: Okay. I think 

we're on the home stretch here. 

MS. TRAILLE: We are. 

CHAIRMAN GRUENBERG: Jenny? 

MS. TRAILLE: Okay. Thank you very 

much. We are now ready for the last session of 

the day. So far this morning and through this 

afternoon we've been talking about the 

experiences that we had in the spring failures 

and now we wanted to pivot towards considering 

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some of the policy initiatives that we are 

working towards. 

So we have several speakers, and we're 

going to run through four different areas. And 

so I would like to just introduce our FDIC panel. 

We have Senior Deputy Director RaeAnn Miller who will speak first. We have Senior 

Economic Researcher John Pogach, Deputy Director 

Andy Felton, Senior Resolution Readiness Advisor 

Betsy Falloon and our legal counsel Dena Kessler. 

And I will turn it over to Rae-Ann to kick us 

off. 

MS. MILLER: Good afternoon. As Jenny 

mentioned, my name is Rae-Ann Miller. I am senior 

deputy director in our Division of Risk 

Management Supervision. 

Among other responsibilities that I 

have are policymaking. I do certain policies 

related to corporate governance, credit risk, 

brokered deposits is in my area. But I think 

most importantly, we do maintain the manuals for 

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examination policies for the risk management 

area. 

We maintain something that we call 

examination documentation modules, which are the 

procedures examiners use when examining 

institutions generally that we supervise, 

although we do engage in backup supervision for 

institutions that we don't supervise. 

So I was going to talk a little bit -

- can we advance that slide? I was going to talk 

a little bit about some of the policy matters 

that we've been working on. And for the most 

part when I'm talking about policy matters, I'm 

talking about supervision policy and actually how 

we do the exams and what kind of changes that we 

have made that were informed by the lessons that 

we learned. And we're not done, of course, we're 

still looking at other areas. But that's kind of 

the focus of what I wanted to talk about today. 

And I haven't been able to listen to 

the whole presentation today, but I have heard 

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some bits and pieces. So obviously we've been 

talking a little bit about the internal reports 

that the Fed produced, that we produced. You 

know, we focused particularly on the 

recommendations and considerations for us as 

examiners of FDIC supervised institutions. 

So, you know, drawing on those, you 

can go back and read some of our responses where 

we're done yet. As I mentioned, we've gotten --

the First Republic material loss review has just 

been released the 28th of November. So we're 

still certainly working through some of that. 

But a lot of things we've already 

done, and I was going to kind of go through that 

with you at a high level and some of the other 

things we're planning, and if there is any 

bankers here or advisors to bankers, you know, 

what they could expect to see in our supervisory 

priorities for 2024. 

So maybe advance the slide for me, 

please. So we have -- I mentioned we have our 

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manual. We also have internal instructions. We 

have training. And that's how we communicate to 

our examiners our expectations. 

And so internally we have distributed 

instructions and guidance to our examiners. The 

first area is in escalation of supervisory 

matters. This was an area that was identified 

primarily in our Signature review as well as in 

the SVB, the Fed's review. 

And so for us, what we're talking 

about here is within a -- typically within an 

examination cycle, if supervisory concerns are 

raised and a supervisory recommendation is cited, 

procedures, more specific procedures on 

escalating that through what we call matters 

requiring board attention and then ultimately 

through enforcement actions. 

We also took the opportunity to 

refresh our examiners on scheduling root causes 

of supervisory concerns and what you'll see in 

some of the reports and in some of these case 

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studies is there was a root cause, right? There 

was a lack of attention say to contingency 

planning for liquidity or perhaps there was a 

poor culture of risk management and not -- I heard 

this morning, you know not staffing the senior 

risk management staff for a long period of time 

to identifying the root cause of concerns and 

then tracking management responses and doing a 

better job with that. 

We have also updated our instructions 

on concentrations. And I did hear the first 

session, and we talked about some of the 

excessive levels of uninsured deposits at these 

institutions. So we've long had instructions in 

our exam procedures for citing funding 

concentrations. And we talked about uninsured 

deposits as part of those funding concentrations, 

but we put a finer point on our instructions to 

require a citation and write-up whenever those 

levels reach 50 percent or more. 

And we've also expanded our 

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instructions about movement of those deposits and 

talked a little bit about, you know, this herd 

behavior that we saw, the panic behavior that we 

saw in the contagion situations. And we talked 

a little bit about that. 

If you look at the First Republic 

material loss review, one of the things that our 

IG cited was long-held views about what the 

stickiness of deposits were really broken down. 

And, you know, unlike, you know, when you saw SVB 

where there is a lot of correlation between 

depositors, that wasn't necessarily the case in 

First Republic, but we did see that kind of 

contagion and movement and fear. And so we don't 

use the word fear in our exam manual. But just 

try to put a finer point, as I say, on really 

understanding and getting underneath what the 

concentration is. 

The third thing that we've done is, 

you know, as the event was spreading, and 

unfolding, we wanted to make sure we understood 

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the stability of deposits at other institutions. 

And so we very quickly enacted a 

monitoring system, you know, trying to look at 

institutions with maybe similar fact patterns, 

similar vulnerabilities. And then as things were 

unfolding, there were new vulnerabilities that 

were sort of unfolding. And so we did that. We 

established a process for doing that. 

We have been working on our staffing 

models. And one of the things that you will see 

in at least, and for Signature say, is that we 

did struggle with staffing in that institution. 

And for the coming year, 2024 and for the 

remainder of 2023, we really took a step back and 

tried to challenge some of our assumptions about 

staffing. 

And, you know, a bank is not just a 

number, right? We have a declining number of 

institutions. But we've got an increasing number 

or increasing level of complexity to those 

institutions that we supervise, especially in the 

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large bank sphere, which I'm lucky enough for the 

FDIC supervising institutions, I also -- I do 

operations and policy. So smaller institutions 

and larger institutions that are FDIC supervised 

are in my bailiwick. So really understanding the 

complexity and trying to do a better job of 

allocating staff to the complexity, not just that 

a bank is a number. 

And with that -- I forgot to mention, 

too, on my first bullet point, I'm jumping around 

a little bit, but we do have two examination 

processes here at the FDIC for the FDIC 

supervised institutions. 

So we have the point in time exam 

where, you know, a team of examiners goes in every 

12 to 18 months, examines the bank with offsite 

monitoring in between and interim contacts. But 

we do have the continuous examination process as 

well for our largest institutions. 

And we've instituted some changes to 

that process based on lessons learned. It might 

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not be apparent to the banks that we are 

supervising but definitely procedures 

internally. 

And one of those is -- you know, we 

talk about escalation. And we have escalation 

two ways, right? So for us escalation is to the 

bank when the bank is not -- either can't or won't 

be responsive to supervisory recommendations. 

We'll escalate that. 

But also when we observe a breach or 

a significant increase in risk appetite, sort of 

out of the norms, we are requiring our examiners 

to escalate that to us. 

You will read in the First Republic 

there was a significant breach in the EVE 

interest rate risk measure that was escalated 

within the bank but not necessarily within our 

management chain. So that was a lesson that we 

learned. And we already have a process for doing 

that. But we expanded the types of things that 

would fall under that process. 

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So the last thing I wanted to talk 

about was we have also issued a rulemaking on 

corporate governance. And the FDIC was the only 

of the banking agencies that did not have a 

similar regulation so that's open for comment 

right now. We just extended the comment period 

through February 9. But essentially it 

establishes or requires three lines of defense 

type of risk system that we do expect, but this 

would be a requirement for that. 

And I mentioned just real briefly, we 

are not done with our lessons learned, and we are 

continuing to look at things with escalation, 

with volatility in all areas of the institutions. 

Obviously, we're looking at CRE very closely 

now, and that's been a priority since at least 

2020 always, but, you know, heightened since 2020 

and moving forward now into this sort of new 

phase. 

But we're also looking at liquidity 

and contingency planning. You may have 

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I 

understood that the FHFA has come out with some 

potential changes. You know, they might have 

some rulemaking about usage of their funds. 

heard some folks talking earlier about collateral 

management and difficulties that some of our 

banks experienced. So we're looking very closely 

at contingency planning guidance from 

institutions as well as instructions for our 

examiners on how to examine for those contingency 

plans. 

So I think with that, Jenny, I think 

I'll stop. 

MR. POGACH: All right. Great. 

Thanks very much. Good afternoon. My name is 

Jonathan Pogach. I'm a senior economic 

researcher in the Center for Financial Research 

along with Rosalind Bennett, who is also an 

economist in the center. I co-led a team of staff 

economists and analysts in the writing of the 

options for deposit insurance reform report that 

was released in May of this year. 

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The report is a comprehensive overview 

of the deposit insurance system. And it presents 

options for reform to address the current risks 

facing the system. 

So on the first slide, you can see 

that the report analyzes the trends in deposits. 

In particular uninsured deposits have trended up 

over the recent years and have increased the risk 

of bank runs. 

At their peak in 2021, the proportion 

of uninsured deposits was roughly 47 percent, 

which was larger than at any time prior to 1949. 

Large concentrations of uninsured deposits 

increased the potential for bank runs and can 

therefore threaten financial stability. 

Next slide. We also discussed the 

technological changes such as the speed with 

which information is disseminated, and the speed 

with which depositors can withdraw funds can also 

increase the risk of runs. 

The report also exams the objectives 

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of deposit insurance. One of the primary 

objectives, of course, is to promote financial 

stability. Banks fund long-term assets, like 

loans, with short-term liabilities, like demand 

deposits and the mismatch is what results in the 

risk of runs. 

Bank runs destroy value and disrupt 

the provision of credit. In addition, a run at 

one bank can lead to confusion as depositors at 

similar banks also look to withdraw their funds. 

And even for those banks that don't experience a 

run, fears of contagion can nevertheless lead to 

a contraction of credit and can reduce economic 

activity and lead to job losses. And deposit 

insurance is designed to reduce some of these 

risks. 

Another objective of deposit 

insurance is protecting small depositors. As of 

the year end 2022, more than 99 percent of deposit 

accounts were below the $250,000 deposit 

insurance limit. So deposit insurance protects 

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the savings of small depositors. 

The report also discusses the possible 

consequences of deposit insurance. Deposit 

insurance increases moral hazard, which is the 

incentive to take on greater risk as a result of 

being protected from the consequences of that 

risk taking. 

Because deposit insurance insulated 

insured depositors from bank risk, they don't 

need to monitor their bank. And banks that 

practice sound risk management will incorporate 

the risks associated with deposit withdrawals 

into their decision-making. Deposit insurance 

reduces the need for banks to manage their risktaking in response to the risk of uninsured 

deposit withdrawals. 

So changes to deposit insurance, as we 

highlight in the paper, must consider both the 

financial stability benefits of more coverage as 

well as the potential implications for risktaking in the banking system. 

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It's very important to note also as we 

do in the report that the effectiveness of 

deposit insurance will depend on how it is used 

with other policy tools. It does not exist in a 

vacuum. 

So on the next slide and in the report 

we discuss some of the important tools that can 

be used alongside deposit insurance to help 

promote its objective while mitigating some of 

the consequences. 

Regulation and supervision play 

important roles in constraining moral hazard and 

supporting financial stability. So, of course, 

tools like capital requirements and the 

supervision of bank growth can reduce the moral 

hazard that might arise from deposit insurance. 

And the supervision of liquidity can also help 

reduce run risks. 

Expansion of long-term debt 

requirements can both increase financial 

stability by facilitating bank resolution and can 

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266 

also reduce moral hazard by increasing the market 

discipline from debt holders. 

The report also discusses new policies 

such as requiring the collateralization of large 

uninsured deposits or limiting their withdrawal 

capacity, which could potentially complement 

other reforms. 

The report also discusses the 

implication of deposit insurance to the Deposit 

Insurance Fund. Increases to deposit insurance 

limit -- increases to the deposit insurance limit 

would increase the size of the Deposit Insurance 

Fund that's necessary for a given target reserve 

ratio. And increasing the size of the Deposit 

Insurance Fund must be done through increased 

assessments on banks. 

So on the next slide, we have an 

overview of the three options that we discussed 

in the report, the order on both the slide and in 

the report is just for the clarity of the 

discussion. 

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The first option that we discussed is 

what we call limited coverage. Limited coverage 

maintains the current structure in which there is 

a finite deposit insurance limit. In the report, 

that could be the $250,000 but potentially could 

also be a higher number. But this is one number 

that applies to accounts equally. 

The second option, unlimited 

coverage, provides unlimited deposit insurance to 

all depositors. 

The third option that we discussed in 

the report we call targeted coverage, which 

allows for different levels of deposit insurance 

across different types of accounts. And in the 

report we focus on what we call business payment 

accounts. 

Although each of the options has 

relative strengths and weaknesses, we argue in 

the report that targeted coverage that focuses on 

business payment accounts captures many of the 

financial stability benefits of expanded coverage 

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while mitigating many of the more undesirable 

consequences. 

However, each option has relative 

strengths and weaknesses, and the report cautions 

that each of the options should be viewed 

alongside the other policies or policy changes. 

So let me discuss a little bit more 

each of these options. The first, limited 

coverage, maintains the current system of deposit 

insurance, and by itself does not address the run 

risk that is associated with the high 

concentrations of uninsured depositors. 

Increasing the coverage even by an 

order of magnitude to say millions may benefit 

certain depositors, for example some small and 

medium-sized businesses that hold deposits above 

the current limit but is likely insufficient to 

cover many of the larger uninsured deposit 

accounts. 

Therefore, achieving financial 

stability goals under limited coverage would 

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likely require other policy tools. 

Unlimited coverage in which all 

depositors are fully covered effectively removes 

run risks but may have larger implications for 

bank risk taking, deposit insurance assessments 

on banks and broader financial market effects. 

Insurance backed by the federal 

government provides the strongest deterrent. 

However, it would remove depositor discipline and 

may induce excessive risk-taking by banks. 

However, other policy tools could be 

used to reduce moral hazard in the context of 

unlimited coverage. And for a little bit of 

context, unlimited coverage using fourth quarter 

2022 balance sheets would have required an 

increase in assessments of about 70 to 80 percent 

in order to maintain a target reserve ratio. 

Targeted coverage provides 

substantial additional coverage to business 

payment accounts without extending similar 

insurance to all deposits. Payment accounts, we 

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argue, rarely involve a risk return tradeoff 

that's typical of investment accounts that form 

the basis of more desirable forms of market 

discipline. 

Further, losses on business payment 

accounts are the ones that are most likely to 

spill over to payroll, other business expenses 

and therefore other businesses. Therefore, 

increased coverage to business payment accounts 

yields larger financial stability benefits 

relative to its costs on moral hazards. 

However, and we note in the report 

that there are significant challenges to targeted 

coverage around establishing a practical 

definition that would allow for higher coverage 

while also limiting the ability of depositors and 

banks to circumvent whatever distinctions one 

might create. 

Extending considerably higher deposit 

insurance coverage to business payment accounts 

may also lead to a significant increase in 

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deposit insurance assessments although it would 

be less if the benefit were raised similarly for 

all accounts. 

So in conclusion, next slide, I want 

to underscore that the deposit insurance system 

at its current levels is limited in its ability 

to achieve financial stability objectives due to 

the large concentrations of uninsured depositors. 

The policy options that we presented 

in the report can be considered to help reform 

the deposit insurance system and meet those 

objectives. 

Of course, it's important to note that 

changes to the deposit insurance system require 

congressional action, although other policy tools 

that we discuss in the report, at least some of 

them, lie within the rulemaking authority of the 

banking regulatory agencies. For example longterm debt requirements, which leads us to the 

next presenter. 

MR. FELTON: Thank you, John. My name 

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is Andy Felton. I am the Deputy Director for 

Systemic Risk in the Complex Institution 

Supervision and Resolution Division. 

Yes, thank you. So the last time this 

committee met, we had recently issued an advance 

notice of proposed rulemaking to impose a longterm debt requirement on regional banks. And in 

August we have since moved forward and issued a 

Notice of Proposed Rulemaking jointly with the 

Federal Reserve and the OCC based on comments 

received to the ANPR as well as lessons learned 

from the failures this spring. 

The proposed rulemaking is for all 

banks with more than $100 billion in assets along 

with their holding companies to issue enough 

bonds to absorb losses and refill their capital 

stack in the event of failure. 

We think that this requirement can 

improve financial stability and mitigate a number 

of the resolution challenges that we encountered 

with the failure of these large regional banks. 

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The proposal is similar to TLAC, but 

it does have some differences. And the most 

important of these differences is that we require 

the bank subsidiaries to issue debt to the 

holding company, which then issues externally to 

the market. For this category of banks, the cause 

of failure will almost certainly be in the bank 

and that is what will need to be recapitalized. 

The U.S. G-SIBs are not subject to 

this rule as they already have TLAC in place. 

And intermediate holding companies, subsidiaries 

of foreign G-SIBs, already have holding company 

requirements through TLAC but would still be 

required to downstream the debt to their IDIs. 

Similar to TLAC, the proposal would 

also impose clean holding company standards on 

regional bank holding companies. The requirement 

would be phased in over three years and include 

grandfathering for existing debt. 

I would note that the comment period 

is still open for this proposal as we recently 

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extended the submission deadline to January 16. 

So I will discuss -- we think that 

this policy will have a number of beneficial 

impacts on financial stability. 

First of all, the long-term debt 

absorbs losses before depositors. For the debt 

that is issued out of the IDI, we also require 

that it be subordinated to general creditors, 

which includes most types of counterparties and 

foreign depositors. That means at a minimum, the 

deposit insurance fund would have lower losses 

and therefore result in reduced premiums on the 

rest of the industry to make up losses in the 

event of a bank failure. 

Second, because uninsured depositors 

know that there is this additional layer of 

protection for them, they are less likely to run. 

Since the debt is long-term, it won't be a source 

of liquidity pressure when problems become 

apparent. And unlike uninsured depositors, 

investors in this debt know that they will not be 

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able to run when problems arise. 

And third, the bonds will serve as an 

additional source of market discipline on the 

banks. The investors will be sophisticated 

institutional investors, and they will be 

incentivized to ensure that the bank is being run 

safely and will be able to monitor prices in the 

market as a signal of confidence and stability of 

the bank. 

Fourth, if we can avoid haircutting 

uninsured depositors and also if the public has 

more confidence in other banks and they are less 

likely to run from other banks, then that will 

make it less likely in the future that we won't 

need to make that gut-wrenching decision to 

invoke the systemic risk exception. 

And then finally it creates additional 

options in resolution such as recapitalizing the 

failed bank under new ownership or breaking up 

the bank and selling portions of it to different 

acquirers as an alternative to another large 

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institution. So several of the speakers, Ryan 

was speaking before about, you know, how 

important it is that we have optionality and the 

ability to -- this will expand the alternatives 

that are available for us so that we can -- to 

satisfy the least cost test requirement and then 

we'll be able to take decisions that are based on 

maximizing financial stability. 

At the time of the NPR, we estimated 

that the total shortfall was about $70 billion 

out of a total of $250 billion requirement. And 

we think that the impact, the cost to the banks 

issuing the debt will be fairly low. It would be 

estimated between 3 to 11 basis points of net 

interest margin, and I think it's probably closer 

to the lower end of that estimate. 

And with that, I will turn it to my 

colleague Betsy who will discuss another policy 

proposal. 

MS. FALLOON: Thanks, Andy. I'm 

bringing up the rear of a great day for focus 

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like me interested in resolution matters. 

I'm Betsy Falloon. I'm a senior 

advisor for resolution readiness. And the last 

topic of the day I want to talk about is our 

proposed rulemaking for IDI resolution plans. We 

see that as being a really important complement 

to the long-term debt proposal in terms of the 

expanding options that we have and we need to 

develop as we've been talking about throughout 

the day. Those options need to be expanded, but 

they also need to be actionable, and we need to 

be prepared to exercise those options in unknown 

and uncertain future scenarios. 

So resolution planning ahead of time, 

I think there has been a lot of talk about the 

importance of that. And this proposed rulemaking 

is intended to put the FDIC in a better position 

to execute on these different options. 

There is an IDI resolution plan 

currently in place. And like that rule, this 

rulemaking focuses on the resolution of the IDI 

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278 

itself, using the FDIC's ordinary resolution 

powers under the FDIA. It requires detailed 

resolution plans from all IDIs with $50 billion 

or more in total assets. And it will restate the 

current rule to incorporate lessons learned 

through the plan reviews and submissions and 

feedback that we've undertaken over the years as 

well as the lessons we've learned from bank 

resolutions both recently and in years gone by. 

We're hoping to make the rulemaking 

clear, comprehensive, and we've published it for 

notice and comment. The comment period ended on 

November 30. So we're eagerly reviewing comments 

now. 

I will just mention that these 

resolution plans were intended to be 

complementary to the Title I plans. They serve 

a different purpose. This is for FDIC's 

preparation to exercise a resolution of the IDI 

itself under the FDIA in a way that maximizes the 

return and minimizes the cost of DIF in an early 

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279 

I 

and efficient resolution. 

Next slide, please? Thank you. 

mentioned that the current rule applies to all 

banks over $50 billion. The proposed rulemaking 

would have the same scope, but would reduce the 

requirements for the banks with $50 to $100 

billion in total assets as compared to the banks 

over $100 billion. The 50 to 100 category would 

be asked to provide informational content that 

will help us with resolution readiness but not a 

full resolution plan. 

In terms of what is required, we 

relied very much on the existing rule, but a lot 

of the things that have been mentioned here today 

as being important things to understand in 

resolution and preparing for resolution are areas 

that we have tried to focus on. Ryan mentioned 

the importance of being able to offer and market 

banks in different configurations and components 

with an emphasis on franchise components that are 

actionable and separable out of the gate as close 

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280 

thereto as possible. 

The statutory and due diligence rule 

has been talked about a lot. And having that 

capability, not setting up the room but having 

the capability to set up the room is one that 

we're looking to emphasize and develop. 

Other things that have been talked 

about today that we have included in our proposed 

rulemaking, more on communications and reaching 

out to key stakeholders. A clear explanation of 

the organizational structure that is expanded 

beyond the material entities which sometimes has 

been interpreted to be retail banking and 

commercial bank, but get more granular 

information on that both legal entity and 

functional organization, and I think Tim and Mike 

talked about the usefulness of that kind of 

information. 

So, you know, we're looking at the 

comments, and we're eager to see what we can do 

that is most effective and most useful in being 

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prepared for resolution. 

I will just mention quickly that this 

will also expressly include engagement and 

capabilities testing for the banks around the 

information that's being provided. That's not 

new. We've been doing that. But it is intended 

to provide an expectation and a little bit more 

predictability around that process. 

But to the extent that the bank 

describes what they can do to set up a virtual 

data room in 24 hours or a week or whatever it 

is, checking their work we found to be a very 

useful element of resolution planning. 

So, you know, we think that this 

rulemaking will put us in a better position to be 

ready. And we're looking forward to reviewing 

the comments and issuing a final rule. And with 

that, you all have successfully been through an 

entire day, but not quite because we would love 

to have any inputs, questions or comments you 

have for any of us. 

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CHAIR GRUENBERG: Sheila? 

MEMBER BAIR: So I just want to say 

I'm widely enthusiastic about all of this. It's 

great work. It's exactly the kind of thing you 

should be doing right now. And commendations to 

all of you. I am particularly enthusiastic about 

the long-term debt requirement. That's something 

we tried to provide some additional incentives 

for that through the premium structure. But I 

think requiring it is absolutely the right thing. 

And the only thing about that is as you pointed 

out, will provide extra levels of protection for 

industry deposits without the moral hazard. It 

actually increases market discipline. 

That said, I'm also wildly 

enthusiastic about TAG. I wish Congress would 

give me the temporary authority now as they did 

during the pandemic. I think it would be nice to 

have you in the hip pocket just in case -- we 

don't know what's going to happen next year --

but pursuing more permanent changes. You're 

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absolutely right. Those deposit accounts 

invariably always go above the insured deposit 

limits just by their nature, and they are very 

important to the real economy. 

The enhancements to IDI planning, and 

Rae-Ann your comments on the supervisory 

responses, I was very impressed with the division 

supervision's response to the IG report. 

thought that was brilliant. So kudos to all of 

you. 

There is just one question I wanted to 

focus on with you, Rae-Ann because you probably 

heard the comments earlier, the concern that 

maybe we're not acting fast enough, that maybe 

the metrics are not as reliable as they need to 

be for early warning and also are supervisors 

empowered and enabled to act quickly when a bank 

starts to deteriorate? If you maybe could just 

comment your thinking on that, that would be 

great. Thank you. 

MS. MILLER: I didn't hear those 

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284 

comments, but I've heard them before. And 

certainly we're concerned. 

One thing that I challenged the 

industry when we talk to bankers, is what are you 

willing to do to make yourself safer and make the 

system safer? 

We've had a lot of pushback when we've 

tried to gather information. But I really do 

think that frequency and the lack of information 

we have on the liability side of the balance sheet 

in particular hampered us. 

A big fat number for only a segment of 

the institutions about what uninsured deposits 

are, nobody paid any attention until they did. 

And, in fact, we found a lot of inaccuracies in 

that reporting because it was really just for 

RCO, which is the assessments. It wasn't even in 

the major part of the call report. 

So I agree. I think, you know, having 

better and disaggregated information will make 

our jobs easier and frankly will make the banking 

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system hopefully at least safer or at least more 

transparent in those issues. Thank you. 

CHAIR GRUENBERG: Thanks. Sandy? 

MEMBER O'CONNOR: So really just 

fantastic work. I couldn't agree more with RaeAnn in particular. I'm a big supporter of the 

long-term debt requirement, not just because it 

adds real shock absorbency, but it also forces 

folks who may not be subject to lots of other 

things to term out their liabilities. That's 

what we're really talking about here. So keep 

pushing on that. I think it's fantastic. 

A couple of thoughts to explore 

further. And I loved it as a starting point your 

chart on 37, where you look at the growing 

proportion of uninsured deposits. And there are 

a couple pieces which you may have, and I would 

just challenge us to continue to look at that 

because the environment continues to evolve is 

what's that proportion of uninsured deposits and 

how much other daily call money is out there 

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because in aggregate that's the pile of money 

that can run. And that now is inside the banking 

system and outside the banking system. And I 

know we have one set of responsibilities here, 

but because of the way the ecosystem works, just 

being cognizant of the flow of money could be 

really productive. 

The second question that I would 

encourage all of us to be thinking about is, you 

know, where is the money going? So of this 

insured deposit growth, is it going to the G-SIBs 

or is it going to pockets that aren't because 

that's another important piece of information, 

right? 

And the next question I would ask is 

where is it coming from? Because these have not 

been your traditional retail or professional 

money managers. These are sort of different 

groupings. You have a lot of fintech money, which 

is new money. You have a lot of technology money, 

which is new money. And everybody wants it 

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available every single day. 

And I think those behavioral 

characteristics, I think we might find the same 

solutions that are relevant for them, but you may 

not necessarily need to be putting them in all 

the same places. And I say that because if we 

continue to put those all in the same places and 

not in a more nuanced way, we may very well just 

push more of those deposits somewhere. And where 

will they go? And it might be out of this sphere 

but ultimately will impact other spheres. 

And I think -- thinking about where is 

that daily call money? Maybe parts of solutions 

are not only in the banking sector. Maybe parts 

of solutions are, you know, on uninsured 

deposits, the classification of are they 

operating or not? Payments are not that so, so, 

so important and may be requiring some level of 

term out of those based on your examination and 

your understanding of how they're really 

performing. 

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So I think there's not one silver 

bullet here. We've got a big ecosystem. We've 

got an open economy. It's complicated stuff, but 

those -- I'm grateful for the prompting of all 

those questions. I'm sure you have all of those 

answers. But fantastic work and, you know, keep 

it up. Fortitude. 

CHAIR GRUENBERG: Thank you. Meg? 

MEMBER TAHYAR: Thank you. I agree 

with Sheila and Tim on TAG. It feels to me like 

TAG worked. After the financial crisis the FDIC 

used that authority well. Very few people know 

that in the CARES Act it was secretly and silently 

put back in. But now, of course, it's hard to 

push because there is no appetite in Congress for 

it. But I just want to call out, it's the right 

thing. It worked. It wouldn't require a 70 

percent increase in fees. 

And then let me chat a little bit 

about resolution planning in the proposed IDI 

rule. In my view, resolution planning, whether 

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it's Title I or the IDI rule, has been an 

extremely successful collaboration between the 

private sector and the agencies since it went 

into place in about 2012. 

And there has been a lot that has 

happened behind the scenes in terms of 

capabilities testing and operational work where 

I think most of it is now. And I would just hope 

and -- two points. I would hope and urge that it 

continues in this cooperative way. There are 

some who have interpreted the revised rule as 

being more of an enforcement rule than a 

cooperation capabilities testing. I hope we can 

stay within this concept of cooperation. 

I have also heard and read media, 

which I think is relatively uninformed that draws 

from the events in the spring resolution plans 

didn't work. And I think that that's very false. 

The institutions that failed, two of the three 

didn't have resolution plans. It's always been 

clear that the agencies aren't going to exactly 

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use them because every situation is different. 

Plan beats no plan as former Secretary 

Geithner said. And I think we learned that, and 

we have learned a few bits and pieces on the IDI 

plan rule. 

One point about the IDI plan rule and 

how it intersects with the Title I rule, which is 

I would urge you to think about what is 

overlapping and how capabilities testing and 

other operational elements, including, by the 

way, operational and capabilities testing at the 

FDIC can be done in a way that aligns among the 

plans. 

And I would also urge you to think 

about -- right now the IDI rule has become an 

English test, not a math test. You're taking it 

back to being a math test, which is probably the 

right thing. 

The Title I plan is a math test. But 

to the extent you're asking for one series or a 

set of financial projections in the Title I and 

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yet another series in the Title II, to the extent 

that those can be aligned and made so that there's 

not, you know, overlapping requirements, 

particularly on regional banks who have much, you 

know, smaller staffing than G-SIBs, I hope that 

you all would consider that. 

And finally, and I realize I don't 

have a question, but feel free to push back on 

any of my comments, on the corporate governance 

guidance that you have thankfully, and we thank 

you for that, pushed back the comment period 

because there are a lot of other things in the 

mix at the moment, the OCC and the Fed have come 

up with really wise ways of looking at this. And 

I think your intent was to align to them. 

But I think you'll see when our 

comment letters come in that there is a lot of 

places in which there are variants. It's the end 

of a long day so I'm not going to bore you with 

them. But I hope that you will keep an open mind 

on understanding, again, the more that these can 

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be aligned with each other the better it is as a 

policy matter. And I will stop there and invite 

your comments back. Apologies for not inventing 

a question. 

MS. FALLOON: Thank you. I will just 

say that it is important for the rulemakings to 

be complementary, for them to build upon each 

other. They don't have the same exact goal. And 

it's, I think, appropriate for the IDI rule to in 

some cases have more depth. It certainly covers 

a wider range of firms. 

And where the bank resolution must be 

undertaken by the FDIC, the standard is can we do 

it? Do we have options that we can execute on, 

which is different than, you know, is there a 

credible path, you know, under ordinary 

resolution machines? 

At the same time, there is overlap. 

And certainly for some firms, you know, the bank 

resolution is part of their Title I plan, and in 

those cases we do want to be cognizant. And, you 

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know, continuing to take on comments to try to 

make sure that we're doing this in a way that is 

thoughtful. Certainly, we don't want to be 

inconsistent, and we don't want to double burden. 

But we want to keep the different purposes of the 

two rules in mind. So we're trying to keep that 

balance and, you know, I appreciate your comments 

on that. 

MEMBER TAHYAR: And I think that's 

exactly right. When it is an FDIC resolution, 

the burden is solely on the FDIC to be running 

that whereas that's quite different from a 

Chapter 11 bankruptcy. 

But, I mean, it's very thoughtful to 

think, of course, they have different purposes. 

But not being inconsistent and not doubling the 

burden when in the line burden would work. 

Certainly different purposes in the two rules and 

certainly a very, very different -- I think a lot 

of people fail to appreciate that a Chapter 11 -

- not in this room, I'm sure, but a Chapter 11 

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bankruptcy is very different creature than an 

FDIC resolution. 

MS. MILLER: And our corporate 

governance regulations, you know, obviously we 

will keep an open mind and are looking forward to 

the comment letter. 

I would ask you to keep an open mind, 

too, since the OCC's and Fed's regulations were 

written certainly before three large banks 

failed, and we've learned a lot. 

MEMBER TAHYAR: That is definitely a fair point and lessons learned 

from the screen should be brought to bear. 

MR. BERNANKE: This question was 

partially asked before, but you didn't respond to 

it. I understand why the FDIC would be interested 

in insured and uninsured deposits. But, of 

course, banks have other runnable sources of 

liquidity. And my question is to what extent 

when you're evaluating the stability of deposits, 

to what extent do you take into account these 

other runnable liabilities and how does it affect 

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the way you think about liquidity requirements 

for the stable banks? 

MS. MILLER: I think that's me. Yeah, 

I mean, it's a holistic view. You know, and we 

obviously have LCR and, you know, NSFR 

regulations. But just from a supervisory 

perspective, we've been looking at -- and I would 

say about 10 years ago, we felt like the examiners 

really weren't focusing on the liability side of 

the balance sheet in taking a holistic view of 

that side. And I think we've done a better job 

but obviously not 100 percent there. 

And so we do. I mean, we have 

procedures where -- and it's part of our forwardlooking supervision changes that we made where 

most of the exam is an exception-based 

examination. But for concentrations, we don't 

have an exception-based. You will write up an 

analysis of concentrations that hit certain 

metrics on the asset side and the liability side. 

So to the extent that there are other 

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concentrations on the liability side, we would 

expect an analysis. And we've got four different 

factors for that. And, you know, that together 

should give you a picture of what the funding 

side looks like. 

I think one of the -- as a repeat 

recommendation in some of these reports is we 

have to challenge what some of those assumptions 

are and how some of those things move. 

Just with federal home loan bank 

borrowings, I mean, a lot of banks felt like they 

would be there, and things are changing. And, 

you know, the way that they are looking at their 

credit risk is changing. 

So, you know, we can't be static. And 

I feel like maybe we had been a little static. 

And getting back to the data issue that Sheila 

had asked about, another thing that we're 

thinking about is are we looking at the right 

just liquidity ratios? And we've been using the 

same on balance sheet liquidity, secondary 

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sources of liquidity. 

A secondary source of liquidity is not 

going to be there if it is loaded with unrealized 

losses in this environment. 

So getting examiners to think to 

change is something that it's not always easy. 

We have, you know, sort of embedded views and 

ways of doing things. But we're going to have to 

change, and we're going to have to change more 

frequently, I think, as things unfold. I hope 

that was helpful. 

CHAIR GRUENBERG: Dick? 

MEMBER HERRING: I had a question that 

reflects my lack of full understanding of the 

bank holding company requirements. But as I 

understood you, you want a clean bank holding 

company, which I understand very well from the GSIB arguments. But you want to apply it to 

regionals. And you want the long-term debt 

issued from the bank itself to the holding 

company and the holding company then interfaces 

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with the market. 

And I bear scars from 15 years of 

arguing for long-term debt requirements. And the 

usual argument made against is that these are 

just not large enough institutions to be able to 

go to market with long-term debt. I'm sure you've 

thought about it, but I didn't know to what extent 

you've weighted it in thinking about how to 

structure this. I like the idea. And I think it 

makes a lot of sense. But I also am puzzled about 

the SVB case where there clearly was no attempt 

to look at the holding company with the bank 

itself. 

MR. FELTON: Thank you. So first of 

all just in terms of actual market participation. 

The majority of the banks that would be covered 

by this proposal already have debt issued 

outside. So they are not as large players. 

MEMBER HERRING: Is it marketable 

debt? 

MR. FELTON: Yes, that's correct, 

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bonds, publicly traded bonds. These are 

generally the banks have fallen into Category 2, 

3 and 4 holding company categorizations. And not 

all of them, but as I mentioned, we think that 

the total requirement would be sort of roughly in 

the $250 billion range. And there is something 

like $180 billion already outstanding. So they 

are already sort of two-thirds almost threequarters of the way there. 

And then with regard to SVB, you know, 

it is always difficult to know what the 

counterfactual would have been. But we can be 

very certain that Ryan would have really liked to 

have several billion dollars outstanding that 

could have been used to absorb losses and really 

given him a lot of other options. 

MS. FALLOON: So just to add to that, 

you know, the pre-position requirement, the fact 

that it has to be at the bank is, you know, an 

important element. So if you're resolving SVB, 

the resources are there at the bank under an FDIA 

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resolution so to be clear about that. 

MEMBER HERRING: Yes, thank you. 

MS. FALLOON: That's a real important 

part of it for an FDIA resolution that we expect 

for these regional banks. 

CHAIR GRUENBERG: Don? 

MEMBER KOHN: Thanks, Marty. 

questions, one about your own staffing. 

 Three 

 So one 

of the points raised in these after action 

reports is the difficulty of FDIC and other 

regulators with FDIC staying staffed up. So do 

you guys have enough flexibility and recruiting 

to staff up? 

And you've outlined a number of really 

encouraging things that you will be doing on the 

supervisory side, but they all require more and 

more sophisticated people. So that's one about 

your own staffing. 

The second one on the deposit 

insurance, I don't understand the law, but in 

October of '08, we just had unlimited insurance. 

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I'm looking at Ben since he was making that 

decision alongside the whole board, on demand 

deposits, zero interest deposits, which I think 

would have covered Gary's payroll and similar 

things. 

So was that -- maybe this is a 

question for Marty. So was that consideration 

given to limiting the systemic risk thing to 

those deposits, which seemed to work in '08 to 

limit the things. And then was that one of the 

targeted proposals, you say business payment 

accounts and you say how hard it is to target 

that but if you do it by the characteristic of 

the account, that would be one thing. 

And the third argument, I am strongly 

supportive of the TLAC proposal. But the 

argument I have heard against it is once you start 

-- we haven't had -- unfortunately, we didn't 

have the experiment of bailing then. And some 

opposition to the TLAC is once you bail in -- in 

an idiosyncratic situation, no problem. But if 

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it's in the middle of stress, you're going to 

cause other kinds of runs, maybe on the sorts of 

things Ben was thinking about or at least you 

will close off the TLAC market for some time after 

that. So how do you counter that particular 

potential problem? 

MS. MILLER: So I'm a line person. So 

from my mouth to God's ears to the administrative 

people on staffing, you know, we -- it's our job. 

An examiner job is really hard. And there is a 

lot of accountability. So we are definitely 

working on making those jobs more attractive and 

appealing. But it is difficult. Like I said 

there is a lot of work that we need to do. 

One thing for sort of bean counters, 

if you will, that we have been trying to get 

across, like I said earlier, we have accounts of 

banks. Those banks are coming down and accounts 

we can all see that. Assets are going up. But 

within those banks or within the portfolio that 

I'm most concerned about, which is frankly, you 

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know, the teens and twenties, just like children, 

they can be the toughest institutions to deal 

with. They start building risk and at that point 

is when we really need to attack, you know, some 

of the issues that are occurring there. 

So, you know, understanding that not 

all banks are the same size-wise, complexity, 

geographically has been very, very helpful. And 

we've got some -- we can't really get into it in 

this type of venue, but some ways to make the job 

more attractive, but just know that it is a very, 

very difficult job. And it is a constant 

struggle. We really never solve the issue. 

MR. POGACH: With respect to 

transaction account guaranty program, I'm sure 

that there are people in this room that are better 

equipped than I am to answer what a regulatory -

- what our legal authority is to do the same 

program. 

My understanding is that was not 

something we could do following some of the 

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legislation after the last financial crisis. But 

other people in the room should confirm that for 

me. 

MS. BAKER: I think his question was, 

you're right, for any kind of across-the-board 

guaranty. I think his question was the systemic 

risk exception for those two banks, could you 

have limited it to just protecting uninsured 

deposits and transaction accounts, specifically 

legal authority to do that or were you forced to 

protect all uninsured? You are right. That's a 

lawyer question. 

MR. POGACH: Right, that's a lawyer 

question so I won't take that one. And as far as 

defining things along those terms, there is also 

a regulatory change or a legislative change 

following the removal of Reg Q so business 

accounts, transaction business accounts at that 

time were inherently non-interest bearing, but 

that's no longer the case. That doesn't mean 

that you could not have those same kinds of 

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accounts today, but it could present some 

difficulties in definitions. 

It also covered non-business 

accounts, the transaction account guaranty 

program, which isn't inherently problematic from 

the perspective of the report. But I think from 

the perspective of the report, everything that 

were really the characteristics of the accounts 

that most warrant additional coverage from the 

perspective of financial stability. And I don't 

think households trust accounts were necessarily 

high on that list. That doesn't mean they 

couldn't be incorporated for the perspective of 

whoever does the legislative rule writing to make 

it more practical. 

MR. FELTON: And I'll take your third 

question about the issuance. You know, 

potentially whether the window might close for 

some period during a more systemic crisis. 

So, you know, first of all these are 

long-term liabilities. We would expect that the 

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banks would be able to, you know -- we assume 

they would probably maintain, you know, some sort 

of buffer such that if they had -- if the market 

conditions were more or less favorable that they 

could, you know, perhaps wait a month or two to 

reissue their bonds. 

You know, it obviously depends on the 

facts and circumstances at the time. I do think 

it's somewhat relevant maybe that after Credit 

Suisse failed and the AT1 market came under a lot 

of criticism, we have already seen UBS issue new 

AT1s. So I think that the -- you know, ideally 

even if there is a big problem that things can 

rebound and the public will have confidence in 

the banking system again. 

CHAIR GRUENBERG: Frank? 

MEMBER LA SALLA: Thanks, Marty. Just 

for what it is worth, I think the direction of 

travel on the LTD is the right way to go. 

concur with what everybody said. 

Pardon my naiveté on the uninsured 

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deposits, but it's been a little bit of an eye 

opener for me today listening to it. And the 

question that I have is, would an LCR type or 

could an LCR type mechanism help because we 

really haven't brought it up. And I was just 

curious about whether it's even a consideration. 

MR. POGACH: Isn't that more of a 

supervisory question? 

MS. MILLER: Yeah. I think the 

problem with the LCR in this case was that the 

secondary sources of liquidity didn't hold, 

right? So, you know, you had the securities that 

were sort of under water and that was the issue. 

So, yeah, I'm not really sure. 

think from a supervisory perspective, the issue 

was they had too many uninsured and that started 

becoming a lightning rod. And I don't think at 

some point, you know, we were living at that 

evening and over the weekend it didn't matter how 

much liquidity you had. You know, if you had a 

high level of uninsured it was just a lightning 

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308 

rod. 

So maybe. I don't know. You know, 

we're certainly looking at that, and like I said, 

we're not done. I talked about supervisory 

issues. We're not done looking at our 

regulations in other areas. But, yeah, I think 

it's more about at least from a supervisory 

perspective really understanding the risks, and 

those levels were just simply too high. 

MEMBER LA SALLA: Yeah. Actually, if 

you think about it, deposits are a critical part 

of the business model. It's got to be factored 

into the economics, right? And I was thinking -

- and, again, I could be totally off the 

reservation on this one. On a prospective basis, 

is it worth the conversation? 

MS. MILLER: I think it is. And the 

LCR talks about, you know, the types of 

depositors and the types of deposits. And not 

all the companies that were -- you know, it goes 

down to, you know, who is a hedge fund and the 

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different types of companies. They weren't all 

covered. Maybe there is room there. But again, 

I think it goes down to basic risk management and 

understanding what's on the liability side of the 

balance sheet. 

You know, what we did learn from banks 

that were exposed, I mentioned that we got into 

this mode where we were monitoring institutions. 

And they were building up their cash. They were 

building up ways to offload some of those 

uninsured deposits. 

You know, there are services -- I am 

not recommending any service -- but ways to, you 

know, reduce their amount of uninsureds, and that 

seemed to reduce the pressure. But, again, I 

sort of -- LCR really wasn't -- it didn't really 

-- it wasn't binding in this case. 

CHAIR GRUENBERG: Gary? 

MEMBER COHN: I may be wrong because 

it's been six years, and I won't say thank 

goodness, but since I've done a stress test, but 

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thank goodness. 

But I think I believe, and you guys 

will correct me very quickly, in the highly 

stressed scenario, like, the rule is that all of 

your insured deposits stay in their good capital 

and all your uninsured deposits leave and they're 

not capital. So they sort of do that in essence. 

Like, I guess, I'm still --

MEMBER O'CONNOR: No, that's pretty 

close too, which is I am really -- it's surprising 

that like 90 percent concentration end and an LCR 

calculation worked for some of those 

institutions. There is something there to look 

further in. And similarly, I go back to the 

behavioral characteristics. 

Like you could -- I am really 

supportive of long-term debt issuance at these 

institutions. But it's not even fully clear that 

the type of depositors and the money there, it's 

not necessarily the case that they will stay. 

It's a different kind of participant in the 

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market. I think we should still do it, but there 

are so many things evolving that the assumptions 

are very different on behavioral characteristics. 

They may just not want to deal, right? Because 

you could ask the opposite question, too, why did 

anybody have that much money at one organization? 

That's an important question from a risk 

management of a company's perspective. 

MS. MILLER: To your point, there was 

some anecdotal information that even institutions 

that had -- excuse me, customers that had secured 

deposits, right? So they had -- securities 

pledged were fully covered. If they were dealing 

with money for somebody else, like for an escrow, 

they just didn't want to deal, even though our 

resolution people are great and, you know, things 

were smooth, they just didn't want to deal with 

that. So you had a lot of that behavior as well, 

which we wouldn't -- you know, secured deposits, 

people are arguing that they don't want to be 

even included in uninsureds, you know, which of 

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course they're still uninsureds. 

So yeah, I mean, I think we really do 

need to -- and we need to look at the 

characteristics and understand that they change, 

and they change more frequently than we were 

expecting. 

MEMBER COHN: And the other point I 

would make, and we haven't touched on it, 

although it was touched on earlier this morning, 

is we got to understand the power of this. I can 

move all of my deposits sitting right here, from 

every different bank I'm in. I'm in lots of 

banks. 

And you can go to, you know, sweep 

accounts, and I can send money to one aggregates, 

and they will move it to 40 different banks for 

me and get it on the insurance levels. And I can 

decide with one, probably two keystrokes, move 

it. 

And so when the old stress test 

assumes all these deposits stay, I'm not sure 

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that's as good an assumption as it was when I had 

to write a check or walk into a branch or wire 

money because the old adage of banking is, you 

know, just slow it down, and we'll forget to send 

those wires out tonight, and we'll work on it 

tomorrow. 

MEMBER O'CONNOR: Like, Gary, you 

know, you're totally on it. And I think it goes 

back to maybe collectively we are promising too 

much overnight liquidity to too many. And that's 

the piece that we need to collectively be 

thinking about, which is not the traditional 

approach. 

CHAIR GRUENBERG: Dick? 

MEMBER HERRING: The numerator of the 

LCR, which -- I'm sorry, the denominator, which 

is certainly appropriate. But I think we have to 

worry about the numerator as well because every 

government security, no matter whether it's held 

in a maturity account or available for sale 

account or just an investment account is counted 

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as high liquid assets with 100 percent. And that 

clearly wasn't true in practice. 

If you've got an underwater held to 

maturity asset, you are going to have trouble 

liquidating it without incurring a loss unless 

you have a friendly Fed that will discount it at 

face value. But we can't always count on that 

being true. 

MEMBER O'CONNOR: I'm not sure it's at 

100 percent. And I think the way I understand 

LCR is that you actually have to -- much like 

previous speakers talked about, the 

responsibility of moving large positions. 

So if you're liquefying in the 

marketplace, you have to look at market depth to 

determine how much liquidity value you can 

actually get. 

I think there is plenty of room for 

improvement, but it's not as I have to liquidate 

a trillion dollars, and I can do it all overnight. 

It's not like that at all. But that was -- go 

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back to my earlier comment of, I think we need to 

really look at the depth of the market and its 

ability to bear the sale of assets. 

MEMBER HERRING: That's certainly true 

for a G-SIB. It was probably a whole lot less 

relevant for the three banks in question. 

CHAIRMAN GRUENBERG: Jon? 

MR. CUNLIFFE: So in the UK we saw 

sight deposits, the most runnable sight, grow 

between the financial crisis and the start of 

interest rates going up. And the reason seems to 

be obvious that if you weren't getting very much 

on deposits at banks, you might as well keep it 

all in a sight deposit. That started -- it's 

quite large numbers. I think, sight deposits 

quadrupled in the period 2010 to 2022, something 

like that. 

What we are seeing now and because 

it's not -- I can't say if the money was short 

because they're not quite the same thing. What 

we're seeing now is the banks, when they're 

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offering higher rates when they're passing 

through the increase in bank rates, are roughly 

much more on term deposits when they pass through 

that 95 percent on term in the UK but only pass 

through about 50 percent of the rate increases on 

sight. 

So this question of terming out, which 

is another way to reduce the immediately runnable 

is partly to do with kind of the incentives the 

banks have. 

Are you seeing that here? I mean, I'm 

not suggesting that this is a problem that will 

solve itself. But as rates go up, you know, you 

may find some of this problem is the kink problem 

goes away because banks are able basically to 

look up deposits for longer by differentiating 

the returns they have. 

So I saw a little kink down at the end 

of this chart. But I don't know if that is 

related to this then. 

MS. MILLER: Yeah, I don't know about 

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317 

the chart. But I like the on sight. We don't 

use that term, but I get what you're saying. 

Yeah, thanks. Prior to this, I mean, 

we were seeing banks, including at least one that 

we supervise that eventually failed were totally 

trying to term out. 

You know, we saw that rates were 

rising and had a lot of checking accounts and had 

been trying to term out through the FHLB. And 

that was purposeful and actually had some pretty 

decent low priced FHLB that was sitting on its 

balance sheet when the bank failed as well 

engaged in a CD program to try to term it out. 

It's hard to do all of your accounts. 

But certainly they were making some headway. 

I would say now it's not like 

voluntary. We are seeing them have to term out 

some things and even just pay better rates. 

And so right now when you've got money 

market. You know, you can write checks off of 

money market accounts. You got treasurers that 

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are looking for overnight, you know, they can get 

5 percent Raymond James. The banks are having to 

pay that. So we are seeing really quite a squeeze 

in NIMs, non-interest margins, because of the 

cost to funds. 

It's delayed. We were talking a 

little bit about challenging assumptions, you 

know, things like decay rates and betas -- my 

friend would say beta shmeta -- when things 

happened. 

You know, so yes it's happening 

regardless of what this chart says, the cost of 

funds are up across the industry. The NIMs have 

been, you know, narrowing. And certainly unless 

you've got the most -- you know, there are some 

banks that still have the old -- you know, they're 

in a small town, and they've this very loyal base. 

But, like you said, this thing really has changed 

competition. 

MR. CUNLIFFE: Sight and checking. 

MS. MILLER: I got that after a 

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minute. 

MEMBER COHN: So I was just going to 

add to that. So this thing will actually provide 

you treasury rates. And treasury rates are, you 

know, 400 plus basis points over most bank rates 

today, which is a new phenomenon. 

Last time we had this treasury to bank 

deposit rate spread, none of us knew how to buy 

a treasury, me included, and I ran a bank. 

didn't know how to buy a treasury. Now I use my 

dad as an example, my 91-year-old dad can buy 

treasuries. You know, he's got a Fidelity 

account, and he can just sit and buy a treasury. 

So this device has allowed almost 

anyone to open an account that allows them to buy 

a liquid higher yield instrument versus the banks 

traditionally would put you in a CD, and there 

was a penalty to break the term, even if it was 

a 30-day, 60-day, 90-day, 120, 360-day, you would 

get more of the treasury rate but then there was 

a breakage clause. 

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320 

So there is a non-breakage clause way 

to do it. And, you're right, a lot of people 

will allow you to have a government money market 

fund and write a certain amount of checks against 

it during the month. 

So there is -- this thing has provided 

a lot more competition for the world today. And 

we've seen the trillion plus dollars move out of 

the bank deposits into money markets. 

CHAIR GRUENBERG: Anyone else? Jenny, 

anything? I think that brings us to the end of 

our agenda for today. I don't know how to thank 

all of you for your participation. You're a 

terrific group, and we learned a lot from you 

all. We really do. So the value of the 

conversation and the recommendations, money can't 

buy. And we're not trying to do that. 

I also really want to express our 

gratitude to the staff for putting together a 

thoughtful and thought-provoking agenda that I 

think really elicited some exceptional 

NEAL R. GROSS 

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conversation today. So thank you all. 

And I also want to thank our guest 

speakers who added so much to the conversation. 

This has been an eventful year for the banking 

industry. We've got a lot of lessons to learn. 

We are in the process, as this panel suggested, 

of implementing a lot of the lessons that I think 

will make a difference in terms of the safety and 

soundness and stability of the system. And it 

goes to supervision. It goes to regulation. It 

will go to resolution as well. So to be 

continued, if I may say. 

Next time around, we will come back, 

as I indicated, to G-SIB resolution and Title II 

and our work around that issue. Frank, I suspect 

we will come back to CCP resolution as well. 

And let me say we invite any of you 

who have any thoughts to share following up on 

this meeting, looking at any of the materials, 

any thoughts, any additional recommendations to 

make, we very much invite that. 

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And thank you again, and we look 

forward to seeing you next time. Thank you all. 

(Whereupon, the above-entitled matter 

went off the record at 4:13 p.m.) 

NEAL R. GROSS 

COURT REPORTERS AND TRANSCRIBERS 

1716 14th STREET, N.W., SUITE 200 

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com