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WASHINGTON—United States Senator Bill Hagerty (R-TN), a member of the Senate Banking and Appropriations Committees, May 2, 2023 joined Balance of Power on BloombergTV to discuss the acquisition of First Republic Bank and the debt ceiling. 

Partial Transcript

Hagerty on the FDIC’s auction of First Republic Bank: “I think the supervisors have done a much better job [than they did with Silicon Valley Bank]. When the [Federal Deposit Insurance Corporation] stepped in, they actually executed an auction. This is what I had fully expected when [Silicon Valley Bank] went into regulatory supervision over the weekend, you know, several weeks ago. That auction failed. That put us into uncharted territory. We wound up with a systemic risk exemption that created a tremendous amount of risk across the entire banking system. Today we had happen what should have happened all along—that is that we had a bank open up on Monday with a new name on the door. The deal had been cut over the weekend, and now we have contained the risk. We’ve contained the contagion, and I think the markets are going to reflect that in a much more stable fashion right now.”

Hagerty on the contrast between the handling of First Republic Bank and Silicon Valley Bank: “I haven’t seen the bids, but I can tell you this: The fact is that [the FDIC] executed an auction this time. They didn’t allow it to fail. And when you and I talked about this several weeks ago, the fact that the FDIC allowed the auction to fail is something that I was extraordinarily critical of. And I criticized it loudly, broadly, and I think the FDIC has taken that to heart. I’m glad to see [FDIC Board of Directors] Chairman [Martin] Gruenberg really focus on getting a deal done, and I’m pleased that they have a deal done at this point. It’s a far better outcome than where we landed with SVB on that Monday with, again, a systemic risk exemption being called into play and a vast amount of uncertainty that was delivered into the marketplace as a result.”

Hagerty on the risk of more banks failing: “I think the risk is certainly on the horizon, particularly for those banks that wind up as SVB did [and] as First Republic [Bank] did with the mismatch in their maturities versus their low interest rate risk. So, that’s a challenge that we’ve got to be cognizant of, but what needs to happen is that supervisors need to step up. Supervisors, if they’re working from home, they need to get back to work. We need to not allow this to happen again. If you take a look at what happened with SVB back in [the] fall of last year, they gave SVB a glowing report in terms of how they’re managing their interest rate risk. We obviously know that was incorrect. These sorts of failures have to come to an end. The supervisors need to do their job. I’m glad to see that the FDIC, running an auction, did step up and do their job this past weekend, unlike the situation that occurred a number of weeks ago with SVB. And I’m going to continue to put pressure on every point of the system to make sure that the supervisors are stepping up and playing the role that we need them to play in order to keep our financial markets stable and sound.”

Hagerty on bringing the House debt ceiling bill to the Senate floor: “I think the answer’s actually very clear. [Speaker Kevin] McCarthy has passed a bill now. He sent it over to the Senate. We need to just put that bill on the floor of the Senate. We need to vote on it. We need to get on this immediately. Here we are talking about nominees and a lot of other things; I think that [Senate Majority Leader] Chuck Schumer is going to put at least some hearings in place to begin to discuss this. But we need to step this up and accelerate everything. Again, [Speaker] McCarthy has demonstrated leadership and put a bill on the table. We need to address it. I’m ready to put it to a vote right now.”

Hagerty on upcoming debt ceiling negotiations: “I think what Democrats have to do is wake up and realize that they need to come to the table. I hope that reality is beginning to settle in because if they just continue to demand a blank check, that’s not going to happen either. Either we go ahead and begin to address this out-of-control spending now, or the markets are going to do it for us. And I tell you, if we allow the markets to do it, the answer’s going to be very, very ugly for America […] I think what we need to do is roll our sleeves up and get to the table right now. If the X date is at the point it is that’s just been announced an hour ago, we need to take it with all the urgency that it suggests, and I’m ready to roll my sleeves up to sit down at the table. I think that we need to get all of our colleagues at the table right now to address this. We can do it in two weeks’ time if we will just put our nose to the grindstone and get it done. That’s where we need to be.”

Hagerty on the threat of the United States defaulting on its debt: “I think there are a lot of potential options. I don’t want to start laying options out right now and get ahead of the process. I want the process to commence post-haste. Again, we need to get to work on this rather than posturing and positioning and saying, ‘We’re not going to negotiate.’ This is what’s been coming from the White House. We need to sit down and negotiate and come to terms. I think Kevin McCarthy has demonstrated his willingness to do it. He’s demonstrated Republican resolve to put a bill on the table. The time now is to act.”

Hagerty on preventing future banks from collapsing: “My focus right now is on accountability of the supervisory process that is underway. There was a lot of shade cast in the report that I don’t think is deserved. What we need to do is make certain that our supervisors are doing exactly what they should be doing. This was a failure of supervision. As opposed to coming back and calling for more regulation—and I don’t think there’s any argument that different regulations or more regulations would’ve changed the outcome of SVB—what we need to do is make certain that everybody’s doing their job along the way, and that’s going to require greater accountability at the San Francisco [Federal Reserve] in this case. It’s going to require greater accountability at the FDIC. When you look at how the auction was run—again, I’m glad to see them execute an auction this past weekend—they did not do that with SVB. So, I think we’ve still got a lot to do in terms of looking at the failures that took place from a supervisory standpoint. That’s where my attention will be focused.”

Original source can be found here.