Silicon Valley Bank and Signature Bank could have avoided their fate had they been under the oversight of the Office of the Comptroller of the Currency, according to the CEO of PNC Financial Services Group Inc.
Speaking on a panel discussion on March 5, PNC Chairman and CEO William Demchak said the main lesson he learned from the bank failures in 2023 was that "regulation is uneven" between the various federal agencies. Signature's primary regulator was the Federal Deposit Insurance Corp., while Silicon Valley's primary regulator was the Federal Reserve.
Though management of those banks "was bad," and they took many risks, "regulators didn't do their job," Demchak said. "Bluntly, if that was an OCC bank, that never would've happened."
Addressing a recent example, Demchak discussed New York Community Bancorp Inc., which in the fourth quarter of 2023 upped its commercial real estate book reserves and built liquidity to prepare for increased regulation associated with crossing $100 billion in total assets. It was reported that discussions with the OCC spurred the actions.
New York Community came under OCC oversight when it switched to a national bank charter as it awaited approval of its acquisition of Flagstar Bancorp Inc., which closed in December 2022.
"It's not a coincidence that they merge into Flagstar, take the OCC charter and a new regulator's in looking at an old book and saying, 'Oh my God,'" Demchak said. "I think it's very telling."
Still, as a whole, the various federal agencies are good at identifying problems, Demchak said.
"When they smell smoke, they are correct," he said. "They can't necessarily distinguish between a one-alarm fire and a five-alarm fire, but when they say, 'Hey, what do you think of this? We're seeing that,' they're almost every time correct, in my experience."
Separately, Demchak also addressed the stigma surrounding the use of the Federal Reserve's discount window, saying he thinks there's more work to be done.
"The day you hit for anything other than a test, you effectively have told the world you failed," he said. "It shouldn't be a lender of last resort issue."
Banks need more options for "regular way liquidity," particularly as borrowing from the Federal Home Loan Banks, which is "much easier" than borrowing from the discount window, Demchak said, is threatened.
"The Fed should be playing that role in my view," Demchak said, speaking of the lack of regular liquidity options. "The Fed is not."
