SVB collapse shows need for stronger financial ‘guardrails’, says SEC chair

The chair of the US Securities and Exchange Commission has called for a strengthening of “the guardrails of finance” in the wake of the collapse of Silicon Valley Bank, as he pushes to implement a swath of new rules in the face of industry pushback.

Gary Gensler on Wednesday said SVB’s dramatic implosion last week was “a reminder of the importance of these resiliency projects for everyday Americans”.

“Unfortunately, history tells us that events like those of this past week will occur from time to time,” he added ahead of an SEC vote on new proposals including cyber security risk management. “Thus, we should do our best to make them less frequent, strengthen the guardrails of finance for when they do occur, and protect the American public.”

Since his appointment as SEC chair two years ago, Gensler has proposed a string of sweeping new regulations in areas including Treasury securities, private equity and climate risk disclosures, in an effort to protect investors and improve market efficiency.

The volume and breadth of Gensler’s proposed measures have generated strong pushback from Wall Street, which argues the rules may have unintended consequences and that it has often been given too little time to give feedback on the proposals. The SEC has extended public comment periods for some measures.

Some lawmakers have expressed concerns about Gensler’s policy agenda, arguing he is reaching beyond his agency’s mandate. Republicans have pointed in particular to the SEC’s proposed climate rule, which would force public companies to disclose their direct greenhouse gas emissions.

However Gensler has argued he is merely implementing US securities laws and seeking to increase financial markets’ transparency and competitiveness for the benefit of investors.

His regulatory push comes in the wake of the 2022 Supreme Court West Virginia vs Environmental Protection Agency decision, which found that the EPA was not specifically authorised by Congress to curb carbon emissions, thus casting doubts on US regulators’ rulemaking powers more broadly. The SEC is now facing a case at the high court that challenges its internal enforcement procedures.

On Wednesday, Democratic senators Elizabeth Warren of Massachusetts and Connecticut’s Richard Blumenthal wrote to the SEC and the Department of Justice calling for them to conduct a “comprehensive investigation” of SVB’s senior executives and US officials “involved in the collapse”.

The DoJ has launched a probe into SVB’s fall, and the SEC is also investigating the bank’s collapse, according to media reports. Gensler on Sunday said that “without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws”.

The probes come amid a broader reckoning at the Federal Reserve over how it supervised SVB but also its rules governing banks more broadly.

US regulators have come under fire since SVB’s implosion, which prompted authorities to intervene over the weekend to ward off a more pronounced banking crisis. The Fed on Sunday announced the creation of a lending facility for banks to ensure their depositors’ needs would be fully met.

As part of its review, according to a person familiar with the matter, the Fed is considering how to bolster capital and liquidity requirements for banks with between $100bn and $250bn in assets — a subset of banks, including SVB, that was given lighter regulatory oversight during the Trump administration.

The stress tests the Fed imposes on lenders to test their capacity to weather adverse shocks could also be made more stringent, the person said, alongside other rules.

The review, which the Fed announced on Monday, will be published by May 1.

“The SEC has a robust regulatory agenda to ensure that the capital markets, including the shadow banking system in particular, are properly and fully regulated to protect the public,” said Dennis Kelleher, co-founder of Better Markets, a non-profit investor advocacy group. “What we need is the regulators and supervisors at the Federal Reserve and elsewhere to be as committed to aggressive and robust regulation of financial institutions in the United States as the SEC is.”