Federal regulators are back on Capitol Hill to explain the banking crisis

During his meeting with House Republicans on Wednesday, Federal Reserve Chair Jerome Powell did not explicitly predict the central bank will only raise interest rates one more time this year, a person familiar with the matter told CNN.

Powell met with conservatives during a closed-door lunch with the Republican Study Committee.

Confusion ensued after that meeting when a report indicated Republican Study Chair Rep. Kevin Hern said Powell predicted one more rate hike this year.

However, it would be unusual for Powell to make any such prediction, especially given the vast uncertainty in the economy.

What Hern told reporters after the lunch was more nuanced. Hern said lawmakers asked Powell how many more interest rates should be expected. In response, Hern said, Powell referenced Fed projections that indicate officials anticipate one more rate hike. 

 That jives with what the source told CNN. During Wednesday’s meeting with Republicans, Powell referenced estimates issued last week by the Fed known as the Summary of Economic Projections, the person familiar with the matter said. 

The most closely-watched part of those projections, known as the dot plot, indicates Fed officials are penciling in approximately one more interest rate hike this year.

Powell cited the dot plot during his meeting with Republicans, but he did not outright predict one more interest rate hike, the person familiar with the matter told CNN.

A spokesperson for the Federal Reserve declined to comment.

Stocks ended Wednesday higher, buoyed by increasing optimism around the banking tumult and a surge in tech stocks.

Markets stayed steady as federal regulators continued to testify about the collapse of Silicon Valley Bank and Signature Bank, this time in front of the House Financial Services Committee.

Big bank stocks rose: Shares of JPMorgan Chase rose 0.2% and Wells Fargo gained 2.1%.

CNN’s Fear & Greed Index edged up to 40, indicating fear in the market.

Tech stocks continued their run, as investors grew less spooked by the turmoil in the banking sector. Shares of Apple and Amazon climbed roughly 2% and 3.1%, respectively.

Investors also parsed through fresh data showing a modest gain in pending home sales in February.

A final reading on US GDP for the fourth quarter of 2022, slated for release Thursday at 8:30 a.m. ET, will give investors more insight into the state of the economy.

The Dow rose about 324 points, or 1%.

The S&P 500 gained 1.4%.

The Nasdaq Composite advanced 1.8%.

Representative Maxine Waters during a House Financial Services Committee hearing in Washington, DC, today. 

Democratic Rep. Maxine Waters on Wednesday denounced allegations that Silicon Valley Bank failed earlier this month because of diversity initiatives.

“Silicon Valley Bank collapsed because of management failures and possible regulatory weaknesses – not because there was one Black man on the board,” Waters said. “We saw this same racist playbook during the 2008 financial crisis when some Republicans blamed the Community Reinvestment Act and loans made to people of color.”

Waters’ comments come after several politicians across the aisle seemed to point figures at SVB’s diversity initiatives for the bank’s failure earlier this month.

Republican Rep. Andy Biggs tweeted on March 13 that the bank’s “resources should have not been blown on woke/DEI [diversity, equity and inclusion] initiatives instead of actual financial management.”

Florida Gov. Ron DeSantis said in a Fox News appearance that same day: “This bank, they’re so concerned with DEI and politics and all kinds of stuff. I think that really diverted from them focusing on their core mission.”

SVB failed earlier this month after the bank revealed that it needs to raise capital, helping lead to a bank run and tumult across the financial sector.

According to the bank’s DEI report updated on January 2023, men comprised 54% of SVB’s global workforce. White employees made up 52% of SVB’s total workforce and 92% of its board.

People lineup outside of the Silicon Valley Bank headquarters in Santa Clara, California, on March 13.

The collapse of Silicon Valley Bank and Signature Bank has caused weeks of turmoil and fear in the US financial system. On Wednesday, the House Financial Services Committee held a hearing to figure out what exactly went wrong.

But according to Michael Barr, the Fed’s vice chair for supervision, there were multiple causes.

“I think that anytime you have a bank failure like this, bank management clearly failed, supervisors failed and our regulatory system failed,” said Barr at the hearing. “So we’re looking at all of that.”

Vice Chairman of the Federal Reserve for supervision Michael Barr during a House Financial Services Committee examining recent bank failures, on Capitol Hill in Washington, DC, today.

The Federal Reserve went without a supervisory chair for nine months between fall 2021 and summer 2022 — the same period when Silicon Valley Bank’s “business strategy went awry,” said Representative French Hill, a Republican from Arkansas on Wednesday.

The Fed’s current vice chair for supervision is Michael Barr, who was sworn into his role in July 2022 to replace Randal Quarles after he left the post in October 2021. Barr told The House Financial Services Committee on Wednesday that he is unsure what happened and who was in charge of supervision during that nine-month interim period.

“I apologize, I don’t know the technical answer to that question,” Barr said when asked who was supervising banks during that time.

President Biden failed to immediately nominate a replacement for Quarles and the Fed did not have a plan to replace him in the interim, wrote Wharton School Professor and Brookings Fellow Peter Conti-Brown shortly after Quarles’ term ended. Instead, the Fed’s vital supervisory and regulatory priorities were “managed by the Fed’s Board of Governors, through their committee structure,” Conti-Brown said.

Biden did eventually nominate former Fed governor and Treasury official Sarah Bloom Raskin for the role, but withdrew her name from consideration after she was caught in a controversy involving a Colorado financial technology company. Biden eventually nominated Barr in May 2022.

“It appears to me that we have a lack of supervisory urgency here,” said Hill, noting that it took a full 12 months between when trends in banking triggered concern in Federal Reserve examiners and when action was taken to correct them.

During that period without a chair of supervision, wrote Conti-Brown, financial regulation and supervision likely were not at the forefront of the Fed’s policymaking. 

“I think you raise an absolutely essential question. It’s one of the things we’re going to be asking in our review,” said Barr to Representative Hill. “Should the supervisors have been much more aggressive in the way that they responded to the risk that they noted? It’s something we’re going to take a good look at.”

The Federal Reserve headquarters are pictured on March 21 in Washington, DC. 

Michael Barr, vice chair for supervision at the Federal Reserve, doubled down on his comments from Tuesday that interest rate risk is a key focus for the central bank.

“Does the Fed board get a report from their economists saying what the impact of their rates will be on the economy, yes or no?” Republican Representative Blaine Luetkemeyer asked.

“We regularly discuss interest rate problems. Interest rate risk is an important part of supervision and a bread and butter issue,” Barr said.

A neighborhood of homes in Chino Hills, California on February 8.

In a sign the US housing market could be stabilizing, pending home sales grew for the third consecutive month in February, even as mortgage rates climbed higher last month.

According to data released Wednesday from the National Association of Realtors, the forward-looking indicator of home sales saw contract signings increase in February from January everywhere in the country except the West, where contracts declined.

The pending sales index, based on signed contracts to buy a home rather than the final sales that are accounted for in existing home sales, rose by 0.8% from January to February. This was a considerably smaller jump than the 8.1% surge in January from December.

“After nearly a year, the housing sector’s contraction is coming to an end,” said Lawrence Yun, NAR’s chief economist. “Existing-home sales, pending contracts and new-home construction pending contracts have turned the corner and climbed for the past three months.”

Compared to last year, when the market was much busier prior to mortgage rates spiking, pending sales in February were down 21.1%.

“The affordable U.S. regions — the Midwest and South — are leading the recovery,” Yun added. “Mortgage rates have improved in recent weeks after the federal government guaranteed the status of most mortgages amidst uncertainty in the financial market. While access to commercial mortgage loans could become increasingly difficult, residential mortgage loans are expected to be more readily available.”

The U.S. Capitol is seen through a doorway in the Russell Senate Office Building on March 15.

Senators introduced bipartisan legislation Wednesday that would require federal regulators to claw back compensation from executives whose banks fail.

The bill — co-sponsored by Democrats Elizabeth Warren and Catherine Cortez Masto, and Republicans Josh Hawley and Mike Braun — would give federal bank regulators the power to hold executives of failed banks responsible “for the costs those failures exact on the rest of the banking system and the economy,” the lawmakers said in a statement.

Under the legislation, the Federal Deposit Insurance Corporation would be required to retrieve “all or part” of the compensation those executives would have received in the five years leading up to a bank’s insolvency.

The bill would also ensure that investors in a bank holding company should bear the losses of the insured depository institution. 

“Americans are sick and tired of fat cat bankers paying themselves handsomely while risking other people’s hard earned money,” said Senator Warren.

Senator Hawley said the legislation “puts the executives’ own profits on the line, and that’s exactly as it should be.”

Traders work on the floor of the New York Stock Exchange on March 28.

Markets rose Wednesday morning ahead of a second day of testimony from banking regulators.

The same group who testified before the Senate on Tuesday will now answer questions from the House Financial Services Committee.

Markets had slipped Tuesday as investors digested revelations about the events that led to the collapse of Silicon Valley Bank and Signature Bank.

Shares of UBS rose 3.61% after the bank said Wednesday that former chief executive Sergio Ermotti will return to the helm to facilitate its takeover of Credit Suisse.

Lululemon stock surged about 12.9% after the athleisure retailer on Tuesday reported an earnings beat and cheery outlook for the year.

Meanwhile, investors are also anticipating fresh pending home sales data slated for release on Wednesday, which should give insight into the state of the housing market.

The Dow rose 233 points, or 0.72%.

The S&P 500 gained roughly 1%. 

The Nasdaq Composite advanced 1.2%.

Yoga mats are seen on display in a Lululemon Athletica store in Manhattan, New York, in December 2021.

Lululemon’s stock surged Wednesday after the company beat Wall Street forecasts.

The athleisure brand, known for its pricey leggings and yoga pants, reported better-than-expected earnings during its latest quarter and sales jumped 30% from a year ago. The company also raised its forecast for 2023.

Lululemon climbed 16% during pre-market trading.

The brand has been one of the strongest retail stocks in recent years, but investors have turned cautious. Customers have pulled back amid inflation and Lululemon’s inventory has swelled.

Investors were watching closely to see if demand for casual clothing would remain in a post-pandemic environment.

These results gave investors confidence that Lululemon’s strong run will continue in 2023.

It was a “clear indication of a brand that continues to resonate well with an expanding base of core consumers,” Oppenheimer analyst Brian Nagel said in a note to clients.