Raphael Stevens

Back-to-back congressional hearings on the failures of Silicon Valley Bank and Signature Bank next week will bring “a great deal of certainty and confidence to the market,” said House Financial Services Committee Chairman Patrick McHenry.
Committee Democrats are pushing for more oversight of banks through legislation, while Republicans lay the blame for the institutions’ collapse on regulators.
Sen. Sherrod Brown, an Ohio Democrat and chairman of the Senate Banking Committee, said banking lobbyists should not press to loosen oversight during the banking crisis.

Rep. Patrick McHenry (R-NC) and Chairman of the House Financial Service Committee Maxine Waters (D-CA) listen as David Marcus, CEO of Facebook’s Calibra, testifies on “Examining Facebook’s Proposed Cryptocurrency and Its Impact on Consumers, Investors, and the American Financial System” on Capitol Hill in Washington, U.S., July 17, 2019.
Joshua Roberts | Reuters

WASHINGTON — A bipartisan group of lawmakers overseeing the recent turmoil in the banking sector said Wednesday that they aim to increase Americans’ confidence in the banking industry after Silicon Valley Bank and Signature Bank collapsed over the last two weeks.
The two House and Senate committees that oversee banking have announced back-to-back hearings next week to examine regulatory lapses that missed signs the banks were in trouble. Federal Deposit Insurance Corp. Chairman Martin Gruenberg, Federal Reserve Vice Chair for Supervision Michael Barr and Treasury Undersecretary for Domestic Finance Nellie Liang are scheduled to testify at both hearings.

The high-profile hearings come as lawmakers try to understand what caused the two institutions to fold, and as many Democrats float legislation to bolster safeguards for the financial system. Regulators and lawmakers are also trying to contain further damage to the economy and reinforce confidence in the banking system.
“My hope is that this first hearing, we can actually get a lot of the information out and establish [the facts],” Rep. Patrick McHenry, a North Carolina Republican and chairman of House Financial Services Committee, said during a summit of the American Bankers Association. “I think this will bring a great deal of certainty and confidence to the market.”
Last week, the Fed appointed Barr to lead a review of the SVB failure. McHenry said he welcomed the probe and “the other views of financial regulators, as well.”
The Republican said Congress has a “very important role to play” in reviewing how the banks failed. But he stopped short of calling for legislation to prevent future collapses.
McHenry said he wanted to ensure the push for legislation matches “the realities of the situation.”

Sen. Tim Scott, a South Carolina Republican and ranking member of the Senate Banking Committee, also said writing new laws should take a back seat at the hearings to investigating what happened.
“Unfortunately, in Washington, that’s often what occurs, that those on the committee on the left will talk about Dodd-Frank and the reforms that were done in 2018,” he told the bankers’ group. He was referring to calls in Congress to unwind some of the provisions in the 2018 law that weakened regulatory powers in the landmark 2010 Dodd-Frank law.
“Nothing could be a clearer red herring than that,” he added.
Former SVB CEO Greg Becker lobbied lawmakers for certain exclusions from Dodd-Frank. But Scott said regulators already had the authority they needed to safeguard the banking system and failed to do so.
He also said bank executives had a responsibility to adjust their strategies as the Fed embarked on an aggressive interest rate hiking cycle to stem inflation.
McHenry also questioned the value of adding new regulatory authority or laws to govern the financial sector.
“It’s important to note that we can’t regulate competence,” McHenry said. “Management of institutions need to be competent, boards of directors need to be competent. We can’t legislate that either in the financial sector or among financial institutions management, nor with the regulators.”
Sen. Sherrod Brown, an Ohio Democrat and chairman of Senate Banking Committee, compared the SVB collapse to the devastating train crash in East Palestine, Ohio. He said the disaster in his state and the bank failures stemmed in part from companies pushing for fewer regulations and putting less effort into their own safeguards.
“They have one thing in common: corporate lobbyists pushed for weaker rules, less oversight,” he told the ABA in opening remarks. “Companies cut costs, failed to invest in safety – or perhaps in the case of SVB, were too incompetent to realize they too should care about safety.”
Brown, who said the congressional hearings can remain “mostly” bipartisan, warned banking lobbyists against using the crisis as a chance to lobby Congress for weaker oversight. He said “we continue to pay the price” when policymakers allow weaker regulations.

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Rep. Maxine Waters, ranking member of the House Financial Services Committee, told the ABA that Congress will have to “take a deep dive” into what took place at Silicon Valley Bank. The California Democrat, who has called for legislation to strengthen congressional authority over clawbacks for bank executives, said she is taking a close look at the high rate of uninsured deposits at SVB.
At the time of its failure, 94% of the bank’s deposits sat above the FDIC’s $250,000 insurance limit.
“And of course, I’m looking to see whether or not all of the oversight agencies … really did miss the opportunity to see what was happening and to know what was going on with the balance sheet and to be able to correct things before they got to the point of collapse,” Waters said.
She added that the financial regulators’ quick decision to close SVB and secure customers’ deposits demonstrated the Biden administration’s competence.
“The way that the FDIC, the Treasury, president, they way that they handled this should be a message to everybody that your government is at work and can solve problems — serious problems — if they are working together,” she said.

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Jack Dorsey, chief executive officer of Square Inc., second right, tours the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Thursday, Nov. 19, 2015.
Yana Paskova | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Block — Shares shed nearly 3%, after losing nearly 15% in the prior trading session when short seller Hindenburg Research alleged that Block facilitates fraud. Atlantic Equities downgraded the stock to hold on Friday, citing the lack of clarity on the payment company’s Cash App after Hindenburg’s short position.

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GameStop — The famed meme stock gained 2.5% in midday trading. The stock has been active since it reported its first profitable quarter in two years earlier this week.
Deutsche Bank — The German lender’s U.S.-listed shares slid 5%, bouncing off its lows. The bank stock had been down about 14% after the bank’s credit default swaps jumped without an apparent catalyst. JPMorgan defended Deutsche Bank Friday, saying investors should focus on the European bank’s “solid” fundamentals.
Regeneron — Regeneron gained 2.2% after Jefferies upgraded the pharmaceutical stock to a buy from hold rating and said its Dupixent drug, in development with Sanofi, could serve as the next big catalyst for the company.
Wells Fargo and JPMorgan — Shares of commercial bank giants were lower in midday trading, with Wells Fargo pulling back 2.3% while JPMorgan fell 2.2%. Both stocks have been under pressure in line with broader financial sector turmoil this month.
Incyte — The pharmaceutical stock fell about 4% after Incyte announced that the Food and Drug Administration had informed the company that the regulator would not approve an application for a new blood cancer drug tablet in its current form.

Activision Blizzard and Microsoft — Shares jumped 5% after the U.K. Competiton and Markets Authority dropped some of its concerns with the potential purchase of the company by Microsoft. Microsoft shares were up 0.2%.
— CNBC’s Alexander Harring, Yun Li, Jesse Pound, Michelle Fox and Samantha Subin contributed to this report.

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China would “strongly oppose” a forced sale of TikTok from its Beijing-based parent ByteDance, Ministry of Commerce spokesperson Shu Jueting said Thursday.
This comes after TikTok’s CEO Shou Zi Chew was grilled by U.S. lawmakers in an intense five-plus hour hearing in Congress on Thursday over concerns of the app’s links to China.
“At the end of the day, it was clear from the testimony that Mr. Chew reports to the CEO of ByteDance. ByteDance controls TikTok,” said Cameron Kelly, visiting fellow at Brookings Institution, on CNBC’s “Squawk Box Asia” on Friday.

China and U.S. flags are seen near a TikTok logo in this illustration picture taken July 16, 2020.
Florence Lo | Reuters

BEIJING — China says it would “strongly oppose” a forced sale of TikTok, making clear the government’s involvement with the social media giant that’s trying hard to distance itself from Beijing authorities.
The Ministry of Commerce said Thursday that a sale or spinoff of TikTok from its Beijing-based parent ByteDance is subject to Chinese law on tech exports — which requires licenses for the export of certain technology based on national security concerns. ByteDance also owns Douyin, the Chinese version of TikTok that’s popular in the country.

“The Chinese government would make a decision in accordance with law,” said spokesperson Shu Jueting in Chinese, translated by CNBC.
Shu was speaking at the ministry’s weekly press conference, hours ahead of TikTok CEO Shou Zi Chew’s testimony before a U.S. House of Representatives committee.
Lawmakers questioned Chew for more than five hours, and wanted clarity on TikTok’s ability to operate independently of Chinese influences on its parent.
ByteDance did not immediately respond to a request for comment on the Chinese Commerce Ministry’s remarks.

The questioning did not appear to relieve U.S. lawmakers.

“At the end of the day, it was clear from the testimony that Mr. Chew reports to the CEO of ByteDance. ByteDance controls TikTok,” Cameron Kelly, visiting fellow at Brookings Institution, told CNBC’s “Squawk Box Asia” Friday. Kelly used to be a general counsel at the U.S. Department of Commerce from 2009 to 2013.
Kelly said the evidence that ByteDance has legal control of TikTok increases U.S. lawmakers’ doubts over how well the app can demonstrate its independence through restructuring.
TikTok has a “Project Texas” plan to store American user data on U.S. soil — in a bid to show the company’s claims that mainland Chinese authorities have no access to them.

Beijing … is now double-daring Congress and the Administration to ‘make my day.’

Daniel Russel
Asia Society Policy Institute

“I don’t think a shutdown a ban or a complete divestiture [of TikTok] is needed. But I do think you have to separate that legal control,” said Kelly, noting that could be done through a trust structure. 
But the commerce ministry’s claim of control over a TikTok sale or spinoff indicates Beijing wants to be involved.
“The Chinese government’s public declaration that it would block the sale of TikTok in the U.S. has little to do with protection of Chinese algorithms and technology and a lot to do with giving Washington a taste of its own medicine,” Daniel Russel, vice president for international security and diplomacy, Asia Society Policy Institute, said in a statement.
“Beijing, having heard [U.S. Commerce] Secretary Raymond’s lament that banning TikTok would infuriate voters under 35, is now double-daring Congress and the Administration to ‘make my day,'” Russel said. 

The U.S. has increased restrictions on the ability of American businesses and individuals to work with Chinese businesses on critical tech for high-end semiconductors.
When asked about the commerce ministry’s remarks Thursday, TikTok’s CEO said the app isn’t available in mainland China and is based in Los Angeles. But he said the company did use some of ByteDance’s Chinese employees’ expertise on “engineering projects.”

TikTok CEO Shou Zi Chew testifies before the House Energy and Commerce Committee in the Rayburn House Office Building on Capitol Hill on March 23, 2023 in Washington, DC.
Chip Somodevilla | Getty Images

Chew also told U.S. lawmakers that China-based employees at its parent company ByteDance may still have access to some U.S. data, but that new data will stop flowing once the firm completes its Project Texas plan.
Official Chinese comments have previously emphasized that China-based companies should comply with local laws and regulations when operating overseas.
It’s not immediately clear how China’s export control law, enacted in December 2020, might apply to TikTok.
Different types of exports are managed by different government organizations, “each of which has a separate regulatory system,” the EU Chamber of Commerce in China said in its latest position paper. It called for greater clarity on the roles of the different bodies involved with implementing the export control law.

What’s next for TikTok?

The U.S. and China have increasingly invoked national security as a reason to control tech.
“To be fair, there really are indeed genuine national security risks associated with [TikTok] — and that is one reason why a ban of the app from government phones and military phones makes sense,” said Glenn Gerstell, senior advisor at Center for Strategic and International Studies on CNBC’s “Street Signs Asia” Friday. Gerstell was general counsel of the National Security Agency from 2015 to 2020.
“As to the general public, I don’t see the strategic value in China understanding what the dance moves of a teenager in Minneapolis are. So the general public ban doesn’t make sense to me,” he said.
TikTok has more than 150 million users in the U.S. — or about half of the country’s population.
It’s unclear whether the U.S. will ultimately force ByteDance to sell TikTok or prohibit use of the app in the country. The wildly popular app is already banned from federal government devices.
“We see a 3-6 month period ahead for ByteDance and TikTok to work out a sale to a US tech player with a spin-off less likely and extremely complex to pull off,” Dan Ives, analyst at Wedbush Securities, said in a note.
“If ByteDance fights against this forced sale, TikTok will likely be banned in the US by late 2023.”
— CNBC’s Lauren Feiner contributed to this report.

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The German lender’s shares retreated for a third consecutive day and have now lost more than a fifth of their value so far this month.
The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, triggered contagion concern among investors, which was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday.

Deutsche Bank shares fell by more than 14% on Friday following a spike in credit default swaps Thursday night, as concerns about the stability of European banks persisted.
The German lender’s Frankfurt-listed shares retreated for a third consecutive day and have now lost more than a fifth of their value so far this month. Credit default swaps — a form of insurance for a company’s bondholders against its default — leapt to 173 basis points Thursday night from 142 basis points the previous day.

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The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, has triggered contagion concern among investors, which was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday.

A logo stands on display above the headquarters of Deutsche Bank AG at the Aurora Business Park in Moscow, Russia.
Andrey Rudakov | Bloomberg | Getty Images

Swiss and global regulators and central banks had hoped that the brokering of Credit Suisse’s sale to its domestic rival would help calm the markets, but investors clearly remain unconvinced that the deal will be enough to contain the stress in the banking sector.
Deutsche Bank’s additional tier-one (AT1) bonds — an asset class that hit the headlines this week after the controversial write-down of Credit Suisse’s AT1s as part of its rescue deal — also sold off sharply.
Deutsche led broad declines for major European banking stocks on Friday, with German rival Commerzbank shedding 9%, while Credit Suisse, Societe Generale and UBS each fell by more than 7%. Barclays and BNP Paribas both dropped by more than 6%.
Deutsche Bank has reported 10 straight quarters of profit, after completing a multibillion euro restructure that began in 2019, with the aim of reducing costs and improving profitability. The lender recorded annual net income of 5 billion euros ($5.4 billion) in 2022, up 159% from the previous year.

Its CET1 ratio — a measure of bank solvency — came in at 13.4% at the end of 2022, while its liquidity coverage ratio was 142% and its net stable funding ratio stood at 119%. These figures would not indicate that there is any cause for concern about the bank’s solvency or liquidity position.
Deutsche Bank declined to comment.

Spillover risk

Financial regulators and governments have taken action in recent weeks to contain the risk of contagion from the problems exposed at individual lenders, and Moody’s said in a note Wednesday that they should “broadly succeed” in doing so.
“However, in an uncertain economic environment and with investor confidence remaining fragile, there is a risk that policymakers will be unable to curtail the current turmoil without longer-lasting and potentially severe repercussions within and beyond the banking sector,” the ratings agency’s credit strategy team said.
“Even before bank stress became evident, we had expected global credit conditions to continue to weaken in 2023 as a result of significantly higher interest rates and lower growth, including recessions in some countries.”
Moody’s suggested that, as central banks continue their efforts to reel in inflation, the longer that financial conditions remain tight, the greater the risk that “stresses spread beyond the banking sector, unleashing greater financial and economic damage.”

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A Deutsche Bank AG flag flies outside the company’s office on Wall Street in New York.
Mark Kauzlarich | Bloomberg | Getty Images

Check out the companies making headlines in premarket trading.
Deutsche Bank — The German lender’s shares tumbled 13% following a spike in credit default swaps — a form of insurance for a company’s bondholders against its default — raising concerns again over the health of the European banking industry.

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15 hours ago

Banks — Shares of U.S. banks fell as investors worried about the global banking system. First Republic Bank fell 3%, while Western Alliance, Zions Bancorporation and Fifth Third all lost more than 2%. Large banks weren’t immune from traders’ skittishness. JPMorgan Chase and Bank of America were down 2% as well.
Block — The payment company slid 1.9%, a day after losing nearly 15% when short seller Hindenburg Research alleged that Block facilitates fraud. On Friday, Block was downgraded to hold by Atlantic Equities on the lack of clarity on its Cash App after Hindenburg’s short position.
Coinbase — Investors put more pressure onto shares of the cryptocurrency exchange early Friday. The stock ticked down 2.3% in premarket trading, a day after the company disclosed it received a Wells notice from the Securities and Exchange Commission. The disclosure pushed the stock down more than 14% on Thursday. Year to date, the stock is still up 87% this year.
Energy stocks — Energy names fell in in the premarket as oil prices slid, with investors worried about potential oversupply. Marathon Oil and Devon Energy fell about 3%. Halliburton, Occidental Petroleum, Diamondback Energy and Exxon Mobil each lost about 2%.
Incyte — The pharmaceutical company saw its shares fall more than 3% after it issued a regulatory update on its ruxolitinib extended-release tablets. The FDA has said it can’t approve the company’s application in its present form.

Scholastic — Shares of the children’s book publisher fell 13% after the company reported a decline in revenue for its fiscal third quarter from the previous year and lowered its financial guidance for the full year. Scholastic now projects about 4% revenue growth for the year, compared to its previous outlook of between 8% and 10%.
 — CNBC’s Michelle Fox and Brian Evans contributed reporting.

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