Federal Reserve Chairman Jerome Powell should be very cautious when deciding to raise interest rates or he risks another bank crisis, Rep. John Garamendi (D-Calif. 8th District) told Cheddar News.
"The Federal Reserve has a specific part of the responsibility here with its very rapid increase in interest rates to fight inflation going forward," he said. "The chairman of the Federal Reserve better be very, very careful here."
"He could seriously set off another bank crisis," added Rep. Garamendi, one of the first lawmakers briefed on Silicon Valley Bank's collapse.
The federal government deployed emergency measures after two banks collapsed over the weekend, by guaranteeing all deposits at the two institutions: Silicon Valley Bank and Signature Bank.
Following the failures, the Justice Department and the Securities and Exchange Commission opened investigations into Silicon Valley Bank, the Wall Street Journal reported on Tuesday morning.
"The investigation surely should look at what happened. Why did the company collapse?" Garamendi said. "And then we must take appropriate legislative action to add whatever regulatory requirements might be necessary."
"All banks should be subject to very significant and thorough regulatory review," he continued. "The Dodd-Frank legislation was put in place so that all banks, large and small and huge, would all have very strict regulatory requirements."
The Dodd-Frank Act was partially repealed in 2018, exempting smaller and mid-sized banks from complying with stress tests. Republicans, including House Financial Services Committee Chair Patrick McHenry, have since argued against more regulations.
"I have confidence in our financial regulators and the protections already in place to ensure the safety and soundness of our financial system," Rep. McHenry (R-N.C. 10th District) said in a statement.
Instead, some members of the GOP blamed President Biden's fiscal policies for the collapse, along with rising interest rates and poor management.
However, Garamendi, who represents northern California, included the Federal Reserve as partly to blame for Silicon Valley Bank's collapse.
"The Federal Reserve and its very rapid increase in interest rates was one of the reasons why this bank failed," he stated. "The Fed needs to understand what it means when they rapidly raise interest rates."
The Federal Reserve is set to decide whether to raise interest rates again on March 22.