The US Federal Reserve called for more banking oversight, acknowledging its failures in the collapse of Silicon Valley Bank (SVB) last month in a widely anticipated report published on Friday.
The report was one of two published Friday by federal regulators highlighting recent issues with US oversight of the banking sector.
The failure of SVB on 10 March after taking too much interest-rate risk sent shock waves throughout the banking sector, and the failure of New York-based Signature Bank and the merger with regional rival UBS came under pressure from Swiss investment banking giant Credit Suisse. Caused ,
“Based on what we learned after the Silicon Valley bank failure, we must strengthen the Federal Reserve’s supervision and regulation,” Federal Reserve Vice Chair for Supervision Michael Barr wrote in a statement accompanying the report.
SVB’s management failed to adequately manage risk before the bank’s rapid collapse, while Fed supervisors “failed to act forcefully enough” after identifying issues at the California high-tech lender.
In the days following the collapse of SVB, concerted efforts by regulators on both sides of the Atlantic reduced banking turmoil and reduced volatility in financial markets.
– strict rules –
Barr’s report found that the Fed “did not appreciate the seriousness of significant deficiencies in the firm’s governance, liquidity and interest rate risk management,” SVB’s assets more than doubled in size between 2019-2021 amid a high tech boom happened. ,
The report was also critical of Trump-era legislation that rolled back some banking regulation.
“For the Silicon Valley bank, this resulted in lower supervisory and regulatory requirements, including lower capital and liquidity requirements,” the report said, adding that higher supervisory and regulatory requirements would likely have strengthened the bank’s resilience.
Barr said the Fed would strengthen banking supervision to ensure that it can more quickly identify risks and vulnerabilities that may arise in SVBs.
The Fed will also consider strengthening the regulatory framework for banks, and tightening rules on interest rate risk, liquidity and capital requirements and stress-testing.
The review will be far-reaching and will look more broadly at the Fed’s liquidity and capital rules, a senior Fed official told reporters ahead of the report’s release.
– ‘Politicised’ bank failure –
Lawmaker Patrick McHenry, who chairs the Republican-controlled House Financial Services Committee, welcomed some aspects of Barr’s report while criticizing its calls for more regulation.
“While there are areas identified by Vice Chairman Barr on which we agree – including attention to liquidity issues, especially when a firm is growing rapidly – the bulk of the report reflects long-standing priorities of Democrats. There appears to be justification,” he said in a statement.
“Politicizing bank failures does not serve our economy, the financial system or the American people well,” he said.
Following the release of Barr’s report, Fed Chairman Jerome Powell said he welcomed a “self-critical” view on the collapse of the SVB.
“I agree with and support their recommendations to address our regulatory and supervisory practices, and I am confident that they will lead to a stronger and more resilient banking system,” he said.
– Signature Bank Supervision Challenges –
The Federal Deposit Insurance Corporation (FDIC) published its report on Friday about the failure of Signature Bank (SBNY), another high-profile regional US bank that collapsed last month.
The New York-based bank was shut down by the US regulator on March 12, two days after the collapse of SVB.
The FDIC report blamed SBNY’s collapse on poor decisions made by management, while acknowledging its own failures in overseeing the bank.
The report found that “in retrospect, the FDIC could have escalated supervisory actions sooner” and that “examination work products could have been more timely and communication with SBNY’s board and management more effective.”
The FDIC pointed to “resource challenges with exam staff” that had affected the timeliness and quality of SBNY’s exams.
As a result, “some targeted reviews were not completed on time or at all,” the report found.
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)