• Tue. Jun 6th, 2023

The US Federal Reserve has called for greater banking oversight while admitting its own failings in a much-anticipated report released on Friday on the collapse of Silicon Valley Bank (SVB) last month.

The report was one of two released Friday by federal regulators highlighting recent problems with U.S. supervision of the banking sector.

The failure of SVB on March 10 after taking on too much interest rate risk sent shock waves throughout the banking industry, and led to the bankruptcy of New York-based Signature Bank and the merger under pressure from the Swiss investment banking giant Credit Suisse with regional rival UBS.

“After the failure of Silicon Valley Bank, we need to strengthen Federal Reserve supervision and regulation based on what we have learned,” wrote Federal Reserve Vice Chairman for Supervision Michael Barr. , in a press release accompanying the report.

SVB management failed to properly manage risk before the bank’s rapid collapse, while Fed supervisors ‘failed to take strong enough action’ after identifying problems at the high lender -California tech, he said.

Concerted efforts by regulators on both sides of the Atlantic in the days following SVB’s collapse appear to have eased banking turbulence and reduced financial market volatility.

– Stricter rules –

Barr’s report found that the Fed “failed to appreciate the seriousness of the critical shortcomings in corporate governance, liquidity, and interest rate risk management” as SVB’s assets have more than doubled between 2019 and 2021 amid a high-tech boom. .

The report also criticized a Trump-era law that rolled back some banking regulations.

“For Silicon Valley Bank, this has 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 will seek to strengthen banking supervision to ensure it can more quickly identify risks and vulnerabilities like those that have emerged at SVB.

The Fed will also seek to strengthen the regulatory framework for banks and will consider toughening rules on interest rate risk, liquidity and capital requirements, and stress testing.

The review will be in-depth and look more broadly at the Fed’s liquidity and capital rules, a senior Fed official told reporters ahead of the report’s release.

– ‘politicizing’ bank failure –

Lawmaker Patrick McHenry, who chairs the Republican-controlled House Financial Services Committee, praised aspects of Barr’s report, while criticizing his calls for greater regulation.

“While there are areas identified by Vice President Barr that we agree on – including increased attention to liquidity issues, particularly when a business is growing rapidly – most of the report seems be a vindication of longstanding Democrat priorities,” he said. said in a statement.

“Politicizing bank failures does not serve our economy, our financial system, or the American people well,” he said.

After Barr’s report was released, Fed Chairman Jerome Powell said he welcomed the “self-critical” look at SVB’s collapse.

“I agree with and support his recommendations regarding our supervisory rules and practices, and I am confident that they will lead to a stronger and more resilient banking system,” he said.

– The challenges of supervising Signature Bank –

The Federal Deposit Insurance Corporation (FDIC) on Friday released its own report on the bankruptcy of Signature Bank (SBNY), the other top U.S. regional bank that collapsed last month.

The New York-based bank was shut down by the US regulator on March 12, two days after SVB collapsed.

The FDIC report blamed bad decisions by management for SBNY’s collapse, while admitting its own failures to oversee the bank.

The report found that “in retrospect, the FDIC could have intensified oversight actions sooner” and that “review work products could have been faster and communication with SBNY’s board and management would have could have been more effective”.

The FDIC pointed to “resource challenges with review staff,” which had affected the speed and quality of its reviews of SBNY.

As a result, “some targeted reviews were not completed in a timely manner or at all,” according to the report.

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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)


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