The failure of the SVB on March 10 sent shock waves through the banking sector
Washington:
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.
“Based on what we learned after the Silicon Valley Bank failure, we should strengthen the Federal Reserve’s supervision and regulation,” Michael Barr, the Federal Reserve’s vice chairman for supervision, said in a statement accompanying the report.
Michael Barr said SVB’s management failed to adequately manage risk before the bank’s rapid collapse, while Fed supervisors failed to take adequate action after identifying issues at the California high-tech lender.
The failure of SVB on 10 March after taking too much interest-rate risk sent shock waves throughout the banking sector, and led to the failure of another regional US bank and a merger under pressure from Swiss investment banking giant Credit Suisse.
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.
The report found that the Fed “did not appreciate the severity of significant deficiencies in the firm’s governance, liquidity and interest rate risk management,” as SVB assets more than doubled in size between 2019-2021 amid a high-tech boom. happened. ,
In response, Michael Barr said that the Fed would strengthen banking supervision to ensure that the Fed could more quickly identify risks and vulnerabilities.
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.
Fed Chair Jerome Powell said in a statement that he welcomed Michael Barr’s “self-critical” report into 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.
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