“After the failure of Silicon Valley, we need to strengthen the Fed’s oversight and regulatory functions based on what we’ve learned,” said Michael Barr, Federal Reserve Vice Chairman for Oversight. , in a press release accompanying the report.
Barr added that SVB management failed to adequately manage risks before the bank’s rapid collapse, while Federal Reserve supervisors failed to take strong enough action after spotting problems at the bank. within the bank specializing in the financing of technology companies.
The collapse of the bank on March 10, after taking on many interest rate risks, had repercussions that affected the entire banking sector, leading to the collapse of another regional bank American and the acquisition by the Swiss bank UBS of its competitor, Credit Suisse.
The concerted efforts of regulators on both sides of the Atlantic in the days following the SVB’s collapse appeared to have reduced banking turbulence and tempered financial market volatility.
The Fed’s report concluded that the Fed “did not seriously appreciate critical shortcomings in business management, liquidity and interest rate risk” during the 2019-2021 period, the size of assets of Silicon Valley banking doubling amid high-tech boom.
In this regard, Michael Barr said that the Fed would consider strengthening its banking supervision to ensure that it can more quickly identify risks and vulnerabilities.
It will also consider strengthening the regulatory framework for banks and tightening rules on interest rate risk, liquidity and capital requirements.
A senior Fed official told reporters ahead of the report’s release that the review would be wide-ranging and focus more broadly on the Reserve’s liquidity and capital rules.
Federal Reserve Chairman Jerome Powell said in a statement that he welcomed Barr’s report and his “self-criticism” of the SVB’s collapse.
Powell added: “I agree with and support his recommendations to address our supervisory rules and practices, and I am confident that they will lead to a stronger and more resilient banking system.”
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