The US Federal Reserve called for greater banking oversight while admitting to its own failures in a widely-anticipated report published Friday into the collapse of Silicon Valley Bank (SVB) last month.
“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” Federal Reserve vice chair for supervision Michael Barr said in a statement accompanying the report.
Michael Barr said SVB’s management failed to adequately manage risk prior to the bank’s swift collapse, while Fed supervisors failed to take forceful enough action after they had identified issues at the Californmian high-tech lender.
SVB’s failure on March 10 after taking on too much interest-rate risk caused shock waves throughout the banking sector, and led to the failure of another regional US bank and the merger under pressure of Swiss investment banking giant Credit Suisse.
Concerted efforts by regulators on both sides of the Atlantic in the days that followed SVB’s collapse appear to have reduced the banking turmoil and lowered volatility in the financial markets.
The report found that the Fed “did not appreciate the seriousness of critical deficiencies in the firm’s governance, liquidity, and interest rate risk management,” as SVB’s assets more than doubled in size between 2019-2021 in the middle of a high-tech boom.
In response, Michael Barr said the Fed will look at strengthening banking supervision to ensure the Fed could more quickly identify risks and vulnerabilities.
The Fed will also look to strengthen the regulatory framework for banks, and consider toughening the rules around interest-rate risk, liquidity and capital requirements, and stress-testing.
The review will be far-reaching and look more broadly at the Fed’s liquidity and capital rules, a senior Fed official told reporters prior to the report’s release.
Fed chair Jerome Powell said in a statement that he welcomed Michael Barr’s “self-critical” report into SVB’s collapse.
“I agree with and support his recommendations to address our rules and supervisory practices, and I am confident they will lead to a stronger and more resilient banking system,” he said.
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