The Federal Reserve’s banking supervisors failed to take adequate action to solve California tech lender Silicon Valley Bank’s (SVB) severe issues preceding its collapse in March, according to a report by the central bank released on Friday.
The Fed did not completely comprehend the scope of SVB’s susceptibility as it expanded “in size and complexity,” according to the review. When the Fed supervisors discovered risks, they failed to take adequate measures to compel the California bank to solve its problems promptly enough.
“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” said Vice Chair for Supervision Michael S. Barr in a press release accompanying the report.
WASHINGTON, DC – MARCH 29: Federal Reserve Board Vice Chair for Supervision Michael Barr testifies during a hearing held by the House Financial Services Committee March 29, 2023 in Washington, DC. The committee heard testimony on responses to the failures of Silicon Valley Bank and Signature Bank. (Photo by Win McNamee/Getty Images)
When SVB collapsed, it had “31 unaddressed safe and soundness supervisory warnings—triple the average number of peer banks,” according to the press release.
Regulators took over SVB on March 10, and its failure contributed to panic that spread and Signature Bank’s collapse on March 12. Regulators announced action to bail out all depositors at both institutions the same day, concluding, “The U.S. banking system remains resilient and on a solid foundation.”
Eleven of the largest lenders collaborated to save another similar regional bank, First Republic, by injecting it with $30 billion. However, its stock has faced three consecutive days of freefall, and it is now looking for another rescue. (RELATED: US Economic Growth Slows To Crawl)
“I welcome this thorough and self-critical report on Federal Reserve supervision from Vice Chair Barr,” said Fed Chair Jerome H. Powell in the press release. “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.”
This would reverse previous decisions made during Powell’s tenure to relax regulations for midsize banks, according to The Wall Street Journal.
“Our first area of focus will be to improve the speed, force, and agility of supervision,” wrote Barr in the report.
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