The Federal Reserve released a report Friday that splits the blame for the failure of Silicon Valley Bank among bank leaders who failed to adequately manage risks, Fed supervisors who didn't act aggressively enough, and a set of federal bank regulations that were loosened at the end of last decade.
The Fed's Vice Chair of Supervision Michael Barr also recommended Friday that some US rules need to change, as a result of the failure. They include tougher capital and liquidity standards for mid-sized banks, tougher executive compensation standards as well as changes to how the Fed tests for a lender's management of interest-rate risk.
The Fed "failed to take enough forceful action," Barr said in a letter released by the Fed, and the bank's failure "demonstrates that there are weaknesses in regulation and supervision that must be addressed," suggesting that rules implemented in 2019 that lessened regulations on banks with $100 billion or more in assets will be revisited.
The March 10 seizure of the California institution triggered panic across the banking system that is still unfolding seven weeks later. Two other banks have gone down, including New York's Signature Bank, and now San Francisco lender First Republic (FRC) is fighting for its survival after losing more than $100 billion in deposits during March. US officials are coordinating talks to save the regional bank, Reuters reported Friday.
The report also arrives ahead of another crucial week for the Fed with policymakers set to meet in Washington on Tuesday and Wednesday to decide on another possible interest rate increase. Fed Chair Jerome Powell will surely face questions at a Wednesday press conference about the findings in Friday’s report.
The review may prompt more bipartisan scrutiny of how the Fed handled the bank meltdown. Both Democrats and Republicans on Capitol Hill have been deeply critical of how the central bank responded to the crisis.
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