The Federal Reserve has admitted to insufficient force and urgency in its oversight of Silicon Valley Bank (SVB), which collapsed last month in the largest US bank failure since 2008.
This conclusion was a key finding of the Fed’s investigation into the incident, which sparked global concerns about the state of the banking industry.
The review comes as First Republic, another US lender and the 14th largest bank in the country, faces ongoing difficulties, with regulators reportedly working on a potential rescue.
Michael Barr, the Federal Reserve’s Vice Chair for Supervision, who led the investigation, recommended tougher regulations in light of lessons learned from SVB’s collapse.
He cited insufficiently forceful action, low regulatory standards, a lack of urgency in supervision, and overlooked risks to the broader system from a mid-sized bank’s troubles as key issues. He called for strengthening the Federal Reserve’s supervision and regulation following the bank’s failure.
Federal Reserve Chairman Jerome Powell welcomed the comprehensive and self-critical report, supporting its recommendations to improve rules and supervisory practices. Powell expressed confidence that these changes would lead to a more robust and resilient banking system.
Catering to business customers, the banks encountered difficulties after the US central bank significantly raised interest rates last year, prompting customers to withdraw funds. SVB’s announcement that it needed to raise capital last month triggered panic, leading to billions of dollars being withdrawn overnight and necessitating regulatory intervention.