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US senators accuse the Federal Reserve of failures in the supervision of Silicon Valley Bank

2023-03-28T17:12:48.114Z


The central bank detected the problems in 2021, but failed to correct them The Silicon Valley Bank (SVB) autopsy is underway, but forensics disagree. Federal Reserve Vice President for Supervision Michael Barr says it was "a textbook case of mismanagement." The president of the United States, Joe Biden, said that the problems came from the legal reform approved in 2018 by Congress that softened the regulation. This Tuesday, in the Senate Banking commission, numerous sena


The Silicon Valley Bank (SVB) autopsy is underway, but forensics disagree.

Federal Reserve Vice President for Supervision Michael Barr says it was "a textbook case of mismanagement."

The president of the United States, Joe Biden, said that the problems came from the legal reform approved in 2018 by Congress that softened the regulation.

This Tuesday, in the Senate Banking commission, numerous senators pointed to the failures of the Federal Reserve in regulation and supervision as responsible for the largest bank failure since 2008.

They are all partly right.

Authorities have given a full account of the bank's fall on Capitol Hill.

The president of the Federal Deposit Insurance Corporation (FDIC), Martin Gruenberg, has gone back in his testimony to the bankruptcy of FTX and the previous liquidation of Silvergate Bank, in a session in which he has appeared together with Barr and an undersecretary of the Treasury, Nellie Liang.

Michael Barr has acknowledged that the Federal Reserve identified the problems in 2021 and that, in the supervisor's examination, the bank had very low marks.

But he has said that the entity's managers failed to take the corrective measures that the central bank demanded of them.

And that, although the supervisor was working with the entity, "the vulnerability of the bank did not become apparent until the unexpected massive withdrawal of funds on March 9."

The president of the commission, the Democrat Sherrod Brown

,

has pointed out that the bank became "too big too fast" and has pointed to how the legal reform of 2018, after pressure from interest groups in the sector, lowered some regulatory requirements and supervision of medium-sized banks.

“The crime scene does not start with the regulators before us.

Instead, we need to look inside the bank at the Trump-era bank managers and regulators who went on a mission again to give Wall Street everything it wanted,” he said.

Republican senators, however, have questioned Barr, who has acknowledged that the law reformed in 2018 left sufficient powers to the Federal Reserve to graduate the requirement of its supervision.

The Fed vice chairman has even admitted that he disagrees with the rules that the Fed introduced in 2019 with the support of its chairman, Jerome Powell, for being too soft on midsize banks.

He has also come to admit that it is very likely that a stress test that would have been carried out in 2022 would not have been very helpful, because his scenarios did not contemplate inflation and a rise in interest rates, but a recession.

The central bank has launched an internal investigation to see what has gone wrong, but Barr has admitted that the law left them room to

Democratic Senator Elizabeth Warren has raised the tone: "The executives of SVB and Signature took wild risks and must be held accountable for the explosion of their banks, but these collapses also represent a massive failure in the supervision of our country's banks", has said.

“In the aftermath of the 2008 crisis, Congress put in place tough banking rules that the big banks hated, and their CEOs lobbied hard to weaken those rules.

In the end, Congress gave in and things got ugly, very ugly.

Regulators destroyed dozens of safeguards meant to stop banks from making risky bets,” she added.

Warren has asked those appearing if they believe changes in regulation and supervision are necessary.

And although both disagree on where to put the accent when analyzing the causes of the fall of the SVB and Signature, the three agreed on the need to toughen regulation and supervision so that banking crises like this one do not happen again.

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Source: elparis

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