Federal Reserve Chairman Jerome Powell.
The Fed will investigate its oversight of Silicon Valley Bank, Chairman Jerome Powell said Monday.
“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve.”
SVB became the biggest bank failure since 2008 after regulators closed it Friday.
The Federal Reserve announced Monday that it will launch an investigation into its own supervision of Silicon Valley Bank, which collapsed on Friday.
Vice Chair for Supervision Michael Barr will lead the probe, the central bank said in a statement.
“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” said Barr.
On Friday, regulators shut down SVB and put it under FDIC control after a bank run triggered by losses from its sale of $21 billion in bond investments, which were hit by Fed rate hikes over the last year.
With roughly $209 billion in assets at the end of 2022, it marks the largest bank failure in the US since the financial crisis and the second largest of all time after Washington Mutual in 2008.
“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve,” Chairman Jerome Powell said in the statement.
Despite the Fed’s action on Sunday with the Treasury Department and FDIC to backstop SVB deposits beyond the typical $250,000 limit, some commentators have said the Fed lost credibility as a regulatory body over the last week.
But regional banks sought — and lawmakers provided — less stringent regulatory oversight by the Fed. In 2018, President Donald Trump signed a partial rollback of the 2010 Dodd-Frank laws enacted after the financial crisis.
Tim Gramatovich, chief investment officer at Gateway Capital, told Insider that even though the Fed has been raising interest rates for a year, it was as if a higher-interest-rate landscape came as a surprise for SVB.
“For a $200 billion bank to have no interest rate risk controls is staggering,” he said. “And of course the regulators and rating agencies are allegedly engaged here too. Doing what, we aren’t sure.”
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Source:: Business Insider