Review Of Bank Failure Leads Fed To Strengthen Supervision
After Silicon Valley Bank went out of business, the Federal Reserve wants to make its control and regulation stronger.
When the Fed released its review of bank supervision on Friday (April 28), Vice Chair for Supervision Michael S. Barr said so.
“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” Barr said in a Friday press release.
Barr’s examination found that the bank’s board and management failed to manage risks, according to the news statement.
The other three lessons have to do with what the Fed does.
The review found that Federal Reserve supervisors didn’t fully understand Silicon Valley Bank’s weaknesses, that they didn’t do enough to make sure the bank fixed those problems once they knew about them, and that the Board’s less assertive supervisory style made it harder for them to effectively watch over the bank.
Barr stated in the assessment that the Fed must increase “the speed, force and agility” of supervision, pay more attention to enterprises with distinctive circumstances like rapid growth or concentrated business models, and handle difficulties faster.
Barr wrote in the review that the Fed needs to raise the standard for how strong banks are and better oversee how they handle interest rate risk, liquidity risk, and capital requirements.
“I welcome this thorough and self-critical report on Federal Reserve supervision from Vice Chair Barr,” Federal Reserve Chair Jerome H. Powell said in the 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.”
In response to the report, the head of the House Financial Services Committee, Patrick McHenry (R-N.C.), said that the Federal Reserve’s report is “self-serving” and turns the bank failure into a political issue.
“While there are areas identified by Vice Chair Barr on which we agree — including enhancing attention to liquidity issues, especially when a firm is rapidly growing — the bulk of the report appears to be a justification of Democrats’ long-held priorities,” McHenry said in a Friday press release.
McHenry added that the committee will continue to use upcoming hearings and other tools “to get to the bottom of what happened.”
