Federal Plans To Improve Supervision “Speed, Force, And Agility”
The Fed wants to change following the banking crisis.
In comments posted on the Fed’s website Monday (May 15) and delivered to a House committee hearing Tuesday (May 16), Federal Reserve Board Vice Chair for Supervision Michael S. Barr said Silicon Valley Bank’s failure underscored the need to tighten supervision and regulation.
“To start, SVB’s failure confirms the importance of strong levels of bank capital,” Barr said, later adding: “Stronger capital will guard against the risks that we may not fully appreciate today and reduce the costs of bank failures.”
Barr also said the Fed should reconsider its size- and risk-based bank requirements, assess whether its capital requirements accurately gauge banks’ ability to absorb losses, and review how it supervises and regulates banks’ interest-rate risk management.
In his testimony, Barr suggested that the Federal Reserve review its supervision and regulation of liquidity risk, including better capturing the liquidity risk of uninsured depositors and extending standardized liquidity requirements to additional banks.
Barr said that Silicon Valley Bank did not compensate senior managers to mitigate risk, and the Fed should tighten its regulation of bank manager compensation.
“I also plan to improve the speed, force and agility of supervision,” Barr said in the testimony. “Supervisors did not fully appreciate the extent of the vulnerabilities as SVB grew in size and complexity, and when supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that SVB fixed those problems quickly enough.”
Barr testifies Tuesday before the House Financial Services Committee.
Barr will submit the April Fed evaluation of Silicon Valley Bank with his testimony.
Barr’s prepared testimony was uploaded the same day as former Silicon Valley Bank CEO Gregory W. Becker’s prepared Senate committee testimony.
“Examining the Failures of Silicon Valley Bank and Signature Bank,” a Senate Committee on Banking, Housing, and Urban Affairs hearing, will feature Becker on Tuesday.
