The United States Federal Reserve has announced that it has put review underway of the supervision and regulation of Silicon Valley Bank after the bankruptcy.
after a closed door meeting this morning, the Fed has issued a release announcing that review, which is led by Vice President of Oversight, Michael S. Barr and whose conclusions will be announced before May 1.
“Exhaustive, transparent and fast”
“Events surrounding Silicon Valley Bank demand a thorough, transparent and rapid review by the Federal Reserve,” Fed Chairman Jerome H. Powell said in the statement.
Barr, for his part, added in the brief message that they need “have humility” in this process. “We need to carry out a careful and exhaustive review of how we supervise and regulate this company,” said Barr, who also urged draw lessons from experience.
The Federal Reserve faces a intensified scrutiny because of how SVB has been supervised so far and because of the possibility that in that supervision mission it did not identify problems that have led to the bankruptcy of the bank. Regulation of the entity fell to both the Washington Board of Governors and the Federal Reserve Bank in San Francisco. And in the spotlight are also the banking regulations that they relaxed in 2018under the mandate of Donald Trump, during which Congress (with the support of some Democrats) relaxed some control measures established by the Dodd-Frank law approved in 2010 after the last major banking crisis of 2008 and 2009.
In that relaxation, for example, rose from 50,000 million dollars to 250,000 million the threshold at which banks were considered to present too much risk to the system and therefore should be subject to more stringent controls. Silicon Valley Bank was one of the entities that lobbied for these changes. At the end of last year it had 209,000 million, managing to avoid the strictest controls.
Measures
In the hectic weekend since the collapse of the Californian bank on Friday, followed by that of Signature Bank in New York on Sunday, US authorities and regulators have intervened to try to prevent a general crisis that spreads throughout the sector. The Treasury, the Federal Deposit Insurance Corporation (FDIC) and the Fed announced that there were guaranteed all SVB deposits. In addition, the Fed has launched a new lending mechanism establishing a line of credit for US banks that need capital to respond to losses and possible massive demands for customer withdrawals.
This same Monday the president of the USA, Joe Biden, has assured that it is not a rescue, despite these interventions, and has sent a message trying to calm the citizens, affirming that his “banking system is safe“.
Impact of y on monetary policy
Related news
The events of the last few days have created doubts about the next monetary policy steps that the Fed will take at its next meeting next week. Although until last week it was estimated that the US central bank would continue with its policy of raising interest rates, especially after Powell suggested in Congress that to combat inflation they might have to make higher and faster increases than anticipated, now some analysts believe that it will have to stop dead, at least in this meeting in March.
The aggressive Fed policy with rateswith four increases of three-quarter points last year, before slowing to half a point in December and a quarter point in February, is one of the factors that have shaken entities such as SVB and Signature, which have seen their losses skyrocket. And the analysis of the impact of those increases can now make the Fed decide to move with more caution.