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US Regulators Admit Mistakes Ahead of Bank Failures

The US Federal Reserve called for more banking oversight after its own failures to oversee Silicon Valley Bank (SVB), leading to the bank’s collapse last month. Michael Barr, the Federal Reserve vice-chair for supervision, published a report in which he admitted that SVB management had failed to manage risks and Fed supervisors “failed” to act forcefully after identifying problems. He said that the Fed will strengthen its banking supervision so that it can identify vulnerabilities and risks like those at SVB. The review will also examine strengthening the regulatory framework of banks, including tightening rules on interest-rate risks, liquidity and capital requirements as well as stress testing.

The Federal Deposit Insurance Corporation also published a report on the failure of Signature Bank in November. The report concluded that the FDIC should have escalated supervision actions earlier and that examination products could have arrived sooner. The FDIC cited resource constraints with its examination staff as a factor that affected the quality and timeliness of its SBNY examinations. The FDIC report follows the Fed report on SVB, which called for increased banking oversight.

Patrick McHenry, a Republican legislator, criticized the Fed’s call for more regulation. He called it a “justification” of Democrats’ longstanding priorities. Jerome Powell, Fed chairman, welcomed the report’s “self-critical look” at SVB and backed Barr’s recommendations for addressing the rules and supervision practices.

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