The nation’s top financial regulator pledged on Monday that the Federal Reserve and other agencies would take whatever action they deemed necessary to protect depositors and the banking system. two weeks after the collapse of two major banks sparked financial turmoil in the United States and Europe.
Regulators “stand ready to use all of our tools for any size institution, as needed, to keep the system safe and running smoothly,” Fed vice chairman for oversight Michael Barr said in a statement. written testimony to be delivered Tuesday at a Senate Banking Committee hearing.
The Senate panel will hold the first formal congressional hearing on the failures of Silicon Valley Bank and the New York-based Signature Bank, and shortcomings in oversight and regulation, by the Fed and other agencies, who preceded them. Committee likely to interview Barr and other officials on the government’s responseincluding his emergency decision to insure all deposits at both banks, even though the vast majority exceeded the $250,000 limit on insured deposits.
The Fed has come under heavy criticism from groups advocating tougher financial regulation for failing to adequately supervise Silicon Valley Bank and prevent its collapse, and Barr will likely face tough questioning by members of both sides.
In his prepared testimony, Barr blamed Silicon Valley Bank management for his failure. But he also said he would ensure the Fed “fully considers any supervisory or regulatory failures” in a previously announced review of the bank’s collapse.
Barr said officials at the Federal Reserve Bank of San Francisco, which directly supervised Silicon Valley Bank, had sent several warnings to the bank’s management about the risks it was taking, including its substantial holdings of Treasuries. and other bonds that steadily lost value as interest rates. pink. Ultimately, when large depositors sought to withdraw over $40 billion in a single day, the bank was unable to disburse the funds. On March 10, the bank was seized by the Federal Deposit Insurance Corp.
As recently as mid-February 2023, Barr said in his prepared testimony, Fed staffers told the central bank’s board of governors that rising rates were threatening the finances of some banks and highlighted, in particular, the risk-taking at Silicon Valley Bank.
“But, as it turned out,” Barr says, “the extent of the bank’s vulnerability was not apparent until the unexpected bank run on March 9.”