The turmoil in the banking system stems from mismanagement by Silicon Valley Bank (SVB), aggravated by a dose of frenzy on social media, which spread fear and prompted a rapid drop in deposits.
This is stated in the report of the main regulator of the Federal Reserve (Fed). But these circumstances are only part of the tremor and not the main one, says Michael Barr, vice president of supervision at the US central bank, who was commissioned by President Joe Biden to analyze the fall of the SVB. The document blames the Federal Reserve itself above all, which is considering adopting much stronger controls.
Fed supervisors faltered because they failed to take decisive action to address Silicon Valley Bank's rampant problems before it collapsed last month.
Barr notes that they were unable to appreciate the scope of the vulnerabilities as the SVB, the tech industry's preferred entity, grew in size and complexity. When the inspectors detected the risks, they did not take sufficient measures to ensure that the bank resolved the setbacks quickly enough, insists the document, which describes "management failures" by the bank's managers when managing the risk of the types of interest.
The chaos has since subsided, but some banks still face serious problems. This is the case of the First Republic Bank, whose shares continue in free fall due to the flight of more than 102,000 million dollars, despite the rescue carried out by the eleven largest banks in the United States.
In the report, Barr called for revamping a series of rules that apply to banks with more than $100 billion in assets, as well as reassessing how regulators treat deposits above the $250,000 federal insurance limit. The SVB had a large number of such deposits, which they fled at full speed when they learned that concerns were mounting.
“As risks in the financial system continue to evolve, we need to continually assess our supervisory and regulatory framework, and be humble about our ability to assess and identify new and emerging risks,” Barr says.
Fed Chairman Jerome Powell welcomed the investigation and internal condemnation of the Fed's actions during the crisis.
