Turbulence in the banking system originates in the bad management of Silicon Valley Bank (SVB), aggravated by a dose of frenzy on social networks, which spread fear and led to a very rapid drop in deposits.
This is contained in the report of the main regulator of the Federal Reserve (Fed). But these circumstances are only part of the shake-up and not the main one, says Michael Barr, vice president for supervision of the central bank of the United States, who was tasked by President Joe Biden to analyze the fall of the SVB. In the document, the Federal Reserve itself is mainly responsible, which is considering adopting much stronger controls.
Fed supervisors failed because they did not take strong action to address growing problems at Silicon Valley Bank before it collapsed last month.
Barr points out that they were unable to appreciate the extent of the vulnerabilities as the SVB, the tech industry's favorite entity, grew in size and complexity. When the inspectors detected the risks, they did not take enough measures to ensure that the bank resolved the setbacks quickly enough, insists the document, which describes "manual errors" by the entity's managers in assessing the risk of the types of interest
The chaos has since been brought under control, but some banks are still facing serious problems. This is the case of First Republic Bank, whose shares continue to fall due to the flight of more than 102 billion dollars, despite the rescue made by the eleven largest banks in the United States.
In the report, Barr called for revamping a number of rules that apply to banks with more than $100 billion in assets, as well as reevaluating how regulators treat deposits above the federally insured limit of $250,000. The SVB had a large amount of those deposits, which fled at full speed when they knew that concerns were accumulating.
“As risks in the financial system continue to evolve, we needed to continually evaluate our oversight and regulatory framework, and be humble about our ability to assess and identify new and emerging risks,” says Barr.
Reserve Chairman Jerome Powell gave his go-ahead to the investigation and internal rebuke of the Fed's actions during the crisis.
