Denver In its reappraisal of the Silicon Valley Bank (SVB) bankruptcy, the US Federal Reserve (Fed) apparently dislikes an important detail. The SVB did not have a risk director for much of the past year. This was first reported by the Bloomberg news agency
The SVB, the house bank of the technology industry, was taken over by the authorities on Friday after a bank run, and they are now taking care of an orderly settlement. The Fed has launched an investigation into the surprise collapse that at times left startups, big tech firms and investors in dire financial straits. Authorities announced on Sunday that all deposits will be guaranteed. Actually, these are only insured in the USA up to an upper limit of 250,000 dollars.
In the processing, the focus has now come to the fact that risk manager Laura Izurieta officially left the bank in October, but has actually not been in the job since April. Kim Olson took over the post in December. She used to work for the Fed in New York as a bank supervisor and later also worked for Deutsche Bank, among others.
“The events surrounding Silicon Valley Bank require a thorough, transparent and timely investigation by the Federal Reserve,” Fed Chair Jerome Powell said Monday. The US Securities and Exchange Commission and the Justice Department are also involved.
The Fed, meanwhile, is considering tightening regulations for smaller banks after they were relaxed under then-US President Donald Trump.
For example, capital and liquidity requirements for smaller banks could increase again. Like the big banks, they could also be subjected to an annual stress test, as the Wall Street Journal reported on Tuesday evening. Hypothetical scenarios are used to examine how well the institutes could survive a recession.
Fed working on new rules
The new rules could affect banks with $100 billion to $250 billion in assets, it said. Since 2018, there have been particularly strict regulations and stress tests only for banks with assets of $250 billion or more. Under the government of Biden’s predecessor Donald Trump, smaller institutions were relieved and the limit for stricter regulation was raised from $50 billion to $250 billion in assets.
Now these easing could – at least in part – be reversed. Democratic senator and former presidential candidate Elizabeth Warren is already working on a corresponding bill.
The Fed was reviewing its regulatory framework even before last week’s bank failures. Now, however, important parts of it should be reconsidered, it said.
Fed Vice Michael Barr, who is responsible for regulatory issues, has warned in recent years that risks in the financial system are cumulative and can emanate from large as well as smaller banks.
It’s not enough “to focus regulation on just a handful of big banks and ignore risks elsewhere in the financial system,” he said in a op-ed for American Banker five years ago.
Barr has been in office since July 2022 and will also prepare a report for the Fed on whether there have been any oversight failures related to the SVB. It is to be presented on May 1, the Fed said.
The Fed could release new requirements in the coming months for banks to report their unrealized gains and losses on certain securities on their balance sheets. This would then also affect the capital ratios, which are an important measure of a bank’s robustness.
If these rules had already been in place, supervisors would probably have seen SVB’s problems coming sooner or persuaded the bank to raise capital sooner.
More: You can read all developments in the news blog.