Tuesday, June 6, 2023

The US Federal Reserve admits it has failed to oversee Silicon Valley and control its direction

The US Federal Reserve (FED) admitted on Friday that although the Silicon Valley bank’s management “failed to manage the risks” the entity was running, the Jerome Powell-led institution has also failed in its role as financial supervisor, not to appreciate the extent of the bank’s vulnerabilities before the bank’s collapse.

These are two of the conclusions of the report on the collapse of Silicon Valley Bank that the Fed released this Friday, in which it acknowledges that supervisors have not taken “enough steps” to ensure that this bank solves its problems quickly when it has them. detected.

According to the report, Silicon Valley Bank (SVB) was “highly exposed” to risks from rising interest rates and slowing activity in the financial sector. In the last year and a half the Fed has progressively raised rates to levels not seen for several years and this has worsened the situation of the SVB until it went bankrupt.

“After the Silicon Valley bank’s fall, we need to strengthen the Federal Reserve’s oversight and regulation based on what we’ve learned,” Fed Vice Chairman for Oversight Michael S. Barr said in a statement provided by the Fed.

A “first step” in the “self-assessment” process.

“This review represents a first step in the self-assessment process” and a look at the circumstances under which the bank failed, “including the Fed’s role as supervisor and regulator,” he added.

For his part, the institution’s president, Jerome Powell, welcomed “this profound and self-critical report” and believed that its recommendations should be taken into account to apply them to the supervisor’s standards and practices.

“I am convinced these recommendations will lead to a stronger and more resilient banking system,” Powell said.

All this is caused by the collapse of stock prices and the US government’s intervention in the SVB on March 10th. At that moment, the financial sector’s alarm bells went off for fear of contagion to the rest of the economy, as happened in the 2008 crisis.

For days, stock markets ran red across the globe and fear gripped the financial markets. Some banks are still in trouble almost two months later, as was the case with First Republic Bank this week.

World Nation News Desk
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