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Fed announces regulatory review of Silicon Valley Bank failure

The Federal Reserve announced Monday Fed Vice Chair for Supervision Michael Barr will lead a review of the supervision and regulation of Silicon Valley Bank in light of the bank's failure last week which rattled the financial system. The review will be publicly released by May 1.

"The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve," Fed Chair Jay Powell said in a statement.

"We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience," said Vice Chair Barr.

In his first speech after being confirmed as vice chair in 2022, Barr said the Fed would undertake a "holistic" review of its capital requirements for banks "to understand how they are supporting the resilience of the financial system, individually and in combination."

Federal Reserve Chair Jerome H. Powell testifies before a House Financial Services hearing on
Federal Reserve Chair Jerome H. Powell testifies before a House Financial Services hearing on "The Federal Reserve's Semi-Annual Monetary Policy Report" on Capitol Hill in Washington, U.S., March 8, 2023. REUTERS/Kevin Lamarque (Kevin Lamarque / reuters)

The Fed's review comes as some critics point fingers at a change in capital requirements in 2018-2019 that subjected smaller banks, including Silicon Valley Bank, to less onerous oversight.

Congress and the Trump administration approved some changes in 2018 with a bill that increased the size of banks deemed "systemically important" to $250 billion in assets from $50 billion.

The Federal Reserve, FDIC and OCC refined those rules in 2019. Banks below that asset size, which would have included Silicon Valley Bank, would be exempted from the Fed’s annual stress tests.

Some analysts say they expect the central bank could revamp liquidity rules in response to this failure.

Fed officials on Sunday were unwilling to say whether any liquidity or stress test requirements could change for smaller banks in the aftermath of Silicon Valley Bank’s failure, saying they would be focused on drawing appropriate lessons learned in the days, weeks and months to come.

The Fed also decided to exempt some banks with $100-$250 billion in assets from maintaining a ratio showing they had enough high-quality liquid assets to survive a crisis. A lack of liquidity turned out to be a fatal problem for Silicon Valley Bank, as deposits left the bank while the value of its assets declined as interest rates rose.

This is breaking news. More to come.

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