The chairman of the United States Federal Reserve, Jerome Powell, has admitted that his regulator was caught off guard by the rapid collapse of Silicon Valley Bank (SVB), despite the fact that it was under their supervision.
In a news conference conducted shortly after the Federal Open Market Committee meeting on March 22, Powell stated that when the bank shut down on March 10, he knew there would be a need for an internal probe. “I mean, over that first weekend, we were all asking ourselves, ‘How did this happen?'”
On March 13, the Federal Reserve announced the initiation of an internal inquiry led by Vice Chairman Michael Barr into the events surrounding SVB’s demise and how it “managed and controlled” it “The company.
Barr will testify next week, according to Powell.
“We’re reviewing oversight and regulation,” Powell explained. “My only concern is that we figure out what went wrong here,” he added.
SVB’s demise has been connected to the Federal Reserve’s series of interest rate hikes aimed at curbing inflation. This is thought to have reduced SVB’s long-term bonds, which it had purchased at near-zero interest rates.
When SVB revealed that it had experienced an after-tax loss of $1.8 billion and was attempting to raise $2.25 billion. The market panicked, resulting in a $160 billion loss in market capitalization in 24 hours.
Despite SVB CEO Greg Becker’s advice to investors to “remain calm” and not “panic,” depositors began to request withdrawals from SVB in large numbers, resulting in a bank run.
On March 10, the United States Federal Deposit Insurance Commission (FDIC) intervened, seizing SVB to assist depositors in gaining access to their funds. The government quickly implemented emergency measures to guarantee all deposits at SVB. Powell’s latest comments on SVB came as the Federal Reserve Board issued a 25 basis point hike in interest rates.
The revelation has irritated US Senator Elizabeth Warren, who has now raised interest rates nine times in a row to 5%. “I think he’s a dangerous man to have in this role,” she stated on CNN on March 22. “In the contemporary economy, we’ve never seen hikes at this rate,” she said, adding that it risks “driving our economy into a recession.”
Warren believes Powell’s “weak” regulatory approach toward large banks in the United States over the last five years contributed to the recent banking crisis: “I predicted five years ago that the result of that kind of weakening would be that we see these banks load up on risk, build their short-term profits, give themselves ginormous bonuses and big salaries, and then some of those banks would explode.”
“That is exactly what has occurred under Jerome Powell’s leadership,” Warren noted.
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